Diesel Is Smokin'

But can its provocative ads keep sales growth hot?

Picture this: an advertisement showing an edgy street scene of angry young demonstrators. The grainy black-and-white photo calls up images of anti-globalization clashes in capitals around the world. But instead of shouldering placards proclaiming "Death to the World Trade Organization," the protesters carry banners with whimsical slogans such as "Share Your Bathwater" and "Respect Your Mother." There's no corporate logo, just some fine print directing viewers to a Web site: Diesel.com.

Get it? If the answer is "no," you are probably not an ideal customer for Diesel's ultra-hip gear. And chances are you've overlooked one of the greatest marketing success stories in the fashion world. The 24-year-old Italian design house has broken just about every rule in the luxury-goods handbook, but it has succeeded wildly: Its award-winning ads have mocked the glamorous images used to market haute couture by, for instance, using obese models, all in the name of selling faded $189 jeans. "Their ads are like a secret code," says Wendy Liebmann, president of WSL Strategic Retail, a New York consultancy. "They say: `We have a different view of things, and we know people are sophisticated enough to get it."'

No question, more and more global consumers grasp Diesel's cryptic message. Based in Molvena, a country town in Northern Italy, Diesel spends a modest $40 million a year on marketing. Yet surveys show that it boasts a brand awareness that tops Armani or Jaguar. And while twentysomethings are the key audience for Diesel's ads, consider this contradiction: Even the doyen of haute couture, Karl Lagerfeld, is smitten with Diesel jeans.

Powered by the brand's iconic status and an aggressive retail expansion, Diesel's sales have been growing at double-digit rates, led by the U.S. The company estimates 2002 revenues at more than $600 million. The privately held retailer inaugurated 41 new stores in 2002, from Miami to Berlin, bringing its world total to 203. An additional 30 are set to open this year.

The man behind the Diesel fashion phenomenon is Renzo Rosso. Dressed in his trademark jeans and a Diesel pullover that resembles a gas station attendant's uniform, the 47-year-old Italian looks more like a middle-aged rocker than the head of a fashion empire. Not long after graduating from a textile manufacturing school in Padua in 1975, Rosso teamed up with local manufacturers to form the Genius Group, responsible for several successful brands including Replay and Diesel. In 1985, Rosso bought out the Diesel name and went solo, forging the worn-denim look that was not ultra-fashionable 15 years ago but is ubiquitous today. "I do much on instinct," says Rosso, a snowboarder and yoga practitioner who devours upwards of 150 magazines a month to keep his cool quotient up.

Diesel's provocative ads recall the shocker billboards in the 1980s and 1990s from Italy's Benetton, another Italian casual-wear maker from the Veneto region. Diesel managers say their use of humor and irony to sell a "rebel lifestyle" is fundamentally different from Benetton's effort to build brand recognition by using controversial social messages. Russo's aim is to connect with individualists who can appreciate his point of view and his products. Back in 1995, he was one of the first retailers to tap the Internet as a way to communicate with customers.

Like its founder, Diesel operates outside the mainstream. It has thrived by skirting mass-market media channels, relying instead on more targeted mediums, such as arty advertising catalogues and MTV. Diesel also has chosen to remain in this tiny hamlet rather than bolt for one of the style capitals. "We didn't move to Milan or go to fashion parties. There's something too fake about it," says Wilbert Das, Diesel's creative director.

Staying on the cutting edge of fashion isn't easy, though, especially in rural Molvena. From its unglamorous headquarters in a squat former clothing factory, Diesel churns out more than 1,500 new designs every six months, about half of them in denim. All denim production is outsourced to Italian manufacturers. Diesel's designers scour the globe for inspiration, collecting bagloads of toys, vintage clothing, books, and music. Back home, a 30-strong multicultural team of young designers (the average age is 25) pore over the contents and weave their impressions into the next collection. A trip to Mombasa inspired Diesel's 2000 "Chic Afrique" line, a hot seller. This year's collection blends Olympics-inspired themes with Indian accents: A pair of men's pants sports racing strips and patches in Hindu lettering.

To the untrained eye, Diesel's array of 800 different jean styles may turn into a denim blur. It takes a true blue-jeans connoisseur to tell apart the Hush, a hot-selling women's model with a low-slung waist and half-size pockets in the front, from the equally low-slung but pocketless Zink. The company pumps 7% of revenues into research and development, experimenting with fabric treatments to make stiff new denim look naturally worn and soft.

Despite his success, Rosso knows he's walking a tightrope. The bigger Diesel gets, the bigger the danger of its becoming--gasp--mainstream. "Once you lose the ability to lead in fashion, you can't justify the price point--of $180 for a pair of jeans," says Liebmann. To avoid blunting the brand's edginess, Rosso has slashed by nearly half the number of non-Diesel outlets for his products, such as department stores, while expanding his network of wholly owned stores. The strategy is designed to give Rosso greater control over merchandising and marketing. "I want to mask that we are multinational. Individuality is the sex appeal of the brand," he says.

Meanwhile, Diesel is creating new lines that can help spur growth without diluting the brand. There's Diesel Kids, a children's collection built on bright colors and modern lines, and 55DSL, a youth brand pitched at skaters and snowboarders. Another line, DieselStyleLab, focuses on experimental designs, using cutting-edge fabrics. Musing on Diesel's future, Rosso says: "We could explode our sales volume easily. But I don't want to inflate sales. Diesel is now a luxury brand." For Rosso, who has prospered by thumbing his nose at the fashion industry, Diesel's success is a bit, well, uncomfortable--like a stiff pair of brand-new jeans.

By Gail Edmondson in Molvena, Italy

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