Has Benetton Stopped Unraveling?
Remember those controversial ads from Italy's Benetton? There was the one with a nun and a priest kissing, and another showing a long-haired, gaunt, Christ-like AIDS sufferer on his deathbed. Those provocative images, with their pointed social messages, helped turn Benetton's colorful sweaters into a casualwear empire in the 1980s, creating one of the world's best-known brands.
But edgy publicity campaigns were no protection against a handful of savvy European rivals who began revolutionizing the apparel business in the 1990s. "We didn't take advantage of the quick transformation" of the industry, says Silvano Cassano, a former Fiat manager who on April 1 became the Benetton Group's chief executive.
That transformation saw the best retailers turn into cutting-edge users of digital technology. Benetton's competitors -- notably Spain's Zara and Sweden's Hennes & Mauritz -- have raised the bar for the entire industry. These retailers can beam new styles from the catwalk to the shop floor in less than a month -- and at bargain prices. Both deploy sophisticated technology to track which items are selling and which aren't, so winners can be speedily restocked and slow movers yanked from the racks. They've got the look down, too -- cool and minimal for the working women that are Zara's core customer, and over-the-top trendy for H&M's teen fans. And Benetton's look? Bland. "The Benetton brand is out of fashion. It lacks a clear position," says Sagra Maceira de Rosen, retail analyst at J.P. Morgan Chase & Co. in London.
Cassano is out to change that. The message he delivered in his first meeting with investors was short and powerful: Benetton is going to refocus on the apparel business, which encompasses the Sisley and Benetton brands. It's no secret that Benetton's core casualwear business has suffered neglect. In 1994, founder Luciano Benetton launched an ill-fated diversification into sports equipment, snapping up market leaders such as Prince (tennis rackets), Nordica and Kästle (ski equipment), Rollerblade (in-line skates), and Killer Loop (snowboards). But the centralized management of the diverse brands backfired. Quality deteriorated and market share fell. Last year, Benetton sold the equipment division, Sportsystem, booking $190 million in write-offs. The company posted its first annual loss -- $10.5 million, on revenues of $2.3 billion.
Investors clearly believe Cassano is up to the task of revitalizing Benetton's core business. The stock jumped 9.2% in the wake of his May 29 meeting with shareholders. The 46-year-old executive, whose résumé includes stints in New York and London as head of international sales and marketing for Hertz Corp., and three years at Fiat's financial and consumer-services divisions, accepted the job at Benetton only after assurances from the Benetton clan, which controls 70% of the company, that he'd have total freedom.
Cassano is wasting no time. He already has installed new management at the posh headquarters in Ponzano, near Venice. This fresh crew is toiling to recapture the pizzazz that catapulted a small sweater maker to a global fashion icon. "They call themselves 'United Colors of Benetton,' but you'd go in the shop and it was all neutrals and gray. They lost their whole handle on color," says Jamie Ross, creative director at Doneger Group in New York. Indeed, Ross and others note that a vibrant palette has been crucial to the revival of Gap Inc., which made its name with neutral basics such as khaki pants and white T-shirts. "We have to go back to being a friendly, warm, Latin, colorful brand," says Benetton's new boss.
Getting the fashion right is only the half of it. It's on the sales floor that Benetton's real weakness becomes clear. "They are manufacturers, not retailers. They need to make the move to more professional retail management," says Armando Branchini, president of Milan consultancy InterCorporate. The problem, says Branchini, is that 93% of Benetton's sales come from franchise operations. Zara and H&M, in contrast, own their shops, which makes it easier to install unified systems that track global sales electronically.
That's why Cassano is moving to wire some 5,000 Benetton stores from Naples to China to a cutting-edge yield-management-information system. He's also studying the business models of logistics champions such as Dell Computer Corp. and Wal-Mart Stores Inc. "We don't have to control the shops. We have to control the information," Cassano says. Benetton also has spent more than $640 million giving its 166 wholly owned megastores a facelift. "They're too lifeless and cold. They need more excitement," says Cassano.
Basic black may be boring in the stores. But when it comes to finances, Benetton's not hurting. Net profit jumped 29%, to $29 million, in the first quarter of this year, thanks largely to the disposal of the money-losing sports-equipment division. Sales of casual apparel rose 3.8% in the first quarter before adjusting for the impact of exchange-rate fluctuations -- exceeding analysts' expectations. Yet margins in the all-important clothing business have yet to show serious improvement.
And those shock ads? Don't expect to see a return to them under Cassano. A 1999 campaign that featured death-row inmates staring out from their prison cells sparked a public outcry in the U.S. and prompted retailer Sears, Roebuck & Co. to cancel a multimillion-dollar contract to sell Benetton's clothes in 800 of its department stores. The controversy led Luciano Benetton to fire his longtime friend, photographer Oliviero Toscani. Yet analysts complain that the company's current campaign, promoting racial harmony, isn't working either. Globalization has made the message almost trite. "The ad strategy doesn't say who Benetton is or what they are trying to sell," says Richard Perks, senior retail analyst at Mintel International Group Ltd., a London-based market researcher. Maybe the next ads will actually show Benetton clothes. Now that would be a shock.
By Gail Edmondson in Frankfurt
By Jack Ewing in Frankfurt and Christina Passariello in Paris