BENETTON

BENETTON(COMPANY BACKGROUND

Benetton was founded as a single shop in Italy in 1965. Three years later the company expanded into France. Eventually, Benetton spread throughout Europe and by 1979 it was established in the United States. Benetton Group S.p.A is a unique global group that is a part of a larger organization known as the Edizione Holding Group. This is the holding company through which the Benetton family has ownership in many different businesses including hotels, publishing, and real estate. The Edizione Holding Group as well as the Benetton Group was founded by the Benetton family, which is made up of four siblings: Luciano, Chairman; Gilberto, Deputy Chairman and Joint Managing Director; Carlo, Director; and Giuliana, Director, who own and run the company as shown in Exhibit 1. Luciano's son, Alessandro, is also one of the eight Directors.

This global Benetton Group specializes in designing and manufacturing of clothing within the textile-apparel sector of industries, and combines this know-how with the strong identity and image of world-leading sports brands that have been incorporated through the acquisition of the Benetton Sportsystem business. These sports brand names are encompassed under the Playlife label and include Rollerblade, Killer Loop, Prince, and Nordica. The clothing sector includes casual and sportswear, consisting of the Sisley, United Colors of Benetton (UCB), and Undercolors of Benetton brands, which are mainly produced and distributed by the Automated Distribution Center in Castrette, Italy, the factory which produces over 90 million items of clothing each year. There are production facilities in France and Spain as well. These finished and packaged products are the dominant production category for the company and are distributed directly to the Benetton Group's 7,000 retail stores located in 120 countries, of which only 55 stores are owned by the company, with the remaining stores independently owned and operated. The second production category for Benetton comprises the sports equipment and performance-wear item and a third category encompasses items such as footwear, bags, and accessories. Benetton's overall turnover amounts to about 4,000 billion lire.

Recently, in 2003, the company initiated an effort to diversify away from its main clothing business by moving to acquire Italian highway operator, Autostrade.

RETAIL LOCATION AND STORE DESIGN

The new-lookBenettonstore on Corso Buenos Aires, Milan, looks to the future and interacts with fashion. Inaugurated by Alessandro Benetton, this is the latest leg in the journey of international style and modernity that began in Istanbul, and will continue in other major European cities

20 September 2010. Benettons Milan flagship store reopens on 24 September, attended by Alessandro Benetton, Executive Deputy Chairman of the Group. With a new design byPiero Lissoni, in which innovation goes hand-in-hand with Milanese tradition, the store is located in a neo-classical building on Corso Buenos Aires, a key international shopping destination. It occupies three floors, with a design concept that successfully blends Benettons innovation-driven identity with the sophisticated spirit of Italys fashion capital.

In Milan the work on the building began by enhancing the existing spaces, reorganising the interior using large, waxed, coarse sheet-metal boxes, at double height in some points, and restoring the original courtyard, which is overlooked by the inner store windows, so as to emphasise the characteristics of the collections with absolute elegance.

The lower ground floor houses Benetton kids and Sisley young; the ground floor hosts the Benetton woman collections, the new knitwear corner and the mens and womens collections from Sisley, the Groups most glamorous brand; and Benetton woman and man are on the first floor, as is the accessories corner.

For the Milan store, we opted for light, clear, bright spaces that would offer a discreet reflection of the spirit of this city, of the location which accommodates and animates them, commented Piero Lissoni. Light is an important structural element of the space, and is emphasised by a palette that focuses on white, into which the pure volumes of the perfectly technical, functional fittings are introduced. The materials chosen for the store fittings are deliberately simple, yet exude qualities of strength and elegance. The metal box motif has been expanded spectacularly well to form the divisions within the space, becoming a real strength of the design.

The main stairway is a prominent architectural feature, in folded iron sheet, flowing like a ribbon between the three floors; it resembles a huge piece of origami, and gives the place an unreal atmosphere. The lift is contained within a white glass tower, and on its surface are ribs of opaline glass offering a half-revealed glimpse of the lift as it travels up and down, and the white neon light indicating the floor level.

The interior decor is purposely designed by Lissoni, with the exception of the Bubble Rock sofa from Living Divani. The furniture is in metal or wood, with closets on castors, tables reflecting nature in their shapes, systems of rails, shelves and hanging racks that recall the large, light and sohisticated bookshelves of the Fifties, illuminated by a system of suspended lighting: a group of elements designed to present a neatly arranged showcase of Benetton apparel and accessories, the true features of this space.

The flooring is in beige cement-resin, except for the ground level, where it is dark grey: this choice is designed to distinguish the Sisley area, as the key tones for this brand lie along an elegant scale of grey. References to colour, an essential element in the Benetton identity, accompany visitors as they move through the different floors: a gradual succession of 40colours extends through the entire height of the store up the rear staircase, where each step corresponds to a different colour.

The world of communication and the language of aesthetics key Benetton themes are alluded to in the cardboard panels/screens designed by Piero Lissoni, printed with quotes from Italo Calvinos Invisible Cities, a visible manifestation and written testimony to Italian culture.

The Benetton Milan megastore revamp and the brands partnership with Lissoni are part of Opening Soon, a programme of sales network orientated investments aimed at implementing new architectural and design concepts in the retail spaces of a number of cities that are icons of the worlds transformation.

This international itinerary into style and progressiveness was launched in Istanbul in 2009, with a flagship store entirely designed by Piero Lissoni, followed by other stores in striking buildings in major European cities, from London to Paris, to Frankfurt, each expressing and interpreting the local culture.

PRICING AND LOGISTICS

In the mid-1990s Benetton adopted a strategy of price-reduction worldwide. The strategy was designed to enable the company to guarantee its clients an ever more suitable and competitive supply of products. Simultaneously, Benetton decreased production costs. This combination of price and cost reductions resulted in an 8 percent increase in both, items produced and sold in 1994. Benetton also has an extensive system of outlet stores in which to sell clothing at significant discounts, as a result of the price cuts.

In the late 1990s Benetton restructured its distribution network in order to implement a new system that would integrate a logistics system in which the warehouses are the systems junction and are part of the distribution system rather than just places for storing facilities. The new system would eliminate fragmentation of inventories across the world by concentrating the finished goods in three sorting centers, one in the US, one in Italy and one in the Far East. The automatic distribution system handles over 30,000 packages a day and is managed by a 10-member staff, rather than a traditional system that requires a staff of 400. These new automated systems, along with the production facilities, have improved the efficiency and speed of customer service, and reduced transport costs by more than 10 billion lire in 1996. One feature that was crucial to Benetton's success in its early years was its advanced dyeing process, whereby the finished product could be dyed instead of dying the yarn first. As tastes in color changed with the whims of the fashion industry, this innovative dyeing system allowed Benetton to establish a customized production system that keeps up with the latest market trends. COMMUNICATIONS

Benetton's communications strategy was developed, as a result of the company's desire to produce images of global concern for its global customers. The communication strategy targets issues rather than clothes as the leading player, with a portion of the advertising budget devoted to communicating themes relevant to young and old people worldwide. The company claims, "We realized some time ago that we had a unique tool for communicating worldwide, as we are present in 120 countries, and that it would be cynical to waste it on self-serving product promotion. We trusted in the intelligence of our customers worldwide and decided to give space to issues over redundant product claims." Benetton believes it is important for companies to take a stance in the real world rather than use its advertising budget to encourage consumers to think they will be happy through the purchase of the company's products. This strategy challenges Benetton to come up with a selling theme that appeals to all consumers and overcomes local biases. Through this strategy, the Benetton Group has developed advertising campaigns that are international, homogeneous, and characterized by universal themes, which have been not only a means of communication but also an expression of the time. Through its universal impact, the company has succeeded in attracting the attention of the public and in standing out among the current clutter of images.Sport and Event Sponsorship

One of the avenues through which Benetton communicates to all of its customers is sports. Benetton Sportsystem was renamed Playlife in 1998. This division houses the famous brand name product lines, i.e. Prince, and reflects the Benetton Group's involvement in the sports arena, focusing on the world of sports from skiing and in-line skating to tennis or snowboarding. Through the Playlife label, Benetton designs sportswear clothing as well as state-of-the-art sports equipment to meet the technical demands of various athletes and athletic teams. Benetton sponsors sporting teams in the areas of basketball, rugby, volleyball, motorcycling, and until recently, the Formula One racing team, which was just sold. Many young athletes acquire their first taste of sport in the variety of junior clubs' teams sponsored by Benetton. In addition, Benetton's success in communicating through sports can be seen by its efforts in developing sport facilities. In 1985, the sport center at La Ghirada outside of Treviso, Italy was built and is used today by all enthusiasts. Also, the Palaverde, a multifunctional complex, was opened in 1983 and is used for sporting events as well as concerts, shows and cultural activities with a capacity for a 6,000-member audience. Playlife, in essence, is the passport to the Benetton world, a new way of embracing every-day life in the spirit of sport.

Colors Magazine

Benetton communicates through its award winning, bi-monthly magazine, Colors. It is distributed in six bilingual editions in Europe, the United States, Latin America, and Asia.

Fabrica Project

The company also communicates through the Fabrica project, which is a workshop environment and a center of communications for a group of twenty students selected from countries around the world. Research into future trends and new ideas is conducted among the students, who actively research the field of communications.

Image Advertising

Unlike the traditional advertising for most companies, Benetton's images do not have a copy or a product, only the company's logo. The ads do not tell an individual to buy Benetton clothing or even imply this! Their ads simply attempt to promote a discussion and create awareness about global issues that might be overlooked if conveyed through other channels. However, as far as their products are concerned, the company advertises through its many strategically placed stores, its catalogues, and fashion editorials that display them directly to the consumer. Also, there are public relations offices in all of the countries that have a liaison with fashion editors. These offices utilize traditional marketing techniques to ensure the products receive the necessary exposure or sales personnel, among other criteria.

Campaigns

Benetton's advertising campaigns have centered on social issues and current worldwide issues such as AIDS, peace, war, and death. Many of their communications initiatives support international humanitarian associations. For example, Benetton was part of the first global project to redistribute clothing to people in need in 1993; it was called the "clothing redistribution project" and was assisted by the International Federation of the Red Cross, as well as other groups. This campaign also utilized the shock value of imaging, as Luciano Benetton appeared nude in these advertisements. As part of their AIDS campaign, the 1994 ads showing the words "HIV Positive" tattooed on a person's arm, abdomen and backside are additional examples of the shockvertising conducted by Benetton (See Exhibit 2).

Those ads were used as metaphors for the more extensive branding practiced throughout society towards those who are different. With those images, Benetton wished to highlight not only the main channels through which HIV can be transmitted, but also the dangers of stigmatizing certain social groups and their lifestyles. In 1998, a human rights campaign was initiated as a result of a United Nations proposal to launch a world communications exercise to mark the fiftieth anniversary of the Declaration of Human Rights, which was approved by the United Nations General Assembly on December 10, 1948.

One of the ads for this campaign showed images of children of all colors and ages to emphasize that "every child shall be entitled from his birth to a name and a nationality" (See Exhibit 3). In addition, Benetton's recent campaign during 2000 addresses capital punishment by showing images of some of America's death row inmates. This campaign aims to show the public the reality of capital punishment, so that no one around the world will consider the death penalty as just a distant problem or as news that occasionally appears in the media.

The campaigns have won numerous awards, prizes and acclaim in all of the countries in which the company is present; however, they also have aroused various strong reactions. Benetton is aware of the controversy that surrounds the images of these campaigns. However, they believe that all worthwhile stances will have critics and supporters. Benetton hopes that people will move away from the discussion of whether or not a company is entitled to show its point of view in its advertising campaigns, to a discussion of the issues themselves. This has occurred in some countries already, which supports the company's goal of becoming the vehicle for discussion rather than its focus.MARKET SHARE

Americas

During the 1980s Benetton expanded aggressively into the United States, opening some 500 stores and outlets. This rapid expansion caused numerous management catastrophes resulting in unhappy retailers and declining revenues. Specifically, Benetton encouraged retailers to open stores that were located too close to one another which subsequently led to self-cannibalization. Additionally, advertisements such as the one showing the U.S. President with AIDS lesions caused many loyal American customers to boycott Benetton stores. In addition to operational blunders, Benetton was also guilty of making fashion errors as well. In the mid 1980s, their largest selling items in Europe were their brightly colored sweaters. When the sweaters were introduced into the United States as the company's signature product, it was a disaster. Subsequently, Benetton had to readjust their shipments and designs to fit North American tastes. A combination of this issue along with over-expansion led many retailers in the late 1980s to take legal action against Benetton charging that they had encouraged too many stores to be built too close together and failed to supply them adequately.

By the early 1990s sales in the United States had decreased sharply. Benetton was producing clothing targeted to a younger generation of 18 to 23 year olds in the U.S.; however, they were not accustomed to paying the higher prices charged by Benetton. This was a generation that was brought up on GAP pricing strategies, which were lower and more affordable than Benetton, and therefore, found Benettons prices too high for their budget, while others were unaware that Benetton also sold designer dresses and suits.

After having 350 of its 500 stores closed by 1995, Benetton grew increasingly aware that they were targeting the wrong market in the US. To combat the negative sales growth, Benetton began offering a more diverse clothing line and installed a point-of-sale system, which allowed the stores to feed information on sales back to the Italian headquarters. In addition, in 1998 Benetton began offering its first intra-seasonal collections to increase its ability to respond more quickly to changing market trends. By 1999, the point-of-sale system had proven to be such a success that they had began to test an upgraded system which would report not only the item sold but also its size and color.

In 1997, Benetton made a strategic move by acquiring 57 percent of the Sportsystem division from Edizione, and later purchased the remaining shares in 1998. This acquisition produced a large boost for U.S. sales due to its large market for sporting goods equipment. To support this latest acquisition, they launched a $27 million marketing campaign (See Exhibit 4 for sales figures).

An attempt to gain a larger share of the US market was made in 1998 when Benetton signed a deal to form a joint venture with Sears Roebuck and Company to design a line of less expensive clothing which would be sold in Sears' department stores. The joint venture was part of a larger strategy to expand in the United States without having to open new Benetton stores. Sears and Benetton introduced last summer a new line of junior's, children's and men's apparel, called Benetton USA, in 450 Sears stores; the line was expected to generate $100 million in sales in its first year and draw in younger, more cost-conscious customers. The deal fell through however, when Sears pulled the clothes off the shelves due to consumer complaints and boycotts regarding Benettons anti-death penalty campaign in February 2000. Overall, Benettons strategy in the United States has not been very successful. Sales in North America fell by 17% by the end of the third quarter of 2002 as compared to that in 2000.

In addition to North America, Benetton also began to establish a presence in South America and the Dutch Antilles (Saint Maarten) during the mid-1980s. This move was a strategic success, for a number of reasons. Much of South America still held strong bonds with Europe, such as consumers' tastes in fashion. Countries such as Brazil, Argentina and Colombia embraced the Italian label and therefore, Benetton had found a market full of loyal customers. However, Latin America was hit severely by an economic recession during the late 1990s, which reflected negatively on both clothing as well as sporting goods sales in most of South America.

Europe

During the 1980s Benetton flourished throughout Europe. Sales had increased at a double-digit growth rate and during some years even reached 25 percent. However, much of that changed during the 1990s when sales growth began to decrease down into the single digits. The decline in sales, specifically in 1995, can be attributed to a number of factors, including the European recession, which caused sales growth to decline sharply in certain markets (See Exhibit 5).

Germany, the market, which suffered the most during the mid-1990s, was also Benettons largest market. In 1994, Benetton released two of its most controversial campaigns, the Croatian Soldier and HIV Positive. Both campaigns followed Benettons mission to support social causes and increase awareness on global issues but both also managed to provoke strong ill-will feelings towards the company whose reputation was already faltering due to the recent store closings in Germany. By late 1994, retailers in Germany began to notice a decline in sales and profits. Claiming the decrease in operating profit was due to self-cannibalization, extreme price cuts and tasteless advertising (which was causing boycotts in Germany), many German retailers began to publicly criticize Benetton and two storeowners even refused to pay for their merchandise. In mid 2002, a German high court barred the companys HIV advertising campaign and referred to it as anti-competitive.

Benetton, however, attributed a decline in sales to a combination of many different factors such as the European recession and poor management on behalf of its franchises. Benetton did acknowledge that their pricing strategy did result in price cuts, but justified it by claiming that they were necessary in order to maintain market share. In addition, Benetton also sued these two storeowners for nonpayment of the merchandise ordered. Both storeowners countered the lawsuit, claiming Benetton was liable for the loss of sales, which they felt, was attributed to Benettons advertising strategy. The storeowners lost the case and were required by the court to pay Benetton $600,000 for the merchandise ordered. Overall, 1994 was not a good year for German Benetton retailers, as their sales dropped 16 percent or $35 million in 1994. To counteract the negative sales growth in Germany, Benetton began restructuring their sales network to create a network, which would be, more in tune with their guiding principles of business sense, creativity and dynamism. This entailed replacing many of the smaller outlets with bigger multi-product stores as well as recruiting new franchisees.

Also in 1994, Italy and France were embroiled in controversy over disputes with Benetton. Santomo Alligliamento, one of the largest operators of Benetton stores in Italy, sued Benetton for late shipment of garments, as well as for not changing their product lines as frequently as their competitors. Despite this, sales still increased in Italy, increasing slightly less than 4 percent in 1994 and 13 percent in 1995. During this same time period Benetton was forced to pay $28,500 to AIDS patients in France, after a Paris court ruled that the HIV Positive campaign was an abuse of freedom of expression and a provocative exploitation of suffering.

Despite negative publicity surrounding lawsuits in some European countries, Benetton still managed to achieve a sales growth rate of 34 percent. The opening of megastores in every European capital by the end of 1995 supported this growth. The strategy of the megastore is to gain a larger share of the market by offering clothes for the entire family. By 1999, on average, the existing megastores each occupied 6,000 square feet; however, some megastores are much larger such as the Milan store, which has over 32,000 square feet. Benetton, which had around 7000 franchisees all over the world, plans to continue this strategy in 2003 to move towards directly operated stores, mainly mega stores with a lot of retail space. The company attributes the need for this change to the changes in consumer behavior, which indicated that customers need more space and color and light in the retail store. Benettton plans to have 300 megastores around the world by the end of 2004.

In 1998, Europe generated 70.7 percent or $1.69 billion of Benettons volume. Industry analysts had predicted that European consumer spending would increase between 1998 and 2000. Estimated consumer spending was expected to increase by 2.4 percent in Italy, 2.5 percent in Germany and 2.3 percent in France. However, contrary to prediction, in 2001, Europe generated only 68.7% of total volume.

Other Countries

Benettons presence in developing nations grew heavily in the mid-1990s. In line with their strategy to conquer new markets, Benetton opened new stores in Angola, Ethiopia, Nepal, Pakistan, Syria, the Ukraine and Vietnam making Benetton the first Western company present in these local markets. In addition, 50 new stores were opened in China and the number of stores in Korea reached 100, by the end of 1994.

In the mid-1990s, Asia was seen as Benettons largest opportunity for growth, especially since its performance in America was hardly satisfactory. However, sales began to decline in the late 1990s as a result of the Asian financial crisis. In 1998, the Far East accounted for 13 percent of total sales, with Japan accounting for 7 percent or $168 million. This is a significant drop from 1997 in which Japan alone accounted for 17 percent of Benetton's total sales. The decline is largely a result of significant damage to the sales of Benettons Sportsystem division, which relies heavily on Asian markets. In 2001, Asias contribution to total revenues fell to 9.3%.

Korea was another market significantly hit in 1998, where the entire market might have been lost if Benetton had not reacted quickly. By setting up a manufacturing and distributing joint venture with a local Korean operator, they were able to circumvent a complete loss of their Korean market. However, the decrease in Asian clothing sales had little impact on the company's overall clothing sales, mainly attributable to the fact that Asia accounted for only 15 to 17 percent of Benettons global clothing sales. Profits would have risen 33 percent rather than the actual 18 percent if Sportsystem had not suffered such a loss from the Asian financial crisis.

However, in spite of the financial crisis that occurred in the late 1990s, Benetton announced in 1998 its plans to open three new megastores in Japan beginning in the spring of 2000. The strategy was based on a dip in property prices, which would allow Benetton to buy property in Japan relatively cheaper than in the past.OPPORTUNITIES

Communication Sources

Europe's Internet commerce industry is starting to pick up, following the lead by the United States, where over 70 percent of the world's e-commerce business took place over the past year, according to market research company, International Date Corporation. The research firm, Jupiter Communications reported online retail sales in Europe would reach $3.3 billion in 2002, up from the $165 million in 1998. In December 1999, when Benetton announced it would begin selling products on the Internet, its share surged nearly 13 percent resulting in its largest one-day rise in more than one year. Online sales will allow the company to access markets where it has low penetration and where e-commerce is more developed, such as in the U.S.

In India, Benetton's advertising is concentrated on a renewed focus of communication. Benetton's image in India was considered a "discounted" brand, since they usually limited their advertising to only two end-of-season sales. However, recent television commercials were received positively by both franchisees and consumers. This kind of positive feedback could result in a new opportunity for Benetton by focusing more on media channels such as television and radio, rather than billboards or magazines.

In addition, Benetton had great success with their two-tiered approach, specifically with the launch of their Sportsystem division. This approach was taken in order to gain a larger share of the US market without having to abandon their traditional image campaigns. By allowing their US retailers more flexibility when choosing which advertisements to use for a selected campaign, they were able to circumvent any potential loss of market share and also retailer dissatisfaction. Benetton could use this strategy when developing future campaigns. JapanTo increase sales in the future, the US and Japan should lead the way as an opportunity for increasing Benetton's total revenues, even though the company expects Italy and Germany to remain its top two markets. Japan is currently recovering from a financial crisis, which should lead to increased opportunities for future growth in Benetton's sales and profits. The Asian financial crisis dramatically affected sales of Benetton's sporting goods line in Japan, causing a 10 percent drop in sales in 1998, and 17 percent in 1997. This required Benetton to acquire more sportswear revenues in the U.S., which produced only 16 percent, or $384 million, of Benetton sales in 1998 and 15.6% in 2001.

The total Japanese market for apparel was estimated at approximately $35 billion as of 1999. The apparel market in Japan was growing at 10 to15 percent annually until 1996, despite a slow economy and a stagnant domestic apparel market since the early 1990s. In particular, Japan's apparel imports enjoyed a remarkable increase of a 15 to 20 percent annual growth until 1996. Japan's gross domestic product (GDP) registered a real growth rate of 0.9 percent in 1997. This was the first time in three years for the figure to fall below one percent and was the lowest level among major developed nations. According to 1997 statistics compiled by the Ministry of Finance, the major countries from which apparel is imported and their respective percentages of the import market are: China, 69.4%; Italy, 8.2%; Vietnam, 3.6%; Indonesia, 2.5%; and the United States, 2.4%. The high market share from China, and Vietnam are due to Japanese manufacturers' increasing use of their joint-venture sewing mills in these countries, where lower-cost labor is available. Imports from Italy were stable overtime due to the deeply implanted good brand image of Italian fashion among Japanese consumers. Italian apparel companies are currently trying to regain their 1980's position in the Japanese market through the creation of classic-casual types of women's wear at reasonable prices. Benetton, looking to capitalize on its Japanese customers, has targeted this market as an opportunity for future growth based on economic and cultural aspects such as their loyalty to Italian brands and the country's growing economic status. Since Japan is a high context country, Benetton should see this as an opportunity to extend on their already strong relationship as Japan moves into a period of economic growth. France

There appear to be numerous opportunities for companies to successfully penetrate the French market to gain market share. The size of the apparel market in France has been growing over the last three years, as well as increasing amounts of the total exports and imports. Benetton could capitalize on this growing demand for apparel among the French population.

Belgium

Consumer spending in Belgium is picking up after over five years of flat, and even depressed, consumer demand levels. Consumption grew 3.6 percent in 1998, due to increases in real income per household and consumer confidence. Economic forecasts are pointing to steady growth of about 3 percent for 1999 and 2000. There is a continued strong market interest for American sporting and leisure apparel, as American styles are popular and designer and branded products are less price sensitive in Belgium. Major competitors of the local Belgian markets come from manufacturers and designers in France, Germany and Italy. For low-budget clothing and mass distribution items, low cost producers in the Far East, such as China, Thailand and Indonesia continue to provide the bulk of imports. Benetton has the opportunity to gain market share in this country by promoting their sportswear and leisure apparel that appeal to this market's consumers. As you can see by the following table, Belgium's market size is growing, as is its local production figures. Although, the total imports declined in 1999, Benetton still has the capacity to formalize a joint venture with local retailers and just set up their distribution system to begin reaping profits.

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