TO GET A good grip on who Alessandro Benetton really is, you only have to trawl through hundreds of YouTube videos. Few CEOs around the world have so many of their videos online for the world to see. In one, he is pontificating about the eurozone’s sovereign debt crisis. In another, you might see him talking about global fashion or the rise and rise of emerging consumers in China, India or Brazil. And in yet others, you might see him skiing in Switzerland or engaged in some extreme sports such as paragliding or on holiday with his children.
The 47-year-old gregarious, affable and urbane deputy executive chairman is the main driver behind the family-controlled fashion retailer famous for its brightly coloured wool sweaters and deliberately provocative and controversial advertising. Unfortunately, it has fallen on his shoulders to scale down a key part of the family’s empire.
Remember Benetton? Fifteen years ago, the Italian knitwear firm was probably one of the world’s bestknown clothing brands. A key part of the Benetton cachet was extremely provocative advertising — mostly posters or fashion magazine spreads — showing AIDS sufferers or victims of racism. More recently, it tried to rekindle some of the old magic by showing Photoshopped images of Pope Benedict XVI kissing an Egyptian imam. That particular ad and others from the same series were later withdrawn, following widespread condemnation.
Founded by 77-year-old Luciano Benetton and his siblings in 1965, Benetton grew into a force to be reckoned with in fashion retailing in the 1970s. In the 1980s, it spread its tentacles in the US with an aggressive marketing campaign. At the peak in the 1980s, Benetton was a fairly revered brand with its own Formula One racing team (since sold to Renault), an Italian rugby union club and a basketball team. It still has more than 6,000 stores in more than 100 countries, mostly through franchises or stores-within-department stores, although it has in recent years again very gradually started growing its own standalone stores.
Now, the once-powerful brand is slowly fading from public view as other more aggressive, trendier brands forge ahead in malls from London to Los Angeles and from Singapore to Shanghai. Analysts say the Benetton family is likely to succeed with its €4.60-a-share general offer to acquire the rest of Benetton the family doesn’t already own. That will end with a delisting of the firm from the Milan bourse in June and close another chapter in the life of the much-storied Italian retailer.
How did one of the world’s biggest fashion retailers fall from grace so fast? Clearly, Benetton’s decline can be traced back directly to the rising popularity of fast-fashion chains such as Uniqlo of Japan, Zara of Spain and H&M of Sweden. Other peers such as GAP, Esprit, Abercrombie & Fitch, Giordano as well as some of the US-centric retailers like American Eagle and Urban Outfitters have eaten into its share of the market.
While other fashion brands expanded around the world, Benetton dug in at home only to see competitors overtake it to become truly global retailers. Nearly half of Benetton’s revenues still come from its home market, Italy. Sure, Italy with a GDP of US$2.1 trillion ($2.7 trillion) is not a market to be scoffed at because it is larger than India (GDP of US$1.3 trillion) but, by their very nature, fashion retailers need to be global to have good economies of scale and must source from a strong global supply chain to enjoy lower costs.
Benetton’s problems have been amplified by a severe recession in Italy and across Europe in the aftermath of the region’s debilitating sovereign debt crisis. Particularly hard hit has been Italy’s middle class, just the customers who once used to throng Benetton’s brightly lit stores for colourful jumpers.
Little wonder, then, that while Benetton’s revenues have remained almost unchanged at €2 billion or so between 2000 and 2011, its Spanish rival Inditex — which owns Zara, Bersh ka and other fashion brands and was about the same size as Benetton 12 years ago and whose brands were far less known at the time — saw its sales increase more than fivefold in the same period and dramatically grow its brand awareness. Alongside market leaders Uniqlo and H&M, Zara is one of the three largest fast-fashion brands in the world, while Benetton has slipped to No 12 or 13 in the global mid-market mass retailing tables.
The market value of Benetton Group fell from a peak of €4.3 billion in 2000 to under €600 million ($990.5 million) last year before rebounding in the aftermath of the recent privatisation offer. With a dividend yield of more than 5.5% and its Milan-listed stock trading at under 0.5 times price-to-book, or under 10 times this year’s earnings, it was only a matter of time before Goldman Sachs-trained Alessandro Benetton, who runs his own private equity firm, moved in to quickly privatise the firm and take it away from the prying eyes of the public.
Late last year, he did just that. Last week, its market capitalisation stood at €840 million, a far cry from the heady days of 2000, when the company was seen as the one mass market retailer that had the potential to become a global behemoth by leveraging its brand in emerging markets.
From their birth to stardom to oblivion, consumer brands often go through what one industry expert recently explained to me is a four step process: They emerge out of nowhere to catch consumers’ eyes; after a few years, they somehow hit the wall; they then do a quick makeover by transforming themselves for a broader appeal, which in turn helps them proliferate; and they then go on to dominate their space.
An obvious example of such a process might be Apple Inc, the maker of the now ubiquitous iPhones, iPods, iPads and iMacs, which started with a bang in the late 1970s by accidentally inventing the PC; stuttered after it booted out co-founder, Steve Jobs; then transformed and proliferated, following the return of Jobs as CEO; and for the past five years or so has begun to dominate the consumer technology space.
Most brands falter in the first 21/2 steps. Often, the second part of the third step — proliferating with a global footprint — can be a growing brand’s Achilles heel. Only a handful go on to the fourth step of dominating their space, but staying at the top can often be harder than getting to the top.
Seven years ago, Luciano’s USedu cated second son Alessandro was tapped in a last desperate bid to turn the family’s fashion ship around and oversee Benetton’s Asian expansion strategy. Alessandro has a science degree from Boston University and an MBA from Harvard. He also briefly worked as an analyst at Goldman Sachs in London. In 1993, he founded 21 Investimenti SpA, a boutique investment bank and private equity outfit that he still chairs. Clearly, if his YouTube videos are anything to go by, Alessandro is having fun, but Benetton’s ship full of warm clothing has hit the proverbial iceberg.
While Benetton quickly hooked up with retailing partners in India and now has a decent footprint there, it has lagged in the much bigger China market. Benetton’s core strength is sweaters, and outside the Northern Indian belt, Indians don’t need winter clothes. In China, where almost everyone needs warm clothing at least a few weeks a year, Benetton has made little headway.
Provocative photos of the Chinese Premier kissing US President Barack Obama might make heads turn in Manhattan or London’s Oxford Street, but it’s a no-no in China. That’s not how to sell stuff in the world’s hottest market. In a way, Benetton had a marketing template that worked 30 years ago but is finding that it needs to dramatically tweak its business model and marketing ways if it wants to grow in China, Brazil or India.
Moreover, without the supply-chain advantages of H&M or Uniqlo, Benetton’s costs are much higher than those of its peers and margins much lower. Aware of such issues, investors have been punishing Benetton’s stock in recent years. That provided the opening late last year for the Benetton family to push through privatisation. The family is hoping it can somehow keep growing the business in India and other emerging markets and bring it back to the market in a few years, when it has a better investment story to tell.
These days, though, the Benetton family is bigger in infrastructure such as toll roads, hotels and restaurants. Indeed, the famous branded fashion woollies business is now just a small part of the multi-billion-dollar family empire that dates back to a smalltown bicycle shop that Luciano’s father ran in Treviso.
The Benetton family controls 30% of Atlantia, the operator of nearly two-thirds of Italy’s motorways, and 60% of Autogrill, a chain of roadside restaurants in the country. The family also owns Venice’s iconic Hotel Monaco & Grand Canal, which has been used as a backdrop in many Hollywood movies, the latest being Angelina Jolie’s The Tourist.
The family was once big in the construction business as well but, over the years, has completely left the sector. Late last year, Benetton swapped its minority stake in Italian construction group Impregilo with another Italian billionaire family, the Gavios, in exchange for control of Autostrade Sud America, which operates toll highways in Chile.
As he busies himself with remaking Benetton as a private retailer, Alessandro Benetton is likely to discover that, while it is far easier to become a YouTube phenomenon with your cool videos, turning around the struggling Italian fashion firm will prove far more difficult.
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