Benetton USA Corporation

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Benetton USA Corporation

FOUNDED: 1965

Contact Information:

headquarters: 597 5th ave., 11th fl. new york, ny 10017 phone: (212)593-0290 fax: (212)371-1438 url: http://www.benetton.com

OVERVIEW

Benetton USA Corp. is the American arm of Benetton Group, which is a family-controlled apparel empire with worldwide presence. The enterprise produces and distributes casual clothing, accessories, and sports equipment for men, women, and children. Benetton is Italy's largest maker of clothes and the world's largest user of carded wool. Its reach spans over 7,000 independently owned stores and five company-owned "megastores," which buy their wares from Benetton. Major sub-brands include United Colors of Benetton, Sisley, and Benetton 012. Benetton Undercolors stores sell lingerie.

COMPANY FINANCES

Excluding figures for Benetton Sportsystem, which was folded into the company during the year, 1997 revenues were $1.75 billion, up 7 percent from 1996. Net income was $185 million, as compared to 1996's $139 million. Operating income for 1997 was $300 million, for an increase of 32 percent over 1996. For the second half of 1997, Benetton Sportsystem's revenues were $312 million. The Asian economic crisis accounts for much of the shortfall between that division's expectations and its results.

In early 1998 Benetton Group split its stock 10-for-1 to raise liquidity and trading volume. That same year the company erased all of its debt for the first time. At the 1998 annual meeting, the dividend was approved to increase five percent to $0.297.

HISTORY

Benetton was started when Giuliana Benetton sold her brother Luciano's accordion and her brother Carlo's bicycle to buy a knitting machine. Luciano had been a delivery boy for a fabric store, dropping off his sister's colorful hand-knit sweaters. He quit his job at the fabric store, and the sibling duo entered the garment business, eventually to be joined by their brothers Gilberto and Carlo. By 1969 they had opened their first shop in the Italian town of Belluno, and a year later a second one opened in Paris. Luciano was an expert at perceiving and exploiting markets with unmet needs; the company has been called "the McDonald's of the fashion industry." By the 1980s the company began to diversify beyond cotton and wool garments and added such items as sunglasses, hats, shoes, watches, and cosmetics. In 1997 the company took over Benetton Sportsytem—an international group of sports equipment producers—from the Benetton family. American business schools now study the development of the company as a case study.

Benetton's Sportsystem division emerged in 1989 when the family's Edizione Holdings put up $182 million to buy Nordica, a privately owned maker of ski equipment. The following year it spent $200 million to buy Prince, a tennis racket manufacturer, which offset the seasonal sales of skis. Subsequent acquisitions included Ektelon, a maker of racquetball equipment, and Kastle, a maker of bicycles and skis. Another strategic purchase, Rollerblade, gave the company a considerable bite of the U.S. in-line skate business.

STRATEGY

A key element in Benetton's operation is its method of filling orders from its stores, since it does not stockpile items in its warehouse. The state-of-the-art, 190,000-square-meter plant in Castrette di Vellorba, Italy, quickly and efficiently produces 100 million garments per year. The facility consists of dual factories—one that makes cotton garments and shirts, and one that makes tailored clothes, skirts, and denim jeans. The automatic distribution system handles more than 30,000 packages each day and is able to function on a skeleton crew of 19, rather than the 400 that a less-advanced setup would require. Order information is received from a central fiberoptic network that manages the company's global needs.

INFLUENCES

The number of Benetton stores in North America dropped from a high point of over 600 in the mid-1980s to about 200 in 1996. Sales during the mid-1990s were sluggish, but in 1994 Benetton instituted a strategic slash in prices—an average of 16 percent in the United States—as well as a $157 million stock offering that allowed ownership to migrate outside Italy. In the early 1990s the company invested about $150 million in technology and factories. Benetton is able to keep its raw-materials costs down because it owns cotton farms in Texas and a large sheep farm in Argentina. Moreover, textile dying is done in-house.

FAST FACTS: About Benetton USA Corporation

Ownership: Benetton is publicly traded on the New York Stock Exchange and exchanges in Milan, London, and Frankfurt. The Benetton family's Edizione Holdings owns a controlling interest, 71 percent, of the stock.

Ticker symbol: BNG

Officers: Luciano Benetton, Chmn.; Mauro Benetton, Worldwide Marketing Director; Carlo Tunioli, Gen. Manager of Benetton USA

Chief Competitors: Benetton competes in the clothing and sporting-goods industries. Its major competitors include: The Gap, apparel and accessory stores; The Limited, apparel and accessory stores; and K2, sporting and athletic goods.

Benetton's provocative and highly artistic advertising campaigns, which represent about four percent of the company's operating budget, have created controversy over the years, perhaps because they have depicted overly realistic images and human themes. The ads feature the photography of Oliviero Toscani and have included images of a dead Bosnian soldier, withering AIDS patients, and priests kissing nuns. A recent catalog's cover showed an Israeli man kissing a Palestinian woman. In 1995 Benetton store owners in Germany (the company's second-largest market) withheld franchise fees and merchandise payments, claiming that an advertising campaign was alienating customers and harming their sales. Ultimately, Germany's Supreme Court banned a series of ads (featuring child laborers, an oil-soaked bird, and human buttocks tattooed with "HIV Positive") on the grounds that they were "morally offensive." Luciano Benetton commented on the negative reaction to the ads in WWD, "It is very difficult to understand why people got so agitated. If you ask me to analyze it, I honestly have to say I don't know. Benetton's range of products is broad, and is marketed to many cultures," he explained.

"If we did a pure product campaign, we'd have to do 20 or 30 different campaigns. It would be impossible."

CURRENT TRENDS

Benetton has purchased several large-scale, modern farms in Italy, Argentina, and the United States and is able to produce its own raw materials in the form of cotton and wool. Its flock of 280,000 sheep (Merino and Hereford breeds) is the largest in the world. Although the company reaps over two million pounds of the renewable resource per year, the quantity still fills only about 10 percent of its needs. Investment in research has allowed Benetton to improve the quality of the wool it raises.

In early 1997 the company opened a 12,000-square-foot, three-story flagship store in New York's landmark 1912 Scribner Building at Fifth Avenue and 48th Street, in an attempt to revitalize its presence in the U.S. clothing market. The company spent about $4 million to restore the old building to its original design and condition. In March 1997, Benetton started a bimonthly series of literary readings and arts talks, called "The Salon" since it meets in the store's cafe, in keeping with the locale's rich literary history. In WWD, Carlo Tunioli, general manager of Benetton USA, said of the store's opening, "The New York flagship's objective is to send a message to the American market. Here is what we are now in the Nineties. The significance is not only for the U.S. It will be an international presence because Fifth Avenue has become one of the most important malls in the world." The company plans to open similar stores in major U.S. cities if the New York store is successful enough to warrant such expansion.

In 1997 Benetton implemented a new point-of-service (POS) system of tracking sales and inventory across the United States. The system makes financial reporting uniform. Its IBM hardware greatly improves in-store efficiency by reading bar codes.

PRODUCTS

Benetton is primarily a seller of apparel, but it also markets other makers' fragrances, watches, beepers, fashion accessories, and a range of sporting equipment under various high-profile brand names. The United Colors of Benetton line is a collection of colorful, casual garments for adults. Sisley is the company's group of denim clothes. Benetton's children's label is 012, and Zerotundo is marketed to babies and toddlers. Benetton also has several brands of sporting equipment. Asolo makes hiking and rock-climbing shoes. Ektelon is a leader in racquet-ball equipment. Kastle makes skiing and bicycling equipment. Killer Loop makes snowboards and snowboarding apparel, and the Nordica division is a significant producer of ski boots. Prince is a successful maker of tennis rackets and sportswear. Rollerblade, Inc., now owned by Benetton is the original in-line skate manufacturer.

CHRONOLOGY: Key Dates for Benetton USA Corporation

1965:: The Benetton Company is formed as a partnership called Maglificio di Ponzano Veneto dei Fratelli Benetton
1969:: Benetton opens its first retail store to sell the Benetton line of clothing
1972:: Benetton pioneers a dyeing technique that allows minimal inventory and custom garments
1981:: Becomes the world leader in knitwear
1986:: Makes an initial public stock offering
1989:: Benetton's controversial United Colors of Benetton ad campaign begins
1994:: Time, Junghans Uhren, and Benetton enter a joint venture to manufacture watches and alarm clocks

DID YOU KNOW THAT. . .

Benetton uses over 100 million kilometers of thread each year, which is 2,800 times around the world at the equator?
the quantity of fabric used each year by Benetton would cover an area twice the size of Belgium?
the brand names Sisley, 012, United Colors of Benetton, and Zerotondo are all owned by the Benetton Group?
Benetton sells more than 80 million garments every year in over 120 countries worldwide?

CORPORATE CITIZENSHIP

Despite the recurring mixed reception of the company's ads, in 1998 the United Nations asked Benetton to design an ad campaign to commemorate the fiftieth anniversary of the United Nations Declaration of Human Rights. The images featured children and excerpts of the Declaration. In WWD, John Poerink, director of international marketing and advertising, said "There's a clear, underlying message in all our campaigns—diversity, tolerance, and internationalism."

Benetton has been involved in various humanitarian initiatives over the years. For example, in 1996 Benetton organized the first international conference of SOS Racisme, an organization that promotes ethnic tolerance. Also that year, the United Nations' Food and Agricultural Organization (FAO) asked Benetton to create communications materials for the first World Food Summit in Rome. In 1995 it began an AIDS education initiative in India. Several years earlier, the company had supported a program of distributing condoms and AIDS-prevention information in New York's public schools and had helped the Gay Men's Health Crisis compile a safe-sex guide. Also in 1995, it sponsored a global program called "Colors for Peace," which promoted intercultural awareness in elementary schools.

In 1993 Benetton collaborated with various international relief organizations (such as the International Federation of the Red Cross and the Red Crescent) on the Clothing Redistribution Project. Luciano Benetton, by then a sitting Italian Senator, posed nude in the ad campaign for the program (dignified only by the caption "I want my clothes back"), which called for the public to deliver its unwanted garments to collection sites at Benetton's stores. The charitable effort netted a million pounds of clothing for those in need.

The company sponsors an independent, socially conscious, bimonthly publication called Colors; it advocates diversity and takes firm stands on select contemporary issues. Past editions have focused on the global implications of vivisection, war, race, sports, and religion. The award-winning, cutting-edge magazine is distributed in 80 countries (and on the Internet at http://www.colors-magazine.com, as of March 1998) in bilingual editions. Like the company's advertisements, Colors communicates its messages with profound photography. Says Colors of its mutually respectful relationship with its clothing-giant benefactor, "They don't tell us how to make a magazine, and we don't tell them how to make sweaters." The average age of Colors' staff members is 26.

In its tradition of cultivating awareness, Benetton began an educational workshop called Fabrica, which offers specialized artistic training. The school is housed in a seventeenth-century villa near the Italian town of Treviso. Students can receive scholarships to attend Fabrica for a 3- to 12-month period where they can study photography and graphic design.

GLOBAL PRESENCE

Benetton operates all over the world, distributing clothing in 120 countries. The company's largest "megastore" is in London. In 1995 Benetton opened a factory in Egypt and a store in Sarajevo. In 1997 it added a store in the Romanian capital of Bucharest; at the opening, Luciano Benetton pledged to "maintain acceptable costs across Europe."

SOURCES OF INFORMATION

Bibliography

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