In addition, Benetton formed Benetton U. Corporation, listed on the Toronto, Madrid, Tokyo, and Frankfurt exchanges, and made private placements in Europe and Japan. These moves were aimed not only at eliminating short-term debt but also at broadening the shareholder base between Italian and international investors, as Benetton attempted to expand in North America and the Far East, and instilling the discipline required by the U.
Securities and Stock Exchange into its corporate culture. Because financial services were poor in Italy, Benetton began lending to its suppliers. Bencom S. Like the retail line, financial services were structured with the Benetton management philosophy--independent entrepreneurs selling and receiving commissions.
The financial services evolved to include insurance products and personal and corporate financial services. Other nonretail interests included stakes in Italy's largest department store chains, banks, hotels, and real estate. Unfortunately, these ventures required heavy capital investments and took away concentration of management time from the retail sector.
Nevertheless, Benetton's retail line was expanded. Palmieri pushed Benetton to extend the retail product line and introduce a nonretail line, to shift to global manufacturing, and to find local partners able to penetrate difficult or emerging markets in the developing world. The company introduced a new watch and cosmetic line, incorporated Benetton Japan K. At that time, there were about 5, shops in 70 countries; the EC accounted for 68 percent of sales, North America for 20 percent, and the Far East for 2 percent.
Sales stalled in Italy. In the United States, which accounted for about 15 percent of total sales, revenue fell 20 percent. The slowdown was due to a weak dollar, rising apparel prices, saturated markets, the rising cost of Italian labor, and shifting tastes, especially in the United States. Moreover, in late , several Benetton store owners filed suit in the United States against Benetton's agents, alleging unfair trade practices and also complaining about the disorganization of U.
Benetton countersued two former store owners for alleged defamation. Corporation as an autonomous entity and to improve relations with store owners.
Benetton acquired interests in four apparel-related manufacturing companies: Calzaturificio di Varese S. To integrate group logistics, Benetton also acquired Azimut S. To enhance global production and marketing, Benetton built a factory in Argentina to add to facilities built the year before in Brazil; acquired, incorporated, or sold marketing companies in various countries; opened stores in Warsaw, Moscow, and Cairo; listed on the New York and Toronto Stock Exchanges; planned to expand Benetton Cosmetics, which had operated in North America and Europe for the last three years, into the Japanese and South American markets; and entered into a joint venture with the Japanese trading company Marubeni, creating Benetton Shoes Corporation, to sell shoes in the United States and Canada.
Negotiations also were made with Toyobo on joint plans to enter both the Japanese and Brazilian markets, and with Seibu-Saison to convert its license to a production and marketing joint venture. These developments were representative of Benetton's strategy to first use licensees to gain wide exposure in new markets and then to convert the license into production and marketing joint ventures.
Accordingly, growth also was accelerated by granting licenses to producers in noncompeting industries. The Home Colors trademark was developed by acquiring an interest in Eliolona S. A new joint venture called United Optical was formed between H. Heinz and the Italian manufacturer Anser to produce spectacles. Furthermore, W.
Corporation was incorporated in the United States as a joint venture with Avendero S. By exports rose to To finance this expansion, Benetton aimed to attract investors in the United States, Canada, Japan, and Europe by making a capital issue of 24 million shares.
Moreover, the trademark United Colors of Benetton was adopted. In the meantime, the Federal Trade Commission conducted a preliminary investigation to determine whether Benetton had violated federal statutes by failing to file as a franchiser but dropped the inquiry after Benetton asserted that contracts are negotiated by independent sales agents and that store owners pay no fees or royalties, even though they are required to follow stringent merchandising rules.
In the late s, Benetton gained additional competitive advantage by implementing global networking to connect sales and production. A point-of-sale computerized program, which linked the shops to headquarters, was designed to handle order management, cost accounting, production control, and distribution support.
Thus agents began booking 80 percent of each seasonal order six months in advance; the remaining orders were placed midseason and relayed to headquarters by computer. The point-of-sale program was replaced by late , and Benetton's decentralized operations were linked by a global electronic data interchange network, which also included freight forwarding and customs applications. Thus in Benetton started to consolidate its stores in the United States as well as Europe, replacing the clusters of smaller stores with the megastore concept, which carried the full Benetton line.
In addition, Benetton turned its marketing and sales efforts once again to developing markets in the Near and Far East and to Eastern Europe, and halved its dividend to have more funds for expansion and acquisition. In December, Benetton signed a joint manufacturing agreement with Alexanian in Egypt in light of plans to open 30 stores in that country, and in , 12 stores were opened in Poland.
A joint venture agreement was signed for manufacturing facilities in Armenia, which was to produce apparel for the Soviet market under the United Colors of Benetton trademark; future expansion plans came to a halt, however, owing to lagging productivity at this plant. To beat the worldwide recession and increase market share, in Benetton developed strategies to achieve the following goals: to improve operating margins, reducing prices by about 15 percent, increasing production volume, improving product mix, and taking advantage of the devaluation of the lira; to improve operating efficiency, reducing number of styles of its collection from 4, to 2,, and acquiring and integrating the operations of four key former subcontractors; and to improve cash flows, refinancing short- and medium-term debt.
The mix of items was improved by introducing sophisticated classic professional apparel through shops dedicated to these higher-margin product lines-- And for dress shirts, Di Varese for shoes, and Benetton Uomo and Benetton Donna for mature men and women--and by continuing to expand into the sporting goods market. By mid, Benetton bought the remaining interest in Galli Filati and consolidated interests in four suppliers of woolen and cotton materials; now about 68 percent of the cost of production was represented by charges from subcontractors, compared with 87 percent in As a result, group sales rose 10 percent.
By early , Benetton had continued to close stores in the United States and, for production and marketing reasons, ceased operations at the Rocky Mountain plant in North Carolina. A technologically advanced factory opened at Castrette, Italy, which was designed to expand manufacturing capacity to 20 million pieces per year with about 15 people, using sophisticated robotic technology. Goods were now exported in greater numbers from Italy, where Benetton benefited from the abolition of the wage indexation system and the devaluation of the lira following its withdrawal from the exchange rate mechanism of the European Monetary System.
Mauro was appointed marketing director of the Benetton Group in , at the age The Benetton family combined and optimized their expertise in marketing Luciano , production Giuliana , management and finance Gilberto and technical know-how Carlo. They aimed at the casual wear market with color to catch the eye, first only in woolens but later in cotton. When regional small plants producing stockings came upon hard times, the Benettons bought their equipment at bargain prices.
Now they were ready for a spectacular expansion. Between and , they expanded into all types of clothing, from jeans to gloves to a complete Benetton wear model. Going into the s there were 14 family members in the business. The Benettons aimed to transform the fashion-fractionalized small handicraft style into an industry with minimum risks.
To achieve this, they expanded in variety and size and decentralized production and distribution. They purchased large quantities of materials in raw form, benefiting from quantity discounts and controlling the processing especially color from its rawest form. However, 80 percent of production was performed in plants not owned by Benetton but controlled by the family. In distribution, various attempts were made to control all stores.
At the beginning they would go into partnership with a friend who would in turn find others interested in having a Benetton store. Later, with international expansions, the holdings model was adopted, with the Benettons always having an exclusive contract. As a practical characteristic, the stores were about square feet while the competition was usually 1, square feet and 50 percent of all working hours were dedicated to sales the competition, This is probably why Benetton's productivity was four times greater than the competition.
Still, the success of the "Benetton" model is due to their trust. They wanted the stores to be exclusively Benetton, but allowed the owners to have 51 percent of the holdings. The Benettons have always preferred to be partners with their producers and distributors rather than to seek vertical integration where the managers of stores were salaried people with no direct share in the operation.
The incentive was to make every representative a majority partner in his particular operation so that, as owners, they would strive to increase sales and profits. In the s, the little square-feet stores developed a turnover more than twice as large as those of competing companies. Specialization and standardization are the main instruments that allow high productivity.
The family entered into other business ventures assisted by loans from financial institutions. They eventually purchased the large well-known shoe manufacturer, Varese. For 4 weeks receive unlimited Premium digital access to the FT's trusted, award-winning business news.
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