Benetton: the eighties star rearms itself to rescue its former glory

Benetton, in a crossroads. The Italian retailer tackles the new era of ultrafast fashion, big data and artificial intelligence with a decentralized business model and an oversized and ungovernable network of franchises. And it must adapt to the new environment after five years of a challenging restructuring that have put the company in a delicate financial situation, with losses of 180 million euros. In order to spearhead this new chapter, the group has brought back to office its founder, Luciano Benetton, and its parent group, Edizione, has injected a hundred million euros. But 2018 is not 1988.

In his bestseller Falling Companies and Why Others Survive, Jim Collins recounts the phases of a company's downfall. The first symptom has to do with the arrogance born of success; the second, with an undisciplined pursuit of growth; the third, with the denial of risk, and the fourth, with the desperate search for salvation. The fifth and last phase, Collins qualifies as "capitulation": be insignificant or die.

1. The arrogance of success, who fears Zara?

No one in the fashion industry doubts that Luciano Benetton was a visionary: he was a manufacturer who knew that the business was in retail, knew how to squeeze the phenomenon of advertising and created the first global fashion brand. The businessman also enjoys recognition in the financial circles of Milan, where he has made strong bets through the Edizione hólding.

In the eighties and nineties, the group made the jump to the stock market, the advertising message evolved towards social denunciation and came to sponsor the Formula 1.

In fact, Flavio Britone was a franchisee of Benetton in the Virgin Islands before being the mogul of the automobile competition. But, already in the mid-nineties, the souffle began to deflate. The campaigns of Oliviero Toscani weakened, the formula of the franchise in the fashion business began to see its limits and the transition from the system to fast fashion began to be evident.

In the mid-nineties, the Benetton phenomenon began to falter with the entry into the game of Inditex and the disengagement of the family from the business

While the context veered the course, pressed by a Spanish retailer, Amancio Ortega, the founder of Benetton was launched to other crusades. Between 1992 and 1994, the Italian businessman entered politics and was a member of the Italian Senate. Also in the nineties, Luciano Benetton founded the family chair Edizione and initiated investments in other areas beyond fashion, with participations in Autogrill or Pirelli, among others. From that watchtower, who could fear Zara?

And he lost focus. “If you take a look at the fashion businesses that work, all of them are dedicated exclusively to fashion or, at least, to other very similar sectors, always linked to the lifestyle”, explains the consultant and professor at IED Madrid Francesco Malatesta. “But Edizione diversified to the maximum, because its core was no longer the fashion, it was doing business, anyone,” he says.

2. Excessive growth: 6,500 stores, turning point

In 1998, Benetton had stores in 120 markets. To the question, do you want Benetton to be fashion’s McDonalds?, Luciano Benetton replied that not in type of product, but in its global reach. What I did want to be is Fashion Coca-Cola: young, massive and global. So it was.

In 2012, when the group began its last restructuring, it had 6,500 stores and a turnover of 1,800 million euros.

That year, Inditex reached 6,000 points of sale. Last year, the Galician giant had about 7,500 stores and a turnover of 25,336 million euros. H & M, for its part, has 4,800 stores and closed the last year with sales of 20,449 million euros.

Inditex surpassed Benetton’s store number in 2012, when the Italian group sales amounted to 1.8 billion euros

The formula of the franchise may partly explain the decompensation between stores and Benetton turnover, but this rapid acceleration engine has ended up being its main brake. "The franchise does not cease to be like a multi-brand, an intermediary that has to be convinced about the items to buy or the furniture that must change, and from which it is very difficult to extract information about what is sold and what is not, and about who the consumer is, "says Marcos Álvarez, expert consultant in retail.

Inditex snatched the leadership from Benetton back in the nineties with a different formula: the direct management of the stores. This system allowed the Galician group to make the most of the fast fashion and accelerate it, coordinating all the links of the value chain and introducing lean manufacturing formulas and just in time in the sector. "Benetton is the company of a textile manufacturer that wanted to be a retailer, but always had an industrial mentality," Álvarez explains.

3. Denial of risk and perpetuate the model

Until 2012, the alarms did not jump in Benetton. The family then began to make the first decisions: the company was removed from the stock market; Alessandro Benetton gave the helm to one of the children, and left in search of a first external CEO.

That year, layoffs were carried out at the Treviso headquarters and factories abroad, real estate assets were sold, a corporate reorganization was executed, trademarks were closed, and the exit of a score of markets and the closure of 25% of the stores.

Benetton was restructured in 2012, but it did not go to the root of the problem

Benetton cut the dry leaves, but it did not go to the root of the problem: a matrix, Edizione, away from the topicality of the fashion business; a detached and carefree family of the fashion company, and a model without travel. "The franchise is good to start if you do not have a lot of initial capital or to enter a market that you do not know, but it is no longer useful to create a global brand," Álvarez emphasizes.

In fact, in full reorganization, Benetton opted for the Russian market with forty openings and opened flagship in London. Alessandro Benetton was then made with Philippe Model through his investment arm, 21 Investimenti. Shortly after, the heir took a step to the side and placed Francesco Gori, a top executive of the Italian automobile industry, linked to Pirelli.

4. The desperate search for salvation: the return of Luciano

The restructuring led the group to red numbers in 2013. In 2015, the company managed to refinance its debt and obtained new lines of credit for 220 million euros with a maturity of three years. Five years after initiating the reorganization, Benetton concluded the year with losses of 180 million euros, double of 2016, when it recorded a negative net result of 81 million euros.

Seeing them coming, at the end of 2017, the Benetton founder, with 82 years, announced his return to reactivate his business. "While the others were imitating us, United Colors lost its colors," said the businessman. "We failed," he said. With him, he also returned to the Oliviero Toscani company.

Luciano Benetton, 82, comes to rescue of the company, which ended fiscal 2017 with losses of 180 million euros

Edizioni's two main executives, Fabio Cerchiai, its president, and Marco Patuano, its chief executive, reported that the parent company would not drop Benetton and announced an investment of one hundred million euros through a capital increase. With the return of the founder and the millionaire injection, Cerchiai and Patuano anticipated that in the first half of 2019 the first changes would already be perceived.

But this transformation is far from being fast and simple. "Benetton stopped being competitive in retail when it did not know how to make the leap to fast fashion", explains María Eugenia Girón, executive director of IE Premium and Prestige Business Observatory. Giron, who recalls that now the entire sector is in the middle of the second wave of retail reorganization, Benetton must manage to enter the era of digitalization without the strength of the business.

“Benetton did not face the first transformation and now must face the new change of model”, Giron underlines, who points out that today the debate is no longer between own store or franchised store, but to hit the data. "The data is the most valuable asset and with the franchise there is no data," says the expert.

The sale of the company doesn't seem to be on the table, especially when it bears the name of the family

Following the phases of Collins, everything seems to indicate that Benetton is getting closer to capitulation: to become small or to die. The sale option does not seem to be on the table either, especially when the company bears the name of the family.

And put to stumble, nor advertising with Toscani connects with the new generations. The last blow, the controversy that burned social networks on the image of Aquarius refugees with the Benetton brand. This time it is not the mass media of the establishment that criticizes, it is the consumers in the first person. Times have changed, but not Benetton.