WASHINGTON — The story of how Iraklis Karabassis became Benetton Group’s vehicle for growth in the U.S. began with a sharp detour from a geology career in his native Greece.

Karabassis, chief executive officer of The IK Retail Group, now owns 97 of the 114 Benetton stores in the U.S. through licensing agreements, selling the Italian brand’s hip sportswear. He plans to open at least 10 more next year.

A new addition to Karabassis’ roster is one of Benetton’s trendy Sisley formats in New York at Fifth Avenue and 48th Street, which opened this summer and is his 10th store in that city. Next year, he plans to add at least three more Manhattan sites, including another Sisley in the historic Flatiron building. He recently leased the corner spot after spending seven years sizing up the location.

By all accounts, Karabassis has been deliberate about building his chain, which he started in Washington, D.C., in the early 1980s, a city he still considers the hottest retail market in the U.S. By early next year, he will have 16 Benetton stores clustered in or near the nation’s capital.

In the midst of building IK Retail Group, which has 1,500 employees across 32 states, eastern Canada, Bermuda and the Bahamas, Karabassis also opened one of Washington’s perennially hot restaurants, Café Milano, a regular haunt for political, social and Embassy Row cognoscenti. However, he bowed out of Milano’s daily operations awhile back.

“I consider myself to be a retailer,” said Karabassis, in a recent interview at his row-house offices in Washington’s scenic Georgetown shopping district, a neighborhood he still finds magical after moving there 21 years ago to help Benetton in its march into the American market. Two blocks away is Karabassis’ Benetton flagship and top-performing store at the corner of Georgetown’s M Street and Wisconsin Avenue intersection.

Karabassis is a retail insider, so much so that Washington Mayor Tony Williams, who takes pride in a years-long campaign to increase retail investment, only recently heard about him, said Herb Miller, chairman of Western Development Corp. The occasion was Karabassis signing a lease last month for a 10,000-square-foot, three-story combination Benetton and Sisley store in the city’s Chinatown, which will anchor a downtown retail and apartment project called Gallery Place, one of Miller’s developments.“He’s the largest apparel retailer in Washington...but he’s very quiet. Iraklis is really an understated guy,” said Miller, who has known Karabassis for 21 years. Miller pegs the merchant’s success, in part, to fierce real estate acumen and a “a dedicated group of employees who stick by him.”

In 1980 and in his early 20s, Karabassis went to work for Benetton in Paris as the company was making its foray into northern Europe. He became steeped in the business as a sales representative, finding licensees and locations, as well as organizing stockrooms and merchandising stores.

It’s a job he took after finding his French wasn’t strong enough to pursue a masters degree in seismology at a university outside of Paris. His plan was to work in his native tremor-prone Thesally region of central Greece.

Karabassis earlier had received an undergraduate degree in geology at the University of Florence, a field he picked because it looked interesting and he wanted a diploma as a sign of accomplishment. However, his first motivation was to better his Italian in order to attend a soccer-coach school in the city, where he was playing semiprofessional ball as a promising midfielder.

When Benetton set its sights on the U.S. market in 1982, Karabassis with two French partners took on the assignment of finding licensees and helping to merchandise and open stores. At the time, Benetton’s core merchandise of colorful Italian knit sweaters, skirts, sweatpants and other fast fashion quickly swept the country in popularity and about 500 stores were opened.

Around 1989, as Karabassis describes it, “the catastrophe happened” when Benetton’s niche got severely pinched by competition from The Gap, The Limited and other retail chains chasing the same teen-to-twentysomething customer looking for value-priced fashion.

“We started to lose one licensee after another,” he said. “The competition became meaningful.”

Undeterred, Karabassis decided to make another pass at the U.S. market.

He scrutinized Benetton’s line of 1,200 pieces and gleaned a narrow assortment of fashionable career and evening apparel — skirts, dresses, slacks, blazers — to sell to a customer he saw as well-traveled and chic. The merchandise had higher prices than were previously carried, but Karabassis saw the new mix as the only way to remove Benetton from the clutches of the encroaching lower-priced competition.“I wanted to go away from the teen-age, young look to something more sophisticated,” Karabassis said.

At the same time, he was eager to keep alive the designed and made-in-Italy cache of the Benetton brand in the U.S. But spreading his sophisticated, career-oriented customer vision among store owners proved difficult. Doors kept shuttering and by 1995 Karabassis decided to launch his own retail company and go after the business.

“Iraklis has never had a doubt being with the Benetton Group. He always went ahead very strongly believing in the company, product and business opportunity here,” said Angelo Passaretta, a director at real estate broker Robert K. Futerman in New York, who was Benetton’s vice president of shirts and accessories when Karabassis first landed in the U.S. “He’s very cautious. He knows his business. He knows what his stores could do in a specific location.”

Karabassis attributes a large part of his success to Benetton’s fashion-forward merchandise, now with a larger separates and career apparel bent, and its redesigned stores — modern, light-filled, stainless steel and glass — helping to showcase apparel better. Crucially, production cycles are no longer just geared to two collections a year. Stores can order a core inventory that’s supplemented by several minicollections called “prontos” that add constant variety for shoppers.

More than half of Karabassis’ stores have opened during the difficult economic times of the past three years. The IK Retail Group’s business has ranged from strong to steady during the period.

Year-to-date comparable-store sales in 2003 are up 7 percent. In 2002, comp sales rose 2 percent, a slower pace Karabassis attributes in part to the influence of opening 22 new stores that year. The economy was also stumbling out of recession, with Gross Domestic Product increasing just 2.4 percent.

In the meantime, Benetton in Europe has gone through its own period of restructuring and cost-cutting. Karabassis said the manufacturer has been able to hold off increasing prices due to the strengthening euro.

“We are offering good prices and the stability of that has boosted a lot of our sales,” Karabassis said. “This fall, we’re very well stocked and prepared to do a good season.”His retail team is constantly tinkering with the product mix, and orders are placed directly from stores, which eliminates the need and cost of a distribution center and allows for fine-tuning of merchandise to local tastes. Deliveries arrive from Europe within two weeks of placing an order, and it takes six to eight weeks if something has to be produced. Slow-moving merchandise is routinely sent to five warehouses, where it’s then channeled to The IK Retail Group’s 12 Benetton outlets.

Karabassis is involved in all aspects of the business and uses Washington stores as test locations to try out merchandise. Northern Florida is a tough market, as is the Midwest, other than Chicago. Areas where there are clusters of stores do best, like the Washington and New York markets that comprise about 42 percent of company sales. Karabassis tries to keep rent below 15 percent of occupancy costs and he scouts and negotiates leases.

The IK Retail Group also has branched out beyond Benetton. Karabassis is building a prototype restaurant in Washington’s Dupont Circle based on the cozy neighborhood Italian osterias, offering pizza and pasta and daily specials. Called Sette, the café will be around the corner on R Street from a newly opened double storefront Sisley and Benetton on Connecticut Avenue. Karabassis would like to see other Settes near his Benettons.

The retailer also has branched out and owns eight licensed Max Mara stores, a division his wife, Yasmine, operates. Gross sales for IK Retail Group for 2002 were $84.2 million, which includes the Max Mara licensed stores. For 2003, the company projects gross sales of $110 million to $115 million.

The Max Mara connection was made through a longtime contact, Chris Lusk, vice president of leasing at the Taubman Co., which manages malls in which many of Karabassis’ stores are located. Max Mara was looking for store operators and Lusk thought of Karabassis.

“He’s used to doing business in Italy with Benetton and here’s another Italian retailer,” said Lusk, describing Karabassis as “very decisive in terms of what he wants” and an aficionado of emerging retail concepts and store design.

Karabassis’ retail connections led Ed Asher, president of the Chevy Chase Land Co., to turn to him as a consultant in leasing a planned 200,000-square-foot, high-end shopping center on the Maryland-Washington border. Excavation of The Collections at Chevy Chase Center is slated to start next month. The IK Retail Group will locate a Max Mara in the center, to open in 2005.“Just going through a normal broker is not really the right thing to do if you’re going for the top of the top who haven’t been in this market before,” Asher said. “Iraklis has been very instrumental in contacting the decision makers of these luxury retailers.”

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