MEGASTORE BUILDUP: BENETTON’S GAME PLAN FOR U.S. RECOVERY
Byline: David Moin
NEW YORK — Beaten down but not defeated, Benetton is positioning to recapture its lost U.S. market share.
The $2.4 billion Italian fashion conglomerate is bringing its global store strategy — a much larger format accommodating a broader assortment than before — to some of the very same U.S. cities it bailed from in the Nineties. Three openings in Manhattan are set for fall. Other high-profile locations are being sought in Tampa and West Palm Beach, Fla.; Los Angeles, San Francisco, Atlanta and Chicago.
Despite the sudden American economic slowdown, Benetton anticipates 20 percent growth in U.S. revenue this year, though that’s off a small base of $150 million in volume generated by about 150 stores.
“I don’t see any particular reason to change our plans,” stated Luciano Benetton, chairman, when asked if stock market and consumer confidence plunges could stall the strategy. “One of Benetton’s strong points lies in its widespread geographic presence. A slowdown in some markets is compensated by growth in other areas. I think that such moments can create opportunities for investment and gaining market share, as we recently did in the Far East, at a time when other companies can find themselves in difficulty.”
In the Eighties, Benetton mushroomed to 750 little green sportswear stores on urban corners across the U.S., then sank fast in the Nineties, shutting 80 percent of the stores after legal difficulties with store owners, weak collections and rising competition. In another blow last year, Benetton ended a short-lived distribution deal with Sears, Roebuck that many thought was a miss-match to begin with.
Despite taking punches here, Benetton’s worldwide profile remains high, and its executives maintain that the U.S. could ultimately be Benetton’s biggest market or second biggest after Europe.
“The United States has undoubtedly always constituted the most important market in the world, in terms of dimension and competitiveness,” said Benetton. “It is a complex and stimulating reality, where large American companies contend with global enterprises from all over the world.
“On the other hand, Europe, with monetary union now imminent, is ready to become a market of similar size in terms of consumer spending power and has, therefore, the potential to equal the American market.”
“Our experience in the U.S. began almost 20 years ago, and today the biggest challenge in an ever-more-global market is that of stimulating the attention of the consumer, who has everything, with a high quality product at the right price and through stores that make shopping a relaxing and enjoyable experience,” Benetton said. “For Benetton, the American consumer is one who appreciates Italian taste, the value of design and fashion, which can be summed up with ‘Made in Italy.”‘
To deal with the complexities of a changed market — one’s that’s way overstored and under-trafficked at malls — Benetton is executing a complicated strategy, calling for stores with far greater square footage, anywhere from 6,000 to more than 20,000 square feet [some overseas megastores are even larger], a contemporary, minimalist interior design, deeper assortments, huge “color walls” that maximize key items in various colors, and tighter controls from the home base.
“We’re talking about a totally different dimension to these stores, not the 1,000-square-foot-stores we opened in the Eighties,” stated Carlo Tunioli, executive vice president of Benetton USA Corp.
The stores will carry the complete United Colors of Benetton collection, including the men’s, women’s and children’s wear, intimates, shoes, accessories, home and some cosmetics. They won’t sell the active brands that Benetton owns through its Sportsystem division, including Prince, Rollerblade and Nordica, which are are sold through Benetton’s 100 Playlife stores in Europe.
As its global strategy progresses, there will be more company-owned Benetton stores. However, most units will be part of a licensed network of stores operated by private entrepreneurs, but dictated to by Benetton. They are supplied strictly with merchandise designed and manufactured by Benetton and with Benetton-created fixtures and graphics. Benetton collects wholesale sales in return, while stores keep their own sales and profits.
This network formula, chairman Benetton said, “combines the entrepreneurial experience of our clients with the managerial expertise of the company.”
“The structure of the business fundamentally is not changing,” Tunioli added. “There are still other retailers owning and running Benetton stores, but with more direct involvement by the company. The company has to better understand customers and pick up quicker on trends. Things change, customers change, the market changes. What’s happening here in the U.S. is part of a global strategy. Benetton is very seriously undergoing a retail redevelopment on a global basis.”
Worldwide, Benetton has 5,500 stores, including 30 that are company-owned and considered “megastores.” In the U.S, the company envisions 10 company-owned stores on top of the five already operating. Among the recent openings were last fall’s 21,000-square-foot and 32,000-square-foot megastores in Milan and Tokyo, respectively. Last year, Benetton penned deals with Italian department store retailer Coin to take over 12 stores, and with Dutch chain Peek & Cloppenburg for three stores. Those spaces are being converted into Benetton megastores and should open by the end of 2001. That strategy, company officials say, won’t distract from the U.S. buildup.
“We’re very focused on Manhattan,” where three large stores are set, Tunioli said. An 8,000-square-foot unit at 666 Third Avenue on the north side of 42nd Street, is scheduled to open at the end of August. That will be followed by a 9,000-square-foot-unit at 555 Broadway, between Prince and Spring Streets in SoHo, to open in September, and a 10,000-square-foot-unit at 120 Seventh Avenue on 17th Street, set to open in October.
Tunioli said that on Third Avenue, Benetton will seek at least $450 in sales per square foot, or over $3 million in annual sales. In Soho, which will have a more fashionable selection and a higher average price point, sales per square foot are expected to be around $900. Benetton does not design a specific collection for the U.S. market, but does edit the assortment for this country.
Currently, there are three Benettons and two stores for Benetton’s fashion-forward Sisley brand in Manhattan. At its zenith, Benetton had over two dozen units operating in Manhattan.
“The stores will showcase a new concept, a new layout,” Tunioli said. “They are contemporary, clean, minimal, simple, easy to read, easy to browse, and definitely consumer-friendly. They will showcase our collection very effectively and replicate impeccably” stores in such major markets as Tokyo, Hamburg and Rome.
“Definitely, Manhattan is the most important market for any retailer,” Tunioli said. “It’s critical that we set up our first wave of stores firmly here.”
Aside from Manhattan, Tunioli said Benetton stores, under the new format and owned by other operators, will be seen in West Palm Beach, Tampa, Chicago, Atlanta, Boston, San Francisco and Century City in Los Angeles.
“No question, we will be more involved in these stores,” he said. “On the other side of the issue, our partners understand that. There’s no question the company is extremely serious and committed to staying in this market.”
Tunioli insisted that Benetton’s image has not faded over the years, even as it shrunk its presence in America. It’s maintained a “young, colorful and multi-cultural image,” he said. “Those are the three components that immediately come to mind.
“In terms of merchandising, wool sweaters immediately come to mind, though the outerwear, bottoms, tops and accessories are significant. For spring, sweaters represent some 20 to 25 percent of the offering.”
This renewed attempt at retailing will “really execute the vision of the brand in a way that finally articulates the entire fashion message,” Tunioli stated.
“We will take a stand by going deep on what Benetton feels will be the hot item on the more basic side [of the fashion spectrum, and will spotlight the look on] color walls. They’re very impactful, and show very colorful sweaters in different versions — sleeveless, roundneck, V-neck and mock-turtle. It’s a big statement, right in the middle of the store.”
Generally, the experience of European retailers coming to America has not been good. Most, such as Galeries Lafayette, Printemps and Batus failed to read the market accurately and pulled out after losses. Asked about the failure of European retailing here, Benetton replied: “I remember the lines of Gertrude Stein: ‘In the United States, there is more space where nobody is, than where anybody is.’ This is what makes America what it is. The exact opposite of Europe. Maybe the application of commercial models that have had success in one’s own country can bring bitter surprises in such a different nation.”
Now a new wave is descending. Sweden’s Hennes & Mauritz is storming the East Coast, Zara is opening more stores, though more slowly, and Ikea, the home chain, has become entrenched.
But Tunioli avers Benetton’s second surge is not a reaction to others.
“I think Benetton’s sense of urgency has nothing to do with H&M or Zara or whoever comes in from Europe,” he said. “The sense of urgency comes from a strategy to become more significant in the marketplace and to be more appropriate to our customers. H&M is different. It’s got a different model, with lower margins. I would call it cheap and chic. We’re more expensive, but overall our prices are very fair.” And still moderate, with T-shirts around $18, sweaters in the $37 to $80 range, and pants about $48 to $74.
Benetton could accelerate its U.S. growth through an acquisition, as it recently has done in Europe. Asked if Benetton is interested in making a retail acquisition in the U.S., Tunioli responded: “The company is committed to its network of retail partners. Down the road, there could be additional developments.”
“Definitely, the advertising push this fall will be important [to support the U.S. expansion],” Tunioli said. “Benetton, in New York City, will be very visible, with print, outdoor and transit advertising.”
But will it be as controversial as in the past, which sometimes turned off customers and store owners? Probably not.
“Benetton will always be loyal to its brand DNA, which means social statement,” Tunioli said. “Benetton will keep working in that direction, but much will be focused on product. It may be controversial, but we’re not going to be controversial in the way you used to see Benetton.”
Last year, Benetton switched advertising. It’s currently done with Fabria in Italy, which replaced Oliverio Toscani, the company’s creative director for almost two decades, whose controversial style and themes ran their course. Going forward, Benetton may still promote serious social causes, but the ads will be balanced by upbeat styles and new store addresses. Bottom line, it’s time to promote an old cause: Benetton’s business.