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Ponzano Veneto, Italy — Luciano Benetton turned 70 last Friday. His round spectacles and waves of white-gray hair are as distinctive as the company his family founded.

Benetton, the company Luciano started with his brothers Gilbert and Carlo and his sister Giuliana, was always one step ahead of the industry, whether it involved quick-response garment dyeing or shock advertisements with a social statement. Arguably, times have changed, with industry experts praising Zara’s business model and Hennes & Mauritz grabbing headlines as it signed Stella McCartney. But those developments haven’t deterred Benetton from pondering its future as it celebrates its 40th anniversary this year.

“The world was different,” the Benetton chairman told WWD in an exclusive interview at the group’s headquarters, a 17th-century frescoed villa here. “It was much simpler. Our collections were much smaller. We saw great results for many, many years, just as we played with different colors. Later on, competition increased, and now you always have to be looking for new spaces to attract the attention and interest of the customer.”

Benetton is facing what many have said is the most challenging period of its four-decade history. There has been a lot of criticism directed at the firm: that it has missed trends, relies on an outdated business model and lacks a clear brand identity in an ever-crowded mass market for clothes. Profit warnings and missed sales targets haven’t bolstered market confidence.

Armando Branchini, vice president of the consultancy Intercorporate, summed up a widely held belief regarding one of Italy’s most famous labels: “They had a brand and product identity until the end of the Eighties. Then at the beginning of the Nineties, it started to weaken.”

At the same time, Branchini expressed optimism that the company is on the right track to reposition itself and create stronger, more interesting clothes, rather than compete solely on the base of price.

Luciano Benetton is quick to defend his empire’s strategy and structure. But he also admits that the company is in a transition phase, as the family reconsiders its role in the day-to-day operations and Benetton grooms his 41-year-old son Alessandro to succeed him. A board meeting scheduled for Monday is expected to nominate Alessandro to be co-vice president, a title he would share with his uncle Carlo.

This story first appeared in the May 16, 2005 issue of WWD. Subscribe Today.

The chairman dismissed market criticisms that the company’s strategic plan isn’t aggressive enough or that the retailer has lost market share since Zara and H&M appeared on the scene in Italy, which is still Benetton’s biggest market. He said he is planning for decades to come, not just short-term.

“We have 40 years of history behind us,” he said. “Personally, what I am interested in is the next 20 years, not just next year. For me it’s not important if a goal isn’t immediately reached.”

Benetton said that there is a market for well-made yet affordable basics, both on the company’s home turf of Europe and in emerging markets such as China and India, where it is plotting future growth. What’s more, he added that the company can justify higher prices than other mass traders like Zara or H&M, because customers are willing to pay more for clothes that last many seasons.

“The concept of fast fashion is that it is something that changes constantly and should cost very little because it doesn’t have a long life span,” said Benetton, who was wearing a brown blazer, jeans and black sneakers. “If we sell a white shirt, it has a longer life span, you wear it until it’s worn out or used up. Our goal is to sell to people whose closets are already full.”

Benetton said he doesn’t monitor what the competition is doing but rather listens to his own customers about their needs. Such logic drove Benetton to innovate in areas such as synthetic fabrics that are machine washable and do not need to be ironed or use elasticized cotton that makes for a tighter fit.

“Our logic is to try and cater to people who work or go to school and don’t necessarily try to keep up with fashion,” he said. Benetton is also trying to reach out to a wider customer base with softer ads and more interesting store concepts that highlight the clothes.

Market experts have said that Benetton needs to reclaim a clear brand identity, something that many have gotten lost during the years that photographer Oliviero Toscani oversaw the advertising campaigns. Those ads, which included images like a black horse mounting a white one or a photo of a nun kissing a priest, helped propel the Benetton brand to fame — but also upstaged the collections.

Benetton now turns to Fabrica, the think tank it founded in 2000 for art students and other budding creative types for its campaigns, which still draw heavily on Toscani’s portraits of ethnically diverse faces but show more of the clothes.

Stefania Saviolo, co-director of a fashion management program at Milan’s Bocconi University, said Benetton needed to communicate a stronger brand identity. “Toscani did beautiful things, but they didn’t directly relate to the product,” she said.

In particular, Benetton wants to reach out to customers of all ages, but the firm is especially keen to get its products out to teenagers and young adults, those that really spend money on clothing. Luciano Benetton said that low-priced collections of sweatshirts, polo shirts and denim — a newly expanded product category — have done well in stores with younger customers. On Friday, the company announced a deal with Selective Beauty to develop the United Colors of Benetton fragrance business worldwide.

The firm is also trying to tap into a younger, edgier clientele with Sisley. Almost more than the clothes themselves, it’s the overtly sexy nipple-bearing advertisements that distinguish Sisley from the squeaky-clean preppiness at United Colors of Benetton.

Sisley accounted for about 19 percent of the company’s 2004 sales volume, and Bennetton said he sees untapped potential at the brand, particularly in men’s wear. Last year, the company opened its first men’s-only Sisley store in Florence, and similar boutiques could roll out in other cities.

Bocconi’s Saviolo said that it could be tricky for Sisley to find its positioning between H&M and Zara and designer diffusion lines, which have been coming down in price lately.

“It’s almost bridge,” she said. “On the price/quality ratio, we are going to have to see if the market accepts it.”

New markets, namely China and India, are also growth priorities for the company. It is logical that Benetton would want to diversify its revenue stream, as it does about 85 percent of its business in Europe, a market that has been sluggish for years. Last month, Alessandro Benetton traveled to China to start studying the market. Benetton plans to open 40 stores there this year, including flagships in Beijing and Shenzhen, and the goal is to roll out as many as 200 stores in China by 2008.

Luciano Benetton said he wants to produce in China for the local market, much like the company has been doing in India since 1991. By producing in these two countries, his company will be able to source the entire region, he said, adding that Asian growth is one of Alessandro’s key mandates for the future.

Benetton also said that the company could use China as a production hub to finally penetrate the U.S. market. In 2004, sales in North and South America made up just 4.3 percent of the company’s revenue.

“In theory, given that China is three times as big as Europe, it could become the headquarters to the Benetton of the future,” he said.

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