Can the brand that went out of fashion return to its throne?
Siddharth Shah, Warwick 23/11/18
The Review, Warwick Finance Societies, University of Warwick
Benetton is plotting a course for its re-entry into the top fashion brands and retailers of the world. The Italian label pioneered global fast fashion 25 years ago, but has since faced a dramatic loss of brand recognition and success.
When Benetton first emerged onto the global retailing scene, the company made an immediate impact on both the marketing and retail side, as well as in terms of supply chain management. The family focused on procuring their then trademark bright, edgy and fashionable line of knitwear, whilst photographer Oliviero Toscani marketed the brand with provocative and eye-catching advertising campaigns. However, primarily underlying the success of the business was a supply chain that was ahead of its time. Benetton outperformed its competitors by building factories in countries with low labour costs. Their franchise model allowed them to distribute directly and expand when necessary. It also enabled them to stay on top of the latest trends, responding adeptly to changes in tastes and demand by releasing flash collections of products that were growing in popularity.
The firm ensured careful oversight of each region in which it operated and planted several outposts in concentrated areas; e.g. at one point, Benetton had six shops on Fifth Avenue in New York, some within sight of each other. This, together with their attention-grabbing billboards, established powerful, global brand recognition that prompted consumers at the time to largely purchase their clothing and accessories from the Italian knitwear label. Moreover, the Benettons operated automated warehouses and factories, outfitted with what was at the time state-of-the-art equipment. The company also only dyed its sweaters in the final stages of the production process, allowing them to produce pieces in the colours that were proving more popular amongst consumers, simultaneously reducing inventory needs and avoiding markdowns. Owing to their efficiency and production advantages, in the mid-1990s, they reported profit margins of over 40%.
Until the late 1990s, the business maintained multiple factories and 7,000 shops in 110 countries.
Even as the label’s designs began to lose their edge, their famously controversial United Colours of Benetton ad campaigns – including billboard-size images of a white baby being breast-fed by a black woman, or of an interracial lesbian couple at a time when homosexuality was all but non-existent in advertising – were at first able to preserve the brand’s image.
But in 2000, after Toscani left the company amidst an advertising campaign-related controversy, subsequent advertisements lacked the unique quality that made Benetton stand out in the first place.
In 2000, they ranked 75th in Interbrand’s list of the best global brands; by 2002, the apparel brand had fallen from the top 100. Retailers like Zara and H&M emerged with even more efficient operations, capable of shelving new products in weeks, compared to Benetton’s months. Store owners began to reduce their orders of Benetton’s products, and the company was forced to close several stores. In 2002, the label recorded a net loss – for the first time in their history – of $10.6 million. But in 2003, the family finally took the initiative to transform.
Benetton sold its poor investments, improved its relationship with store owners by selling products at cheaper wholesale prices, allowing owners to make higher profit margins, even though it would worsen their own bottom line in the short-term; in the long-term, the new management believed it would pay off in terms of loyalty. The production of some goods was outsourced to China to counter the temporary decline in profitability from shifts in the supply chain. Now outdated cranes in Benetton’s warehouses have been replaced with laser-guided lifts to expedite shipping. Changes in management, changes in production and Benetton’s legacy of innovation will aid the company in its attempted return to the heights of the fashion industry. A company past its prime may yet be able to make a comeback, taking advantage of its well-established strengths in speed, retail and marketing.
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