Green for go
In the first half of the year, Benetton opened 95 new India outlets, including this Bangalore store, as part of an international expansion push
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Benetton Group has its ups and downs too. It still makes sweaters but it has also greatly expanded its product offerings to include a wide range of apparel as well as new brands such as fashion-forward Sisley and the leisurewear brand Playlife. Now in overall charge of the group, Alessandro has his hands full. The challenge today is to restore some of Benetton's luster and take the company global far more aggressively. Italy still accounts for 46% of sales — Europe overall accounts for 80% — at a time of sluggish economic growth and ferocious competition on its home turf from fast-fashion rivals.
One of Alessandro's priorities has been to push Benetton more deeply into international markets with the help of strong local partnerships. In India he signed a deal with the Tata group, the country's largest conglomerate, which will open and manage Sisley stores; in the first half of this year, Benetton opened 95 new India outlets, despite the economic crisis. In Mexico, the partner is the billionaire Carlos Slim and his Sears Mexico group. Under a deal signed last year, Benetton aims to open 250 new standalone outlets and boutiques in Sears stores in Mexico. Alessandro is also targeting other Latin American countries as well as Turkey, Russia and China as significant future sources of growth. Conspicuously missing on this list is the U.S.; Benetton recently moved its U.S. headquarters from New York City to Miami, to be closer to the Latin American markets it's targeting.
International expansion is continuing despite the financial crisis, which has ravaged Benetton's bottom line. Profit in the first half of this year plunged 60% to $42 million from $115 million in the comparable period of 2008; sales in the same period were down 11% to just under $1.3 billion. The company has responded by putting in place a restructuring plan that mainly targets operating efficiency in its supply chain. Many financial analysts are lukewarm about the company's prospects because of the weak consumer-spending climate and the tough competition. "Benetton remains under pressure from multiple angles" is how Citigroup phrased it in a research note earlier this year that is typical of Wall Street sentiment. Alessandro in turn is critical of Wall Street and says the family fortunately ignored the advice of investment bankers to leverage up before the crisis.
Alessandro has also had to sort out some tricky governance issues. The company's experience with nonfamily management hasn't been an unmitigated success. The first outside managing director, who came from automaker Fiat, served just three years before leaving, together with the chief financial officer, in 2006. A new CFO brought in from Burberry lasted just 21 months. As well as putting together a new management team, Alessandro has also sought to delineate more clearly the roles played by the family and by management. The new managing director, Gerolamo Caccia Dominioni, comes from Warner Music, while the current CFO, Alberto Nathansohn, jumped this year from luxury jeweler Bulgari.
It's still too early to say how effective any of these steps will be. But Alessandro has already proved his abilities at the private-equity firm he founded, and Michael Porter, a Harvard Business School professor whom Alessandro describes as a mentor, says he thinks very highly of him. "He is a strategic thinker who has kept improving his skills as a manager and leader," Porter says.
The key to the future, Alessandro says, is for Benetton to keep investing — but also for it to retain its strong entrepreneurial culture. Ask him about strategy and he'll talk about changes — but he always comes back to the idea of continuity. "Many people think that the way to start is by listing the things you want to change. My approach is to start from the list of things I thought it would be a big mistake to change," he says. He is, after all, a Benetton. As he says of his own ascent to prominence: "I love to describe this as a different chapter of the same book." One that, his shareholders and his cousins hope, will have a happier ending than many other family empires that ran into trouble when the new generation took over.