Benetton Group Market Positioning

Clothing Retailing - UK -Be

netton Group

Benetton is an Italian manufacturer of textiles that distributes goods through a tied, mostly franchised, store network operating in Europe, Asia and the Americas. Benetton also operates the Sisley brand, which is sold in standalone stores as well as some co-branded Benetton outlets.

This profile focuses on Benetton’s UK activities but there is some coverage of the group as a whole to provide context.

         

Benetton’s declining sales in the UK have led to a considerable fall in market share over the last few years.

Strategic evaluation

Turns to fast fashion

Having reported largely flat sales between 2000 and 2005, the group seems to have seen something of a recovery in recent years. The retailer was initially slow to adapt to the trend of fast fashion, but in the last three years it has ramped up its number of new lines within the year from two to as many as 12 for each of its five brands. This strategy has allowed it respond much more quickly to fashion trends, and is partly responsible for the upward momentum of sales.

Focus on emerging markets

The company has focused much of its recent expansion on five ‘priority markets’: India, Latin America, Russia and the former Soviet Union and Turkey. These markets accounted for around €100 million in sales in 2008, but the company expects to triple its turnover there by 2011 through aggressive expansion. While these sales numbers are still relatively small, it makes sense to focus on these markets, as room for expansion in the mature markets in Europe is limited.

Surviving the downturn

At the beginning of 2009, the company announced that it would take radical action as a result of the tougher trading conditions that it has experienced from the end of 2008 onwards. The company will be aiming to cut costs where it can, which could include the closure of non-profitable stores. The difficulty with Benetton is that it is both a clothing manufacturer and retailer. In tough times many retailers will be looking to save costs by seeking more value from the manufacturing side, but in the case of Benetton that means it will be hurting its own profit margins.

On the plus side, given that during a downturn consumers are more likely to turn to value for money items, Benetton’s conservatively-styled and good quality knits could prove to be a winner during the downturn.

Recent history

2003	The Benetton family relinquished control of day-to-day company operations.
2005	Entered into a partnership with the toy manufacturer Mattel, to develop co-branded ranges. So far has created the girlswear ‘Barbie loves Benetton’ range.
2006	Introduction of ‘nice price’ range within the mainline collection.
2007	Chief Executive Silvano Cassano retires and is replaced by Gerolamo Caccia Dominioni.
2008	Group expands into Mexico in collaboration with Sears department stores. Establishes office in Miami, USA, which will act as sourcing hub for its activities in the Americas.

Benetton provides only a minimal breakdown for its group turnover. The following figures were all taken from the company’s annual report with the exception of the UK figures, which are a Mintel estimate.

The large majority of group turnover is generated by wholesale, with retail sales only accounting for 22% of turnover in 2008.

FIGURE 80: Benetton Group: Group financial performance, 2004-08

Year to December	2004	2005	2006	2007	2008
Sales (€m, excl sales tax):
Benetton Group	1,704	1,765	1,911	2,049	2,128
Benetton (Europe)	1,435	1,481	1,609	1,706	1,758
Benetton (Italy)	854	849	915	977	1,016
Benetton (Rest of Europe)	581	632	694	729	742
Including:
Benetton (UK) Ltd (a, e)	44	37	37	34	29
Benetton (Americas)	72	73	63	50	66
Benetton (Asia)	176	207	231	280	290
Benetton (Rest of world)	21	4	8	13	14
Operating profit (€m):
Benetton Group	158	157	180	243	254
Operating margin %:
Benetton Group	9.3	8.9	9.4	11.7	11.9
Pre-tax profit (€m):
Benetton Group	136	134	159	203	212

Note: Sales figures are combined wholesale and retail sales, unless otherwise stated.
(a) Mintel estimate of sales at retail values

SOURCE: Company Accounts and Annual Report/Mintel

●              Benetton continued to increase its sales in 2008, with a year-on-year increase of 3.9%.

●              The company’s recovery has also led to a rise in operating margin in recent years.

●              Much of the sales growth has been achieved by the company’s emerging markets: Turkey (+11.2%), Russia and the former Soviet Union (+8.1%), India (+30.4%), China (+21.4%) and Latin America (+46.3%).

Performance in the UK

●              Italy is the company’s largest market in Europe, followed by Germany. The UK, by contrast, is a relatively tiny market in the context of Benetton’s European coverage.

●              Although no details were provided by the company regarding its performance in European markets such as Germany and the UK, we believe that it is likely to have faced challenging trading in these markets, given the economic conditions and the strong focus on price-led retailing in these countries at present.

●              Benetton publishes figures for the UK market through accounts filed at Companies House. From these figures we have estimated the chain’s retail turnover in the UK as seen in the above and below tables.

●              We believe that sales have declined by over 23% between 2004 and 2008, which can partly, but certainly not wholly, be blamed on a decline in store numbers.

FIGURE 81: Benetton UK: Financial performance, 2004-08

Year to December	2004	2005	2006	2007	2008 (e)
Sales £m (excl. sales tax):
Benetton (UK) Ltd	30	25	25	23	23
Sales €m (excl. sales tax):
Benetton (UK) Ltd	44	37	37	34	29

Note: Figure represents a Mintel estimate of sales at retail values

SOURCE: Company Accounts and Annual Report/Mintel

First half of 2009

●              Benetton has not remained immune to the effects of the global recession and the company reported that its group revenue fell by 11.4% in the first half of 2009 compared to the same period in 2008.

●              The large fall in sales was blamed on the rescheduling of its Fall/Winter collection to the third quarter – excluding this effect sales would have fallen by around 2% in the first half. Benetton hopes to save on logistics costs through the reorganisation of its sourcing, production and shipment schedule.

●              As in 2008, the emerging markets remained the better performers with a growth of 5.8% at constant exchange rates.

Store portfolio

Benetton stores are almost exclusively operated as franchises, although there has been a slight increase in company-owned stores over the last five years. Company-owned stores tend to be those that are a country’s flagship.

FIGURE 82: Benetton Group: Outlet data, 2004-08

Year to December	2004	2005	2006	2007	2008
Outlet numbers:
Benetton Group	5,320	5,390 (e)	5,460	5,807	6,228
Including:
Benetton (Europe)	4,065	n/a	n/a	n/a	n/a
Benetton Italy (e)	2,200	2,250	2,300	2,350	2,420
Benetton UK	60	45	46	42	44 (a)
Benetton (Americas)	282	n/a	n/a	146	n/a
Sales per outlet (€000):
Benetton Group	322	330	352	364	354
Including:
Benetton (Europe)	348	n/a	n/a	n/a	n/a
Benetton (Italy)	383	382	402	420	426
Benetton UK	670	705	813	773	n/a
Benetton (Americas)	254	n/a	n/a	n/a	n/a

(a) As at September 2009

SOURCE: Company Accounts and Annual Report/Mintel

●              Apart from a top line figure, Benetton does not provide a breakdown for individual markets. In 2008, there were 421 net new openings. Over 200 of these were in the emerging markets.

●              In 2008, the group expanded to Mexico through a partnership with Sears and is considering entering other Latin American markets.

●              The pace of expansion appears to have increased, with some 367 net openings in the first half of 2009.

●              In the UK, the group’s website shows that there was a slight increase in store numbers in 2009, after several years of declines.

Retail offering

Market positioning

●              Generally, Benetton is firmly positioned towards the middle market, but much depends on the local market, eg in Germany it is perceived as being more upmarket as it is more expensive than many of its peers, while in Italy it is more a middle of the road brand.

●              The company is keen to associate itself with the young, but its conservative styling means it also has a broad appeal among older consumers (aged 25 to 40).

Product offer

Benetton’s core focus is on knitwear, but its offer has been expanded and now also includes an entire casualwear range for men, women and children.

Benetton operates the following brands:

●              United Colors of Benetton (UCB) – UCB is the company’s main brand and is responsible for 80% of its sales. It comes in two versions: Benetton Adult and Benetton Kid (childrenswear). The clothes are meant to complete an everyday look, for both work and leisure. Bright colours are featured prominently.

●              Undercolors – features women’s underwear, beachwear, sleepwear and accessories, mostly sold at United Colors of Benetton stores. Two lines are available – ‘Fun’ and ‘Clean Sensuality’, the latter of which has a more feminine and sophisticated styling.

●              Playlife – is a sportswear collection inspired by classic American college wear. The brand is targeted towards the Italian and Eastern European markets and features in standalone stores.

●              Killer Loop – brand aimed at teenagers, mostly available in Benetton stores.

●              Sisley – sold in standalone stores as well as in co-branded stores, it is the group’s most upmarket and fashion forward brand, with special attention given to design, fabrics and new shapes. Also consists of a childrenswear range called Sisley Young, for children aged from 8 to 12.

Advertising and marketing

Benetton is well-known for its advertisements, often using controversial images to draw attention to their commitment to racial and social history issues. While the ads often have nothing to do with Benetton clothing or the Benetton brand, the company feels that is reaching out to its target market – well-heeled shoppers who Benetton considers intellectually sophisticated enough to not assail them with ‘buy now’-type advertisements.

The latest ad campaign follows this long tradition and tries to draw attention to the benefits of microcredit in Africa. The ads featured Africans who benefitted from micro-credit together with the strapline: ‘Microcredit Africa Works’.

e-commerce and home shopping

Benetton does not have a transactional website and there do not appear to be any plans to launch one in the future. 

If you want Dissertations on Benetton than Contact Mahasagar Publications.