Benetton's Decade On The Learning Curve

TURNAROUND

After several false starts and mistimed expansion, Benetton is getting its act together in India. It is now aligning itself with its international brand, increasing the product line and adopting a more flexible retail strategy

When you come to India with a 24-carat brand name like Benetton, it is difficult to ward off success. However, when you do things by halves, you can always pull off a stalemate. That's what happened to DCM Benetton, which was one of the earliest off the starting block in the early 1990s in apparel retailing. A weak product line, a mixed-up communications strategy, a flawed expansion plan based on a misreading of markets, and disenchanted franchisees - Benetton had all these afflictions. Not surprisingly, by 1999 the company seemed to have run out of options.

But the last three years, which coincided with Natalino Duo (ex-managing director of confectionery major Perfetti) taking over as managing director, have seen DCM Benetton working overtime to reverse the slide. If the changes in the organisation during the last few years are any indication, there's a sense of urgency in the company. After struggling 12 years to make itself a visible label in the Indian wardrobe, things seem to be falling into place for the company.

Duo's report card so far? Benetton has crossed the narrow door which most apparel brands have to squeeze through before attaining critical mass. The company claims to have crossed the Rs 80 crore mark in retail sales last year, up from Rs 50 crore two years ago, and hopes to grow 20 per cent this year.

Similarly, the number of stores has also grown from 68 to 100 now. What is surprising is the new-found aggression that Benetton is showing - something which was alien to the company till two years back. Then, the Italian fashion label was struggling to make inroads into the apparel retail market. Duo is now busy paving the way for large-format Benetton stores which seemed far off when he took over.

For Duo, it seems as if the past is something to learn from and not brood over. He is busy putting Benetton on a fast growth trajectory from now, having spent the last three years diagnosing the factors which had hampered growth. Now, with three years of restructuring, new systems and teams in place, Duo is confident that Benetton will soon become "haute" property in the days to come. The company believes that the key lies in its capability to look at the market potential and bring together the elements of strategy.

Indian Management takes a look at what has plagued Benetton thus far and what is being done to pull it out of the rut.

BENETTON - A CASE STUDY

Even before Duo took over as managing director in August 1999, he had pointed out to Luciano Benetton in his first meeting that the image of Benetton stores in India did not accord with reality. Benetton stores in India seemed to give the impression of a T-shirt brand whereas worldwide the brand had a huge product portfolio, ranging from accessories, intimate wear, and baby care among others. If, despite this, it was seen as a T-shirt brand in India, one reason was the limited product line it offered.

Consequently, its patchy communication could bring in only a limited appeal for the brand. On the other hand, it was dogged by quality problems right from the beginning. With the target consumer - well-travelled and conversant with global quality standards - being a discerning one, it is no surprise that Benetton in India did not get a rousing welcome at the marketplace.

It didn't help matters that the team at Benetton's Indian arm did not have the relevant background in apparel retailing. They, therefore, had to learn things the hard way. And when Duo came, there was need for a complete overhaul of the marketing department. Though the problem had been identified even earlier, the solutions were not implemented in their entirety. While all the key elements of apparel retailing were present in Benetton's operations in India, they were not being looked at systematically. And the apparel retailing business is more a matter of systems than anything else.

Anything that could go wrong, did. In the initial phase, Benetton relied on franchisees. It is now trying to find the right kind of retail partners to help it grow. Other than that, the very brand image of Benetton had been a matter of ambiguity for consumers, according to analysts. In the early years, Benetton's pricing communication and distribution had lent it a premium image, although the brand is globally marketed as a mass-market brand.

Again, in the mid-1990s, a desperate bid for volumes took the company to small towns. According to analysts, towns such as Chandigarh, Pune, Nagpur, Indore, Visakhapatnam, Vadodara, Coimbatore and Lucknow may be ready for a few large global brands that are positioned towards the relatively young (the 15-30 age group).

However, they insist that the total list of large, medium and small towns that are as yet ready for supporting commercially viable global brands does not exceed 25 or 30 at the most. Benetton's indiscriminate expansion into smaller towns in the mid-1990s did expand its presence in 40 cities, but in sales terms it didn't pay off. Over the years, the company had to shut down many of its stores.

Not surprisingly, the focus of Benetton has again shifted to the metros. Benetton had to be strong where the market was and the market is strong in the metros for now. But to be a truly national brand, the fashion label had to increase its presence in some select mini-metros and other large cities. In the last two years Benetton has added eight new outlets in Delhi alone followed by a stronger focus on the Mumbai market where it had a weak presence till as late as last year.

In fact, it is this confusion in strategy all along that has made sales targets elusive for the company. As the result, the retail sales target set for the mid-1990s was achieved only last year. But the company sees the small size of the brand in terms of sales as a stimulus to do more and more.

A REALISTIC APPROACH

Duo, during his three years at Benetton, has learnt that the company needs to be more realistic in its approach and targets. In the apparel business, it is relatively easy to reach the Rs 25-50 crore mark, but going beyond that becomes that much more difficult. To cross that barrier, the first task before Duo, therefore, was to strengthen marketing with a strong focus on retailing and merchandising.

The issue was addressed by bringing in a stronger team with the relevant background. Considering the fact that the retail discipline has only just about begun to emerge in India, there wasn't much to choose from in terms of recruitment. The company, therefore, poached people from strong retail-driven companies such as Timex, Titan and Concorde. Then, the product department, which earlier had a very lackadaisical approach, was elevated to a full-fledged department with exclusive merchandisers to assist franchisees in retail merchandising.

Benetton has always been a strong brand ever since it entered India, but that was true for primarily the metros and large cities. But the very low advertising budget did little to further build the brand to make inroads into smaller markets. There was a need to bring a person who could act as a brand custodian for Benetton. This was tackled by bringing in ex-advertising persons into the company. The company is quite bullish on the future as it believes the market has evolved and so has the brand. With the increasing width and depth of its product line Benetton India now offers a wider choice to the Indian consumer, who is much more discerning now.

WHERE BENETTON WENT WRONG...

* It sent confusing signals. It was a mass market brand globally, but in India it was perceived to be premium

* There was a mismatch between the products showed in global ads and what was available in India

* It expanded indiscriminately into smaller towns when the market wasn't ready

* Marketing team didn't have experience in retailing; there was rigidity about having exclusive retail channels

* Initial products faced problems of quality

One thing that has changed is the speed of new product introductions: Indian buyers get new products simultaneously with the international launch. The company is currently integrating Benetton's offerings in India with its international brand promise as the market is now ready. "Our product, retail and marketing strategies are being consolidated towards this end and this marks the continuation of a phase of operational restructuring that was started two years ago," says Richa Purunesh, manager, marketing services, DCM Benetton India Ltd.

Quality supervision has seen a dramatic change after the advent of Duo. But more than that it was the confusion at the distribution front that hampered growth for Benetton in India earlier. For almost eight years since its launch, Benetton had focused on the exclusive store retail format which had proved to be a limiting factor. The multi-brand shop model took a little longer to arrive in India, but this is fast changing now.

The company is no longer averse to the idea of looking at shop-in-shop retail arrangements, instead of hankering for pure exclusivity. And a Consumer Outlook Survey conducted in 2000 by KSA-Technopak, a Delhi-based soft goods consultancy, only made Benetton move fast on outlets other than exclusives. The survey showed that as high as 80 per cent of the respondents were strongly inclined to shop at multi-brand outlets. But image issues kept Benetton wary of jumping into it immediately. For now, though, the company has decided to take a look at the shop-in-shop format which allows the brand to maintain some semblance of exclusivity even at multibrand shopping malls.

...AND HOW IT'S BEING CORRECTED

* Product line beefed up to project global, multi-product portfolio

* Localisation of communication and distribution network

* Better quality control and faster change with the seasons

* Talent inducted from other retail-driven companies

* Cautious expansion after careful study of each market

* More flexible about retail channels. The company is now looking at shop-in-shop format at large malls

In fact, 20 per cent of its 110-and-odd retail outlets are shops-in-shop at large malls such as Shopper's Stop, Lifestyle and Vama. After all, it is important for a fashion brand to be present where the people are congregating. Propositions like shop-in-shop do restrict the amount of space available, but they still offer companies like Benetton very high visibility due to high footfalls in such large departmental stores.

Marketing pundits say that Benetton's product range is still not large enough to justify large format retail stores like those in the West with retail areas of 10,000-40,000 Sq Ft. So the Italian fashion label has adopted a hybrid retail model ranging from company-owned exclusive to franchised exclusive to multi-brand outlets.

Simultaneously, Benetton is trying to narrow the gap between its product range abroad and those available in India. Today, Benetton globally sells about 700 styles in different products, but in India it has managed to bring in only a little over 230 styles. This is a marked improvement over the 150 styles it sold in 1999. The approach changed when it was realised that an incomplete product range was another barrier to growth. The feeling is once Benetton is able to bring in half the global product line, it would be ready for company-owned large retail stores which are expected to drive rapid growth.

CHANGING STRATEGIES

In the past, dependence on the franchisee model was one reason why, despite the speed of Benetton's initial rollout, it could not make big gains. One, franchisees have limited financial clout for larger stores; two, they are more concerned about short-term profitability and insist on products and styles that move fast. Nothing wrong with that, but this doesn't go down well with Benetton's "complete fashion label" objective. "Benetton has a huge range of products other than garments which are high-priced and low-volume and stocking those items becomes a contentious issue with the franchisees," says a former executive. But things are believed to be changing fast now following improved rapport with the traders and special efforts to convince them to move up the value chain. The logic: high-priced items mean higher realisation and margins.

Till as late as 1999, the communication strategy had been heavily dependent on global advertising, with local agencies only releasing the ads. While it spoke to consumers at the top end, mass marketing cues were missing although globally Benetton has always been a mass market brand. Global brands communicate a specific value proposition and appeal on some lifestyle element that is universal.

However, analysts believe that the communication of such brand values has to be done in a language and using a medium that the target population can easily understand and relate to. "In the specific instance of Benetton, it could have been a combination of global imagery as well as made-for-India creatives," says one. "Either one of them - by itself - is unlikely to totally achieve the communication objectives of the brand." Benetton did make a shift in its communication for the first time when its ads showed Indians wearing the brand in late 1999. That was when Benetton used TV as a medium to reach out to a larger audience.

While the international imagery is being retained, Benetton now comes across as a brand more relevant for the Indian consumer than ever before. This is because now whenever an ad is created in Italy, the Indian arm is also consulted. The thinking within the company is that "beacon" brands like Benetton operate as compelling big ideas, cutting across traditional psychographics and demographics to attract those of their kind.

With brands such as these -Benetton being one - the traditional segmentation vector gets reversed. Now even analysts who were once critical of Benetton's communications say that the Indian market and consumer have evolved sufficiently as the result of exposure to international fashion trends. So, the time has come when Benetton can leapfrog in India.

As a retail chain with over 100 outlets across the country, Purunesh says Benetton has considerably 'expanded' from the point of view of its product portfolio context. "We are now clearly moving towards consolidation and expect to open about five­six 'strategic' stores which are not really expansion enhancing as much as they are experience enhancing," she says. The company has set up what it calls "image stores" in Bangalore and another one is due to come up in Chennai.

These stores will showcase a larger product line from Benetton's global portfolio and are expected to have a great deal of positive rub-off on the brand's image in India. "The recently-opened Bangalore store is a perfect example of the new strategic approach which emphasises a store experience that is quintessentially that of Benetton stores worldwide," says Purunesh. And this includes the product line on offer.

Last year, Benetton commissioned an exhaustive study to pick up consumer insights. The UCB usage and attitudes research was extensive, delving into not just apparel buying behaviour but also exploring the points of connection, affiliation - even alienation - between the consumer and apparel brands.

The key point of significance that emerged was that the clothing category has evolved rapidly in urban India and the possibility of offering a wide range of international fashion options (a hallmark of Benetton stores worldwide) can now be put into place here. "The market is swiftly moving not just beyond functional basics to a high awareness of fabric, fits and fashion but is also ready for higher order brand affiliation possibilities," says Purunesh.

For the company, the way ahead is clear - to increasingly bring to the Indian consumer, the brand and retail experience enjoyed by Benetton loyalists around the world. It has learnt from its failures.

(This article appeared in the June 2002 issue of Indian Management magazine)