Luciano Benetton once joked that the only competition to his Italian clothing boutiques were fast-food chains. "If people are too busy eating hamburgers, they cannot buy my clothes," he said.
An odd analogy perhaps, but not to the business community, where many executives call Benetton the "McDonald's" of retailing.
With its Kelly green signs almost as prominent and prolific as the famous Golden Arches (in midtown Manhattan alone, there are a dozen Benetton shops within five miles of one another), the 20-year-old company is dishing out sweaters, jeans and other casual clothing almost as fast as McDonald's sells hamburgers. And like the fast-food chain, it sells them worldwide.
"The same kids that are eating and consuming hamburgers are the same kids buying our clothing. They are the consuming generation," Benetton said earlier this month, while in town on one of his frequent U.S. trips to tour his stores.
Last year, Benetton sold about 39 million garments in its 3,000 shops around the world -- shops that, like fast-food restaurants, are run by local owners under a type of franchise system. Selling clothing in more than 53 different nations, including four Iron Curtain countries, Benetton has become both the world's largest consumer of wool and maker of knitwear, with revenues of $350 million a year.
Benetton came to the United States only five years ago. But already the company has more than 250 shops across the country, with at least one of its uniquely styled boutiques in every state. Within the next three years, Benetton hopes to quadruple the number of its U.S. shops. The shops are distinguished from most clothing stores by their sparse furnishings. Only a handful of clothes are displayed on racks; the rest are folded neatly and stacked colorfully on modern shelving that lines the walls, from floor to ceiling.
"You are seeing a company that is sweeping America," noted Kurt Barnard, president of Barnard's Retail Marketing Report. "The company has emerged as a powerful competitor in the American retail marketplace. Their formula of offering a very narrow but deep selection of clothing is working very beautifully for them."
While some financial analysts wonder whether Benetton is only a fad that will experience a slump, just as Levi's and other denim companies did in the 1970s, Luciano Benetton himself is confident the chain is here to stay. "We have a lot of European experience, and we have a European vision of fashion that gives us a leg to stand on. Four times each year, we create a fashion collection. That means we have to stay with the masses and know what the market is all about. It makes us difficult to fall behind."
"I think they are a fantastic success story," said Alan Pennington, president of the New York retail consulting firm, Pennington Associates. "Like most companies I'm aware of that have done extraordinarily well, Benetton has thrown out the rule book and done things conventional wisdom said couldn't be done."
For example, Pennington said, Benetton has "set up 250 stores in no time at all," with many concentrated in a small geographic area. Additionally, "they have taken a relatively limited line and a highly focused line" of clothing and have succeeded in attracting a continuing stream of customers to the stores.
Perhaps even more significant, Benetton "has managed to cross cultures and succeed, which is almost unheard of in marketing. It's hard enough to sell the same toothpaste to both European and American consumers," Pennington said.
Throughout the world, Benetton has followed a simple formula: It bypasses department stores and sells its own manufactured goods directly to consumers through its own boutiques, which are licensed to local businesses.
"As far as we're concerned, it would be corruption" to sell Benetton goods in a department store, said the 50-year-old Benetton through an interpreter. Although Benetton appeared to understand much of the English spoken, he always answered in Italian. "Benetton is a winning product. It's not possible to deliver through a department store because its effect would be diluted; people would be selling it in different ways" than what Benetton's formula dictates, he said.
"Benetton is a philosophy," the Italian businessman explained. "What we tried to do is try to figure out a way to best give consumers what they want."
The licensed boutiques are the easiest, simplest and fastest way to give the client an item right off the factory line at a good price, Benetton officials contend.
One of Benetton's first innovations was to produce its garments in unbleached wool. Thus, when a store owner puts in a rush order for 200 pink garments, the factory can dye the wool -- and make sure the colors are exactly the same by using the same dye batch. Thus Benetton can deliver them to the store faster than another manufacturer, who was starting from scratch, could deliver a batch of sweaters to a department store.
This system allows Benetton to keep its inventory and cash needs low, because it does not have to make a large batch of clothing in advance of orders.
Also, with Benetton's method of franchise licensing with local shop owners, it does not have to spend a lot to set up new stores and, therefore, is at little risk if a store fails.
Although Benetton has sold its goods in Europe under a variety of brand names -- including Benetton, Sisley, Tomato, My Market and Merceria -- the company has promoted its clothes in the United States so far only under the Benetton name. Its children's stores, for example, are called 012 Benetton (012 stands for childrens' sizes, 0 to 12).
Now, however, in an effort to expand its market share in the United States and to get its already frequent U.S. customers to buy more of Benetton's products, the company is testing its European formula here, opening a handful of boutiques under different corporate names.
Just recently, for example, Benetton opened two boutiques in Montgomery Mall in Rockville -- one of its best, proven locations for a Benetton regular store and children's store. One new store is a "Sisley" boutique, which Benetton said "will take the best of what Benetton created for the Benetton stores and make it real fashionable" through bolder, brighter colors and more displays.
The other store, a shoe store called DiVarese, represents a test to see how successful Benetton can be in selling shoes directly to consumers. The shoes are made by the shoe company Calzaturifico di Varese, a firm in which Benetton acquired controlling interest last year.
"Shoes is a department we're very interested in since we acquired the factory," Benetton said. "I want to take what Benetton brought to fashion and bring it to shoes." In reviewing the store on a tour of his Washington-area outlets, Benetton quickly makes it clear what he means by that statement. Saying that the shop windows needs more pizzazz, he urged the store owner to decorate with brightly colored socks, much in the same fashion as other Benetton stores are decorated by bold knits.
Shoes are not the only new merchandise Benetton is exploring. "Five years ago, we started to get proposals for perfume. We are very interested in it. By the end of 1986 or 1987, we will come out with a cosmetic line that will include everything sold in a European perfumerie -- nail polish, cosmetics, perfume," he said. However, this line would not be sold in a Benetton store or a completely new boutique, but rather through department stores or special cosmetics stores.
Several companies also have approached Benetton about designing and selling soft goods for the homes, such as linens, tablecloths and draperies. Benetton is considering the proposal but has not yet made any decision.
There is one thing about which Benetton is certain: It plans to expand its market here. "We know the economics here are very grandiose, and we're only a little part of that market," he said.
To enlarge that presence, the company is considering setting up a manufacturing plant in the United States, on top of the 10 plants it has in Europe. "If we want to continue the American experiment, we want to create our product here in the United States," he said. He confirmed that the company is looking for an appropriate place to set up a plant a few years from now.
"It would be part of an experience to further our business," said Benetton, who added that the plant would make knits, but from cotton rather than wool. "That's what the U.S. is known for."
A U.S. plant could help save custom fees for Benetton. But the company's founder said it was not being planned to protect the company against protectionist trade legislation now being considered in Congress. That threat, scoffed Benetton, "is like Hurricane Gloria -- a lot of talk and no action."
Known for its up-to-date manufacturing techniques, Benetton has been invited to build plants in the Soviet Union and China. But for the moment, Benetton has declined. "In Moscow, they want us to open a factory and then give them the keys. They'd produce everything they would want to. In China, they want us to open a factory and produce for export -- that's not what we want right now."
With its ambitious expansion plans, Benetton -- a family company for the past 20 years -- is considering selling stock to the public. "That's a project still being researched. Under study is a plan to go public and sell 20 percent of our stock on the New York Stock Exchange and Milan Bourse Italian stock exchange in 1986 and 1987," Benetton said.
"I'm already getting calls everyday" from interested investors, said Iraklis Karabassis, who, as Benetton's corporate representative for the mid-Atlantic region, oversees the area's 14 Benetton stores.
Executives familiar with the company attribute its success to the "passion of the family" that runs the operation. Benetton was begun by Giuliana Benetton in the early 1960s when she began designing her own brilliantly colored sweaters. Finding the sweaters popular among their friends, her elder brother Luciana started selling the sweaters to stores in 1965. The two younger brothers, Gilberto and Carlo, eventually joined them and helped open their first store in 1968. Ten years later, the chain had 1,000 stores in Italy.
Giuliana continues to design the sweaters today while Luciano is the managing director; Gilberto, the financial director, and Carlo, the production manager.
"The success of the company comes from the fact that there are three brothers and one sister who always worked for Benetton, who are in the factory, who check everything," said one executive familiar with the operation. "They work and they live for these garments."
Even though Benetton is talking about selling stock to the public, it has no plans to loosen the family control. In fact, some of the 15 children, ages 1 to 25, in the second generation already are being groomed to take over the reins. Luciano's son is at Harvard Business School, and his family hopes he will be interested in joining the business after he completes his studies.
In looking back over the past 20 years, Luciano Benetton said he never imagined his company would be so successful. "It's been like being at a race. You just keep running and you keep realizing that you have more breath to run further."