Why India loves Benetton

If you have passed through New Delhi airport’s Terminal 1D, chances are you have noticed the United Colors of Benetton store that stands in a corner. Given 1D is meant exclusively for low-cost airlines, many fashion brands were hesitant to go there. But Benetton jumped at the opportunity, and the terminal—which handled 7 million passengers in FY13—is now one of its three most successful locations in India.

Bets like that helped the 49-year-old company, founded by Luciano Benetton in the northern Italian city of Treviso, become India’s largest international fashion house last December, upstaging American denim behemoth Levi’s. This, when globally the company has been given a drubbing by the likes of Spanish fast fashion label Zara, launched nearly a decade after Benetton. (Fast fashion brings clothes quickly from the runway to the showroom.) Hit hard by the economic crisis in its home market and the rest of Europe, and unable to adapt quickly to changing trends elsewhere, Benetton’s revenues stayed flat at around €2 billion (Rs 16,322 crore) between 2000 and 2010. At the same time, revenues of Inditex, the company founded by Spanish tycoon Amancio Ortega that owns Zara, rose nearly fivefold to €12.5 billion. On cue, Benetton’s market value crashed to €770 million in 2012, from €4 billion little over a decade ago.

That same year, the Benetton family decided to delist the company from the Milan Stock Exchange, hoping, among other things, to make it more nimble-footed: Benetton had traditionally followed the seasonal collections strategy, while Zara took the market by storm by updating its entire collection within weeks. Benetton Sr. bowed out, leaving son Alessandro in charge of a tough turnaround act. “Since Benetton Group has always seen things in colour,” Alessandro told the media, “allow me to say that it’s not all black. There are expanding markets that we are ready to attack with determination.” A press release named India as one of those markets, and the returns here—sales of over Rs 1,000 crore (or €122.5 million), making it the first international company to breach that mark—have justified the faith.

Benetton has been in India for over 25 years and operates two brands—the flagship United Colors of Benetton (UCB) and the higher-end Sisley. What makes it click here, contrary to its struggles elsewhere? Arjun Sharma, director and promoter of New Delhi’s Select City Walk mall that houses brands such as Zara, Mango, Tommy Hilfiger, and Promod, offers an answer that is deceptively easy to guess. “Benetton represents a lot of what India is all about—value for money. Its biggest draw is international styling at competitive prices, thanks to its Indian sourcing strategy.” Add to that the reputation for durability, and you have a perfect desi hit. “For me, Benetton is more an Indian brand today than an Italian one,” says Sharma.

A former employee who declined to be named says Benetton’s mantra in India is to give “basic clothing, plus a little extra”. The clothes should not look simple enough to wear at home, but something you put on to hang out with your friends over coffee. And whatever the design or colour, every piece has to look good with blue jeans.

That kind of intuitive understanding of the market—and the ability to keep things simple—comes from Benetton’s long association with India, dating back to pre-free market days when a handful of local players such as Vimal and Raymond ruled the roost. “The absence of modern retail [before liberalisation] allowed Benetton to build its own distribution network and reach out to a wider audience. It also allowed them time to build a brand before others could get in,” says Ankur Bisen, vice president, retail and consumer products, at retail consultancy Technopak.

The early toil has paid off in spades, since the millennials—now partially in the workforce—don’t have to be educated about Brand Benetton. “The learning curve of 20-plus years has helped Benetton grow roots in the market,” confirms Sanjeev Mohanty, managing director, Benetton India.

But the first-mover advantage can only go so far. The real reason for Benetton India’s success has been its ability to ride out every big wave that has disrupted the Indian fashion business, unlike the case with its sagging Italian parent.

Mohanty says the first of these waves hit between 2000 and 2005, when a lot of early entrants came in with not one or two stores but 20 to 25 stores. “This was the exposure phase, when Indian consumers didn’t have to call their uncles abroad anymore to get their hands on an international brand.” As an early bird, Benetton was the obvious choice for a lot of young Indians tasting international fashion for the first time. “It became this cool brand one wanted to be seen wearing,” adds the former employee.

The next watershed was 2005 to 2010, when malls took off and the fashion space exploded. “You had the largest number of shopping centres opening up, and the largest number of brands entering the market,” says Mohanty. Benetton kept pace by picking up real estate at retail hotspots all across the country.

The third wave is underway right now, with a Rs 50,000 crore branded apparel market (as per a 2012 Crisil study) drawing hordes of foreign bounty hunters. Zara—which started selling in India in 2009 through a JV between Inditex and Tata Group’s retail arm Trent—is already one of the fastest-growing brands here. It closed 2013 with sales of over Rs 410 crore and net profits of Rs 45 crore, thanks to 25% to 30% growth in fast fashion. That’s twice the growth rate of the overall market. Buoyed by the numbers, Swedish fast fashion chain H&M has a foot in the door. Japanese casualwear brand Uniqlo and American clothing and accessories maker GAP are also said to be mulling their entry strategy.

However, experts feel Benetton has done enough to secure its fortunes for the long term. “There are hundreds of brands out there, but only a few like Benetton or Levi’s have won consistently. That hasn’t happened by default, but because they have invested in distribution beyond the obvious cities. If you ignore this in India, you can only be a fringe player,” explains Technopak’s Bisen.

That’s especially true for a masstige (mass + prestige) or high-street brand like Benetton. “Customers don’t want to drive 20 km to buy a mass label,” says Rajat Wahi, partner at consultancy major KPMG. “They would do that for a Louis Vuitton, but others must make their products available to consumers as quickly as possible.” Wahi feels a retailer should be present in 1,500 to 2,000 selling points to cover all the tier I and tier II cities. Most have only 150 to 250 locations today. Zara has 13. Benetton has a critical lead here with 800 locations across 150 cities, including a combination of own stores and shop-in-shops. “We are where the market is. We don’t tell our consumers, ‘We will only open large, big-box stores, and you have to come there if you want to buy’,” says Mohanty.

Apart from the success in Terminal 1D, Mohanty points at Benetton’s business in Gurgaon’s DLF Galleria market as proof that consumers have given its strategy the thumbs-up. Galleria had the image of just another neighbourhood market, but Benetton realised that shoppers there had similar profiles as those frequenting Khan Market, a premium retail location in South Delhi. “We experimented with one small store in Galleria and were very successful. We opened a second store, and then a third. Now, we have an adult store, a kids store, and a Sisley store there. Our risk-taking ability and the experience of opening stores [all across] in the last seven to eight years have been a big advantage,” avers Mohanty.

All this has resulted in a flexible brand open to new ways of doing business, in contrast to allegations of inertia laid against the parent brand. For instance, while many large, single-format players won’t go to a location like Khan Market where store sizes are just 450 sq. ft. up to 900 sq. ft., Benetton has no problem squeezing itself in, and then using the learning from that experience to extract more out of other tight corners.

It has also learnt that what works in the National Capital Region could be useless in regional centres like Raipur or Ranchi. To tackle that, it works closely with local franchisees and experienced merchandisers, visualisers, and project managers, who help develop each location with a unique strategy. Kabir Lumba, managing director at retail chain Lifestyle International, says such thinking is crucial in the complex and dynamic Indian market, where there is “no one checklist for success”.

Once it opens a new store, Benetton allows trends from the first summer and winter to signal where it is headed. “And then there are inputs from local partners—like ‘Don’t send us too many deep-neck dresses or skirts, they don’t sell’—which go into finetuning our strategy,” says Mohanty.

Such conversations are part of a well-oiled communication channel between franchisees and the Indian headquarters in Gurgaon, and from there through to the global bosses at Treviso. The Indian team gets a free hand, and Mohanty says approvals from Italy generally come within a day. “The management knows that if the Indian team asks for something, it must be a market need. They don’t need to come and investigate.” (Treviso wasn’t available for comment.)

For instance, the Indian team wanted to depart from the global focus on womenswear, which accounts for over 70% of the business of the top 10 global brands, especially European labels. “In India, menswear is bigger. So we made our men’s range much larger than what we have in other markets, and it helped us grow faster,” says Mohanty. Benetton’s unisex image kept it insured against any backlash from women customers.

Another example of agile decision-making was on show last year, when colour denims emerged as a big trend. Benetton made trousers in neutral colours and stocked them with the vendors, and depending on what colour was selling more, it dyed the trousers in real time to give the market exactly what it needed. Its policy of almost 100% local manufacturing helped it achieve this with ease.

Premium brands like Zara choose to ship products to India, although local sourcing has become hygiene in high-street fashion. “If you don’t do that, you cannot be price competitive. Marks & Spencer went back to the drawing board and realised local sourcing was important, and it took them four to five years to get their business model right,” says Technopak’s Bisen.

To protect its turf, Benetton has introduced products at strategic entry points across categories that get young consumers hooked to brand buying. “We work backwards with the mills—Raymond or Arvind—on innovating on the yarn and the fit to suit the price point. Given our size, economies of scale help us get better pricing,” claims Mohanty.

E-Commerce is the latest disruption facing Benetton India’s traditional brick-and-mortar stronghold. So far, it has performed creditably, staying in the top three in e-commerce sales. But Mohanty is clear that brick-and-mortar will remain the priority. “E-commerce is a fantastic, strategic channel that we will continue to support. But brick-and-mortar will be our bread and butter.” The company doesn’t want to do anything that may create an imbalance between the two channels. “Whatever we offer in our physical stores, we will offer online. We will see how consumers react and accordingly determine our strategy.”

That’s smart, since e-commerce is still work-in-progress in the major retail markets of the world. Mohanty points out that the channel has been present in the U.S. for 15 years, and has managed to corner only 8.7% of total retail sales. In China, which just crossed the U.S. as the largest e-commerce market, the figure is 7%. According to Technopak, India will take nearly 10 more years to get to the 7% mark.

For now, Benetton is focussing more on innovating in its product categories. It has added shoes, accessories, innerwear, and a kid’s category to give shoppers everything under one umbrella. “Indian consumers are now buying looks,” says Mohanty. “It is still not as common as in the U.S. or Europe, but in the next two to three years they will shop for entire looks.” To keep pace, Benetton has introduced themes such as floral and black and white across its product range. “This has really helped move up the average basket size,” says Mohanty. Sisley, currently sold from 20 dedicated stores across the country, is also being built as a vital play. It targets early adopters with its edgier and fashion-forward design, and better fabrics. The company plans to grow Sisley like it did the UCB brand.

Mohanty is mindful of the challenge this will entail. “We have to cater to the evolved tastes of the early adopters, while staying relevant to the mass consumers, who form the bulk of our market.” Early adopters are located in the metros and tier I cities and have greater purchasing power, whereas mass consumers come from smaller cities and have smaller basket sizes. Once again, the belief in the company is that its deep knowledge and local spread will help it crack the puzzle and keep it ahead of the curve.

Competition may be snapping at Benetton’s heels, but Mohanty appears unfazed. “If you look at the fashion market globally, no brand has more than 2% to 3% share. The pecking order can keep changing, but there is enough scope for more players.” He also knows that new entrants won’t be able to see beyond the top 10 to 20 cities to begin with, leaving Benetton free to strengthen its grip over the “next 20, and the next 20, and the last 50”. “By the time they reach those markets, we would have a 10- to 12-year lead. So, the next set of consumers who would have been born in 2005 would have grown up with Benetton, and we will always have a good connect with them.” If the charm does work, it will be a lesson for those who think warm, fuzzy feelings have no place in business.