Heir of the Benetton Family Turns Attention to a Revival

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The New York Sun

Alessandro Benetton is in New York on a listening tour. (Where have we heard that one before?) Having just assumed a role in the family retailing enterprise, Benetton Group, he may be trying to discern why the brand is struggling, especially in America. Also, as a Harvard Business School alum, he may be looking to America for quick refreshers on how to juggle two careers.


Mr. Benetton has spent many years as a private equity investor. He has helped many small companies in Italy and France improve returns. Now, he has been asked to turn his attention to his family’s operations.


In May, Mr. Benetton, son of the legendary entrepreneur Luciano Benetton, became deputy chairman of the family apparel company. Though the firm sold some shares to the public in 1986, the family still controls 67% of the stock through their Edizione holding company.


Benetton Group is best known for its colorful sportswear and advertisements that sometimes pushed an aggressive social agenda.


Mr. Benetton’s particular focus is to oversee the company’s expansion into Eastern markets, especially China and India. The unspoken task may be to reenergize the embattled line.


Mr. Benetton is well-known in Italy for leading a glamorous lifestyle and for managing the company’s Formula 1 racing team for a number of years. Today, he would seem to have little time for jet-setting. He serves as chairman of 21 Investimenti SpA, a merchant bank he founded in 1993.The company currently manages four private equity funds with combined assets of about $500 million and is also raising more money.


Returns have been excellent – 26% compounded over the 12-year life of the funds. Performance has been bolstered, undoubtedly, by the absence of significant competition in the region.


“We were the first to do private equity in Italy. It simply didn’t exist. Now this kind of investing has become more widespread throughout Europe,” Mr. Benetton said. “Our thinking was that 90% of GNP in Italy comes from small companies. Many have trouble getting financing. We developed a board that had a variety of complementary competencies – people in media, insurance, and so forth – and offered to help managers develop their businesses more broadly.”


Like many of those entrepreneurs, Mr. Benetton is passionate and excited in talking about his private equity operation. “Personally, it has been fantastic. It has given me a very broad perspective. I love learning about how people make pizzas, plastic glasses, whatever. It’s really interesting.”


Mr. Benetton’s group mainly takes minority positions in well-run companies, though earlier on they had managed a couple of turnarounds. They work the management team, getting to know entrepreneurs and working toward similar goals for the business.


“That is the most important thing – to share the vision,” Mr. Benetton said.


The funds are overseen by a seasoned group that is content to build the portfolio slowly. “We take a long-term approach. We’re content to stay in known areas.” How old-fashioned. How appealing.


Then, there is Benetton, where management may well have to upend some traditional strategies and venture into new areas. Mr. Benetton is the only one of 14 heirs of the original founding brothers to assume a management position in the company. It would appear to need new blood.


The stock’s ADRs (BNG, traded on the NYSE) closed yesterday at about $20.42, having declined from a high of $42 in January 2001. Revenues, which totaled 2.0 billion euros in 2000 and 1.7 billion euros in 2004, have trended lower as well. Net income has been cut in half over the same period.


Like all apparel companies, Benetton has been hit by competition from China and has moved manufacturing to lower-cost venues. Another challenge is that only 4% of revenues come from “the Americas,” while Europe represents 85%. Given the perennial sluggishness of the European consumer, compared to his insatiable American counterpart, this can’t help results.


“You don’t see many cases where retailers are successful in America and abroad,” Mr. Benetton said. Might they exit America altogether? “We have scaled down operations here. The market is telling us where we stand.”


Management has begun to build new mega-stores to keep pace with competitors like H&M. Many of these are company-owned, a shift from the traditional practice of engaging independent store owners.


“The barriers to entry in retailing are low and getting lower. In the age of globalization, well-known brands are important. We have a keen eye for quality. We don’t want to compete only on the basis of price.”


Will the company change its approach?


“Benetton was very innovative when it began. We don’t want to change the model. Trying to run after other successful companies could be a big mistake. On the other hand, we may want to reintroduce some experimentation.”


Mr. Benetton considers this energy most likely to result from a transferal of power to the company’s professional management team. In other words, Benetton Group is going through a life cycle change. Will it succeed?


“The company is my highest priority. It bears our family name and has our commitment.”


The New York Sun

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