SBHD: In 1989, Benetton embarked on an advertising strategy to sell jumpers on the back of conscience-provoking images. Now it is in internicine warfare with its own retailers who claim the campaigns have damaged product sales and brand image.
Ask anybody what they associate with Benetton and the chances are the response, even before “woolly jumpers”, will be the blood-stained clothes of a dead Croat soldier, a dying Aids patient, a newborn baby complete with umbilical chord or a priest and nun snogging on a 48-sheet poster.
This could be testimony to the power of the advertising the Italian clothes manufacturer has executed since 1989, or it could be an indication of how much the controversial campaigns have shaped the identity of the company. Benetton claims the ads are part of a strategy to provoke debate about social issues from institutionalised violence to racism and discrimination. The campaigns have only succeeded in making the Benetton name synonymous with controversy.
However, it is one thing to irritate the Vatican, or the Advertising Standards Authority, or even a committee established to monitor crimes against humanity, another when the advertising starts to damage relations within your own organisation.
Ask some Benetton retailers what the name now represents and they will say 30 to 60 per cent losses, shop boycotts, outlets on the brink of closure and legal battles as the relationship between some licensees and the company flares into open warfare in courts in Germany.
The legal actions have been triggered by retailers refusing to pay for stock. Benetton has issued writs demanding payment but the retailers are counter-claiming and the weapon they have chosen to justify their action, and seek compensation, is the company’s advertising. In truth, for a company with 7,500 outlets in 120 countries the 12 actions which have so far been lodged represent a tiny sample. But the cases which will be heard in the next two months are being seen as test cases – if Benetton loses it could be hit for compensation claims running into tens of millions of pounds.
The row will receive a further fillip when Benetton unveils its latest Ãº20m global advertising on February 13. It will follow the pattern of the previous campaigns but could be the last execution. A review is continuing inside Benetton into future advertising strategy. The new direction will emerge from a communciations school to be opened by the company near its headquarters in May.
For any manufacturer to be openly waging war with its retail outlets is at the very least embarrassing and, in this case, appears to be symptomatic of greater problems within the group.
Average price cuts of 20 per cent across the range have been achieved via savings related to currency variations and Benetton’s ability to play the futures market in wool. Benetton denies this is discounting and insists retailers have welcomed the price cuts as a means of boosting volume. However, such cuts damage the brand’s integrity and have slashed retailer margins.
The Benetton group has recently acquired a stake in the hypermarket chain Euromercato after earlier deals to buy the GS supermarket retailer and the Autogrill range of motorway service restaurants. The deals have heightened speculation that less attention will be given to the clothes side of the business and some City analysts are questioning whether the business has reached saturation point.
Early predictions for Benetton’s sales growth in 1994 hovered at about ten per cent but analysts now believe the figure will be half that, indicating a marked slowing down in growth. The most recent half-year results showed sales had increased by four per cent, while profits rose by just two per cent.
“The clothes company may have reached maximum growth in its main European markets,” says NatWest Securities Italy specialist Lorenzo Colucci. “Unless we see an explosion through emerging markets, it may not quite have reached a saturation point, but something close to that.”
The German legal action is being co-ordinated by Ulfert Engels, a solicitor representing the 12 retailers in the process of contesting legal action brought by Benetton. The flamboyant Engels claims to be advising at least 50 Benetton retailers with up to 150 stores. The first case opened in the German town of Kassel last month but was adjourned until March 14.
In the Kassel case Benetton is suing Heinz Hartwich for non-payment of bills and he is countering with a demand for DM1m (Ãº425,000) to compensate for lost sales. Hartwich has also resigned as a Benetton stockist.
“Our tactic was to get Benetton to sue, otherwise we would have had to fight in an Italian court and we prefer to fight in Germany,” says Engels. “After the first six months of the ad campaign in 1991 turnover began to fall sharply, much faster than in other parts of the textile industry during the recession.
“At first, the retailers directed their thunder at the local agents but they failed to react. Benetton asked the agents to deal with retailer concerns but they told the company to do it itself. At this point the retailers were told that Oliviero Toscani (Benetton’s photographer) was the greatest designer in the world. The retailers tried to do some of their own advertising but could not fight the bad image,” claims Engels.
Clearly the disagreement between Benetton and its retailers goes deeper than creative tension over advertising strategy. But it has become an integral dimension of the legal battles.
Benetton claims the retailers have lost money because of bad management. It has sought to deflect the importance of the legal battles by claiming that it is a victim of a “sensationalist media. The irony will not be lost on anybody who has seen the calculated way Benetton has used the media to gain maximum impact for its controversial campaigns. It points to other German retailers who are making money and claims that some of the rebels have poor financial records. But Benetton has never previously sued a retailer.
“This is blackmail by media,” alleges Benetton spokeswoman Marina Galanti. “Last year was not brilliant for any retailer but to blame a global advertising campaign for local retailing difficulties is a nonsense. These people have refused to pay bills and we have been forced, as a last resort, to sue them.”
Benetton wants to perceive the German legal actions as a little local difficulty but the rebels represent a serious threat in its biggest export market. Retailers in France, Italy, the Netherlands and Spain are also said to be watching the case very closely. The Benetton Retailers Interest Group (BRIG) is co-ordinating the pan-European effort against the manufacturer. Its spokes-man, Georg Schumacher, claims to have been sworn to secrecy about cases settled out-of-court between Benetton and retailers.
The review of advertising has come too late to bridge the gap between the retailers and the manufacturer. That will be re-solved over the next two months in German and possibly French, Spanish and Italian courts. The issue of the future direction of Benetton’s advertising strategy will take much longer.
“It should at least pull the plug on the more controversial ads,” says Dr Ian Evans, a senior lecturer in marketing. Evans wrote a report on the effectiveness of Benetton’s advertising in 1993 and found that it was not. “At the most simple level if the advertising does not sell the product then what is it doing?”
There are a substantial number of Benetton retailers asking the same question.