Vivek Bharat Ram, Chairman & CEO, DCM Benetton: Sure of turning the corner

On may 23, 2002, when the chairman of DCM Benetton, Vivek Bharat Ram, arrived in Ponzano, Italy, for a board meeting at the headquarters of his joint venture partner, he carried some grim news with him. For the first time since it was set up in 1992, the JV would report a loss of Rs 1.4 crore in 2001. The top management of the Euro 2-billion fashion powerhouse, headed by the legendary Luciano Benetton, wasn't worried about the loss per se. Rather, it was the fact that the Italian major had finally to concede to a point its Indian partner had been making for at least a year. That the Italian CEO, Natalino Duo-poached from Perfetti India-it had imposed on the JV, wasn't working out. Now that Benetton's attempt at catapulting the JV into a high-growth orbit had failed, Bharat Ram wanted the partner to let him do that his way.

Benetton relented. Almost three years after it had roped in Duo to chalk out a new growth plan (See A Persistent Problem), it asked him to resign. (Duo told BT that he assumed Bharat Ram was in Italy to finalise a sell-out deal, and that the demand for his resignation came as a surprise. Duo also said that Italy had promised to buy out the Indian partner and infuse $15 million(Rs 73.50 crore)-$7 (Rs 34.3 crore) million equity and the rest debt-to grow the business in India. With that not happening, he had in any case decided to leave DCM Benetton. Bharat Ram, however, says that no formal proposal was put to the board by Duo. )

As a sign of reconciliation, Benetton handed the JV more than $1 million (Rs 4.9 crore) worth of export order, an assurance that more equity (about $600,000 or Rs 2.94 crore) would be brought in and a promise that the Indian outfit would be allowed a fair shot at becoming a supplier for Benetton worldwide. That's one reason why Maurizio Muraro-a dyed-in-the-wool Benetton executive from Brazil-has been deputed to the unlisted, equally-owned DCM Benetton.

Growing Benetton

Back in his New Delhi office, Bharat Ram is brimming with confidence. "We will have no problems returning to profitability this year," he says. That may well be, since it was write-offs and claims settlement that led to the losses, and not so much a drop in income from operations (the company boasts of an impressive 50 per cent gross margins, although being privately held it is not required to divulge its figures). But profitability has never really been DCM Benetton's big problem. Rather, it is growth. Benetton, which first came to India in 1992, managed to quickly build a high-profile brand, but failed to translate that into matching sales. For two big reasons. One, the tug of war between the two partners resulted in a number of senior-level changes, and that kept the JV from building a robust strategy. Agrees a senior consultant with a leading retail consultancy: "Constant changes (in management) have meant that a series of people are trying to change things rather than taking the existing model forward."

The other problem-which still exists-has to do with the way the brand has been communicated to the Indian consumer. While Benetton probably enjoys the highest recall among foreign fashion brands in India, it has not been able to capitalise on the brand power. Says Nikhil Mohan, Director, Mohan Clothing Company, which markets the Blackberry's brand: "Benetton is not doing justice to its brand. The Indian consumer only knows that it is a good, colourful brand, but doesn't what its positioning is." That coupled with a limited number of styles on offer, then, condemned Benetton as a T-shirt brand in India. (Ironically, Benetton is one of the most diversified fashion brands globally; golf clubs, condoms, nappies, and even cars are sold under the Benetton name.)

Since Benetton's advertising is created back in Italy, this problem may not be of the JV's making. But the lack of an exciting portfolio did retard its growth. Consider: while the combined market size of the branded clothes for men, women and children is Rs 9,040 crore (Source: KSA Technopak), Benetton fetched just Rs 80 crore (unaudited figure) last year. In fact, some of the home-grown brands such as ColorPlus and Provogue that were launched later have grown much faster. The Chennai-based ColorPlus, which debuted in 1995, is expected to be a Rs 150-crore brand this fiscal. Therefore, while DCM Benetton did not have any comparable challenger, a lot of category-specific brands ate into its markets.

Bharat Ram admits that he has been unhappy with the pace of growth, especially after 1999. At the same time, he insists that Benetton is not playing the numbers game. "We follow what is Benetton's philosophy worldwide, and that is not to sacrifice quality for growth," says he, never mind the fact that in Benetton's scheme of things quality is a hygiene factor, and growth really the only bone of contention.

The new Bangalore store (above) will be the benchmark for other Benetton stores in India

Spring Cleaning

Still, Bharat Ram realises that the brand needs fixing. And he's starting with the big-ticket items first. For instance, the positioning of the brand itself is to undergo a shift. From a T-shirt brand it is to be built into what it actually is: a complete wardrobe brand. The strategic focus, the new CEO says, will be on women's and children's clothing, where the growth is higher. According to an Images-ksa Technopak study, the market for branded women's clothing accounts for more than a third of the branded garments market, but is growing faster at 23 per cent, compared to 22 per cent in the men's segment.

As recently as two years ago, Benetton may not have faced much competition in womenswear. But today, most of the top Indian manufacturers have staked their claim for the segment. Raymond, Madura Garments, ITC Wills Sport, and ColorPlus all have stepped in with top-quality design. Worse, for DCM Benetton, there are a number of foreign labels such as Marks & Spencer, Mango, that already have a presence-albeit limited-in India. Some others like Gap, Tommy Hilfiger, Federated Merchandising Group, H&M International, Redcats (earlier the Redoute Group), and Gruppo Coin have opened representative offices and seem to be waiting for the right time to enter the market. It is obvious that once they are in, they will want to expand their portfolio beyond just women's clothing.

When that happens, the ballgame for DCM Benetton will change too. Until recently, it got by with a relatively small line-up that was changed over twice a year-once in winter and once in summer. But competitors like Mango and Zara (both are Spanish brands giving Marks & Spencer a run for its money in the UK) launch new fashions far more frequently. While Mango brings in new lines every two weeks, Zara does it once a week. Points out Vasanth Kumar, Vice President (Marketing), Madura Garments: "Benetton needs to sustain itself with brand communication and more frequent fashion changes in order to work as a premium brand."

"Benetton needs brand communication and frequent fashion changes to work as a premium brand" Vasanth Kumar, VP (Marketing), Madura Garments

Bharat Ram says that the lines will now be refreshed every three weeks and include periodical "flashes" (event specific lines, say, for Christmas or Valentine's). Already, the Spring/Summer 2002 collection boasts of 700 new styles. The idea is to increase the customer's return to the Benetton stores. And that seems to be happening. Says G. S. Oberoi, Director, Sarobe Fashions, a Benetton franchisee in Delhi: "The string bikinis are selling like hot cakes, and overall we have a very good collection this season."

Then, DCM Benetton wants to consolidate its retail presence. At last count, the company had 82 stores, but most of them were concentrated in North. Over the last two years, Duo had started a push into south and west, opening large format stores in Bangalore and at Crossroads, Mumbai. The 2,800 sq-ft Bangalore showroom is in fact intended to be a prototype for the new-look that Benetton wants to give its stores. Bharat Ram now wants focus more on metros, which fetch 85 per cent of the company's retail turnover.

Not many doubt Bharat Ram's ability to put DCM Benetton back in the black this year. For one, he starts with a cleaner balance sheet and Rs 6 crore worth of exports to Brazil, Hong Kong, and Australia this year. What's harder to bet on is whether Bharat Ram can do what Duo failed to-give India's oldest foreign fashion brand an unbridgeable lead. If that doesn't happen in another year or two, Bharat Ram may have to do what he's been resisting: sell out to Benetton at a price dictated by it.