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It all started with a yellow jumper. Back in the 1960s, Italian men typically wore dark-colored sweaters under a jacket. So when his friends asked if they could have a brightly colored jumper like the one his sister made for his son, Gilberto Benetton realized that they had a different value proposition from traditional companies - and the start of a business. Soon Benetton had a company producing sweaters for local independent retailers in Italy. Plans for expansion brought further innovations that were new to the clothing market of the time.
Expanding the business, driving the market
Benetton began by supplying their new styles to independent retailers, first regionally and then across Italy. Their first shop opened in 1966 and soon this family-run company had bigger ambitions. The key question was how to grow the business in a competitive market without running big risks or making massive investments.
As the Italian market reached saturation, Benetton extended operations across Europe, using a step-by-step approach to market entry:
licensing local producers to use its trademark;
entering joint ventures; and
only then - if the market was profitable - establishing a local company branch.
Five market-driving innovations supported rapid, cost-effective expansion and differentiated Benetton from the rest of the industry at that time:
Removing shop counters so customers could easily see the products also meant fewer staff, lower staff costs and higher margins.
Bypassing wholesalers and selling directly to retailers. A quasi-franchising system imposed store layouts and suggested product prices, but without exclusive distribution arrangements or buying back unsold products.
Basing strong supplier relationships on trust. Regular orders, working at full production capacity guaranteed profit margins. Benetton paid subcontractors less than other companies, but helped with knowhow, technology transfer and finance. A regional textile district grew up with thousands of small- and medium-sized enterprises.
Radically reducing the cost of inventory. Garments were made up in plain yarn, postponing dyeing sweaters until seasonal...