The Strange Case of Benetton Red

Benetton in yellow, like the mystery novels. Analysts and unions await with curiosity the publication of the latest balance sheet of the Venetian Benetton Group srlproducer of the famous United Colors of Benetton clothes, founded in 1965, a forerunner of fast fashion and the mix of fashion and communication. The glories of the past seem to have been overshadowed by disconcerting events that occurred within the company perimeter during 2023. Here it is, the mystery to be solved. The board of directors approved the ’23 budget last June 18, so the publication of the economic-financial report should be a matter of days, perhaps hours. Why all the fuss? At the end of May, the founder, Luciano Benetton, 89 years old, gave a noisy interview to Corriere della Sera, to express his total disappointment with the cheerful management of the companywhich would have left a bill of 230 million in losses, paid by Edizione spa, i.e. the family’s financial holding company, which owns all the group’s activities. In that interview, Luciano is surprised because starting from September 2023, completely unexpected events would have occurred that would have led to “a dramatic budget deficit”.

Has the situation really deteriorated so suddenly? While waiting for the mystery to be revealed by the publication of the 2023 financial statements, L’Espresso has reconstructed the activity of Benetton Group srl between 2016 and 2022, discovering that the loss of 2023 is certainly heavy, but not unexpected: the signs that something was not going right were already there.

Let’s start with the context. Benetton Group srl, controlled by Benetton srl, is part of the Edizione spa group, a group with a turnover of 8.4 billion, profits of 117 million and assets of 12 billion (2022 data). Benetton sweaters today are worth only two percent of Edizione’s business and have long been mostly an economic burden.

Luciano Benetton says he realized something was wrong during a September board meeting: how could Luciano Benetton be present at a board of directors of which he is not a member? The board of directors of Benetton Group spa includes the trusted Christian Coco, as chairman of the board, the alleged culprit (as Luciano claims) Massimo Renon, who was the CEO and resigned following the intricate affair. And Andrea Pezzangora, managing director. Instead, Luciano is chairman of the board of directors of the parent company, namely Benetton srl, which manages the small empire of clothing brands. It may well be that Luciano, in his interview-denunciation, was referring to the fact that the Control and Risk Committee, much less the auditing firm, never made a fuss about the less than brilliant accounts of the subsidiary, and that therefore the parent company has always remained in the dark about it. But Luciano certainly did not participate in those boards. As, of course, it is reductive to think that Massimo Renon is the only culprit of the bankruptcy, because on the basis of the powers that were entrusted to him, Renon was in charge of the ordinary management of the group, but did not sign the financial statements, a task entrusted to Christian Coco, non-executive chairman of the board of directors of Benetton Group srl, and manager close to the family since 2015, also present in Edizione, Benetton srl, Mundys, Telepass. Coco and Andrea Pezzangora, another trusted man of the Benettons, director of legal affairs of Benetton Group since 2002, were both confirmed at the helm of the textile and clothing company. The question is: why torpedo only Massimo Renon, when it is clear that all three should at least have been informed of the terrible conditions in which the company had been sailing for some time? Mystery.

Let’s get to the analysis of the balance sheets: between 2016 and 2022 the company did not generate a single euro of profit. In some years the loss was contained, for example in 2016 there was a deficit of 37.3 million euros, in others the deficit was much more consistent: minus 216 million in 2017. The worst year was 2020, probably due to Covid: minus 425 million euros. Even from 2020 to 2022 the losses do not only affect the last line of the balance sheet, but are evident even before considering the amortization of investments, devaluations and taxes: the company had been showing negative profitability and a worsening of its conditions for several years. In addition, in 2020, there was a cut in staff of 450 units, out of a workforce of three thousand employees.

These losses have, year after year, eroded the net worth, which went from 954 million euros in 2016, to 303 million euros. Therefore, when Luciano Benetton says he learned with amazement of “a sudden dramatic budget deficit, a shock that leaves us breathless. A disgrace”, it sounds at least out of place when reading the history of the company from 2016 to 2022.

In recent weeks it has emerged that the loss would be due to a 150 million write-down of the inventory. It means that in previous years the warehouse was full of unsold items, which initially had a certain value and which then had to be reduced because the evolution of fashion and the passage of time made those goods no longer marketable. But here too something doesn’t add up. Between 2020 and 2022 there had already been a considerable devaluation of the warehouse, especially that of Castrette di Villorba. If until 2019 the devaluation weighed on the inventories (i.e. on the still saleable and valuable material remaining in the warehouses) for no more than 13 percent, from the following year the devaluation hit hard: in 2020 (due to Covid) a quarter of the warehouse had to be devalued, the following year a third of the items contained, in 2022 another 20% of the material had to be reduced. Yet in the supplementary notes to the 2021 and 2022 financial statements this information is not detailed. To learn more, you have to read the Risk Analysis and Policy page of the official Benetton Group website, where it is explained that in those two years there were 261 thousand obsolete items and, in 2021 alone, 9,332 defective items were disposed of. Who knows if the 2023 balance sheet will provide greater clarity, by evaluating the quantity of obsolete goods differently or correcting their value. Still on the warehouse front, which seems to be the heart of the company’s problems, the emptying speed decreased between 2016 and 2022, going from 5.71 to 4.44. For example, Inditex, which produces Zara and Bershka, Benetton’s main competitors, has a rotation index of 10, or double the emptying speed.

Now let’s look at the economic extent of the damage. The company estimates a loss of 320 million and has announced that it will be covered by a 260 million loan from Edizione. It’s not the first time: between 2017 and 2022, the company received 510 million in loans from its parent company Benetton srl and in the 2022 explanatory notes, a negative net financial position of 537 million was highlighted, a worsening of seven million compared to the previous year. Yet, the explanatory notes to the 2022 financial statements focus on the improvement in the company’s performance. Is it possible that Luciano Benetton didn’t notice anything? It seems strange. Even the impairment test, carried out in 2022 by Benetton srl on Benetton Group, would have recommended a write-down of the shareholding. Which has happened on several occasions since 2019.