Benneton (NYSE:BNG) is an oddity in the fashion and apparel industry.
Anyone who has stepped into one of its retail stores knows what I mean. While the apparel industry is very much dominated by imitation -- we need look no further than the common polo shirts and cargo shorts of Abercrombie & Fitch (NYSE:ANF), American Eagle Outfitters (NYSE:AEO), and Aeropostale (NYSE:ARO) -- Benneton's look is quite distinct.
Of course, that's one of Benneton's strengths; the best way I can describe its style is J. Crew (NYSE:JCG) meets Milan. One of its weaknesses, however, has been its distribution model -- getting the look to the customer. From my own experience, it is a challenge to find a Benneton that carries men's apparel, let alone find one that has the same item of clothing I purchased from another location just a few days prior.
Fortunately, Benneton is taking steps to address logistics and distribution. In its outlook for 2007, management indicated that "significant investments" will be made in a distribution center as well as a new factory. The press release goes on to say IT systems will receive a "large portion" of the capital expenditure budget. The revamped IT network will help the company take on greater volume to support its international efforts in emerging markets like China and India, as well as give it the ability to provide greater variety in its merchandise collection. Again, speaking from personal experience, more assortment and variety should be welcomed by the consumer.
One area I would like to see Benneton focus on in 2007 and beyond is making its more fashion-forward Sisley stores more accessible to the U.S. market. Sisley stores are currently found in 10 states, including the District of Columbia. Based on the performance of other higher-end concepts, I think Benneton has a real opportunity to drive meaningful double-digit growth just by expanding its footprint of Sisley stores.
Without a top-notch growth driver, Benneton will remain stuck in the 6%-8% growth range -- the projected rate for the upcoming year and comparable to the 8.3% top-line increase it achieved in 2006. The company expects to see growth in all merchandise categories this year, but until investors see a more developed strategy to accelerate sales and profits, Foolish investors would do best to watch this one from the sidelines.
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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.
