BENETTON, GERMAN RETAILERS SQUABBLE; CONTROVERSIAL ADS AT HEART OF GROWING DISPUTE

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DUESSELDORF-Benetton's advertising shot heard 'round the world may be recoiling on the controversial clothier.

A retailer rebellion over the estimated $80 million global "United Colors of Benetton" campaign has erupted in Germany, Benetton's second largest market. The Italian sportswear company is suing several German retailers individually for non-payment of merchandise and franchise fees. The franchisees, withholding the fees on grounds that Benetton's controversial ad campaign destroyed their business, are countersuing for damages.

Organizers of the German revolt said they're gaining converts in other countries, including Spain and Benetton's home market of Italy. Similar suits are also pending in France.

The clothing company's U.S. retailers have been taking a less litigious approach, toning down the image in their own separate advertising (see story below).

Benetton faces yet another problem in France. Last week, a court granted $28,300 in cumulative damages to an AIDS support association that charged Benetton with exploiting the disease in its ads. The amount is unusually high in a country accustomed to giving out small symbolic awards.

France's highest civil court awarded the money to four plaintiffs on the grounds that Benetton abused its freedom of expression in an ad showing a dying AIDS victim. The court found Benetton launched "an ambiguous ad campaign outside the domain of the commercial activities" that "exploited in a provocative manner" people suffering with AIDS.

Benetton said it would appeal the judgment.

Worldwide, Benetton spends 4% of its $2 billion in annual sales on the "United Colors" campaign. Other controversial depictions in the poster and print effort-created in-house and shot by famed photographer Oliviero Toscani-have included a white child wearing angel's wings alongside a black child sporting devil's horns; and, in a statement on the Bosnian war, a soldier's torn and blood-soaked uniform.

"Benetton's ad strategy is morally condemnable, legally untenable and economically extremely damaging," said a spokesman for ZAW, the German ad agency association.

The latest suit, filed this month in Kassel, Germany, has been adjourned until March 14. In it, Heinz Hartwich, a 10-year Benetton retailer until he stopped selling the merchandise in 1994, is seeking $600,000. He says that is the sales amount he lost to the ads.

Mr. Hartwich is also founder of IGB Association, the group of renegade retailers that claim German sales have plunged 30% to 50% since Benetton began running its most controversial ads in '92.

"They [Benetton] have ruined their own brand with the tasteless ads," Mr. Hartwich said.

He said his group comprises one-third of Benetton's franchisees in Germany-a figure Benetton disputes, instead citing a dozen protesters. The other franchisees Benetton is suing are in Mannheim, Cologne and Brunswick.

According to the IGB's estimate, the number of Benetton retailers has fallen to 500 from 650 in Germany, and the group is expecting 100 more dropouts.

Public pressure has played a role. Mr. Hartwich said Germans have sprayed his four stores' windows with slogans such as "No ads with dead soldiers." He said he also received letters of complaint from consumers.

Mr. Hartwich's store in Kassel now sells clothing made by a local company and sports a banner saying: "No Benetton-because we too condemn the scandalous ads with war, disease and death."

But a question remains whether the opposition is solely about the ads.

"Our advertising campaign is very visible, and it's easy to attack it. Those German [retailers] are using it as a scapegoat to attract media attention," said Mr. Toscani, Benetton's creative guru. "But what they don't talk about is their insolvency, a problem they had before the advertising campaigns .*.*. [Retailers] don't mention that there is a grave consumer crisis in Germany, and Benetton products are doing better than others thanks to its advertising."

Mr. Hartwich admitted retailers also are chafing over Benetton's policy of granting new franchises in close range to existing stores, and denounced Benetton for purportedly lowering prices so much that retailers have small margins.

Benetton has its German supporters as well. On Jan. 27, a group of 50 franchisees banded together in an organization dubbed Pro Benetton, fearing publicity about the court action would hurt sales.

Anna Masera in Milan contributed to this story.

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