The man who dresses the world
- Inditex founder Amancio Ortega is now the world's third-richest man
- The Spaniard owes his success to a business model no rival has been able to replicate
EL PAÍS
Eighteen months ago, local media reported a rare sighting of Amancio Ortega. The founder of Inditex, the world's largest high-street fashion retailer, spent a morning at a shopping mall on the outskirts of A Coruña - close to the company's headquarters - looking round Zara. Ortega wanted to experience firsthand the new shop concept the company was formulating, and would soon be announced to the world with the opening of Zara's flagship emporium on New York's Fifth Avenue a year later amid great fanfare.
The new Fifth Avenue Zara is the retailer's largest outlet in the United States, encompassing more than 3,000 square meters spread over three floors. The shop opens on to Fifth Avenue and 52nd Street with five display windows and a façade spanning more than 23 meters. The store will employ 450 people.
The new store image is based on four principles: beauty, clarity, functionality and sustainability. The store's design emphasizes simplicity as part of the retailer's ongoing mission to facilitate direct contact with customers.
In each of the three floors, the store is organized around two long corridors or "catwalks" that lead to intimate boutique-like cubes on each side. Each space showcases a specific collection. The wood furniture is finished in neutral elegant colors and textures reminiscent of fabrics such as linen or silk.
The shop also includes all the sustainability features of Inditex's eco-efficient stores, marking further progress in the Group's environmental commitments as outlined in its Sustainable Inditex 2011-2015 Plan.
When the store was inaugurated, in April this year, Ortega was already the world's fifth-richest man. Two months later, Businessweek announced he had joined Bill Gates and Carlos Slim as one of the three richest men on the planet, with a net worth estimated at 37.5 billion euros.
In the first three months of this year, Inditex's profits grew by 30 percent on the same period in 2011, even though sales only rose by one percent. Even the collapse of the Spanish stock exchange has had no negative impact: its share value has continued to rise, to the point that it is now Spain's top bourse performer, outgunning Telefónica, and the country's two leading banks, Santander and BBVA. Inditex has weathered the global financial crisis like few other companies, continuing to grow despite the economic downturn. It has opened 1,000 new stores around the world over the last four years. In 2006, it opened store number 3,000, and two years later opened number 4,000 in Tokyo in 2008; two years later Rome hosted store number 5,000. By the end of the year, it will have opened its 6,000th, probably in China.
Inditex now has 300 stores in China, and has used the country as a manufacturing base. But sensing a downturn in the Chinese economy, coupled with its rising labor costs, the company is rapidly shifting its operations closer to home: Africa, Turkey and Portugal. Rapid response has always been the hallmark of the company.
"Inditex's business model has so far proved indestructible," says José Luis Nueno of the IESE business school, and author of one of the many case studies exploring the Galician company's success. He is currently preparing another, attempting to see where Inditex could be in five years' time, when it is expected to be turning over some 30 billion euros a year.
"Many other companies have tried to copy its business model, and some manage up to a point, but nobody has been able to successfully replicate it: nobody else can do what they do in the way that they do it," Nueno explains.
Central to Inditex's growth strategy is complete control over the chain of production. It takes, on average, just three weeks for Inditex to move a fashion piece from the concept stage to store shelves - and then items remain in stores only a few weeks before being replaced with the "latest" style, giving customers incentive to visit often and check out new arrivals. Relatively low prices also keep merchandise moving and customers coming back.
The group designs all the products sold in its outlets and manufactures all of its items. Stores are the front line. The feedback they send to the company's headquarters in A Coruña, which includes both computerized sales data and anecdotal observations, drives the design process.
Each of Inditex's chains is designed to meet the demands of a different market segment, from teens - who view fashion as fleeting and clothing as disposable - to older men and women, with more conservative styles and values.
Inditex does virtually no advertising, using its outlets, which are generally located in central urban commercial areas, to convey its message.
In terms of technology and industrial production, Inditex is a leading retail innovator. Whereas the production timeline for its competitors can take as long as five months, turnaround time for Zara stores is a mere three weeks. Each Zara store receives deliveries twice a week, based on real-time inventory data collected at each store, then sent through the internet to computers at the company's headquarters. Inventories are kept low while fresh designs pour into stores almost continuously.
Like many successful businesses, Inditex's model is based on a very simple idea: to make nice clothes at a nice price for the middle classes. But other companies have copied Inditex's strategy of allowing its designers to produce their own versions of the trends on the streets and catwalks around the world. Inditex's rivals have gone as far as headhunting its top designers, and have had some success, but as Nueno points out, they are unable to replicate other aspects of the company's business model. The story goes that if the weather forecast is for rain, there will be umbrellas in Zara's windows. In short, the company has been created on the premise that decisions need to be made quickly, and those decisions transferred to whichever stage of the production or distribution process is necessary. If a t-shirt isn't selling, the store knows immediately. It is taken off the shelf and recycled. "They are the masters at this," says Nueno. "The item will be sent back to the factory, dyed a different color, the logo on it changed, and it will be back in the shops. The idea is simple: sell everything that is produced."
Inditex produces some 840 million articles of clothing a year, from skimpy lingerie to heavy overcoats; some 40,000 different items. The company produces its summer and winter lines at the same time, for men, women, and children; for Americans, Chinese, and Africans, taking into account the most popular sizes in those regions and countries.
Inditex is a Spanish company, with some 1,900 shops and nine logistics platforms. So how has it managed to maintain profitability in a country where consumption has fallen sharply and the economy worsens by the day, to the point where an EU bailout looks increasingly likely? In part because Inditex is no longer opening stores in Spain; in fact it has begun to close some that no longer serve their purpose, such as a large Zara store in central Bilbao, where it already had two outlets that had prevented the competition from gaining a foothold.
In 2009, when the analysts predicted that the company would begin to feel the effects of the global crisis, the company responded quickly: "We began to make cheaper clothing, and we also began to pay more attention to our customers. Before, sales staff simply folded clothes and manned the tills. Now they are helping customers find what they want. Nobody should leave the store without buying something," says a senior member of the management.
As the global crisis spread, Inditex simply looked further afield to open new stores, particularly in emerging economies.
Amancio Ortega arrived at A Coruna, Spain, at the age of 14, due to the job of his father, a railway worker. Having started as a gofer in various shirt stores, he founded Confecciones Goa (his initials in reverse), which made bathrobes, in 1972. In 1975 he opened the first store in what would grow into the enormously popular chain of fashion stores called Zara. He owns 59.29 percent of the Inditex group (Industrias de Diseño Textil Sociedad Anónima), which includes the brands Zara, Massimo Dutti, Oysho, Zara Home, Kiddy's Class, Tempe, Stradivarius, Pull & Bear/Often and Bershka, and has more than 92,000 employees.
Amancio Ortega keeps a very low profile and has never given an interview; his secrecy has led to the publication of books such as Amancio Ortega: De cero a Zara (or, From zero to Zara). Similarly, there are practically no photographs of him.
In January, saying the company was now entering a new phase requiring "youth and experience," Ortega announced he was handing over the reins of the company to his right-hand man Pablo Isla, until then the company's deputy chairman and chief executive officer. Ortega retains a 59.2-percent stake in Inditex, Ortega said
The 46-year-old Isla has been CEO of Inditex since 2005. He also sits on the board of telecoms giant Telefónica.
Isla is as reticent as Ortega. He doesn't give interviews, and speaks publicly once a year, when he addresses the Inditex general shareholders' meeting. Some observers say he was the brains behind the firm's decision to expand online, as well as to open the Fifth Avenue store.
Inditex has long used purely promotional websites to draw attention to its Zara product lineup as well as other company-owned chains such as Bershka and Massimo Dutti. Its Facebook page has nearly 10 million fans, and Inditex introduced a smartphone app more than 18 months ago that allows consumers to browse new clothing arrivals. However, selling goods online, something that Gap has been doing for more than a decade, is only now becoming a key part of its strategy to expand sales in the United States. Inditex has about 50 Zara stores in the States compared with the 200-odd US outlets Swedish rival Hennes & Mauritz (better known as H&M) has opened so far.
Inditex will continue to grow: the latest figures will be out in September, and nobody doubts they will be good. Amancio Ortega will continue to be among the richest men in the world, and he will continue to play a key, albeit discreet, role in the company's development. Although retired, he is still a familiar face at the company's headquarters, particularly in the design department, and is a regular in the staff canteen. And he will probably continue to refuse to give interviews explaining how he created a business model that has been pored over by the world's best brains but which, after 37 years, still remains unrepeatable.