MADRID – At first glance, the glittery 70 blazer on sale at the Zara megastore in central Madrid seems to have little in common with the silk-embroidered T-shirt going for 802 at the uptown Victorio & Lucchino boutique. But the Spanish retailing giant and the exclusive design house do share a mission: They are striving to make Spanish labels a formidable force in the fashion industry, even as better-known companies like Benetton of Italy, the Belgium-based C&A or Marks & Spencer of Britain regroup, retrench and struggle to bolster their brands. Inditex, owner of Zara, is clearly the leader, with 2,244 stores in 56 countries that sell a quickly evolving array of trendy and relatively inexpensive clothes, or “fast fashion.” Now so many other robust Spanish retailers, like Mango, Cortefiel and Pronovias, are following in its wake, that some outsiders are calling them “Spain’s new invincible Armada,” said Covadonga O’Shea, president of the ISEM fashion management school in Madrid.
The Andalusian designers Victorio & Lucchino, with a total of six shops stocked with 1,500, or $1,845, dresses, even recruited the former head of Zara’s domestic operations, Eduardo Martín Cardona, to lend fast-fashion savvy to their haute couture. He drafted a plan – which still awaits an infusion of venture capital – to open 35 boutiques in cities like Milan, Tokyo, Paris and Kuwait in the next five years, as well as 100 new stores selling a more affordable, casual line. “When I started 15 years ago in Zara, it was almost unthinkable to export fashion outside our borders,” Martín said in a recent interview before dashing off to promote his project in Japan. “Now all the doors are open.” The trip appears to have been successful: While in Japan, he said later, he received competing offers for the exclusive distribution of Victorio & Lucchino products. But like the Spanish Armada itself, this new fashion fleet faces a battery of global economic challenges.
Cheap textiles from China are flooding Europe, putting Spanish mom-and-pop retail operations out of business and forcing even Zara to produce some basic garments overseas to keep costs down. All of the Spanish companies now do at least some manufacturing in nearby Morocco or as far off as Asia – even if they finish them back home with hot-off-the-runway touches, said Javier Mata, an industry analyst at Banes to Bank in Madrid. Meanwhile, European consumers, pinched by higher fuel prices and worried about high unemployment, are spending less on clothing, and seeking bargains at megastore chains like Carrefour. Department stores are withering, with a few exceptions like El Corte Ingles of Spain, which has recently begun to expand into Portugal and Italy.
Even too much success is a threat. Analysts worry that rapid expansion and an increasing reliance onoverseas manufacturing are curbing the speed of fast fashion because goods have to travel farther. In fact, stock turnover has slowed in recent years at Inditex, probably because of the expansion of non- Zara brands and the increased proportion of goods produced in Asia, according to the analyst Nathan Cockrell of Credit Suisse First Boston in London. “It is faster fashion, not quite fast fashion,” Cockrell said. “I can’t overstate how complicated it is to open a store a day. Most analysts would prefer more moderate rates of expansion.” In June, CSFB downgraded Inditex to “underperform” from “neutral” as a rise in costs outstripped growth in sales. Still, sales in the publicly traded company have grown at an average rate of 22 percent a year since 2000, to 5.7 billion at the end of 2004, according to a company spokesman. Its net profit has also grown by an average of 25 percent each year since 2000, hitting 628 million in 2004. Mango, a family-owned Catalonian company, operates 760 shops and franchises in 78 countries. Since 1998, when it focused its attention outside Spain, sales have grown by an average of 9 percent a year, to 1.1 billion in 2004 – 73 percent of which is from abroad. Mango does not issue earnings figures. The Spanish have different ways of doing business, but marketing analysts say one key to their success that they have in common is that they invest in image instead of inventory and, like H&M or Next, they sell fashion – not clothing – while competitors were bogged down in basics.
“Firms like Benetton and C&A have made efforts to revamp their images, but they still have some difficultyin motivating the consumer,” said Alberto Figa, director of the Barcelona office of Kurt Salmon Associates, a retailing industry consulting firm. The Spanish companies stimulate demand by constantly delivering new styles – or “teasing the customer,” as Maurizio Bottari, the international franchise director of the moderately priced designer Adolfo Domínguez, said. They also lure customers with chic displays in prime urban locations. “Their prices are low, but they present the products as if they were upscale,” Figa said. “There isn’t much difference between an Armani and a Zara window.” While other companies hold fast to the concept of spring and fall collections, Zara copies the whim of the day.
A team of 200 designers scours the globe for hot trends and churns out more than 10,000 new models a year. Stores receive new shipments twice a week, and client preferences are recorded and transferred each evening to central distribution centers. “Stores aren’t only sales points, they are our eyes and ears,” a Zara executive, Antonio Abril, said at a recent luncheon on leading Spanish brands. Sleek shops and trendy clothes do not tell the whole story, however. These growing Spanish companies foresaw consumers’ need for affordable yet stylish clothes. It did not take a crystal ball, just an awareness of Spanish demographics, said José Luis Nueno, professor of marketing at the IESE business schools and an industry consultant. In the 1970s, at the end of the Franco dictatorship, women left farms and factories and migrated to the cities in droves. They needed something decent to wear to the office. Mango, Zara and Adolfo Domínguez, moreover, were forced early on into vertical integration – that is, control of production, distribution and sales – because existing channels to consumers were so inefficient in Spain and a recession in the 1980s left many wholesalers bankrupt, experts say.
Rather than manufacture in bulk quantities abroad, which pile up when tastes change, they were able to respond to fickle fashions by tapping into hundreds of small, and therefore agile, women’s sewing cooperatives. Germany, France and Britain had already outsourced production to cheaper labor pools when the Spanish brands came on the scene. “We developed late, and that was an advantage,” Nueno said. “Now you have more action in Spain because of a local assembly line that works and concepts that are less stale than the rest of the EU.” That is changing, though, as Spanish companies increasingly manufacture in Asia. Mango has gradually moved all of its manufacturing to plants in China, Morocco, India and Eastern Europe, said Isak Halfon, Mango’s director of worldwide expansion. It also plans to blanket the Middle East, Japan and Southeast Asia with shops and – in the fast-fashion spirit – recently opened distribution centers in Singapore, Hong Kong and New Jersey to “deliver what the public wants on time,” Halfon said. That is how the company plans to remain agile, he said, by distributing where it produces and creating culture-specific lines. Inditex has set its sights even higher.
By 2009, it expects to open an additional 1,500 new shops – a rhythm of more than one a day – with names that do not betray their Spanish origins: Massimo Dutti, Bershka, Stradivarius, Oysho, Pull and Bear and Zara Home. It will invest 250 million to bolster distribution centers in an effort to keep pace with far-flung trends. Most of the growth will be concentrated in Europe, which accounts for 80 percent of the company’s sales. Italy, Benetton’s home turf, will see the arrival of at least 25 new Zara or other Inditex stores a year. Inditex will move slowly into the United States, opening only five or six shops a year, a company spokesman, Raul Estradera, said. Marketing experts applaud this cautious approach to the U.S. market, where even the powerhouse H&M has taken longer than expected to break even. “It’s meaningful for Zara to go to Los Angeles and Miami,” where shoppers may be more fashionconscious, but in middle America, they tend to prefer basics, said Nueno of the IESE business school. “But Zara could make millions before getting into the cemetery of European retailers.”
Some analysts worry that Inditex is over-reaching, though – and that as it expands it may not be able to sustain its fast-fashion edge. The company’s stock has suffered several declines since it went public in May 2001, after failing to meet sales targets and missing some fashion trends. But it is worth roughly 50 percent more than when it began trading, Estradera, the Inditex spokesman, said.”The issue for most investors is whether Zara’s uncharacteristic fashion miss is a blip rather than a trend,” the CSFB report in June said. Observers in Spain are less critical of the rapid expansion. “They’re doing it deliberately because they think that if they don’t expand now, they’ll miss the opportunity,” said Javier Mata, an analyst at Banesto in Madrid. “As soon as they stop opening shops, Zara is going to be an impressive money-generating machine.”
José Luis Nueno opinion citation in Dale Fuchs’s article published in The International Herald Tribune, August 2005
