Success stories are thin on the ground in Spain these days but Inditex, the retail clothing giant that includes Zara, appears immune to the slings and arrows of misfortune. Last week its founder, Amancio Ortega, was named by Bloomberg as the third richest man in the world, with a personal fortune of €37.5bn (£29.4bn). The company, the world’s biggest clothing retailer, has tripled its stock market value over the past three years with profits up 30% on 2011 for the first quarter of this year.
Even in Spain, where consumer spending has nosedived as a result of spending cuts and mass unemployment, Inditex has increased sales by a modest 1%, while competitors such as Mango saw profits fall by 38.5% in 2011, despite increased worldwide sales.
Amancio Ortega, the founder of Inditex, is the personification of the reclusive
billionaire. Photograph: Anonymous/ASSOCIATED PRESS
The extraordinary thing about Inditex being a global leader is not just that it’s Spanish, but that it’s a success story that began and remains headquartered in Galicia in Spain’s wild, windswept north-west. It is one of Spain’s poorest regions and has always had high emigration. At election time politicians have to go on the stump in Buenos Aires and Mexico City, because expats account for as much as 30% of the vote in some Galician constituencies. In short, Galicia is not a place you establish a global empire, but that’s what Ortega has done.
Galicians are famously enigmatic and, although he was raised in León and moved to Galicia as a teenager, Ortega is an enigma, the personification of the reclusive billionaire. He never gives interviews and is rarely photographed. Pablo Isla, the chief executive appointed mid-crisis in 2011 when Ortega stepped down, doesn’t give interviews either.
The key to business success in Spain, where many of the most successful companies are family concerns, is often to be de buena familia but Ortega’s origins are of the humblest. His mother was a maid and his father worked on the railways. He started work as a delivery boy in a textile firm and learnt the business from the ground up. He got the idea that good quality clothes should be made affordable to ordinary people and this led to him founding Zara in 1975 with his first wife.
“Ortega has been in the right place several times,” says José Luis Nueno of IESE Business School. “When he started out he was competing against small players with poor distribution in a country that was just discovering fashion.”
Now Zara has 1,659 branches worldwide and accounts for nearly 70% of Inditex’s income. Ortega retained a 59% stake when Inditex went public in 2001. Few people would class Ortega as being in the same groundbreaking mould as Sergei Brin or Mark Zuckerberg, but his company has revolutionised the fashion business every bit much as Google and Facebook have revolutionised communications.
“Other companies copy the fast fashion model but only for 10% or 20% of their operation,” says Nueno. “For the rest, they stick to the old seasonal collection model. For Inditex it’s a combination of design, logistics and store management that makes it possible to do it on the scale they do.”
Zara can get a new design made up and distributed in a week, and it launches about 12,000 new designs every year. To get this in perspective, when Marks & Spencer hit the skids at the beginning of this century, its turnaround time for a new design was close to a year. At Zara, there is no warehousing and reorders are rare, which is one reason the company never advertises: by the time you get to the shop the garment in the ad will have sold out.
Secondly, the customer is king. Imaginative use of IT and turning its shop assistants into market researchers means Zara has real-time information about what is selling and where. If customers say they like it in blue but would prefer it in purple, within a week it will be there in purple. This rapid response is made possible partly by keeping most of its production in Europe, largely in Spain, unlike others who have put all their eggs in the Chinese basket.
“Proximity has become very affordable,” said Nueno. Labour in China is becoming more expensive, as is transport. Inditex is developing integrated operations in Turkey, north Africa and Portugal, areas where the textile industry had been wiped out by competition from China.
But the company isn’t just alert to its customers’ fashion whims. It uses renewable energy sources at its main plant in Arteixo in Galicia and when it discovered a supplier in Brazil was sub-contracting to sweat shops, its response was as firm as it was quick.
Then there’s the Armancio Ortega Foundation, managed by Marta, daughter of his second wife and heir to the family fortune.
While Spain’s Galician prime minister, Mariano Rajoy, has slashed spending on schools, Ortega’s foundation has just dished out €11m to create 750 nursery school places in Galicia. Jobs, social responsibility and huge profits – what’s not to like?
Published in The Guardian by Stephen Burgen
August 17, 2012
http://www.guardian.co.uk/business/2012/aug/17/zara-inditex-profits
