In this exclusive extract from The Man From Zara, author Covadonga O’Shea talks to José María Castellano, former chief executive of Inditex, about Amancio Ortega’s approach to business.

A Zara culture does exist. What [Amancio] Ortega has done could never be repeated in the same way,” says José María Castellano. “He is a person with an intuitive appreciation and vision of the future that history grants to very few. He has been able to motivate a large number of people to devote themselves to the project unconditionally. It may have turned out badly for some, but that’s life. When a course has been set for a business there will always be someone who doesn’t understand it, or who disagrees with it, or who simply can’t accept the company goals as his own. That happens in any situation, be it human, political, social, whatever. But I always maintain that fortunately, this company left few casualties behind, and that is a good thing.

“I joined the company in 1974. There was nothing complicated about it. I met Ortega when only the factories with which he worked existed; Zara did not exist. At that time nobody thought about technology in our sector – computers and the like were non-existent in the area – and he was keen to have a good team from this point of view. It was another example of his focus on the future. It happened that I’d worked on a scholarship at IBM and also with an insurance company, Aegon, where I was the data processing manager. We’d brought in System 3, which was very modern at that time, and so when Ortega got in touch with me with the idea of taking somebody else on, I organised the data processing team. We set him up with a system which at that time, despite the fact it was the best you could get, was very primitive, just as you would have found anywhere else in the world at that time. But that was the embryo of what was to become of the group.

“Ortega wanted me to stay with him but I was teaching economics at the university at the time, and was about to go for a professorship, so I turned him down. But the person who worked with me stayed  and set up the system with him. I continued as a consultant, not just for data processing, but also in areas linking the organisation and the thousand things that were coming up at that time, until in the end I did join the company in 1984. By that time the group had four factories: GOA, Sanlor, Fíos and Noite, and 24 shops. Inditex didn’t exist as a company until 1988.

“And it’s at this point that another stage began that was very important for the future of the company. When Ortega went to El Corte Inglés to sell his products, the buyers were asking for the kind of products that when they hit the street were clearly not what the customers wanted.

Store beginnings

“That was why he started to think about having his own shops. There was nothing special about the first one he opened and above all, it had nothing to do with the current concept of the Zara shops. But, fairly soon, they started to change things with a focus on that idea of fast production that has been the success of the business.

“Initially everything was done in the factories the group owned, but as Zara grew, they started to outsource to workshops all over Galicia. Cutting was always done in the factories and the patterns were sent out to the workshops. Lots of them weren’t even workshops, they were just groups of women in flats – someone sewed the sleeves, someone sewed on the buttons and someone else did the buttonholes.

“The nub of the question was whether Ortega, who used to sell in a shop, would allow himself to be guided by an intuition that was showing him how you ought to operate in this sector, and indeed, he took that path. But it’s one thing to have the idea of a shop and quite another to apply that same idea to three thousand shops in over 69 countries and to set up eight chains, which is what we subsequently did, with everybody following that motivational idea of his.”

As if guessing what I was thinking, and the natural next question of how he had managed to achieve it, Castellano explains that one of the secrets of success is that Amancio is usually open to suggestions from anyone who knows more than he does in areas where he feels he is no expert.

“Ortega listens to everybody and soaks it all up like a sponge, absorbing what fashion trend makers think and the opinions of the movers and shakers in the field. Knowing how a business works means more than the sum total of degrees and MBAs studied.

Inditex philosophy

“The Inditex philosophy has been founded on listening to what’s happening in the world and that’s why it has been so fantastically successful. It’s not just that Ortega knows how to listen, but that he always gave a great amount of responsibility to the people in touch with the customers. His ability to synthesise the most complex ideas as though they were really simple is an extraordinary quality, and it is something he has done all his life.”

I take the opportunity to ask Castellano what he thinks is the kernel of the business. “There’s no doubt that the shop is a basic factor that Ortega always saw in an unequivocal way. Staying close to the customer was a great advantage over those who failed to notice change. At that time, fashion focused on presenting two very established traditional collections per year. Nobody was interested in the street. Designers had no idea what customers thought about their collections, and it was this approach to focusing fashion that Inditex turned upside down. Of course, there’s no doubt that you can do this for a single shop, as I’ve said. The problem arises when you want to grow and repeat this business model. The result is an organisational problem; the problem of moving from ideology to technology.

“It was a real challenge to seek out and build up teams who could implement not just the idea, the philosophy, but who could handle the organisation and control it at the worldwide level while the business model kept growing.

“Ortega never slacked in the pursuit of excellence; he always thought that the company came first, and everybody else next. I feel it was a very positive starting point; the company was taken care of in the sense that he invested all the money in it that it needed and what was left over was invested in dividends. The workers realised that he believed in them and in the company, and to help it grow they gave everything they could.”

When I asked Castellano about worker loyalty, he told me that Inditex is “a company of young people and a great deal has been delegated to them as far as responsibility is concerned. They are allowed to make decisions. If, for example, a store manager talks to someone from the marketing side, that’s because marketing personnel have the power to make decisions. In other companies in the sector the people who decide are usually the buyers. Here, the people who decide are salespeople with decision-making powers. In other words, people who aren’t bound by budgetary control.

“What you don’t find here is the order, ‘You have to buy 50,000 metres of denim’, because if this season’s fashion isn’t jeans, you don’t buy it. There’s no financial team giving orders to a commercial team; the people who get preference in decision-making are the people who are in contact with the customers. This is a large part of the secret of the company and it explains a lot of what has happened in the company. Ortega starts from there, from a shop, and never claims to tell the customers what they must buy.”

Naturally, I would like this conversation to reveal which roles were played by Castellano and Ortega in big company decisions. The explanation could not have been more direct or straightforward.

“Things were negotiated in the various departments and when a decision was reached, it went to Ortega to decide on the best strategy. Once the course to follow had been approved, Ortega delegated responsibilities to various people with absolute trust to put those decisions into effect. Matters were put on the table to be studied and decided upon, not to be imposed on people. I remember the time when the owner of the company Sephora was keen to sell it to us, but then it ended up with the LVMH group. Ortega and I were in complete agreement over the fact that it was important to buy it, but the rest of the company didn’t see it like that. We thought it could be effective to combine clothes with something else, but the majority felt that this would be a distraction and that we had to keep investing in Zara. They thought that cosmetics and perfumes were businesses we neither knew about nor could manage. The end result was that we didn’t buy the company. This is what I would call a form of ‘intelligent flexibility’ when it comes to running a big business that is growing quickly.

International expansion

“International expansion decisions were also important. The United States, for example, is not the strong point for Zara and the other chains; we never intended it to be. It was a very carefully worked out managerial decision. On the one hand, at that time the US currency was very strong, and on top of that, except in the big cities, American customers were used to very basic products from places like GAP.

“They didn’t share the same interest in fashion as in other countries. We were convinced that we still had a great deal to do in Europe, and we settled on the idea of opening a flagship store in New York, as much for brand image, and then to open three or four stores per year in the US, while in Europe we would be opening 400.

“Zara was part of a European company. We had begun with Portugal in 1988, in a market where there was hardly any competition; no other chains existed and we could see big growth possibilities. From France we went to Belgium, the Netherlands, Greece, etc. Amancio dislikes flying and in those days he would travel thousands of miles by car or train. He was changing his car every year. Despite the fact that he owns his own private plane, he has never been keen on flying, except for when he has to do it for obvious reasons like crossing the Atlantic, for example, or avoiding excessively long land journeys when too much time is wasted.”

I continue to express my curiosity about the division of labour between Castellano and Ortega. Was it very carefully worked out, I asked. “To the contrary, it worked out quite naturally. Amancio was always very drawn to the commercial area, where in those days he had around 200 increasingly international designers covering the entire world in search of the latest trends and what the customers really wanted. Today there are 600, which meant that at his side, I could get on with my own field.”

I take the opportunity to ask Castellano about a matter which I mentioned in the opening pages of this book – the talks they had with Armani. “Armani’s company was up for sale, and he offered it to Inditex. We had several conversations, but it all came to nothing in the end because all they were selling was the business, not the name, and the product without the brand name has no meaning. We met on several occasions and both parties came to understand that this kind of a formula could sink us both. The more the talks went on with management, the more impossible their offer appeared. Now they’re making their way with a big family empire and their future is in the balance. It was also common knowledge that there was an offer on the table from Loewe, the great Spanish luxury brand with a fantastic tradition and enormous possibilities, but it kept going around the houses too much. Now they have an excellent CEO, Albert Puyol, and they form part of the LVMH holding. We could not leave the brand image in the hands of a third party, however high that third party might have been placed in world rankings of luxury goods.

“There have always been companies that wanted to sell and that have approached Ortega, but a luxury company strategy is different from that of a retailer. You have to remain very balanced and keep your goals very clear in order not to stray from your own line of business.

“That doesn’t mean that you don’t set out every day to do better, but you mustn’t lose contact with your own company’s DNA. One of Amancio’s great objectives was to fix it so that the whole world could dress well. So why get involved in businesses that weren’t yours? Keeping a cool head, applying maximum standards and seeking ambitious goals always kept us in our own field.”

Keypoints

1975

  • First Zara store opened on a street in downtown A Coruña, Spain

1985

  • Holding company Inditex is founded

1988

  • First Zara store outside of Spain opened in Portugal

1989

  • Zara opens in New York

1991

  • Pull & Bear is founded

1995

  • Inditex acquires 100% of Massimo Dutti. The group launches in Malta in 1995

2001

  • Launch of lingerie retailer Oysho

2003

  • The first Zara Home stores open

2006

  • Inditex opens stores in mainland China

Sources: Inditex Corporate site, Retail Week Knowledge Bank