Spanish fashion powerhouse Inditex is notoriously secretive. Lisa Berwin takes an exclusive look behind the scenes at its Galician head office.
In 1975 a young Spanish manufacturer opened his first store in the Galician city of A Coruña and proudly put the sign above the doors.
He had decided to call it Zorba, inspired by the hit film Zorba the Greek. Unfortunately a bar manager from a few streets away saw the fascia and complained that the name was identical to his bar.
The shopkeeper did not want to tread on local toes, but neither did he want to bear the hefty cost of remaking the mould for the letters. So a new name was created using the same
letters – tricky, because not many combinations from the word Zorba slip very easily off the tongue in the local dialect.
Eventually he settled on Zara and the single store became the foundation of what would become the biggest retail fashion name on the globe – with shops everywhere from London to New York, Paris to Japan and China to Mexico. Now there are more than 1,300 Zara stores worldwide and the number is growing almost daily.
Despite its size, Zara parent Inditex, which has more than 4,430 stores in total, likes to keep a low profile, taking the lead very much from its secretive founder Amancio Ortega Gaona, whose business generated sales of e10bn (£8.94bn) last year.
While there are few bigger retail success stories than that of the shy Ortega, as youth unemployment rises and shoppers seem increasingly interested in investment pieces, can the rate of growth of Zara and Inditex’s other brands be sustained?
Retail Week was given a rare insight into the retailer’s operations at its head office in A Coruña and spoke to several directors and senior mangers. In keeping with its reclusive founder, they agreed to be interviewed only if not quoted directly but were otherwise happy to share their views.
Making fashion fast
At the heart of Zara is speed. Surrounded by a huge distribution centre and 11 factories, these are all essential to the way it can react so quickly to customer demands and run the business model that has been so vital for it to succeed on such a massive scale.
Each Zara store, wherever it is, receives two deliveries a week – a general delivery and one that the store orders specifically based on what is selling and what customers ask for.
Every day managers across its stores talk to the commercial teams at the head office about what is working and what is not. The information is fed to the designers who make constant changes to their initial seasonal collections, reacting to demand as they go.
There are a large number of young people in the business and a strong sense of diversity – with 13 nationalities in the design and commercial teams alone. The average age of employees is 30, which the retailer says helps with the pace of its work.
From the point of getting feedback from shops to installing new items to store, the process takes no more than two weeks. From a particular order of existing product to getting items into a store the time limit is 36 hours for European shops and no more than 48 hours for stores further away.
To make this work it is essential that the logistics operation is smooth and efficient. Walking through its 5.4 million sq ft logistics centre where clothes fly around on conveyor belts and are sorted store by store you get the feeling of just what a gigantic operation it is. The place is so big that the technicians ride bikes to get around.
In Europe alone 25,000 trucks a year feed its operations. The retailer says the key to keeping the logistics running smoothly is having the right team in place that can predict problems before they happen.
About 50% of products are made in locations relatively close to the head office, in Spain, Portugal and Morocco. Such locations provide clothes with a strong fashion element that need renewing more often. More basic product is made further away.
With its store portfolio now spreading out into Asia the retailer finds it can make its logistics operations more efficient by, for example, flying out clothes to its 50 Chinese stores and then flying back goods made there to Spain.
The latter is one example of the importance the retailer attaches to efficiency. It is trying to be leaner and greener and has set itself key targets for the next few years. It believes that the brand will perform in line with how it is perceived and as a global giant that produced 625 million products last year it has an important responsibility in how it operates and conducts itself – something that consumers are increasingly concerned about.
It works with the International Textile, Garment and Leather Workers’ Federation as well as having been being on the board of the Ethical Trading Initiative in the UK for the past five years. The retailer says that it always aims to work with suppliers and educate them rather than quit and move location if they do not meet its ethical standards. Zara knows that standards can slip, not only in developing countries but Europe as well, but believes the worst thing to do is walk away from factories as that can make conditions worse.
Its other environmental targets include using 50% renewable energy in its logistics centres and factories and reducing emissions from all of its transport by 2012.
It opened its first fully eco-efficient store in Korai Street in Athens last year and is rolling out elements of the shop to all new openings including efficiencies it has learnt from this store.
The details of this are spoken about with enthusiasm within the business but again it is something the retailer tends not to shout about externally.
A universal standard
Another part of its introverted nature is that it does not advertise but uses its shops in prominent and sometimes unique locations to speak for it. Inditex is therefore very aware that if it is not going to talk about itself, the other things it does must have real impact.
That standard must also be universal and the head office has mocked up stores and windows that are changed frequently and where store designers can test what looks good, what material or styles will work and how the shops should be correctly merchandised.
Pictures of the windows and the merchandising are then sent to each store to be duplicated exactly, again on a frequent basis. Everything is replicated down to the perfume used in stores and the music that is played.
The mock-ups for the spring/summer 2010 windows are already up in the head office so expect bees and spiders in the windows of your local Zara stores next year.
Many of the shops it chooses are unique either by design or location and it has its own building company it uses to transform sometimes quite difficult buildings structurally into standout stores. Examples include an old crumbling monastery in Salamanca, Spain and its army barracks conversion off the King’s Road in Chelsea.
But its most anticipated store next year will be its online shop, going live in time for the autumn/winter range. The retailer has been learning from its Zara Home transactional site and does not think that with its distribution capabilities fulfilment will be a difficult task. In fact, it plans to treat the etail store in the same way as it bricks and mortar stores – learning from customers and reacting accordingly.
Inditex is also continuing to develop its other fascias including Pull and Bear, Massimo Dutti and its latest launch, accessories store Uterqüe.
Along with Zara and Zara Home, Uterqüe is also based at the A Coruña head office – its store is designed to look like a British library with long tables and dark wood. It has quickly grown to a 50-store chain.
The next chain it intends to bring to the UK is Stradivarius, which is a brand targeting women in their 20s. Although one of its less well developed brands, Stradivarius was purchased by Inditex in 1999. The group says the concept does well through constant renewal of product and has been enthusiastically received in the 33 countries in which
Bernstein senior analyst Luca Solca says that looking ahead to next year Inditex will continue to be challenged by weak markets, particularly domestically. However, the retailer has said
it will grow market share in Spain by the end of the year between 1% and 2%. It is also on target to hit its target of e75m (£67m) of savings across the business.
“Inditex has a flexible and very resilient model,” says Solca. “With some shopping malls being delayed it may not hit its space growth targets but its new store costs will be helped by lower rent deals.”
He says Inditex’s global strength means it is well placed to take advantage of current conditions, as some competitors slow down or exit the market altogether and adds its model will continue to attract shoppers. “The customer will part with money given the right styles at the right time at the right price.”
This is exactly what Inditex wants to continue doing. It says that it is a constant effort every day to gauge what the outside world’s fashion demands are and to react swiftly to that.
The risk of course is that it mishears the message. Adapting to today’s changing customer – who may not be as frivolous as before but is more informed and demanding than ever – is a daily battle and Inditex knows it must constantly have a wide offer and adapt to different styles.
The Inditex view is that if someone goes into one of its store and feels it is his or her style then the model is working, and goes as far as to saying that if one store fails the whole model would collapse.
With little sign of its expansion slowing down there is no reason why the fashion giant, which came from such humble beginnings, should not continue apace and remain a formidable player with a format that seems to work from cosmopolitan cities to the smallest developing towns.
First-half results, 2009
Net sales up 9% to €4.9bn (£4.38bn)
EBITDA down 3% to €799m (£714.3m)
- Pull and Bear
- Massimo Dutti
- Zara Home