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Inside the Inditex Empire

La Coruna, Spain — The Inditex juggernaut shows no signs of slowing.<br><br>The industrial and retail behemoth based here, which owns Zara and five other branded apparel chains operating 1,377 stores in 41 countries, plans to open up to 275...

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La Coruna, Spain — The Inditex juggernaut shows no signs of slowing.

This story first appeared in the July 30, 2002 issue of WWD.  Subscribe Today.

The industrial and retail behemoth based here, which owns Zara and five other branded apparel chains operating 1,377 stores in 41 countries, plans to open up to 275 stores worldwide this year in its ever-increasing expansion. It also expects to launch a home line next year to go along with its women’s, men’s, children’s wear, accessories and beauty products.

The one market that remains off Inditex’s radar for the time being, however, is the United States. The company currently operates four Zara stores in Manhattan; one each in Long Island and New Jersey; two in Miami and one in Puerto Rico.

“The time is not right [to expand in the United States],” Raul Estravera of Zara said in an interview. “We are still concentrating on Europe. The U.S. requires an enormous effort, and we can’t work on both markets at the same time.”

He did predict one U.S. opening by year’s end, “probably,” (a word he used throughout the conversation) with follow-up outlets “probably” of two to three per year.

“The events of Sept. 11 resulted, obviously in a drop in U.S. sales,” Estravera added. “We even closed stores for a few days. But today, sales are good; they have recovered.”

In addition, the stock valuation was pushed down to its lowest levels of $17.78 to $19.76. Currently, at $20.75 to $22.72, it is trading higher than before the attacks, Estravera said.

Elsewhere, though, Inditex continues to step on the accelerator, and it remains one of the most-admired retailers in the world. Zara operates stores in Canada, South America, Asia and the Middle East. Europe, including Spain, accounts for roughly 77 percent of the group’s total sales.

“In Europe, our focus is on Germany — that’s the key market — also France and the U.K., along with smaller countries like Holland, Belgium and Austria,” Estravera said. “We will still open stores in Spain and Portugal, but not at a significant rate.”

“Normally, the retail operation is not a franchising system,” added his colleague Carmen Melón (generally speaking, the company bypasses traditional management titles, but the duo oversee all the group’s external communications). “There are three joint ventures — in Japan and Germany (with the Bigi and Otto Versand Groups respectively) and in Italy (with Grupo Percassi) — but we have franchises in the Middle East, because it’s the easiest way to do business there.”

The once-secretive Inditex is beginning to provide more peeks into its operations following its successful initial public offering in May 2001. The IPO reportedly raised $2 billion for 26.1 percent of the company and valued Inditex overall at $10 billion. Based on a solid performance, the stock was admitted to the blue-chip IBEX 35 index six weeks after its market debut. Earlier this month, company founder and chairman Amancio Ortega sold 1.98 percent of his participation for $255.6 million to institutional investors. He retains majority ownership with 59.3 percent. The remainder is owned by 15,000 company employees — out of a workforce of almost 27,000.

And to think it all began with a pink quilted robe. In the early Sixties, or so the story goes, Ortega decided to make that robe and other basic garments like underwear and housecoats cheaper than anyone else. Purportedly, production took place on his kitchen table.

Today, Ortega, 66, is considered the richest man in Spain and one of the richest in the world. Forbes estimates his worth last year was $9.1 billion, placing him at number 25 on its annual list of the world’s billionaires. The year before, he was ranked 43rd with an estimated net worth of $6.6 billion.

Ortega opened his first store in 1975 here in La Coruña, his adopted hometown, and in 1988, he moved Inditex into international markets. At one point, according to sources here, Inditex was opening a store every 120 hours. Last year the group overall entered seven new markets: Luxembourg, Iceland, Ireland, Italy, the Czech Republic, Jordan and Puerto Rico. For fiscal 2001, bolstered by Zara, its best-selling division and retail linchpin, Inditex reported net profit climbed 31.3 percent to $296.4 million and sales for the group rose 24 percent to $2.83 billion.

For an idea of how the brands pull their weight, sales for 2001 broke down as follows: Zara with the lion’s share, at 76.2 percent; Massimo Dutti (7.4 percent); Pull and Bear (6.9 percent); Bershka (6.2 percent); Stradivarius (2.9 percent) and the year-old lingerie-sleepwear chain Oysho (0.2 percent).

For the first quarter of fiscal 2002, ending April 30, net income jumped 32 percent to $66 million while group sales increased 28 percent to $840.2 million, due primarily to the opening of 53 stores and growth in same-store sales.

Of the 230 to 275 openings planned in this fiscal year, sources said 65 will be new units for Zara (for a total of 572) and 20 for Kiddie’s Class, a children’s category made up of Zara spillover — “but it’s not a chain,” explained a spokeswoman.

The question is: How does Inditex do it? A recent visit to the group’s corporate headquarters, located in the industrial zona of Areixto, 16 miles from La Coruña on the northwestern coast, clarified how Ortega’s empirical formula of trendy fashion at accessible price points manages to transcend the global turbulence of today’s markets.

A completely vertical fashion operation, Inditex is based on teamwork and communication, market speed, tight inventory management and quality control. “We are all responsible here; it’s teamwork,” said Melón, who studied at New York’s Fashion Institute of Technology. “We don’t have one designer, for example; we have a design team of 200.”

“There are four major processes — design, production, distribution and sales,” Estravera continued. “We don’t want to miss out on the latest trend, which means a fast response to the demands of our customer and the market. Having our own factories (22 fully-owned plants throughout Spain) allows us this flexibility — 15 days from product decision to delivery and twice-weekly shipments of fresh merchandise — and there is less chance of error.”

In addition, Inditex relies on a prolific network of global contractors, said Melón. For instance, there is no in-house textile or accessory production, except shoes. On a yearly basis, 25 percent of Zara, mostly novelty items and accessories, is purchased from outside sources. The group buys its fabrics, particularly cotton and linen, from domestic suppliers and Portugal, Melón said, and leathers from such offshore sources as Turkey and other Asian countries. Cosmetics are imported from Sweden, France and Germany.

Operations like dyeing, printing, cutting — 35 million meters of fabric a year — and finishing are done on the premises, while sewing and piecework are sent to 300 workshops throughout the region.

“The stores are the key to our business,” said Estravera. “For instance, Zara sells 12,000 styles a year, with an average of over $5 million in sales per store. On the other hand, that figure doesn’t really reflect the reality of the situation, because the stores aren’t the same size.”

In a streamlined two-year-old building with reflective glass, butterscotch marble floors and stainless steel, corporate headquarters and management offices share space with such departments (Zara only) as product development and coordination, graphic design, pattern-making, sizing, sampling and commerce, or what one employee called “the fitting room reaction,” adding: “Here is where we monitor customer insights and needs, a shorter sleeve, a different color, for example. Customer opinions are very, very important; if we can improve the garment in time for the next shipment, we’ll do it.”

Also in the building is a 13,000-square-foot pilot store to test retail visuals such as day-night lighting, displays and window dressing. Inditex does little conventional advertising. “A pleasant shopping experience in our stores is the best publicity. Our design philosophy is based on a discreet interior and clean spaces so you can see the product,” Melón said.

Inditex reinvests its profits — to what extent appears to be a matter of debate — although $543.4 million are slated for new stores and technologies during the current year. Nowhere is solid investment more obvious than Zara’s distribution center, a vast 4.8-million-square-foot area on two levels where weekly an average two million garments are allocated by code and computer to the company’s global retail network. Underground tunnels link nearby factories and a custom-made (by a Danish specialist in mail distribution) “carousel,” featuring 211 kilometers of overhead rails and conveyor belts, transports merchandise coded according to retail unit to packing cases. Hanging clothes are shipped on hangers, folded garments in boxes.

“We only send our stores what they need. There is no stock that doesn’t move; we have no extra inventory,” Melón emphasized. She also made a point of saying Zara does not manufacture special merchandise for biannual sales which, like most European stores, take place in January and July.

In addition, there is a 48-hour delivery deadline from loading dock to store, she said. “Obviously if we are shipping to Madrid, it won’t take 48 hours, but it’s the same deadline for Japan.”

Meanwhile, Ortega, who doesn’t speak English (or wear ties), is described here as a hands-on boss, “approachable, into everything, and he lives the product,” said an employee. He maintains a low profile — no interviews, no photographs — and interestingly, he works from a desk in the Zara women’s section and lunches everyday in the employees’ canteen.

So why all of a sudden is Inditex speaking out? “It’s like a person,” said Melón, “You have to open up as you mature. Anyway, we’ve gone public and we have an obligation [to that public.]”

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