Zara illuminates path to success

Twenty years after Amancio Ortega opened his first Zara store outside of Spain, in the northern Portuguese city of Porto, his Inditex group has become the largest clothing retailer in the world in terms of sales, displacing America’s GAP in the company’s first fiscal quarter in 2008

 

With no plans to slow the retailer’s expansion, despite weakening economies and declining consumer spending around the world, Inditex is likely to consolidate its lead over the coming months.

With sales of EUR 2.22 billion in its February to April quarter – an increase of 9 percent on the previous year – Inditex has inched past GAP for the first time after the US group saw its revenue fall 10 percent to just under EUR 2.20 billion due to a weak dollar and plummeting consumer spending in its home market.

 

Inditex’s claim of the world’s top retailer spot comes just three years after it overtook H&M to become the biggest in Europe.

 

Such rapid growth is nothing new to a company that started out life as a small maker of bathrobes in Galicia in 1963. Nine years later, the owner of the dressing-gown manufacturer, Amancio Ortega Gaona, set up Confecciones Goa, using the initials of his name in reverse. Goa started out producing cloth for the wholesale market, but two years later Ortega decided to move into retail, opening his first Zara store in A Coruña, Galicia, in 1975.

 

                       

 

Expansion across Spain followed throughout the 1980s, leading to the opening in Porto in 1988, New York in 1989 and Paris in 1990.

 

Today, Inditex operates almost 3,900 outlets in 70 countries around the world. It has managed to get so far so fast largely through the use of innovative management and logistics techniques, which have now become a subject of study in their own right in business schools.

 

Inditex always follows the same so-called "oil stain" pattern when it moves into a new market. First it opens an insignia store aimed at building its name, before setting up smaller stores of different brands to reach a certain density of outlets that allows it to create economies of scale and boost profit margins.

 

In addition, for a company that spends hardly anything on advertising, its stores are its principal marketing tool, resulting in many coming close in appearance to designer boutiques.

 

Zara remains Inditex’s most important brand, with sales of EUR 6.26 billion in 2007, two thirds of the group’s total revenue of EUR 9.43 billion. Zara’s sales are followed by a large margin by those of Bershka (EYR 925 million), Massimo Dutti (EUR 696 million), Pull & Bear (EUR 614 million) and Stradivarius (EUR 521 million).

 

Other brands, such as Oysho and Zara Home, have already surpassed EUR 200 million in sales, while the recently launched Uterque accessories brand is expected to see rapid growth.

 

The key to Inditex’s brand diversification lies, perhaps counter intuitively, in the group’s vertical integration. Almost all the phases of developing and selling a new product are carried out in house – from design and production to logistics and sales.

                          

 

"The success of the model lies in being able to adapt what you’re offering in the shortest time possible to what clients want. For Inditex, time is the principal factor to take into account, more so than the costs of production," a company representative explains.

 

 

text: M Jimenez / S Hernandez / El Pais

photo credits: [email protected]’s Photostream; Daquella manera’s Photostream; jaimelondonboy’s Photostream

 

Expatica 2008