Amancio Ortega, the man who dresses the world
Inditex founder is world's third-richest man thanks to a business model no rival has been able to replicate
Eighteen months ago, local media reported a rare sighting of Amancio Ortega. The founder of Inditex, the world's largest high-street fashion retailer, spent a morning at a shopping mall on the outskirts of A Coru?a - close to the company's headquarters - looking round Zara. Ortega wanted to experience firsthand the new shop concept the company was formulating, and would soon be announced to the world with the opening of Zara's flagship emporium on New York's Fifth Avenue a year later amid great fanfare.
The new Fifth Avenue Zara is the retailer's largest outlet in the United States, encompassing more than 3,000 square meters spread over three floors. The shop opens on to Fifth Avenue and 52nd Street with five display windows and a fa?ade spanning more than 23 meters. The store will employ 450 people.
The new store image is based on four principles: beauty, clarity, functionality and sustainability. The store's design emphasizes simplicity as part of the retailer's ongoing mission to facilitate direct contact with customers.
In each of the three floors, the store is organized around two long corridors or "catwalks" that lead to intimate boutique-like cubes on each side. Each space showcases a specific collection. The wood furniture is finished in neutral elegant colors and textures reminiscent of fabrics such as linen or silk.
The Inditex legacy
Over the coming months, nine new nursery schools will open in Galicia, boosting state care places for the under-threes by five percent. The project will be funded by the Amancio Ortega Foundation at a cost of 11 million euros.
During the 37 years over which he built up the Inditex empire, Ortega was something of a recluse, refusing to give interviews and preferring not to be photographed. In general, the local media in his home town of A Coru?a, respected his wishes, despite him being a regular visitor to the local financiers' club, housed in the Riazor soccer stadium. But since he stepped down from the day-to-day running of Inditex, at the same time as he was announced the world's third-richest man, he has become increasingly accessible, and can often be found at his Casas Novas Equestrian Center.
The Foundation that bears his name has undergone a similar transformation. It was set up in 2001 amid some secrecy, with capital to the tune of 60 million euros. Its first project was an attempt to introduce new technology into primary and secondary schools "as an educational tool, as well as a way of modernizing teaching, not as a discipline in itself," as the foundation's former director, Felipe G¨®mez-Pallete, said at the time. Two years later, in 2004, computers and a range of other technologies had been installed throughout the Ponte dos Brozos junior school in Arteixo.
Since then, the foundation has set up some seven projects, ranging from its training program in Tanzania in conjunction with the Agr¨®nomos Sin Fronteras Foundation to supply new agricultural techniques to consolidate the sustainability of families, to the construction of the new installations of the Padre Rubinos Social Not-For-Profit Institute in A Coru?a.
The shop also includes all the sustainability features of Inditex's eco-efficient stores, marking further progress in the Group's environmental commitments as outlined in its Sustainable Inditex 2011-2015 Plan.
When the store was inaugurated, in April this year, Ortega was already the world's fifth-richest man. Two months later, Businessweek announced he had joined Bill Gates and Carlos Slim as one of the three richest men on the planet, with a net worth estimated at 37.5 billion euros.
In the first three months of this year, Inditex's profits grew by 30 percent on the same period in 2011, even though sales only rose by one percent. Even the collapse of the Spanish stock exchange has had no negative impact: its share value has continued to rise, to the point that it is now Spain's top bourse performer, outgunning Telef¨®nica, and the country's two leading banks, Santander and BBVA. Inditex has weathered the global financial crisis like few other companies, continuing to grow despite the economic downturn. It has opened 1,000 new stores around the world over the last four years. In 2006, it opened store number 3,000, and two years later opened number 4,000 in Tokyo in 2008; two years later Rome hosted store number 5,000. By the end of the year, it will have opened its 6,000th, probably in China.
Inditex now has 300 stores in China, and has used the country as a manufacturing base. But sensing a downturn in the Chinese economy, coupled with its rising labor costs, the company is rapidly shifting its operations closer to home: Africa, Turkey and Portugal. Rapid response has always been the hallmark of the company.
"Inditex's business model has so far proved indestructible," says Jos¨¦ Luis Nueno of the IESE business school, and author of one of the many case studies exploring the Galician company's success. He is currently preparing another, attempting to see where Inditex could be in five years' time, when it is expected to be turning over some 30 billion euros a year.
"Many other companies have tried to copy its business model, and some manage up to a point, but nobody has been able to successfully replicate it: nobody else can do what they do in the way that they do it," Nueno explains.
Inditex has weathered the global financial crisis like few other companies
Central to Inditex's growth strategy is complete control over the chain of production. It takes, on average, just three weeks for Inditex to move a fashion piece from the concept stage to store shelves - and then items remain in stores only a few weeks before being replaced with the "latest" style, giving customers incentive to visit often and check out new arrivals. Relatively low prices also keep merchandise moving and customers coming back.
The group designs all the products sold in its outlets and manufactures all of its items. Stores are the front line. The feedback they send to the company's headquarters in A Coru?a, which includes both computerized sales data and anecdotal observations, drives the design process.
Each of Inditex's chains is designed to meet the demands of a different market segment, from teens - who view fashion as fleeting and clothing as disposable - to older men and women, with more conservative styles and values.
Inditex does virtually no advertising, using its outlets, which are generally located in central urban commercial areas, to convey its message.
It has opened 1,000 new stores around the world over the last four years
In terms of technology and industrial production, Inditex is a leading retail innovator. Whereas the production timeline for its competitors can take as long as five months, turnaround time for Zara stores is a mere three weeks. Each Zara store receives deliveries twice a week, based on real-time inventory data collected at each store, then sent through the internet to computers at the company's headquarters. Inventories are kept low while fresh designs pour into stores almost continuously.
Like many successful businesses, Inditex's model is based on a very simple idea: to make nice clothes at a nice price for the middle classes. But other companies have copied Inditex's strategy of allowing its designers to produce their own versions of the trends on the streets and catwalks around the world. Inditex's rivals have gone as far as headhunting its top designers, and have had some success, but as Nueno points out, they are unable to replicate other aspects of the company's business model. The story goes that if the weather forecast is for rain, there will be umbrellas in Zara's windows. In short, the company has been created on the premise that decisions need to be made quickly, and those decisions transferred to whichever stage of the production or distribution process is necessary. If a t-shirt isn't selling, the store knows immediately. It is taken off the shelf and recycled. "They are the masters at this," says Nueno. "The item will be sent back to the factory, dyed a different color, the logo on it changed, and it will be back in the shops. The idea is simple: sell everything that is produced."
Inditex produces some 840 million articles of clothing a year, from skimpy lingerie to heavy overcoats; some 40,000 different items. The company produces its summer and winter lines at the same time, for men, women, and children; for Americans, Chinese, and Africans, taking into account the most popular sizes in those regions and countries.
Inditex is a Spanish company, with some 1,900 shops and nine logistics platforms. So how has it managed to maintain profitability in a country where consumption has fallen sharply and the economy worsens by the day, to the point where an EU bailout looks increasingly likely? In part because Inditex is no longer opening stores in Spain; in fact it has begun to close some that no longer serve their purpose, such as a large Zara store in central Bilbao, where it already had two outlets that had prevented the competition from gaining a foothold.
An unsold item will be sent back to the factory, dyed and put back in the shops"
In 2009, when the analysts predicted that the company would begin to feel the effects of the global crisis, the company responded quickly: "We began to make cheaper clothing, and we also began to pay more attention to our customers. Before, sales staff simply folded clothes and manned the tills. Now they are helping customers find what they want. Nobody should leave the store without buying something," says a senior member of the management.
As the global crisis spread, Inditex simply looked further afield to open new stores, particularly in emerging economies.
Amancio Ortega arrived at A Coruna, Spain, at the age of 14, due to the job of his father, a railway worker. Having started as a gofer in various shirt stores, he founded Confecciones Goa (his initials in reverse), which made bathrobes, in 1972. In 1975 he opened the first store in what would grow into the enormously popular chain of fashion stores called Zara. He owns 59.29 percent of the Inditex group (Industrias de Dise?o Textil Sociedad An¨®nima), which includes the brands Zara, Massimo Dutti, Oysho, Zara Home, Kiddy's Class, Tempe, Stradivarius, Pull & Bear/Often and Bershka, and has more than 92,000 employees.
Amancio Ortega keeps a very low profile and has never given an interview; his secrecy has led to the publication of books such as Amancio Ortega: De cero a Zara (or, From zero to Zara). Similarly, there are practically no photographs of him.
Inditex produces 840 million articles of clothing a year - around 40,000 items
In January, saying the company was now entering a new phase requiring "youth and experience," Ortega announced he was handing over the reins of the company to his right-hand man Pablo Isla, until then the company's deputy chairman and chief executive officer. Ortega retains a 59.2-percent stake in Inditex, Ortega said
The 46-year-old Isla has been CEO of Inditex since 2005. He also sits on the board of telecoms giant Telef¨®nica.
Isla is as reticent as Ortega. He doesn't give interviews, and speaks publicly once a year, when he addresses the Inditex general shareholders' meeting. Some observers say he was the brains behind the firm's decision to expand online, as well as to open the Fifth Avenue store.
Inditex has long used purely promotional websites to draw attention to its Zara product lineup as well as other company-owned chains such as Bershka and Massimo Dutti. Its Facebook page has nearly 10 million fans, and Inditex introduced a smartphone app more than 18 months ago that allows consumers to browse new clothing arrivals. However, selling goods online, something that Gap has been doing for more than a decade, is only now becoming a key part of its strategy to expand sales in the United States. Inditex has about 50 Zara stores in the States compared with the 200-odd US outlets Swedish rival Hennes & Mauritz (better known as H&M) has opened so far.
Inditex will continue to grow: the latest figures will be out in September, and nobody doubts they will be good. Amancio Ortega will continue to be among the richest men in the world, and he will continue to play a key, albeit discreet, role in the company's development. Although retired, he is still a familiar face at the company's headquarters, particularly in the design department, and is a regular in the staff canteen. And he will probably continue to refuse to give interviews explaining how he created a business model that has been pored over by the world's best brains but which, after 37 years, still remains unrepeatable.
From the first peseta to the 37th billion euro
The robe workshop (1963). Born in 1936 in Busdongo de Arb¨¢s, Le¨®n, Amancio Ortega sets up his first workshop making dressing gowns, along with his first wife, Rosal¨ªa Mera.
From retail to wholesale (1972). Confessiones Goa begins producing on a large scale. Ortega and his wife distribute their textile goods in Spain and abroad, with dressing gowns still the stock-in trade.
The first shop (1975). Ortega opens his first shop in A Coru?a. He decides on the name Zara after learning that Zorba is already registered.
Regional expansion (1975-1980). Over the next five years, Ortega continues to open new shops in Galicia.
National growth (1983-1986). Zara begans to establish a nationwide presence, opening stores in provincial capitals such as Valladolid, Barcelona, Seville and Madrid.
Inditex is born (1985). Inditex is set up as the holding company for a group of shops and factories run by Ortega.
Internationalization (1988). With more than 60 shops throughout Spain, Ortega expands internationally. He opens the first shop outside Spain in Oporto. By 1989, there are stores in New York, and a year later, in Paris.
Rapid growth (1991) and new brands. Inditex buys 65 percent of men's fashion retailer Massimo Dutti, and creates Pull & Bear, aimed at a youth market. In 1998, Ortega sets up Bershka, aimed at young women. A year later he buys Stradivarius, and in 2000 launches lingerie chain Oysho. In 2003 he sets up Zara Home and in 2008 starts accessories store Uterq¨¹e.
New headquarters (2000). Inditex moves from A Coru?a to nearby Arteixo, where Ortega builds a vast plant of 16 textile factories.
Stock market entry (2001). With 997 shops in 30 countries around the world, Inditex enters the stock market with capital of 92 million. Shares go on sale at 14.70 euros. A few days after launch, shares have risen to 18 euros. They have continued to rise since. On August 7 of this year, they reached 90 euros.
The Forbes moment (2001). Ortega enters the Forbes magazine ranking of the world's richest men at 43rd. By the following year, he has risen to 25th place, and in 2003 reaches the top 20 with an estimated net worth of 8.3 billion.
Store number 2,000 (2004). Twenty years after the opening of the first shop in A Coru?a, Hong Kong has the honor of hosting the company's 2,000th store. Inditex now has a presence in 56 countries.
Store number 4,000 (2008). In four years, Inditex doubles the size of its empire, opening its 4,000th shop, in Tokyo, and extending its presence to 73 countries. Ortega is now the world's tenth-richest man, worth 18.3 billion euros.
Store number 5,000 (2010). In search of better locations, Inditex opens a store in Rome's upmarket shopping district. At the same time, it develops an internet strategy. Ortega is now the world's eighth-richest man with 25 billion euros.
Ortega steps down as chairman (2011). After 27 years at the helm, Inditex's founder and main shareholder hands over to his deputy Pablo Isla.
Inditex holds its own (2012). Despite the crisis, the group continues to grow, opening new stores that should take it to 6,000 in 85 nations, and turning over 3 billion in the first quarter. Ortega is now the third-wealthiest man on the planet, worth 37.5 billion euros.
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