Zara and her Sisters: The Story of the World's Largest Clothing Retailer

Zara and her Sisters The Story of the World’s Largest Clothing Retailer

Enrique Badía

Zara and her Sisters The Story of the World’s Largest Clothing Retailer Enrique Badía

English translation copyright © Enrique Badía and LID Editorial Empresarial, S.L. 2009 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. Originally published as Zara…y Sus Hermanas by LID Editorial Empresarial, S.L., Madrid, Spain in 2008 Published 2009 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978–0–230–22991–4 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 18 17 16 15 14 13 12 11 10 09 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

Contents List of plates Foreword Introduction

v vii x

1

A place called Arteixo…

2

An entrepreneur called Ortega…

29

3

And some ideas gestating

54

4

A family from a garage in search of gaps in the sector

68

5

The concept takes shape: manufacturing becomes industrial

79

6

Market and customer … the start and finish of everything

102

7

The first attempt to open a shop doesn’t take … but the success of Zara can be seen

112

Logistics: the challenge of marrying production and distribution

129

Thinking big: Galicia is too small…

141

H&M Cortefiel Adolfo Domínguez Caramelo (Sfera) Mango C&A The others…

150 151 152 152 153 153 154 154

10

And Spain, too

156

11

Concepts aimed at reaching everybody: adding chains

167

Zara Bershka Massimo Dutti Pull and Bear Stradivarius

170 173 174 176 176

8 9

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Contents Kiddy’s Class/Skhuaban Oysho Zara Home Chain IX: Uterqüe Lefties… by way of a sale Often … and other fiascos

177 178 179 181 182 183

12

On the road to the Stock Exchange

185

13

The market price

193

14

Isla for Castellano: the light and shade of a scare in the form of a crisis

200

15

A model for management

214

16

Amancio, Inditex and the future … with the family?

247

Epilogue: a sensation… or perhaps rather more

257

Appendix Notes Index

259 277 281

List of plates Plate 1 (a) Inditex’s corporate headquarters moved from the old premises of GOA to its current location, (b) the cube in Polígono de Sabón. Inditex S.A. Plate 2 (a) The women who ironed the clothes by hand have been replaced by (b) finishing machines. However, computers have been in charge of cutting the cloth since 1980. Inditex S.A. Plate 3 The production process includes (a and b) automatic garment folding and (c) hanging to expedite the process of store distribution. Along the route travelled by the garments throughout production there are many checkpoints in order to maintain a scrupulous control of quality. This guarantees that the clothing will arrive from the production line to the shelves of stores in perfect condition. Inditex S.A. Plate 4 Pictured are the first customers of Zara in Porto (1988), where the company began its international expansion. Inditex S.A. Plate 5 One of Zara’s great challenges was entering the market of Paris, pictured here (1990) through the window of a store behind the city’s famous opera house. Inditex S.A. Plate 6 The ‘sisters’ of Zara have also managed to expand internationally: (a) Massimo Dutti in Milan (Italy); (b) Pull and Bear in Antwerp (Belgium). Inditex S.A. Plate 7 The concept of a store is flexible. Japan uses both a futuristic approach, as seen in the Zara of Fukoa (a), and the method of adapting the store design to the pre-existing building, as seen in one of the establishments in Tokyo (b). Inditex S.A. Plate 8 Amancio Ortega had many doubts about Inditex being traded publicly, worried among other things about how it would affect his privacy. Until the end of the 1990s nobody had published a photo of Ortega, and this one (a) is one of the few that are distributed officially by his company today. Also pictured (b) is the market of Madrid welcoming Inditex on 23 May 2001 without the presence of its president and founder. Inditex S.A. v

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List of plates Plate 9 Pablo Isla, CEO of Inditex since 2005, holds in his hands the further growth and development potential of the massive group. Inditex S.A. Plate 10 The opening of the first Zara in New York in 1989 was a decisive step in making the group a truly global company. Its entrance into the competitive market of the United States has been relatively slow in comparison to the rest of the world, but Zara’s popularity with the American consumer has accelerated in the past few years. Inditex S.A.

Foreword There are two ways to make yourself wealthy: dishonesty and theft. This George Bernard Shaw saying shows us all once again that a person can be a talented intellectual and a complete idiot at the same time. The lack of public knowledge about wealth has reduced to a zero-sum game where no one can win unless it comes at the expense of someone else. The idea that there exists an underlying admiration for political power and disdain for entrepreneurship in the world today continues to prevail alongside this zero-sum school of thought. Very few of the world’s brightest thinkers have been friends of the trade and finance industries, and in their place is an abundance of minds that happily proclaim a contradictory coexistence of freedom and limitation, or even the necessity of the destruction of private property. It is a rarity in literature or film for the businessman to be a hero, and similarly, there are very few streets, parks and plazas that proudly bear the names of great businesspeople. Furthermore, it is hard to find praise for business in modern Citizenship Education, which tends to applaud the exercising of ‘rights’ rather than reward the establishment of a new and innovative business. Although it has a bad reputation, what’s good, fair, generous, progressive, equitable and supportive for our society is coercion, so long as it comes legitimately through democracy. Words from pulpits, public platforms or business meetings echo sentiments of fear of businessmen associated with the bad, the unjust, the selfish and the unsupportive. The many profits of the businessman came at first at the expense of common men and women, and now from the environment as well. The businessman, the clearest image that comes to mind when one thinks of wealth, is consequently the clearest image that comes to mind when one thinks of destruction. Unfortunately, but perhaps inevitably, more than a few businessmen have given people reason to associate them with such destruction through the forceful way they conduct their affairs. Those businessmen who, on the other hand, fold under legal and political pressures seem to beg forgiveness for merely existing, as seen in the rapid increase of requirements pertaining to so-called Corporate Social Responsibility. Some dreamers still have hope that everything is going to change for the better on a voluntary basis, solely through the actions of companies themselves, failing to realise the way vii

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Foreword in which marauding politicians and legislators act, with supposed good intentions as well as with their interpretation of liberty on their side. Few and far between are the entrepreneurs who choose to defend the concept of business in its fight against interventionism, because such ‘coercion’ is usually rejected in favour of ‘liberty’. It is therefore necessary to illustrate the histories of the rare businessmen who do defend their trade, as Enrique Badía does in this book. His subject is a great company, where a modest worker, from a small beginning, eventually transformed into a successful businessman depending on over 73,000 employees and making the jump to the Ibex 35. In this process, Amancio Ortega has become the wealthiest man in Spain and one of the wealthiest in the world. Does his rise to the top involve sinister illegal activity? One would think so, for as George Bernard Shaw once said, the only way to reach this apex is through dishonesty or stealing. What we see, however, is the creation of value with a single goal: satisfying the consumer. The case of Zara-Inditex is a little superficial though, because of the unbelievable way in which it developed as a company. Here we have a company that makes clothes, an activity that is laborious and an industry with many failed enterprises due to competition from large international companies. To make the circumstances worse, the clothing industry has almost no local raw material in Spain. Galicia, where the company started, is a poor and depressed region of Spain from which people are constantly trying to move. All in all, the setting was not a hotbed for entrepreneurial spirit. Even worse, the man behind the operation left school at the age of thirteen to start work, surely a fact that would evoke the horrors of child labour, something which in nearly all cases impoverishes people and makes it impossible to prosper… The success of a business coming out of nothing is, contrary to what one might think, a more complex and nuanced concept than something happening by accident or out of the blue. Sure, businessmen often start with very little in terms of money and other resources, but they never really start from scratch because there always is an idea behind every project. We can analyse this. It is clear that one can either succeed or fail, since not every idea is very good to begin with, but in each and every entrepreneurial case the purpose is always doing something that attracts buyers. This seemingly selfless life of a politician is basically legitimised coercion, while the supposedly selfish life of a businessman is based on a desire to meet the demand of citizens who simply can’t be forced to buy things. Thus the idea that liberty and wealth are tied together is sensible, because in

Foreword business there are contracts and deals in which both parties win. The game of entrepreneurship has a positive sum. This is what Amancio Ortega did. Without any favourable conditions, in a sector that relies on invention and yet restricts creativity, surrounded by seemingly invulnerable foreign competitors, he decided to fight to the top relying on pure innovation. He found a great balance between quality and price, shortened the shelf life of his product by speeding up the design process, selected prime locations for his stores and extended their operating hours, and all of this was done with the goal of attracting the casual shopper. He made it all happen, and the spectacular worldwide success of Zara should not overshadow this basic fact: physical goods are being sold here, the things hated by politicians, intellectuals and artists, yet defined by the lack of obligation to buy them. Life is not a bed of roses, and business life is no exception to this rule due to the constant pressure of the market to serve the public without interruption or weakness. The capital of workers, which essentially is human, rarely is lost in its entirety, but employers can disappear without a trace, and from this one should not merit companies that simply grow, but give credit to those which also manage to remain and persevere. Guided by the true and accurate vision of Ortega and his team, ZaraInditex has successfully averted serious difficulty thus far, but challenges never fail to appear in the business world, due in large part to the everpresent nature of risk and uncertainty. There always lies a new challenge on the horizon, one that is typical of family businesses: the step to a second generation, when the charismatic founder cedes his power. I trust that Amancio Ortega’s entrepreneurial spirit will be instilled in his successors, and that this great company has a future as bright as the past that Enrique Badía describes skilfully and thoroughly in this book. Carlos Rodríguez Braun Department of Economic History and Theory Universidad Complutense de Madrid

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Introduction It is not always easy to clarify how and why a certain idea, and not others, can transform into a successful enterprise. Most of these ideas never get off the ground, and many of those that do take flight end up failing relatively quickly, leaving those who put time and energy into supporting such ideas without recognition. Only a few of these ideas are able to reach the point of being tangible, and this depends heavily on consumer preferences. Actually we rarely realise why the majority of entrepreneurs end up frustrated and only a few make it to the top. Even the protagonists of this book may not know everything about getting there, but their perspective is very useful in comparison to that of someone who analyses entrepreneurship only from the outside. The more we try to give a single reason as the dominant factor in the success of an idea, the more difficult the task gets. In the same way that failures are usually complex, successes tend to respond to a combination of factors, as a unique and unrepeatable mix that leads to the final result. The tendency to try to find hidden explanations, deceptive motivations or perverse behaviours in both good and evil activity also doesn’t help us understand entrepreneurial success. Unfortunately, however, such practices are prevalent in much of modern society. The phenomenon of Zara, the main character of this book, is not an exception to all of the suspicious practices of modern businesses. A lot of assumptions surround the story of Zara, most of which are weak and unfounded. These assumptions are merely attempts to justify how and why a simple idea grew over four decades from a tiny group in the enclave of Galicia to the world’s second largest company in its field, with a presence in more than fifty countries and a market capitalisation of nearly 32 billion euros, or 5.3 trillion pesetas for those who are not sufficiently acquainted with the new currency. This rapid growth has catapulted its founder and owner, Amancio Ortega, from being a small-town worker to the wealthiest man in all of Spain, and one of the wealthiest worldwide. Those who make the annual Forbes list, or those who try to identify the richest people on earth, are very likely to be faced with the same questions. Some are very general, wondering whether such lists truly are comprehensive and all-inclusive, whereas others are more specific, having to do x

Introduction with the fundamentals behind placing such people in their given ranking position, and the characteristics that those ranked below them seem to lack. A fascinating thing about these rankings is that they include many people who have inherited very successful family businesses and have managed to build upon initial success, but also a few who went from struggling to survive, and consequently from anonymity to building a spectacular enterprise. There is no doubt that Amancio Ortega, number eight on the Forbes list in 2007 (see Table A2.1), is something of an icon that fits the description of someone who rose from anonymity to fortune and fame. His personal history revolves around a company that, in only forty years, has grown from a small shop in A Coruña to an entrepreneurial empire with more than 76,000 employees, a turnover of close to 10 billion, and a presence in four continents. In the hands of Amancio Ortega lies the story of a business with little, if any, precedent in Spain. Although the lack of precedent is related to the unique nature of the figure of Zara and its development, the personal and professional characteristics of Ortega were prominent as well, and their incidence can not and should not be subtracted from the story of the company. The reality of the matter is that Inditex, the name acquired by the group in the mid 1980s, is what it is for many other reasons and circumstances, without a doubt complemented by the inspiration, will and momentum of its owner-founder. It is important to emphasise the importance of, in the first place, a set of professionals from many fields who have been involved with and invested in the growth of the company over the many years of its existence. No less important in the development of Zara are the ups and downs of the socioeconomic environment in which it has thrived. On this point, without either of these things the history of the company would have been drastically different. Even admitting the possibility that under different circumstances the company could have still succeeded is pointless, because it is impossible to tell whether the end result would have been better or worse. To put it clearly, if the company had been founded a few years before or after the actual date, we would be talking about another, completely different Inditex. It goes without saying that a work like this book can not and should not develop without the cooperation and testimony of those who were directly and indirectly involved with the subject it intends to portray. Thus, I give sincere thanks and appreciation to everyone who has agreed to lend

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Introduction support to this project. I scrupulously went through each and every personal testimony, and unfortunately it was impossible to include everything that was said by everyone. I can confidently say that each person I talked to echoed the desire to emphasise the collective nature of the progress of Zara-Inditex. I also owe my appreciation to Marcelino Elosúa, president of LID, promoter of the idea behind this work and constant stimulus for its completion. José Antonio Menor, my patient editor, was incredibly insistent and helpful, and I owe many thanks to him as well. Others no doubt deserve similar appreciation, and I want to thank all friends and colleagues in my personal and professional life for their selfless desire to help me with the project. Finally, I must express gratitude to you, the reader, who have decided to choose to read this work from the many others out there. Enrique Badía

1 A place called Arteixo…

Reaching Sabón trading estate, in the neighbourhood of Arteixo, a bare ten kilometres from A Coruña, was neither easy nor something that many people did just a few years back. It’s a good deal easier today, although the north-east is still one of the more difficult areas of Spain to approach as far as transportation is concerned. Today there is a respectable motorway, completed in 2002, running into and out of the central plateau, but it still doesn’t connect up with the Cantabrian coast or other enclaves in the Peninsula. Going by train is still a nightmare – nine hours from Madrid and more than fifteen from Barcelona – and with the weather making Alvedro airport, eight kilometres away, unreliable, air connections aren’t exactly excessive. And yet the district, which takes its name from the neighbouring beach, watched over by one of Unión Fenosa’s power stations, contains one of the most dense concentrations of important business in Galicia. One of the reasons for this is that, while its 3.5 million square metres are home to around a hundred companies, it happens that you’ll also find there one of the few Spanish groups that can really claim world leadership status in their field. It’s not an easy location to spot – just a small silver-plated notice, attached to the side of the greyish wall flanking the entry, tells you where you are. It’s quite a modest name-plate, rather humble compared with some of the flamboyant signs identifying the head offices of some of the other business which are frankly nobodies by comparison. The head office is also quite modest, a mixture of grey and white courses of stone with a glazed surface, greenish as it reflects the neat lawn that edges it. You could even imagine a less informed visitor wandering about the trading estate experiencing some degree of frustration at being unable to find it. It could happen to anyone who knew that the group has around twenty production plants and a huge logistics centre in the area as well as the administrative offices, and yet there is no sign anywhere of that incredibly well-known name, the name 1

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Zara and her sisters that brought the traveller there. Only those in the know will connect the perfectly visible names of Fios and Goa with the textile group. It’s a fact – you can’t see the name Zara anywhere, not on any building, office or signboard. You might be able to guess you were there from what’s painted on the rear side of one of the huge trucks moving in and out from the warehouse loading docks, always assuming it happens to be one of the days for shifting stock. And the fact is that there aren’t just four of those silver letters we mentioned above, but seven, and what you read isn’t Zara, but Inditex. That is, as it happens, the real name of the company but it’s almost inevitable that, as far as most people are concerned, much better known is the four-letter name which in the last thirty years has invaded the commercial landscape of the main foreign and Spanish capital cities, and established itself in the most central locations or business districts as they have grown up around the edges of the cities. This has reached a stage where today it’s difficult to stroll through the centre of a city, in Spain or any other of the most visited countries in the world, without coming face-to-face with the logo that has just two consonants: Z and R, and the repeated vowel A, on the façade of one of the most attractive shops in the area. You get the same sort of effect on the internet – keying Zara into Google gets you 15.2 million references, as against a mere 1.2 million for Inditex.1 Zara is and has been for quite some time the best known Spanish brand at the international level. It’s also the only one listed among the hundred most valuable companies in the world, in position No. 64, higher than such well-known brands as Apple’s iPhone, Nintendo’s Wii or the Starbucks Coffee chain, standing as the one which made most progress in 2006, and is beaten only by Google.2 Needless to say it heads all the Spanish names, way above Mango, Seat, Camper, Iberia, Banco Santander or Real Madrid. Most of these, of course, are among the largest advertisers in the country, with huge media publicity budgets, which is very unlike the Inditex group’s corporate style. Even so, when it comes to recognition, Zara has the advantage of Inditex. It’s more common to hear people comment on the miracle of the fact that this is the number two clothing business in the world, than the fact that this position refers to the group which operates under the other name. This is even though the group includes, along with Zara, another seven, soon to be eight, sister chains and around a hundred companies under its control, the majority directly related to its core activity: fashion production and sales, basically in the textiles area.

A place called Arteixo At the beginning of December 2007, the group owned 3626 shops in 68 countries in 4 continents: Europe (3052), America (292), Africa-Middle East (196) and Asia Pacific (86). Its world-wide team is 76,000 strong, mostly women (75 per cent), with a distribution of around 630 million garments per year and with rather more than 2 million square metres of commercial surface. Other indicators are an EBIT margin (Earnings Before net Interest and Tax) standing at 16 per cent over the sales figure (gross of 58 per cent), which keeps steadily rising slightly, despite the considerable growth process. No less expansionary has been its development on the stock market over the past five years, reaching the position as the most outstanding share on the Spanish reference index, Ibex 35. Since it was floated, after the Initial Public Offering (IPO) in 2001, its shares have risen in value by 248 per cent, reaching a maximum capital value of 31,883 million euros, at the close of the stock market session on 5 November 2007 (53·25 euros per share). Any Inditex figures are in serious danger of being out of date as soon as they’re included in any text that isn’t absolutely new. This applies to everything, such as the number of shops opening every year: around 500 in 2007, with the consequent effect on figures for sales, jobs, and everything else included in the Appendix, for the 2007/2008 financial year, the last for which we have data, with investment exceeding 1,000 million euros. To this should be added the fact that in 2007/08, it looked as though budget forecasts would grow by around 20 per cent in the majority of the lines, profits and sales areas open to the public in the various chains. The group is involved in a growth process which is frankly more than just remarkable. Last financial year, between 1 February 2006 and 31 January 2007, 439 shops were opened, creating 11,000 new jobs world-wide with an invoice figure 22 per cent higher than the preceding period, reaching a sales figure of 8196 million euros. Sales are basically concentrated in Europe, with almost half of them in the Spanish market. This means that Inditex business comes mainly from its stores outside national territory. Even so, Zara’s pre-eminence is not simply a result of public awareness of the company. The chain has more shops (1,120, in 68 countries) than any of its sisters: Pull and Bear (497 in 35); Massimo Dutti (424 in 32); Bershka (506 in 35); Stradivarius (373 in 24); Oysho (283 in 22); Zara Home (197 in 20); Kiddy’s Class or, as it is kown in other countries, Skhuaban (226 in 5), according to figures updated in December 2007. Of the total number of stores, 89 per cent are owned and the remaining 11 per cent are franchises, with a sales distribution in similar percentages. Another fact showing the

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Zara and her sisters relevance of Zara is that it receives some 17 million visits of the 27 million annual visits received by the various group websites; one per chain, plus the corporate site. The Inditex invoice figure is topped at world level in its activity sector by only the US group Gap, and in 2006 it overtook its great European competitor, the H&M group, though to tell the truth a visitor bent on research wouldn’t notice the fact in the busy heart of Arteixo – or at least no one makes much of a fuss about it. There is very little doubt that, sought for or not, the absence of external signs on the many thousands of square metres occupied by Inditex in Sabón suggests some signals that a more in-depth analysis would confirm. One of them might be communicating that neither there nor in the other corporate, industrial or logistical premises occupied by the group is anyone concerned with external signs of size and relevance. This is the complete opposite of the philosophy to be seen at the shops: always chasing what can be seen, identified – and what is spectacular! It is in the stores that the essential process which lies behind the success finds its beginnings. But if the stores are highly visible, there is clearly much more to it. In reality Inditex is today a conglomerate of hundreds of companies, from which naturally there are eight which stand out as being specifically dedicated, managing the many other chains, or concepts, in the group: Zara, Pull and Bear, Bershka, Oysho, Kiddy’s Class, Massimo Dutti, Stradivarius and Zara Home. And then there are the foreign subsidiaries, manufacturing plants, textile industries and on-line purchase centres, dealing in everything from real estate and interior design to construction. Not everything is in Arteixo. The main headquarters of five chains and the associated distribution centres are to be found in other parts of Spain: Narón (A Coruña), Tordera (Barcelona) and Sallent (Barcelona). Then there are logistics platforms in Zaragoza, León, Elche (Alicante) and Meco (Madrid), to name only the most significant locations within Spanish territory. The factories, however, are more concentrated: of the 21 which the group owns, 18 are in the Sabón area. Going back to the beginning of our story, that silver sign opens the way to a huge space that doesn’t look very special. This is the corporate head office, known in-house as the Cube, but it’s also the heart of the design and commercial sections for Zara, Kiddy’s Class and Zara Home, the departments of the office which manages the asset investments of the president, Amancio Ortega, and the foundation which bears his name. Entering the general premises in Arteixo gives rise to a range of sensations, depending on which route the guided tour, which the company itself

A place called Arteixo likes to organise, takes you. The corporate HQ, opened in February 2000, has a surface area of approximately 55,000 square metres, 11,000 of which are dedicated to design and marketing. All around are 18 of the group’s factories, with a total of almost half a million square metres and another half million destined for the main logistics centre, devoted almost entirely to Zara, given that this is the only chain with product which is mostly its own production, since other companies source their supplies from goods produced or sold by third parties. In total, some 3,500 people work for Inditex. Most of the factories work only one eight-hour shift per working day, maintaining a surplus production capacity to cope with possible demand spikes from the shop network at certain times of the year. The two factories in Narón, near Ferrol, which produce knitwear for all the chains in the group, operate round the clock, that is, on a three eight-hour shift system, and yet even so, every year the volume purchased from third parties to supplement their own production grows. Returning to the tour of the headquarters building itself, from the garage (beneath the main headquarters building) you emerge into a brilliantly lit entrance-hall full of people hurrying in all directions. Not too many ties can be seen, except in the case of some visitor or other or a manager minded to be an exception to the general rule. Would it be because no one can remember ever seeing Amancio Ortega wear a tie? His presence is felt everywhere, yet nowhere in particular. Even so, the majority of the clothing to be seen looks deliberate – this is, after all, a place where fashion is the company’s raison d’être. It’s quite another matter to try to pick out a definite style, a concrete personality. The fact is that Inditex or, to use the more widespread name, Zara, is not one style, but a number; you have the feeling that the people passing before your eyes are making their presence felt throughout the length and breadth of global society. Would this be the first secret you try to discover when you strive to identify how and why everything which has taken place in the trajectory of this company has happened in less than fifty years? Maybe it would be just too easy and simplistic if it were really like that. Today the Inditex HQ receives hundreds of visitors every day and has a quiet, but efficient, reception system set up so that the entrance procedure is economical with time, even though some basic security checks are essential. Yet it was only ten years ago that the group’s top management shared an almost dilapidated annexe to one of the industrial warehouses with all the rest of the staff. It was practically a shed, with a few plain offices and a dim

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Zara and her sisters meeting room, which was also the library, and had no external windows. You could walk in there almost unchallenged, and the only people who did were just a few suppliers, plus, of course, the thousand employees, now spread out through some dozens of countries, who made their way there for their training: a kind of immersion in the culture of the company, with mandatory try-outs in the pilot stores which, display window included, were to be found in the basement of the main factory building. It hardly needs adding here that at that time no analysts or researchers – now so common! – made their way there, nor, as now happens, did you hear any other language which wasn’t Spanish or, with a practically equal number of speakers, the most colloquial Galician. Seated on the comfortable couch provided for the visitor, you can now fine-tune your observation. You will see a row of small rooms with twin doors in which scores of suppliers, or would-be suppliers, present their ranges of merchandise. The rooms contain a large rectangular table for the sample, but no chairs, nowhere to sit, for the benefit of efficiency and speed. This is helped, no doubt, by the two access doors facing each other: one is always open, for the use of outsiders; the other, generally closed, leads directly to the great rooms where the design and marketing areas mingle. There is no place here for excessive, unproductive courtesy, though, of course, gracious and attentive friendliness is ever present. You feel that the corridors are redolent of firm, established conviction, immovable principles, tested and hardened by success, and yet you also detect the fact that anything can be turned completely upside down if it can be improved. These are the corridors and rooms which any employee or manager might be seen walking through, perhaps less now than before, with Ortega himself with his enigmatic question: ‘it’s been a while since we went over a few things … Is everything going OK?’ Following which, the subject of the question would scurry speedily back to his workplace to check with his colleagues as to whether something is actually happening or has happened that he ought to worry about. It wasn’t so long ago, either, that most of the people passing through here knew each other, but now it’s getting difficult and it’s only sometimes that you know who’s who. Once the visitor has been greeted by a member of the company, next he cautiously tries to find out the extent of any in-house understanding of the facts best known outside the company: group number two at world (invoice) level, stock market valuation in excess of 30,000 million euros, a fashion house which is admired, studied, envied… but the response appears

A place called Arteixo with suspicious unanimity which makes you doubt its spontaneity, that no one is really aware of it or concerned about it. Some repeat an expression attributed to Amancio Ortega: ‘Die of success? Give me a break! We’ve only just started!’ Maybe that really is the case, that the company feels strong, but not perfect, subjected constantly to the question as to why a thing is done the way it is done, and whether it can be perfected. You have the feeling, or at least you officially register the fact, that being the number two company in the world impresses no one, but nor would it bother them if they became number one... some time. Talking about competitors means talking about H&M, but Mango, too, with the dominant consideration that they are quite another matter, although someone is bound to add that the Catalans (Mango) actually haven’t got it quite right, with the rider that the official attitude is that everybody has to be watched permanently – you never know what may happen. And someone is sure to remind you, as though in passing, that in 2001 Gap failed with their season’s range and their (non-integral) production model prevented them from reacting in time, which meant the financial year closing on a sharp drop in profits. A subliminal message? Perhaps. And a chance comment might even be made that the difference between their rates of growth, high at Inditex and little more than zero at Gap, plus the possible persistence of a weak dollar, may mean that world leadership is nearer than expected, not that it matters. The dominant impression is that there are people on the move everywhere, evidence of activity. Or rather, the activity is much more in some places than others, because the contrast between the corporate section and the others is very marked. Equally it’s surprisingly varied, depending on whether you’re visiting the production plants and particularly the logistics centre on the days set aside for deliveries and the rest of the week. Days of lots of action… and of none, in a word. If you’ve come looking for messages, themes, even pathways to lead you to the marrow of the culture and the secret of the success of Inditex, tough luck! The walls carry neither posters nor murals, except maybe a few which remind you not to smoke, among other things. But that doesn’t mean that the kind of evidence you seek isn’t floating in the air, and to some extent you can pick something up as you make your way through the departments, listening to conversations here and there: enthusiasm, responsibility delegated and shared, demands, human dealing, appreciation for an effort made that others might have sidestepped… values which always end up attributed one way or another to Ortega, providing the example, the drive… and perhaps a certain level

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Zara and her sisters of vigilance because the watchful eye of the owner fattens the calf, as we say in these parts. Design and marketing – this is the heart and soul of Zara, despite no one’s seeming to know that there the creative process starts or finishes. Physically, we’re confronted with vast open spaces, without divisions, rooms or offices placing borders around duties or responsibilities. The tables are large, yet light, grouped by product speciality: women, men, the young, children, sport, throwing design and marketing together without a sense of movement from one to another. Nothing distinguishes the boss from the new boy, except when a more careful eye identifies who appears to be driving the most conversations in the various areas. And even these are only identifiable by visualising what typology predominates in the variety of objects spread over the tables: photographs, patterns, some dismantled garments, drawings, magazine cuttings, all looking like an apparently chaotic flood of inspiration and creativity around the computers the designers use in their work to create, adjust and transpose the data supplied by the marketing colleague. Creative chaos? It could be. Clothes are everywhere, on the tables, on hangers, on chairs, though seldom on dummies as is the popular belief. For try-outs the staff use each other, as though comparing use over one or several days as it might extend to the potential customer. The single exception to this is the children’s lines, which have to be tried out on artificial dolls, because no children are to be found working for Inditex, as laid down in law and corporate social responsibility practice, naturally in Spain, but also in any of the emergent nations where they carry on their activities or which provide product bought from third parties. A big smile, however, is the answer from any employee if you ask them whether they take work home, to try out a garment in the family environment. The fact is that there is evidence everywhere that Zara is, for many of its people, much more than just a workplace and the monthly payslip, and this is true not just for the hundred of scouts wandering about the planet with digital cameras, striving to capture tastes trends and fancies from various socioeconomic groups, but in general, whatever the official task might be. Something suggests absorption in a culture which extends much further than what is normal and standard in a work relationship. Is this another of the secrets sought by those who fail to understand the phenomenal success of this Galician group which went world-wide? Careful investigation also reveals another of the mysteries which, maybe less now than in the past, hints at one of the realities of Inditex: why are the most promising

A place called Arteixo graduates of the national and international design schools choosing to live in Arteixo, rather than Barcelona, Milan, Paris, New York or Madrid? Directly probing the matter raises in more than one of these people a certain expression of incomprehension, but very soon the true motive emerges: in this company, you can design. The matter certainly deserves some clarification. It hardly needs repeating that the world of fashion is savagely competitive; and the competition extends to capturing creative talent to add to the design sections. Even though creation isn’t everything, it’s the very origin of the business and the activity at Zara as with other businesses, and maybe more so, because it’s as important, or difficult, to create something from nothing as to do so by interpreting the tastes and trends of the market – the customers – welcomed by the stores which the groups have opened throughout more than half the world. In short, this means that the main businesses in the sector are also competing to capture talent for their design and creation departments. However, the fact that Inditex is involved in this dispute may give the lie to, or at least disprove, one of the most persistent legends concerning those who have been with the business from the start: that the business is based on copying the others. This is a suggestion which, if it were true, would discourage the hiring of the most outstanding candidates, or those with the greatest potential when it came to signing the contract. Or perhaps it’s more accurate to fall back on the statement endlessly repeated at Zara, which is that everybody copies everybody, since the bottom line is that inspiration must come from the same source – society itself. If this is the case, success emerges not so much from the ability to imagine creatively, but rather from managing to interpret trends present or observed in the community, and perhaps even more so, the ability to convert this into a physical item in just a few weeks, as we shall see. Anyway, investigating sources of inspiration results in a certain amount of surprise which deserves reviewing. Although the Galician language is widely heard and the accent of the region is even more widespread, one source of inspiration which must be admitted comes from countries as far away as Japan. As far as the coolhunters (trend scouts) are concerned, it’s been quite some time now since Tokyo took over from such traditional trend leaders as Paris or Milan. There are some streets and squares in the Japanese capital, we are told, where you can see the essentials for the guidelines that will immediately dictate the way the rest of the world will dress… although nobody really knows why.

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Zara and her sisters Recently the internet has become an added source of inspiration. Millions of net surfers throughout the world have emerged as creators of guidelines, suggestions and trends in clothing. They are making their own combinations, adaptations and re-designs of garments on websites and groups focused on putting up and sharing images, both videos and photographs, worked out by themselves. This means that designers are now regular visitors to Fotolog, Flickr, Flodeo, Facebook, MySpace and others which are appearing with millions of downloads and blogs appearing from everywhere on earth as part of the phenomenon which is known as net 2.0. Thoughts and theoretical analysis apart, the heart of the question lies in the fact that Inditex allows its designers to do something which the majority of its most direct competitors don’t, which is to design. This means that anybody who joins the corresponding design department there is one designer per chain, has the opportunity to design practically from day one and, of equal or greater importance, most of the time they stay with the company. Other, more stratified organisations offer the newcomer a career trajectory which consists of a vertical climb so that after only a significant number of years will he or she have a chance to develop their creative capacity directly. In other words, throughout most of the sector, newly hired designers don’t design. They merely help and support, and hope that over the passage of time they will be able to receive the baton from the divinities who create and sign the collection. The immediate freedom to design, more than any other factor, is the admitted lure which drives the professional range at Inditex. The great barns where marketing and design intermingle are without doubt the heart of the process and in truth it’s far from certain that the two functions can be differentiated from each other, and to a certain extent they both condition and dominate everything else. This is not only but also because this is the place where you can still find the president-founder, though rather less than in the past. Amancio Ortega still doesn’t actually have his own office at Inditex and only appears to have a chair reserved for him at the group of tables concentrated on work for the Zara-for-women line. Nothing distinguishes it from the others, but everyone in the house appears to know where Ortega sits, or used to sit, when he’d finished wandering around each and every one of the company complex departments. Just recently the idea has leaked out that at last he has been assigned an office, though this is not actually at Inditex but in the corporate building, set aside for the staff who work in the foundation, which bears his name and the office that administers the fortune which has turned him into the richest citizen of Spain as well as one of the wealthiest

A place called Arteixo in the world. But nobody has been able to be sure that he really does use that little office. Agreement as to the assessment of the process is not unanimous, however, at least in one sense. Some hold that equal or greater merit is earned by the logistics centre, based in a collection of lots in the Sabón trading estate, and its branches which have opened in recent years. But before the visitor reaches the distribution warehouses, he moves through the glasswalled offices where the management’s offices, meeting rooms, a kind of auditorium (for general meetings, among other things) and a few rooms which serve as dining-rooms for managers and significant visitors are to be found. With the exception of these rooms, seldom used since the tradition is to lunch, following Ortega’s example, in the staff cafeteria with a fixed menu and self-service (the only people who get table service are top management), the décor in the rest of the building is not particularly welcoming: more cold and impersonal. This is completely unlike the care and warmth with which the shops are designed; even the display windows reveal a combination which is warmer, less austere and sober than the environment in which the executives are accustomed to working. Shared cubicles, albeit roomy, transparent glass divisions, except for the top management level, open doors, everything visible from the circular corridor in the centre, are the dominant notes of the five floors of the Cube, where the house legend is that less is contributed than by the other sections, as is often heard in many places from the production units to those seen as staff. The corporate building is quite recent; more so than the function is. We have already mentioned the fact that it wasn’t many years ago, around the year 2000 in fact, that the Inditex management team occupied some gloomy annexes attached to the industrial building which was the origin of the group: GOA, the inverted acronym of the owner and founder’s name, Amancio Ortega Gaona (AOG), but also that of his elder brother, Antonio, who was with him from the start until his premature death in1987. At that time there were few visitors who were not suppliers or heads of other firms in the group located away from Arteixo. There were no analysts, investors, researchers and, much less, journalists: until 1998 Inditex didn’t even possess a communications, institutional relations or similar department. The only outsiders who passed through the smokedglass doors of GOA were customers selected by the network of shops to test pilot establishments, which were and are to be found life-size, including the display window, in the basements of the central building.

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Zara and her sisters Perhaps another of the much sought-after secrets is being let slip: the culture of permanent testing. Everything has to be tried out, including the shops, inside and out. At the head office of all of the chains there is a complete shop, decorated, stocked, lit, open, with the display window and everything inside it, where everything is tried out, tested and compared down to the smallest detail… before it is set up in the real network, in each city and country. Recently, for example, countless tests have been run to solve one of the problems facing the group: the mounting number of tills, making it difficult to pay for a purchase and which may to a large extent be leading to the discouragement of the customer base, losing sales and revenue. The philosophy of the test, a kind of management based on balancing trial and error, would seem to inform a large part of the corporate culture at Inditex. They say, and to some extent you can see it, that everything is governed by questioning everything which is done, how and why is it done in this way and not another, as a part of every procedure, practice or decision. You start to be persuaded that people are more obsessed here with what doesn’t work than with what clearly works well. And not a few attribute this to the almost obsessive perfectionism which characterises the founder. Another of the secrets – legend, or truth? The so-called logistics warehouse, whether or not a part of the real heart of the business, is without a doubt the most spectacular. It covers half a million square metres, interconnected with the production plants which surround it by means of a network of underground tunnels through which more than 250 kilometres of moving belt are flowing, emitting a characteristic metallic sound that is all the more noticeable when the area is empty on nondistribution days. On some days when you visit you can contemplate the passage of thousands of garments, on hangers and covered with plastic bags, just about to be loaded onto the trucks, while visiting on other days offers a desolate panorama of emptiness, as though the company has suddenly ceased all activities or was little more than a demonstration mock-up. Similar sensations are provided by the other logistical centres of the group, including the recently opened one in Meco, a few kilometres from Madrid, or located in a trading estate on the outskirts of Zaragoza, increasingly used as an alternative platform to Arteixo for foreign consignments, particularly to the rest of Europe, but including the Middle East and Asia. Although they are labour intensive, the logistics centres give an impression of being automated and needing little human action to operate. Even on days of activity, there is almost no one present on the races of the great belts along which all the hanging garments move, automatically directed

A place called Arteixo by a type of marker whereby the clothes make their way to the designated terminal allocated to the destination shop of the goods in the corresponding consignment, at least twice a week. More people, though again, fewer than you might think, are involved in handling the great machines, over a hundred metres in length, which do the same job in the folded clothing section, stacking on the hopper wagon of the corresponding case/store the garments ordered in each twice-weekly order. Outside, on the docks, huge trucks are waiting, ready to set off on their destination routes: some will go almost to the very shops themselves, in the case of hanging clothing consignments; others are headed for the airport and other distribution points if the clothing is folded and packaged. By following the routes of the hanging garments backwards, along the return direction of the moving belts, you reach the production plants, directly connected to the logistics centre. The truth is that the plants don’t really produce anything in the strict meaning of the word. They are better described as assembly chains, with the peculiarity that the manufacturing cycle starts and ends there, with a completely outsourced intermediate section. This is what is known at Inditex as self-start production, with the fabric being cut by high-precision robot cutters, fed by the computerised patterns arriving from the creations in the design area. This produces an amalgam of pieces which, identified as to position, garment and size, accompanied by buttons, zips and other accessories where required, are put into plastic bags to be delivered to the workshops where the hand- or machine-sewing of the garments takes place. Only one or two weeks later –the time periods are crucial – the finished garment returns to the plant where robots handle the ironing, labelling, packaging and allocation of the garment to the corresponding shop. However, this is all supervised by operatives responsible for quality control and occasional work on the ironing machines, manually correcting or adjusting some fault they have observed in the mechanised procedure. Zara has not yet been the inspiration for a film, but the possibility of its happening relatively soon should not be ignored. This would be in emulation of one of its competitors, at least from a relative if not direct standpoint. It was the year 2006 when David Frankel chose The Devil Wears Prada to give a name to the film history of a journalist who is trying to make his way in the world of fashion publishing. It wasn’t exactly a masterpiece, but it did have the effect that the prestigious Italian brand enjoyed being displayed on posters throughout a large part of the world for quite a few weeks. Probably, if the main Inditex brand were to follow in the film’s

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Zara and her sisters footsteps, it would be necessary to alter the focus slightly, because you couldn’t reproduce the ‘wears Zara’ phrase – it would have to be something like ‘dressed in Zara’ to reflect more closely the actual relationship with the consumer. It might look like nothing more than semantic hair-splitting, but it’s actually more than that. It encapsulates a philosophical concept which is different from the norm. It implies, as we shall see in due course, replacing the traditional focus of offering to a market a range of established trends – fashion – by making available to the market its own preferences, which are either implicit, or revealed by the consumer. In other words, Zara is not a style of dressing as much as a style of buying, and hence, of selling. It becomes clear that Zara-Inditex has reinvented a form of producing and distributing a product as old as humanity, clothing, by implementing a model, an idea, which reduces deadlines, has eliminated middlemen and restores service – quality, attention, price – to the consumer. It isn’t just one more business, specialising in making garments and distributing them by alternative channels, but an innovative concept which incorporates production and distribution, provides fashion services based on criteria other than the traditional ones and nurtures a business culture which both imposes and is the cause of unique procedures. A visit to Arteixo or to any of the chain head offices is not enough to satisfy the intention to form a clear idea of exactly what Inditex is. The stores form an inescapable part of the process and, even so, it is probable that the unknowns are still in greater numbers than the certainties, and the researcher keeps on wondering, rather hopelessly, how it is possible that what began so humbly and modestly in 1963 has transformed itself into what you see. You have to try, anyway, striving to follow the chronological path, the facts the circumstances and the vicissitudes which may in the end form part of the history of the Inditex group. It will inevitably be incomplete: not only because relevant and important data are missing, but also because there is much which suggests that the story may be only just beginning. Or, and this amounts to the same thing, there remain many spaces to occupy in order to remain in a competitive position in the complex world of fashion, thanks to a model as peculiar as it is seldom replicated, which in the hands of the Zara management happens to work … and yet, in the few instances where efforts have been made to emulate it, the outcome has been far from successful. This may possibly be one of the most mysterious of the unknowns in the Zara-Inditex story. Why were there no successful attempts to replicate its business model?

A place called Arteixo We should accept that it would be by no means unusual for other businesses, excluding those already established in the sector or projects for new plant, to decide to partially or totally trace the basics of a remarkable success, with a significant innovation input. It has happened and continues to happen in many sectors and activities, in which the renewed focuses of business, driven and adopted by a definite precursor, have spread at enormous speed. Plenty of examples are on hand, but among the best-known would be the automobile industry, which in the past century and a half has undergone innovations as important as those successively undertaken by Daimler, Ford or Toyota that substantially changed the methods of production and marketing throughout the entire sector. Each of them in its day has made an innovative leap, achieving an appreciable competitive advantage, but its pre-eminence was temporary because the rest of the competitors succeeded in reproducing it at great speed. It appears not to be the case that the fashion world has adopted the new approach adopted by Zara-Inditex. In some way, its vision and the subsequent practice appear to be unusually exclusive, as though its technology were protected by an unbreakable patent, despite the evidence that no such thing exists. A plausible hypothesis is that the competitors lost too much time before taking the emergence of the Galician group seriously, and when they finally realised what was being achieved, it was too late to copy. The problem is that the argument, while obviously true, is entirely unconvincing, particularly now that its actual size, the critical mass it has gained, means that it would be very difficult to emulate it with any certainty of consolidation. Perhaps the neatest explanation is that, in spite of everything, the market share held by the group’s eight chains and over three thousand shops does not hold a share of even 5 per cent in any of the markets in which Inditex is present, including the Spanish market. In other words, the businesses which are anchored to other models are also doing well, and as everybody knows, it’s only when difficulties arise that the stimulus to innovate becomes pressing. Anyway, reality is reality. And it’s of little or no help to ask the top bosses at Zara and the rest of the companies in the group what they think are the reasons why their model continues to feature such peculiar uniqueness. Indeed, they will say that indeed there were significant copies, such as that of adopting the multiconcept, but then add that the rest is actually quite difficult to replicate. Perhaps, if we wish to understand all this, nothing is more appropriate than an effort to define the genesis: how, where, when

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Zara and her sisters and why it started. Arteixo is, as we all know, in Galicia, but Galicia is Galicia, and it is inevitable that it should permeate through all the pores and cracks in Inditex. However, this is no kind of an answer to a crucial question: would it have been possible in another location? Put another way, was Galicia a determining factor in its success? The fact is that in its corporate central nucleus no unanimity is to be found. Some people think that the socioeconomic-geographical ingredient is irrelevant and even suggest, rather weakly, that they could have done even better or at least proceeded more swiftly in some other location. Some feel that a location in a north-western peninsula with very poor connections until quite recently has added enormous difficulties and limited the growth and expansion process. And then again, others claim that the frequent speculations about the basis of the group, like the suggestion that they did well from connections with the drug trade, have often led to internal collapses of morale within the company, upsetting daily duties. Some hold that such allegations are the result of envy and arise from the position which sees the Galician as the opposite of the figure of skilled, hard-working entrepreneur. But there are others who think that Galicia was vital. At the risk of invoking stereotypes, the proverbial Galician is a man who goes to sea, works away from home or emigrates, while the women take care of the agriculture and stock-raising in tiny, poverty-stricken farms. It was only in the 1960s that the fields and stock became less important; many of the men had come back to take charge of these tasks, or were unemployed, and thousands of women needed, wanted and were ready to work. Moreover, reality roundly contradicts the myth: the Galician people are predisposed to fulfil the commitments they make, and are hard-working in that goal, displaying great pride in doing so. These are all aspects of the corporate DNA of what in time would become Inditex. Galicia, like other parts of Spain, made a rather feeble attempt at industrialisation at the end of the nineteenth century. At that time the economic base was much more associated with primary and mining industries than large-scale industrial textiles. One of the most important activities at that time was fishing, with a significant canning sector run by Catalan businessmen who arrived at the end of the eighteenth century. The rise in canned production steadily increased the need for raw materials and the consequent provision of new fishing grounds, generally further away from the Galician coast, which meant building ships with a greater tonnage and the development of shipbuilding companies. The canning sector grew still

A place called Arteixo more through the twentieth century with the general introduction of salting processes. The outcome of all this was that the situation in Galicia at the beginning of the last century was marked by a significant imbalance between the agricultural and stock-rearing interior, mostly on very small farms, and a coastal area which contained relatively energetic businesses operating in canning and shipbuilding, as well as public services and electricity. This was a production framework which, years later, would require very thorough restructuring. In fact, shipbuilding and electricity would, as the twentieth century opened, be almost equal in size, with almost 60 per cent of the total employment involved in, or perhaps affected by, the tiny farms of the rest of the region. A productive map which, already by the 1960s, would be complemented with a presence in other sectors, such as chemicals, oil and motor cars, not forgetting a concentration of activities in the freezing sector derived from fishing. Even so, there were no significant predecessors for the later appearance of Galician entrepreneurs in textiles, dressmaking or fashion, the main exponent (though not the only one) of which would be Zara-Inditex. A faint connection can be identified, however, in the last third of the seventeenth century in the development of significant trade with America, which included textile products in abundance, though they were produced in other parts of Spain. And textile businesses are registered in the 1930 census: Primera Coruñesa (1872), Hilados y Tejidos Vilasante (1907) or Galicia Industrial (1928).3 But little more than these. Whether this has anything to do with it or not, one circumstance which is very persistent today should be noted: Galicia is lacking in the raw materials for clothing manufacture. In other words, fabric, yarns and fibres must all come from outside. This is a fact which has led to questions being raised about the integrated nature which characterises, among others, Inditex’s application to its production, or that some have taken as a basis for arguing that Galician industry maintains a balance which is presumably in deficit in commercial terms with the rest of Spain and ultimately with abroad. Whatever the truth is, the fact is that Galicia has for nearly four decades acted as a considerable nursery for a good proportion of the Spanish groups that occupy an important position in the world of fashion on the international scale. Brands such as Adolfo Domínguez, Roberto Verino, Unicem, Caramelo, Florentino, Vicente Romeo or Antonio Pernas share, albeit on a different scale, leading roles in the Spanish fashion world along with Zara-Inditex.

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Zara and her sisters None of them, however, was the first to achieve some degree of projection from Galicia. The advance party was the now vanished Regojo group, a manufacturer who made a fortune making uniforms for Franco’s troops in the early part of the rising in 1936 and became important with just one product, the Dalí shirts using the image of the Ampurdanese painter, which achieved a sales record in 1965 with over two million units. His success, however, was ephemeral and he ended up by closing in 1981, a probable victim of the drop in customs duties decided by the first Adolfo Suárez governments. There is no doubt that the arrival of democracy and the subsequent end of the previous regime forced the Spanish economy to embark on a drastic and speedy renovation process, particularly characterised by the opening up to the outside world and the consequent incorporation of globalisation. This is a process which has inevitably had victims, but also victors with an overall positive balance which cannot be denied. One of the most outstanding victims was certainly the traditional textile industry, the growth of which slipped by an annual rate of 1 per cent between 1970 and 1990, subjected to a difficult process of restructuring which, despite the large sums of money spent on it (over 50,000 million pesetas up to 1987),4 resulted in the liquidation of a number of companies, particularly in Catalonia. And it is yet another example of the small amount, or even nothing, which is usually contributed by the public purse for what should be the main axis of a restructuring process: something like reinventing the sector. Which leads to a persistent doubt: if a sector is to be operating in the future and there is not sufficient private investment to boost it, why should public money be used? Making holes in the public purse merely avoids the essential question. Whether it was because of this, or other causes, the reality is that in the middle of the 1980s nobody expected anything from the sector. The fact is that it was not one of the areas which looked like growing in the future within the nervous environment of Spain’s joining the European Economic Community (EEC).5 And this was in spite of the fact that, even by that time, Zara was acquiring some relevance on the market, and about to change into what is now Inditex. What matters from the point of view of this trajectory is that Zara not only appears at a time which is critical for the industrial sector to which it belongs, but is also advancing, consolidating itself and rising higher at a world level in the context of an open market, unprotected by customs barriers and steadily assuming a position in the European Community. In addition, though born under total Francoism, the group is an obvious product of modernisation and updating which has accompanied

A place called Arteixo what now constitutes the most expansive democratic experience of Spanish society. As is almost always the case, the environment plays a crucial part in the development of a company, and it could not be otherwise for Inditex. What had until then been a relatively modest group, led by the team which had built up around Amancio Ortega, took very positive advantage of Spain’s entry into the EEC. It didn’t happen at the first moment, 1 January 1986, but from 1989, a time when it can be said that the Spanish economy consolidated its position within the Community market. It should be borne in mind that in the business community all was not sweetness and light either before or after the entry of Spain into the European club. Entry was more of a political and, to some degree, sociological aspiration, which had gestated for long decades under Francoist gloom, than a desire on the part of the entrepreneurs, many of whom made no bones about their doubts and were more scared than excited about what could bring them a new opening to the outside world. And among the least excited sectors was textiles, some of the more vociferous of whose representatives saw the Community option more as a threat than a key to opportunity. At that time it was Catalan textiles which were seen as a more iconic producer, even though development here was sadly backward, due among other things to the fact that the families who were traditionally involved in the sector tended to invest small or large surpluses in activities which showed a much large, faster profit, particularly the promising tourist developments of the Costa Brava and the Canary and Balearic Islands. Very few people realised that Galicia had given rise to a potent alternative vision, despite the fact that Zara already had a presence in four Spanish capitals, and was fighting for a share of the market with what were already the leaders in the clothing business, basically El Corte Inglés and Cortefiel. Now, almost thirty years later, it is possible, some would say certain, that the actual protagonists of the story have reworked the sensation and fears which surrounded Spain’s entry into the EEC; and some of them are Inditex people. Whether or not the tale has been adjusted retrospectively, more important is what was meant by the second leap forward made by the group, to all appearances the essential basis for the third leap – flotation on the stock market and powerful expansion – which would take place somewhat more than a decade later. Talking about casualties is a recurrent temptation when the trajectory followed by Inditex is described. It turns out as the consequence of what looks like a heterodox management system: the fact that its strategic methods have been described and included in academic

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Zara and her sisters management theory, never applied before, but afterwards: that is, when it had already been shown that their validity was beyond dispute. But there was some pride to be observed in the case of some of the individuals who saw themselves as luminaries of management science, not keen on admitting that success may come from somewhere other than their learned prescription; even more, when it turned out that the methods had been applied by a team of whom few or none had passed through the prestigious business schools which these experts provided with learning and wisdom. In any case, self-taught intuition sits badly with their, doubtless interested, concept of entrepreneurial reality. In any case, Inditex, is not particularly original in this way. There is a long list of parallels. The history of successful businesses reveals many similar cases, almost enough to suggest that if management theory goes beyond arranging as a recipe what is being practised almost in the absence of prior theoretical training, it has brilliantly demonstrated that it serves to transform an incipient idea into a powerful business reality. In other words, do we need to ask whether business models grow in the academy, or is it the case that the flow is in the other direction? Whether or not this has anything to do with it, it is equally undeniable that business success phenomena in our society tend to be observed with suspicion. The proof of this, and the case is not unique, have been the many stories which have done the rounds for years to attempt to explain the success of Inditex. Dubious legends about the source of the company’s capital bubbled up, about the workshops where the garments were made, and so on. The matter peaked when the rumour mongers were certain that Zara was making his garments in the hold of a merchant ship jammed with clandestine workers, more or less slaves, anchored just far enough from the coast to be in international waters under no national jurisdiction. The legend made its way to the ears of the then president of the Catalan Generalitat (Government), Jordi Pujol, which was presented directly to the astonished Amancio Ortega and José María Castellano (Inditex vice-president and CEO) in an audience granted to them in Barcelona. No less fabled was the story that Inditex was laundering money from the Galician drug trafficking clans. More believable, in fact actually true, was the suggestion that Inditex was doing its manufacturing through a network of quasi-domestic workshops, which were hardly, or indeed not at all, approachable by taxation and Social Security authorities, at a time when the underground economy permeated huge areas of the Spanish textile industry. A large number of

A place called Arteixo these workshops had been set up with the support of the Church, supplied by housewives who wanted to add to the family income which was falling because of unemployment and the crisis in the flagship industries that were practically the sole employers in large parts of north-western Spain. Most of the workers were doing piecework in their own homes, and were unconcerned about the fact that they were not registered with Social Security, given that they were probably covered by the family subscription. Their only link with the company was that they were making garments for which the patterns, cuts and numerators were supplied by Inditex. In a word, they sewed what they were asked to sew. It’s true that around this production system there has always been some black legend suggesting exploitation. There is no lack of people who claim that Inditex took advantage of the scarcity of alternative work for these women to subject them to exploitative production systems. Whether or not this were the case, whether it was regular practice or an exception, the fact is that other companies were now emerging in the sector, copying the Zara system in various ways, and yet the Arteixo outfit continued to maintain its huge network of seamstresses, expanding it as group sales grew. Even today, when the socioeconomic profile of Galicia has substantially changed for the better, Inditex continues to use the same procedure, retaining a large proportion of its production in Galicia, providing regular work for thousands of women in the region under absolutely legal conditions. No less important is the fact that throughout its entire history, the group has never been seriously accused of bad work practices. In any case, whether sought for or not, the legend effect continues to spread its shadow over Inditex. It may be that such a phenomenon is really focused on the major shareholder and founder, Amancio Ortega Gaona. Many things have been written and said about him, but the truth is that the majority of those who try to describe his personality hardly know him and even if they do know him, they are forced to admit that he is far from transparent and very hard to categorise. We know that he has built a business, but we also know that, for whatever reason, he has made it his business to defend his privacy, to require discretion. Whether he wanted it this way or not, the Ortega mystery is inseparably associated with the Inditex reality. In fact, by way of irrefutable proof, there is the story that someone who thought he knew him and thought that he controlled him to a certain extent ended by breaking from him in a situation of conflict. The most dramatic case, a recent one, was the episode of the power struggle which ended in the subsequent departure from the group of the then general

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Zara and her sisters manager, Juan Carlos Rodríguez Cebrián, a nephew by marriage of Ortega himself, and some months later that of José María Castellano. The crisis was solved by Amancio Ortega when he placed Pablo Isla, a state lawyer, in this position, an executive of some note who was joint president of the tobacco company Altadis. Nor has the mystery dispersed surrounding this hiring and the reason for which Amancio Ortega decided to entrust him with the crucial stage in the growth process in which the group was immersed. Isla did not come with great experience as a manager and had still less experience in the sector. Neither had he prior connections with Galicia, though he had to accept a permanent move to A Coruña, a nonnegotiable condition imposed by his new boss. It was just this requirement which frustrated Ortega’s profound wish to hire another individual for the management position. The Inditex strategy seems so obvious that it sounds almost unbelievable that no one had decided to copy it. Not in vain, the business let two decades pass after starting up until it had gained sufficient significant market share to be able to defend itself against any possible imitator. It is true that subsequently some businesses have appeared which have emulated its procedures, but most of them only partly and perhaps too late to be able to disturb or erode its position. Logistics is often mentioned among the management keys to Zara and it is certainly one of the most relevant. What many people miss, however, is the psychology, although this has probably been crucial and the basis of everything else. In any case, it is the source of the great mystery: how, from distant Galicia, did Amancio Ortega and his team know how to interpret the inconsistency of clothing customs in Spain which was just beginning to emerge from Francoist penury and dictatorship? And, even more telling: why didn’t the companies already operating in the sector see it? The founder could certainly explain it. Not to do so has always been his unshakeable decision. Is there some reason for that? Anther of the myths is not to advertise, although this is not entirely true. What they don’t do is publish actual adverts, because the shops are bursting with advertising concepts. Whether this is planned or not, the reality is that the message makes direct use of the people passing in front of the shop, with all the breadth and diversity which a display window can provide, in the first place, followed by the whole of the shop in the second. And it’s a fact that, deliberate or not, Zara’s shops and the rest of the chains in the group are basically organised for looking at and contemplating the merchandise. Everything is in view and you can study it without being hassled by staff desperate to make a sale. This gives rise to the not unusual habit of strolling

A place called Arteixo through the shop, finding out what’s there. And there’s the added oddity that when you repeat the visit a few days later on, it’s more than likely that the majority of the things have disappeared and new items are in their place. The efficiency of the system is revealed in the figures for sales per visit recorded by the shops in the group, which are much higher than the average for the sector. Rationalising this strategy seems easy in hindsight. Whether the effect has been sought or not, the reality is that it tends to give rise to a considerable amount of unease in the purchaser: better buy it now, because tomorrow it may not be here… and then when you don’t find what you wanted you come back in a few days, sure that there will be new items to choose from. It’s an innovative philosophy, and the consumers are not used to it. In one way you could say it indicates a kind of drift in the direction of selling as opposed to the more usual where the item allows itself to be bought. To some extent visiting Zara has become something of a social habit, whether by yourself or in company, just so you can be sure of what’s new. And you can do it when you like, because from the beginning Zara went for the continuous hours model, without interruption, which at that time was only to be found in the big department stores. An equal amount of talk has been expended on the theory that Zara is based on copying. Certainly it copies – but from whom? A better way of putting it, one frankly more accurate, would be to say that Zara is engaged in a permanent quest for inspiration, everywhere and from everybody. On those huge, rather chaotic tables in the areas where the creative staff are to be found in the Arteixo central office, there are as many dismantled garments and dismembered catalogues as there are photos of people strolling along a Tokyo street, a Madrid square or some international airport terminal. The reality is that, whether the professionals in the sector admit it or not, they are forced to accept that everybody gets inspiration from everybody else, which completely defuses the accusation that Zara copies. Indeed, at Zara they would go even further: they admit and are even proud of the fact that many of their creations are inspired by their own customers. You could almost say they should get discounts on intellectual property grounds. This is basically achieved by means of interactive communication systems which Zara has been perfecting and streamlining over time. This means that customer trends and preferences, along with their reactions to the products in the stores, are observed and communicated throughout the organisation, almost in real time. This makes sense of the other mandatory feature of the Inditex management model, the replacement of stock at least twice a week

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Zara and her sisters in each and every one of the shops within the group’s distribution network. It might sound like a logistical miracle, but it runs like clockwork. As far as production is concerned, Inditex is now in a position to be able to dictate to its suppliers to a certain extent but, of course, this has not always been the case. Whether it’s part of the legend or not, the story is told that the Ortega brothers lived through some complicated times when they were trying to find suppliers. When at last they found them, almost inevitably in Catalonia, the tale goes on to say that Amancio and Antonio covered the 1000 kilometres between A Coruña and Barcelona, making successive return trips in their own car loaded with raw materials bought from a manufacturer who had come to trust them and made a firm commitment to keep on supplying. What guarantees they offered and whether they had to pay for the first consignments in hard cash is yet another part of the vague mystery which veils those early days, and its importance now concerns only satisfying curiosity. Later we shall see how it came about. It’s hard to be certain how far the Galicians, starting with the A Coruña people themselves, were at the time actually aware of the exciting gestation of Zara, the seed of the Inditex of today. The most usual attitude takes the line that, yes, they knew about it, but frankly there are few records in writing or newspaper library references to show that Galician society, even at entrepreneurial level, has much idea about what was growing in Arteixo, just a few kilometres from the capital. It is well known that Amancio Ortega is still the major shareholder, in Inditex to be precise. The holdings of the members of the board of directors are also known, but no one seems to have much idea who makes up the rest of the holding on the Stock Exchange. The shares in the group are not named shares and the company does not have an updated shareholder register, apart from what is collected for each general meeting. Are there many Galicians on it? Are they mostly foreign? What percentage is held by the best-known investment funds? The situation is rather similar to that which happens in all big companies quoted on variable yield markets. The position of the Inditex president as far as his holding in the company is concerned casts serious doubts on his succession. Born in 1936, he has three children from his two marriages, though only the youngest, Marta, has recently appeared as a possible recipient of the majority control of the Inditex group, despite the fact that until autumn 2007 she had not begun to work in one of the companies. About ten years ago Amancio Ortega decided to create a foundation in his name, which many people interpreted as a vehicle chosen so as to keep control united. There was also mention of

A place called Arteixo the theory that the idea was directly inspired by what Ramón Areces had done, leaving control of the ownership of El Corte Inglés in the hands of a foundation in his name. But whatever the initial intentions were, what is certain is that the Amancio Ortega Foundation has never owned a single share in Inditex and continues to be an unknown, since an arrangement has been made to transfer to Amancio Ortega’s heirs a holding valued at something more than 18,000 million euros at end-2007 prices. More important than the way ownership ends up shared out is the doubts as to how long Inditex will be able to survive its founder. Although he doesn’t express it in public very often, the fact is that he is constantly telling his executives that Zara is not an individual work but a collective work, and every effort should be made to avoid any hint of personalisation. However much effort is made in this direction, nevertheless it has not prevented Zara from being closely identified with Amancio Ortega. In fact these very efforts could be supporting this perception. His considered presence among the designers and pattern designers, but only in the Zara for women area, the final word at the moment when the display windows have to be planned, the insistence on not having an office in the executive team area, the habit of dining in the staff cafeteria – all this casts serious doubt upon the idea that Inditex can carry on in the same way without the presence, real or intuited, of its founder. This in no way contradicts the evidence that the group itself is highly capable of acting without the founder’s input. For a long time now Zara-Inditex has been a great deal more than Amancio Ortega, though that doesn’t mean that it could carry on in the same way without him. The probability is that it will turn into something else, perhaps neither better nor worse, and maybe even retaining the essence of the business concept, what you might call its DNA. But what is a fact, and not a fanciful legend, is that the founder continues to retain the final word in many areas, and that when that moment comes for someone to question or discuss his decision, this has happened very rarely – or never. The garage, the hero of more than one business success story on the other side of the Atlantic, seldom shows up as a dominant scenario in the genesis of a Spanish project. Maybe it has happened, but it doesn’t get mentioned in the few stories that exist about the careers of entrepreneurs in this country. But it happens to be where a family decided to start making a few garments, taking the first step on the road to what is now the Inditex group. Not that the Ortegas had any idea of where they wanted to be in the next three decades or anything like it, but they were stirred by the thought, and indeed aspiration, to leave behind the status of employee and become

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Zara and her sisters independent, even bosses. The family group at the time consisted of only three siblings and their respective partners: Amancio and Antonio, plus Rosalía Mera and Primitiva Renedo, and then Josefina – Pepita – and her husband, Miguel Jové. Their acquaintance with each other was strictly a work-based relationship – they had met in the fabric and dressmaking shop where they worked, La Maja, one of the most traditional businesses in A Coruña, which was actually a chain of three shops in the very centre of what was then the capital of Galicia, in the north-western corner of Spain. A fair question to ask is whether that really was the genuine seed of what has today grown into Inditex but the answer is far from simple. It may well be in the negative if you want to adopt the approach that a clear idea already existed of where they wanted to go. It also discards the criterion that even then the basis of what was to come already existed; and it’s important to try to consider the question in terms of individualisation. The answer might be in the affirmative, however, if analysed from the causal angle, since without that step being taken nothing of what happened later would have been possible. If the Ortegas had opted for what would probably have been a comfortable future working for someone else, Zara-Inditex would never have come into being, at least under their influence. It might be worth trying to perceive the reality of the situation in Galicia at the start of the second half of the twentieth century, when the project began to germinate. We have enough information to be able to look back at the scenario in A Coruña in the opening years of the 1960s. Spain was beginning to wake up from the long, sad post-war dictatorship that had been partly a result of international isolation, and sat comfortably with the political philosophy of the first Francoist period, backward-looking and mired in dreams of the heights which had been achieved in the legendary times of the empire, when the sun never set on the dominions under the Spanish crown. It was about then that Spain began to feel the effects of the tough, vigorous and very necessary Stabilisation Plan (1959),6 which had been injected into Francoist philosophy thanks to a rather strange blend of Catalan economists and the ever-increasing influence of Opus Dei theorists. Juan Sardá, Alberto Ullastres, Mariano Navarro Rubio, Laureano López Rodó… these were the names that were beginning to matter and carry weight in the restricted circles of autocratic power at El Pardo, while the results of their management measures were starting to affect a socioeconomic situation which had only recently set aside the precarious world of the ration book and the black market. In the Spain of the early 1960s schoolchildren were being

A place called Arteixo fed powdered milk supplied by the USA, people were pouring from the country to the cities, many to France, Switzerland or Germany, if not to the other side of the Atlantic, and people covered themselves up with clothes rather than dressed in them, never paying the slightest attention to a world of fashion which they had no feelings about, and of which they had no idea. The fact is that not only was Galicia no exception, but also to a very large extent the uncomfortable features of the average reality of the rest of the country were even more exaggerated there, a situation which was in no way helped by the fact that the powerful dictator Franco, then completely unquestioned, was a native of the region. An undeniable fact of recent history is that Franco did not emulate other dictators in being more generous with his home country than other parts of the nation. His various biographers all agree, and his critics never stop reminding us, that the General appeared proud to be a Galician and to act like one, but his affection for the province never went further than spending his summer holidays at the Pazo de Meirás, a subject of controversy: this was a nineteenth-century palace country house in extensive grounds which had been the property of the writer Emilia Pardo Bazán in Sada (A Coruña), which a group of Galician businessmen gave him, perhaps spontaneously, at the end of the Civil War. The controversy arises because the majority of the political powers of the area are calling for it to be returned to the state as public property, a demand the Franco family seems very unwilling to satisfy. They have continued to use it as their holiday home since the death of the General. In short, Galicia was a marginalised territory which, as the years passed, continued to lose potential resources because of internal and external migration. It contained an embryonic commercial world, with a kind of industrial monoculture centred on the great shipbuilding businesses of Ferrol (Coruña), at that time still bearing the ‘del Caudillo’ title, meaning belonging to the Dictator, and Vigo (Pontevedra), aluminium in San Ciprián (Lugo), both publicly owned or moving that way, and some factories which processed fish and agricultural produce. The tiny landholdings of the region had by no means disappeared and continued to be the predominant form of farming, for both crop and stock, which meant that the population was spread out in minute villages, hamlets and other population clusters. It is in this context that we must ask the following questions of what would in time, and not such a long time either, end up turning into Zara, what the market would see as Inditex, at this current time: was it the realisation of a brilliant idea? Is this what the founders intended? Has it grown up

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Zara and her sisters because of the path it has followed? Was its own founder surprised by its success? Would it have been possible in another context? Or in another period in history? Or another time? The pages which follow may not be able to answer and dispel the mystery of each and every one of these questions completely, but they are an effort to plot what has happened since that start, to identify how and why the present has turned out the way it has, and maybe also to suggest what may be the shape of the future. So let’s look back to 1963… or maybe even a little earlier.

2 An entrepreneur called Ortega… Do you have to be a genius to have a brilliant idea? But go back a pace – does there have to be a brilliant idea behind every business success? As far as this story goes you get the impression that the answer is no. It seems more as though all you need, and this is no small thing, is a few power ideas, work, the right circumstances, and tenacity. Or is there more to it? If you try to describe the ups and downs of a business success, from the persistence of the success itself, you find yourself running various risks; one of the most serious is to mistake the personal ingredient of the individual who provides the inspiration and driving force behind it. There is also the danger of exaggerating, either for or against, the factors, characteristics and circumstances which shape the environment, which in turn can be advantageous or the opposite. The same applies to the socioeconomic environment and the geographical ingredient, not to mention the endless legends which circulate to offset a lack of knowledge and information; in short, the urge to fill in what is not known or not understood by the assumption that some mystery, perhaps too dark to tell, lies behind everything, and that if something is unknown it is because it cannot, must not be known. However, these risks shrink in the face of a determined effort to make as best an evaluation as possible. Although it’s often not easy, it can and must be tried. Normally there’s always someone more decisive than others in the gestation, financing and survival of a business project. He or she may not be the only one, as long as there are more than one, nor necessarily the most important, but he or she is the one without whose drive it is unlikely that the business would be what it actually is. You can guess as to whether it would have been better or worse. And it’s no less true that people tend to see everything in personal terms, for better or worse. However, they see themselves as connected with the matter; they like to put a face, name and biography to any fact they think is interesting. 29

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Zara and her sisters In this sense, Zara could not be an exception, nor is it. And the personal face could be none other than that of Amancio Ortega Gaona, the major shareholder in the Inditex group, the wealthiest man in Spain, and with one of the greatest fortunes in the world. As far as this goes, the business history of Zara is not unlike many others. Differences exist, however, in the profile and figure normally attributed to the owner-entrepreneur. It is no exaggeration to say that Amancio Ortega is still largely unknown, despite who he is. The fact is that most people would fail to recognise him in the street, as he hardly participates at all in social and institutional events, and never appears in any space in the news media, whether press, radio or television. This is not due to arrogance. From time to time on a Sunday he shows up at Riazor Stadium in A Coruña, to watch Deportive play, actually walking the best part of the way from his current home without being noticed, with no escort, bodyguard or any of the other company usually to be seen in the presence of the rich – indeed, of many much less rich than he. He’s slightly more obvious at the equestrian centre where he goes to watch his daughter Marta up close, supposed to be the weakness he will admit to. And if you frequent the Finance Club, you’re likely to see him every day, as this has been his venue of choice for years to work out and breakfast, alone or in company, before he goes to company headquarters in the Sabón trading estate. So Ortega is almost unknown… and it might be for that very reason that the stories told about him are so disparate. The fact is that, deliberate or not, a kind of kaleidoscope of myths and facts has built up around him, that neither he himself nor those close to him have ever bothered to throw any light on. Indeed, they might actually have done the opposite. Amancio Ortega, Cholo to those close to him, isn’t Galician, he’s from León, although he was still just a child when he came to live in A Coruña, when the family moved there. Little is known about his origins, just the basic facts about his parents, social background, education, that sort of thing. Few traces remain, or they have been poorly followed, mainly because his people don’t make it easily available. We know that his parents had moved to the Galician city by 1944: it was a modest family, already with four children. His father worked on the railways for the diminutive wage of 300 pesetas per month, involving all the difficulties you can imagine to get to the end of the month with your dignity intact. Did this have any effect on the future career of the man who is today the biggest shareholder in Inditex? In the absence of concrete facts, it’s fair to assume that it did. When Amancio Ortega hears some of the things – not

An entrepreneur called Ortega… all – that people say, write or gossip about him he smiles with something like wry charm. It’s been going on for years, different birthplaces, heaps of theories and speculation about his first steps in the world of work. The facts are that he was born in March 1936 in the little town of Busdongo de Arbas, León province, close to the border with Asturias. Yet it has always been difficult to see this as his origin, because the family appears to have been almost immediately on the move to a variety of locations, including a spell in the Basque Country, until they arrived in A Coruña, by which time Amancio was around nine years old. In line with the principle which says that it’s not where you’re born, but where you perform that matters, it’s fair to say that he feels as much like a Galician as all the others do, but he also feels Castilian, Castile being the homeland of his parents, and anyway it’s not easy to make clear divisions between the respective characteristics. The fact is that he can fit in with this kind of characterisation with regard to quite a few facets of his personality, both as an individual and as a businessman. The reason for his wanderings as a child were due to the fact that his father was following in the family tradition by working on the railway. Amancio is the son, grandson and great-grandson of railwaymen, originally from Valladolid, then successively posted to various locations in the north and north-east of the peninsula, although neither he nor any of his siblings felt any inclination, much less parental pressure, to follow in the family footsteps to the railways. From quite an early age three of the four siblings entered the world of the textiles trade and continued to be involved in the adventure until at last it became known as Inditex. It is highly probable that the elder brother Antonio, who died in 1987 of bone cancer, was mostly responsible for channelling his brother’s entrepreneurial restlessness towards the textile industry. He was the first to take up a position in this branch of business, in the La Maja store, owned by the Castro Quintás family, where he ended up carrying enough weight to be able subsequently to take on his sister Pepita and Amancio himself, who by then had spent over two years as an unpaid trainee in another business in the same sector, the shirtmaker Gala, still to be found in the A Coruña market. Years later the three siblings made the leap to independence, not all at the same time, and very cautiously, together with another employee, Rosalía Mera, already involved in some kind of relationship with Amancio, and they set themselves up in a garage in San Rosendo Street. We shall go into this in more detail in the next chapter. The fourth Ortega Gaona child, a daughter, was always seen as the odd one out and right up to her death in the year 2000 she never had any

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Zara and her sisters connections whatsoever with the activities of her brothers and sisters in the world of Zara. Retracing Amancio’s life shows that the first steps he took in A Coruña were typical of a boy of his age, despite the fact that the memories of some of his schoolfriends have tried to see him as an ambitious youth, with delusions of grandeur and a tendency to fantasise. But those schoolfellows are few enough, as he had to leave school when he was barely eleven years of age, and start work. We have a bad habit of rewriting the biographies of winners, and not always on the basis of new evidence, though in this case the most direct protagonist lies very far from the hagiography of what in his present circumstances tends to be standard. What can’t be avoided is people suddenly popping up ready to expand on, or rework a memory which under other circumstances would have been forgotten. For good or ill, it’s normal to try to boost the actual personality to the detriment of making serious efforts to look closely at the successful values and destiny of the people who do end up being successful. But nothing dispels the essential mystery: what is he like, this Amancio Ortega? How and why did he start out on his business career? Entrepreneurial drive makes its appearance in the form of a textile business employee aged 27 in receipt of 8,000 pesetas per month. With this economic baggage and what he has learned over the fifteen years he has spent in the business, but particularly from his direct relationship with the customers, he decides that his horizon is that of a more or less comfortably-off wage-earner, but that he must give the ideas and dreams he has been storing up ever since he swapped school for the workplace a chance to take on the form of reality. It appears that the family who owned La Maja, the Castro Quintás, appreciated their young employee’s talent and ability, and clearly supported his first steps as a manufacturer, but it also seem fairly clear that his ideas went way beyond the stagnant concepts of the traditional business. This could have been one of the triggers: Amancio realised that in order to develop his ideas he had no other solution than to find his own way, however risky and daring it might be. It may be that we must find a place here for one of the distinctive traits of his characters – courage, almost reaching foolhardiness, which has frequently been obvious since that time, that has given rise to a somewhat contorted interpretation of the Zara-Inditex evolution. This has been a career which, among other things, reveals considerable belief in himself, plus an iron determination to give reality to any idea in which he feels

An entrepreneur called Ortega… total conviction. A poor sense of risk? Probably, but not without a singular ability to make matters right when they fail to fall out as expected; which is well. Because, regardless of how the final balance looks, there have certainly been collapses and collisions on the way. Despite all the distortion which might arise in attempting to reconstruct the beginning on the basis of the present outcome, it should be pointed out that, on top of a quest for independence, there was also a desire to do things differently, to explore places and ways of doing things which were unlike those which dominated the sector at the time. There may even have been a tinge of idealism, too, a concern to change the consumership parameters that permeated a society which was just beginning laboriously to wake up from the lethargy of the pinched post-war period, an interval which had been painfully prolonged until the early years of the 1960s. He was seeking another way of doing business, another way to put fashion within the reach of a population which was obsessed with making it to the end of the month, certainly, but yet which was slowly becoming aware of the fact that it was becoming possible for small islands of relative prosperity also to be within their reach. The idea was first to produce and then to sell direct, stirred by a palpable aversion to the middlemen which he had known so well in his work. Removing them from the process, from the chain which went from the raw material to the garment you could buy in the shops, was of obvious benefit to the consumer. Is Amancio Ortega an idealist? The popular imagination doesn’t like to attach the characteristic to any entrepreneur. But that doesn’t mean that neither the consequent success or wealth are reason to deny this characteristic to one or all in a definitive way. Nor does it in this case. Something which only those close to him know is that for quite some time Amancio Ortega toyed with the possibility, or if you prefer it the plan, to enter the world of politics, presumably with the identical idea of achieving changes and transformation, just like the drive which underpinned his entrepreneurial activity. He soon discarded the idea when he realised, in a completely indirect way, the nature of the rules that dominated this world, particularly the habit of concealing or at least disguising conviction under the cloak of correctness, a condition he found impossible to accept, and also from the conviction that changing the world is considerably more difficult than making innovations in the business environment. Looking back to the first steps, doubtless over the course of time it has turned out that those who saw Amancio as a strange boy were right. However, it’s not so obvious that anyone could have detected it, among other things because

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Zara and her sisters even in the environment closest to him, A Coruña, very few people were aware of his existence or talked about him as a significant person until the beginning of the 1990s, by which time one hundred of the logos of Zara and the rest of the chain were already emblazoned throughout the shops of the high streets of Spain and beyond. Even today, when his name appears on the annual Forbes list,1 next to names like Gates, Slim or the closer Botín, Koplowitz or March, Amancio Ortega continues to assume that relative anonymity which he has doggedly managed to maintain is worth more than his fortune. He knows that it is inevitable his photograph will appear in the media, but he continues to avoid two basic things: the profusion of external signs flagging his presence, and endless involvement in social events. He knows, or assumes, that others who don’t even figure in the Forbes list or are placed well below him prefer to move about with escorts, an entourage and endless shows of position and power which logically helps to denote their presence much more than the ability of the rest of the population to recognise them, however frequently their faces appear in the newspapers, in magazine or on television. You can often see him. Casually strolling through the centre of A Coruña or during the aforementioned stroll on foot between his home and the Riazor stadium. He knew, of course, that his anonymity would vanish as soon as Inditex was floated on the stock market. This was why it was so hard for him to choose, despite the powerful reasons pushing him towards the float, and he thought about it for over a year, to the point where he applied for registration twice after the mandatory decision was taken by the general meeting. It just happens that, fortunately for him, Amancio is not particularly photogenic and it’s not as easy as you would think to recognise the owner and president of Inditex. This is no doubt helped by the fact that he behaves like an absolutely normal human being. It’s probable that a lot of the people who see him in some street in A Coruña have some dim image of the owner of a fortune recently assessed at 22,000 million euros. It’s also not beyond the bounds of possibility that Amancio Ortega possesses a peculiar type of timidity: acute in big groups and with large numbers of people, practically zero in small groups close up, face-to-face situations. That would explain his absence from social events, including the general shareholders’ meeting, which he has never chaired, or the polite refusal to attend any formal presentation of the many awards and distinction Inditex is accumulating. Naturally, all rules have an exception, and in this case it’s name is Marta, the youngest of his three children, daughter

An entrepreneur called Ortega… of his second wife Flora Pérez, said to be his only known weakness and to whom many believe that he is intending to pass on the presidency of Inditex after him. With Marta, as with his first daughter Sandra, he shares – or has come to share – a passion for horses, which is the reason for his becoming a frequent presence at the equestrian competitions Marta rides in, sometimes in, sometimes not, the impressive jump centre he has had built in Larín (A Coruña), said to be one of the best in mainland Europe. It is there that he has formed a kind of friendship with José Bono, which is rather unusual since for most of his life he has avoided forming relationships, particularly with politicians. But the man who was president of Castile-La Mancha for over twenty years and briefly Minister of Defence until his repeated disagreement with Premier Rodríguez Zapatero, shares his passion for horses, also because of the influence of one of his children. He also fitted out an equestrian centre for his son on the outskirts of Toledo, with its own stables, although far from the level provided by Ortega in Larín. The relationship grew to the point where it was assumed that they might even become related, based on the friendship of the youngsters which was seen as perhaps leading to an engagement but which never happened, and, as time went on, it vanished into the mists where so many sentimental ambitions disappear. Despite this exception, the essential rule persists as strongly as ever. Amancio stays faithful to his custom of operating his friendships as close as possible to anonymity and solitude. Without being a passionate football fan, he likes to show up to watch Deportive play from time to time, but he sits in the grandstand: he has never been seen in a box, despite the fact he could if, as a long-lived rumour insists, he would take a shareholding in A Coruña’s football club. This is an assumption which, like so many others, is hard to believe because of the veil of discretion which masks a large part of his investment outside Inditex. In recent years he has also developed a taste for cruising in his yacht Valoria, a spectacular motor craft 32 yards in length, generally moored at the Sanxenxo marina, though it is said that he doesn’t like to take long trips, and just sails a few miles out from the harbour, often with no more company than the crew who are essential for a craft of this size. And in the past two years he has begun to walk sections of the Road to Santiago, just like one more anonymous pilgrim. The name he gave the yacht reveals something which we suggested some lines back: Amancio, just like his brothers, locates his origins more in the Valladolid town of Valoria, where his mother was born, than in

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Zara and her sisters Busdongo where he himself was born. His very reserved nature is such that it is impossible to glean any ideas of maternal influence in his career, but those who claim to know him claim that it was very important and that her death in 2001 was one of the hardest blows he ever suffered, to the extent that it plunged him into a long period of profound introspection. Anyway, his privacy means that it is impossible to add any further evaluations or comment on this question. Aside from what has been said above, for most people the mystery remains: what is Amancio Ortega like in reality? Someone who has been with him since the 1980s likes to claim that ortegology is a fairly inexact science, and that it takes much longer than the two decades he has invested in learning it. Still more uncertain is whether the circumspect and reserved profile of the man is an established idiosyncrasy, or the result of an effort to preserve some halo and mystery around himself, with the intention of helping to build a legend that it has always suited him well to hide his true and authentic personality. Some facts suggest that he could be a mixture of both. Those who really do know him are extremely reluctant to talk about him. Even more, they sketch in hints of his personality mostly to disprove or set aside any of the characteristics which popular imagination has attributed to him. It is not widely known, for example, that Ortega has an aversion to air travel. It started long ago: he never liked flying, but clearly the fear was not serious, since many years ago he decided to buy his own aircraft, a secondhand Falcon 45, one of the same flight as the one the Spanish Air Force uses for the King and members of the government. Notwithstanding this, he ended up replacing it with his present international-range Bombardier, usually based at La Bacolla Airport, in Santiago de Compostela, but the use of which, as with its predecessor, is restricted to matters directly concerned with the company, whether with Ortega himself on board or, more often than not, to move other top Inditex executives about. He never liked flying. The proof was that on his first trip to Paris, sometime during the early 1980s, he went by train via Barcelona, travelling on what was popularly known as Shanghai, which took around 30 hours to cover the distance between A Coruña and Barcelona, where he then took the connection to the French capital. Even today he prefers to go by car on the rare occasions that he goes to Madrid. His dislike for air travel increased still further on the occasion when, travelling in the company Falcon, one engine blew up and the pilot had to make an emergency landing, in bad weather conditions, to avoid a crash. That incident, fortunately with no worse consequences than

An entrepreneur called Ortega… a bad fright, noticeably reduced his keenness to go back into the air. He did overcome his fear, the company demanded it, so that he could optimise his trips in search of new locations or visit the shops spread out through half the world without being restricted by the timetable of regular flights, but not entirely. Even today he worries greatly when the journey involves sea crossings. If he can, he avoids them as a rule. This aversion to air travel is used by some to question one of the more common legends to be found in print about the development of Zara-Inditex: the selection of the location of the shops. A story, probably apocryphal, is widely told according to which when Ortega was travelling towards a city in which he intended to open a shop, he would take a taxi, ask the driver to take him to the most central, commercial district, and then drive through it looking for premises available for rent or purchase. When he had made a choice of something definite, he would remain seated in some café or nearby location, observing the flow and behaviour of the passers-by, as a result of which he would confirm or reject the location. It is not known in which location and until when he continued to do this, but it does appear to be proven that even today he directly intervenes at the final stage of the majority of decisions in this area. The founder of Zara-Inditex likes to say that deciding whether a location is good or bad is his real hobby; others would say it is his speciality. The terms cheap and expensive mean nothing to him: his watchwords are suitable or unsuitable, and therefore to be rejected, and it is for this reason that he refuses to let others make the choice. To sum up, the method is as simple as accepting that the most expensive is so, because it’s usually the best. His philosophy in this matter goes so far as to accept two shops directly facing each other, even two in the same chain (normally Zara), as he is convinced that there is no danger of cannibalisation. This conviction also applies to the multiplication of concepts, or chains, which have steadily been joining the commercial network of the group. The importance attached to the shop arises, then, from the location and characteristics of the area. This was a job that was much easier for him to be involved in during the early days than now, when four or five hundred are opening each year, now not just in Spain but in some dozens of countries. But the fact that it has been necessary to change the mechanisms in no way means that Amancio Ortega has given up exercising what he considers his true, though not the only, inclination. If you carefully observe the initial expansion made by Zara outside A Coruña, you will see that it follows the routes that to a large extent

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Zara and her sisters were defined by the journey which Ortega had to make when he was only manufacturing for others: between A Coruña and Madrid, from Galicia to Catalonia, confirming the fact that at least in the early days he was directly and personally in charge of choosing locations. This means that it is probable, or at least credible, that he continued to do it later on, though in order to do so he had to overcome the aversion to flying. More than his unwillingness to travel by air, it was definitely the size which the group soon reached which forced him to delegate to others all or part of the process of choosing the location. His unease, however, did have some effect, causing him to see locations which didn’t require Atlantic crossings as more suitable, since spending several hours flying over the ocean would be a hard experience for him to endure. What actually happens now, and has done for some time, is that Ortega examines and analyses the locations via a wealth of videos and photographs, not only of the actual location, but also of the area, the businesses assumed to be competitors, the profile and behaviour of the passers-by, etc., and then decides in favour of or against the proposal. It hardly needs adding that his involvement is more frequent with Zara, among other things because it requires larger properties and has a policy of restoring significant buildings, but above all because the chain is still the most important logo and represents over half of the business of Inditex. The pleasure in property comes from way back and goes far beyond Inditex. A good part of Amancio Ortega’s assets are focused on this sector, either directly, through his ownership of buildings, hotels, commercial centres, etc., via his operating, tenant or asset companies, or indirectly through more or less relevant holdings in companies specialising in this activity. One source which boasts of being in the know claims that Amancio has privately stated that he, himself, is one of the largest real estate companies in the country. His extensive career as a real estate investor started in the early days of Zara, but he has had some failures in this area. The biggest, which happened quite recently, was his disastrous investment in Astroc,2 which over the period of a few months fell to less than half of its initial value. It seems that the plan was made over lunch with the controversial ex-president of the company, Enrique Bañuelos, whose presentation was so attractive to Amancio Ortega that he decided to invest 260 million euros to acquire 5 per cent of the company share capital. It can be assumed that this is one decision he does not like to remember, given that the stock market debacle which followed is said to have reduced the value of his holding by a theoretical 100 million.

An entrepreneur called Ortega… Digging up references from third parties on the profile of a successful personality means that, difficult though it be, efforts must be made to winnow the wheat from the chaff, separate anecdote from substance, legend from truth. It’s easy to be confused and see occasional behaviour or a one-off event as a basic part of that personality. One of Amancio Ortega’s maxims recalls a theme which, although it has never been stated explicitly, during the 1990s, brought luck to a Mexican banking house: ‘Yes, you can!’, adopted to tackle an in-depth reorganisation and overcome the crisis which was about to destroy the business. It has never actually been used, as far as anyone knows, in Inditex, but it could very easily be the maxim which Ortega recommends as the basis of his management style. Over the years he has shown that he feels that it is much more important, in a negative sense, to lose an opportunity than to prolong a negotiation. For example, when he was about to take over a valuable location, he was more concerned about the possibility of losing it than he was satisfied to have obtained a reduction in the rent. A perfectionist to the bone, Amancio finds it difficult to accept a line of reasoning which leads to the conclusion that something cannot be done. His management style looks simple and complex at the same time: he gives instructions as to what has to be done, but he leaves it to others to decide how; indeed, he is not even interested in the details, especially if they reveal obstacles and hurdles, nor is he interested once his instruction has been satisfactorily complied with. His determination is coloured by an impatient feeling that his decisions should be implemented – yesterday! It means that he really finds it difficult to accept it can’t be done or it’s going to take time. Even so, this approach should not be confused in any way with rushing into things. The decision-making mechanisms do not always operate swiftly. Ortega loves to consider and compare: he analyses and talks to a lot of people, often from outside his organisation and even outside the business, before deciding. This means that at Zara-Inditex everything is always governed by debate, setting out ideas, open discussion of the options. The fact that, rare in other businesses, everyone has a right to express their opinions freely – though only until the moment when the decision becomes firm. After that, nothing remains but to execute it. And once he is convinced of something, Ortega reveals his determination, which some see as pig-headedness, and he then only recants, and fast, too, if experience shows that a mistake has been made. Whether this is connected with it or not, setting up and tackling challenges has come to be a kind of essential fuel for Amancio Ortega. This

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Zara and her sisters doesn’t mean that he chooses them in some way, faithful to his belief that everybody should focus on doing what they know how to do. There was a maxim frequently heard on the lips of another unusual individual in the world of Spanish business, the late president of the Banco Popular, Luis Valls Taberner, who used to state that success in business consisted of making every effort to do only what you could do well (the line has been attributed to another banker who has passed away, Emilio Botín II, father of the current president of Banco Santander). Surely, in Ortega this premise lies at the heart of one of his most passionate obsessions: to grow. What could be seen as Ortega’s financial idiosyncrasy is governed by a strange maxim: spend a dollar by saving a cent. The principle makes sense when you understand his perception that it isn’t worth worrying about expenses when there are clear opportunities to make an investment profitable. It’s said that Ortega isn’t really interested in money, to the extent that he isn’t really aware how much he has at his disposal. For decades, in fact, right up to the moment when Inditex was floated, he never showed the slightest interest in the dividend, which meant a large sum of money for him as very much the major shareholder. Even now he seems to get little pleasure from the matter: what he likes are surpluses, because they represent the capacity to invest to keep on growing, without doubt, his passionate obsession. This stems from the fact he sees or senses new markets, activity lines and business to be added to those already under way in the various section of the Inditex group everywhere. For many years the company didn’t pay a dividend. The family partners received handsome packages, given that all worked in the business, and he himself withdrew what he needed from the company account, always operating in cash which others say was guarded by Pepita Ortega until she retired. Perfectionism, but also an intrusive and to some degree arbitrary approach are aspects which are sometimes said to describe his way of acting. But even the critics, and they are very few, accept that he has a huge capacity for listening to the judgements and opinions of others, often over relatively lengthy periods of time, before taking any decision. He also has a notable tendency to take the opposite point of view, but the purpose of this is solely to encourage others to express themselves more clearly; but always seeing the big picture, never accepting limitations, whether financial or otherwise. Aware of his lack of formal training, he usually avoids becoming involved, particularly when it comes to expressing opinions on matters of or about which he is ignorant or unfamiliar. This is the case with everything

An entrepreneur called Ortega… which is not directly connected with design, production and marketing. We have already mentioned the fact that it forms a part of the legend, which no one has bothered to emphasise or deny, that each and every one of the shop sites was chosen directly by him. However, with the size the business has reached, this is barely credible, regardless of the fact that it has always been stated clearly and the shops have been informed that they must be located in the best situations, in the absolute commercial centre of the cities, in the best street, and, if possible, be in the best premises. This is so much the case that since the end of the last century Zara has begun to undertake preservation and restoration operations on unique buildings in which, while respecting as far as possible the underlying interior architecture, the division of the group entrusted with these matters has designed a shop which is as attractive as, in the majority of cases, it is unique. It has to be repeated that a real aura of an unknown person, a person difficult to get to know, has grown up around Amancio Ortega. Some attribute it to his personality, not much given to social relations and public appearances, with a real aversion to fame, highlighted by his comment that his priority has always been that protecting his anonymity is the best way to protect his freedom. What is certain is that he completely avoids public appearances, to the extent that he doesn’t even attend the Inditex general meeting, which he would normally be expected to chair. Nor is he interested in establishing relationships with political leaders, while, since the flotation on the stock market, he has always welcomed them politely when they have expressed an interest in visiting Inditex. The anecdotes are endless, generally concentrated on his habit of limiting his presence to the least he can get away with, particularly when the visit is accompanied by the communications media. In these cases he usually delegates the job and excuses his personal presence, or, at the very most, shares the lunch or dinner offered, whether in the dining-room or on the upper floor of the corporate HQ or at the Gallo de Oro (Golden Cockerel) restaurant slightly less than a kilometre from the central building. Some absences have been more important than others, associated with the usual holding of the annual general meeting. One occurred when the company was floated on the stock market. On that day Ortega’s daily habits remained unchanged and he followed the initial steps of the action in the park in Madrid via a closed-circuit screen set up in Arteixo, leaving José María Castellano and a board member to be the subjects of the mandatory photograph. Despite being listed in Forbes as the largest fortune in Spain and one of the largest in the world, Ortega continues to live as he always

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Zara and her sisters has, stating that he has a middle-class mentality he has no intention of renouncing. He never stops repeating that he is just an ordinary man, and truth to tell he certainly behaves like one. Among other things, until recently he continued to live in the same place he moved into over ten years ago, an apartment (actually two made into one) of 400 square metres on the top floor of an eight-storey building in Zalaeta, A Coruña, without even a direct view of the beach, though it was within some 100 metres of the Pedro Barrié de la Maza Avenue which runs along it. Just a few months ago he moved with his family to a house at the entrance to the old quarter of A Coruña, very close to the commercial port. Popular wit re-christened the entirety of the district with the name Zaraeta, not because the major shareholder in Zara lived there, but because it was also the home of a good number of the key managers and employees in the group. This was not by chance or in a piecemeal way: they have all concentrated themselves in a string of blocks built and promoted by a company called Álvarez Corchado, in which the Ortegas or Inditex itself have a significant holding, which in turn concentrates the marketing of homes within the ambit of the group. This is a feature of businesses which are to some extent family businesses, doubtless arising from the relationships to be found within them. Amancio himself set aside two duplexes which he merged into one on the eighth and top floors of one of the buildings and moved there with Flora and Marta, after several years of living alone in an apartment barely 90 square metres in size, located in the central square of Ourense, following his separation from Rosalía Mera. One of the few concessions to his wealth was the purchase of the aforementioned 32 metre-long yacht, named Valoria. Another was the purchase and subsequent restoration of Pazo O Drozo, in Anceis (Cambre), a building of the eighteenth century but in the baroque style, fitted out for weekends, but which is currently being extended so that a good proportion of the year can be spent there. We shall see. Another significant extravagance is connected with his younger daughter’s love of horses. Several years ago, Ortega bought an old, run-down farm near Larín for nine million euros and invested some money in building a high-yield competition centre called Casas Novas. He designed this after making a careful study of the most well-known equestrian centres in various countries, and it is now thought to be one of the best of its kind in Europe. Here prestigious equestrian competitions and exhibitions are held, which he frequently attends as an exception to his proverbial social concealment.

An entrepreneur called Ortega… Paradoxical though it may seem, Amancio Ortega has some kind of obsession with humility, and constantly strives to achieve it all around him. He must be very aware of what has arisen on the basis of those huge efforts they made forty years ago, and he never stops repeating that he’s scarcely achieved anything and at any moment somebody may appear who can do it better. It’s even more than humility. When you ask why Inditex has become what it is today, he just answers: ‘Even I can’t explain it. I wish somebody could!’, to which he swiftly adds that this is very far from being the work of one person, himself, and that the main secret is rooted in the joint effort of everybody involved in the companies which make up the group. Ortega admits he is something of, maybe mainly, a solitary person, one who admits he feels more comfortable thinking than talking with other people. One of the things he likes to do, almost a habit with him, is to take solitary drives along the Galician coast, to some extent a poor substitute for the holidays he never decided to take. No less paradoxical is the fact that, despite being an accredited professional in the fashion business, his own style of dress is simply monotonous: almost always the same, sober but careful, lacking in any symptom of ostentation. And even though he is quite secure in the knowledge that he possesses a fortune which would allow him any extravagance, he is notoriously averse to ostentation. The only exception is his admitted fondness for powerful cars; even in the early days he used to change the model at least once a year for a more powerful model, partly justifying this by the long journeys he had to make in it, although making no effort to hide his preference for them. The legend says that he actually managed to burn out the engine of a Porsche by mercilessly pressing the accelerator. In any case, he is very modest as far as material possessions are concerned. He once even said out loud that he felt uneasy having people visit his magnificent country house who couldn’t afford anything similar. False or real? Modesty or guilty conscience? This is doubtless a secret deeply buried within him and others can only believe or disbelieve it. What he does talk about is his unwillingness to possess something he doesn’t use… although he is the owner of an apartment in Marbella where he never goes, and to which he hardly ever sails in the wonderful Valoria, moored just 100 kilometres from the port, which he has at a few paces from his new home in A Coruña. On a personal level, it appears that his years as a successful entrepreneur whom ever-increasing numbers of people are keen to know and contact have brought him few friends in addition to those of his early days. He worries

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Zara and her sisters about how hard it is to distinguish between people who express affection and fondness sincerely and are not two-faced from those who seek the successful winner. Distrustful? Some have described him as such, though others tend to think that what moves him above all is his intuitive sense. He may have made the occasional bad choice but he continues to believe in his intuition when he does business, naturally, but also, and perhaps even more so, on the strictly personal level, including his assessments of others. Just as many legends are passed around about his management style. They run from those who attribute him with excessive coldness to others who suggest an innate capacity for leadership and seeing the future. And there are plenty, too, who talk about an exaggerated tendency to generate a kind of creative chaos all around him. The reality would seem to be that he is not much of a fan of stratified organisational charts: he prefers the flat organisation, with a relatively vague allocation of duties and a high level of delegation, topped off with a firm insistence on results, with less attention paid to the how than to the what. This is a system which has been dubbed ‘monitored freedom’, though it is implemented with the greatest of care and requires total discretion. From all this arises the doubt as to whether the building of Zara-Inditex has actually followed some model, example, or inspiration. But on top of the fact that no data exist to support or disprove the thesis, a more detailed analysis of the way the business is organised and the group has developed suggests that a large proportion of the trajectory has been based on a successive dynamic of trial and error, just as much as, or even more than, the capacity to meet challenges on a kind of tendency to make a virtue of necessity. There is nothing strictly original or unique involved, but it hints at the unlikelihood that any kind of pre-set guideline has been followed and the even smaller probability of inspiration from a previous one. Although Ortega gives faint praise to his possible references, it is not entirely beyond the bound of possibility that they existed. This doesn’t mean that he must have paid great attention to what the others were doing or failing to do. At the very least, he himself states that, while he respects his competitors, none of them has shaped his course: they had and they have their own way of doing things; as does Zara-Inditex. However, he assures us that he never felt the need to defeat them soundly nor to try to learn from their successes and failures any more than from his own or those which reveal for the benefit of all the reactions and behaviour patterns of the consumer. One of the few allusions which could be seen as an exception to the rule is his admitted admiration for export activities, often revealed by the data

An entrepreneur called Ortega… about the favourable consideration Portugal receives. Ortega believes that nothing educates more and better than the markets, and selling over the borders is a serious business for the companies who do this. This is where his admiration for neighbouring Portugal comes from: a country to which he has been exporting all his life, among other goods and services, 90 per cent of his textiles production. It is probably not by chance that Porto was the first non-Spanish city in which Zara opened a business, or that Ortega still outsources a large part of the business of the factories in the group to Portugal. It may sound like a tall tale, but it should be pointed out that Amancio Ortega retains the habit of making a couple of trips every day to Zara’s central offices, always at the end of the afternoon, the first at about six and the second at around seven thirty, as much to see as to be seen by anyone still at his or her workstation. This is a custom which, again, according to gossip, resulted in an absolute flood of a fair part of the staff towards the garage at seven thirty-one. It seems that in the past, though seldom today, he used to show up, particularly at weekends, at one of the A Coruña shops without warning, or at one of the Sabón factories, just to see what was really going on without any herald or middlemen. One thing no one is in any doubt about is that he possesses real charisma, and anyway this is always assumed in the case of anyone who shows evidence of being a winner. It’s like that because it’s only from that standpoint that you can understand how from the beginning he was able to involve and build into his project professionals who were comfortably ensconced with other undertakings. There’s no doubt that he always knew how important it was to pay well, over and above the average and even higher than all other companies in Galicia, but it’s also a fact that the oldest veterans, captured in the very early days of the Zara project, confess that they were seduced by the concepts and ideas which Amancio Ortega placed before them. At the same time, it wasn’t always like that. Not in all cases was it he himself who set out to seek members for the team. As soon as he joined the group, a significant number of hirings resulted from the direct intervention of José María Castellano, to the extent that one of the individuals who at that time occupied a particularly important position confesses that he didn’t meet Ortega personally for three years. It hardly needs adding that the manager in question was in no way connected with design or marketing, areas where Ortega has never failed to have a very personal input until very recently. Quite a long time back Balzac wrote that: ‘behind a great fortune, there lies a great crime’, and it’s a fact that, even if they don’t put it into those

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Zara and her sisters words, there are many people who believe the statement and who turn into genuine professionals in developing and transmitting rumour, thesis and even negative interpretation in respect of every commercial or professional success. In this sense neither Amancio Ortega nor Inditex are any exception. But we don’t know how much some of the legends which have been spread bother the protagonist more than others, nor do we know everything that has been said about him since Zara became famous, although this is possible. There have been times, however, when it has been necessary to set the record straight, such as the famous occasion when Ortega had to ask for that famous audience with the then president of the Generalitat de Catalonia, Jordi Pujol, because José María Castellano had heard that the nationalist leader was placing a certain amount of credence in one of the legends. It appeared that some businessmen had been telling him that Zara’s commercial success was due, among other things, to the fact that garments were being made up in ships anchored in international waters, in the holds of which the labour force was working in conditions close to slavery. An anguished Ortega was obliged to reveal the story specifically to be nonsense. Also he wouldn’t have been too amused by the recurrent suggestion that finance was coming from the narcotics business, at least before the brilliant takeoff of Inditex. But he’s used to hiding it well. His middleclass background is not entirely free from displays of forms and behaviour appropriate to the manager, though they may be taken as exceptions. This is the case with his proven aversion to dealing with unpleasant situations or conflicts which may happen upon him face-to-face, though he still has a great appetite for mediating in controversies and likes it when people go to him to have wrongs righted. No one knows, for example, whether in recent years Ortega has personally and directly dismissed any of his employees. His normal approach would be to delegate the unpleasant task to one of the Inditex managers. It seems that even Castellano’s somewhat stormy departure was no exception. The most widespread version of the story is that neither then did he, nor subsequently has he ever explained how and why they reached breaking point after over twenty years of close collaboration. Something similar happened at the personal level, though the episode did also have important ramifications as far as business was concerned. It would have to have been one of his most direct colleagues, José María Castellano in fact, who would have dealt with the business of solving the

An entrepreneur called Ortega… dispute that ended in the divorce and alimony settlement between Amancio Ortega and his first wife, Rosalía Mera. The crisis was born of the story which became public knowledge that Ortega had a daughter outside wedlock, the fruit of his relationship with Flora Pérez, who would later become his second and current wife. It fell to Castellano to handle the delicate situation, bearing in mind that the marriage breakdown left Amancio as a minority shareholder in the company since, in application of the profits system, his still-legal wife shared control with other holdings of the majority of the marketing section of the business. It’s only fair to say that Rosalía reacted with great generosity, persuaded that keeping management in Ortega’s hands was the best way to ensure the continuity of Inditex, in which she herself held and continues to hold a large share: at the present time she is the second largest individual shareholder in the group. It is often stated that the personal/romantic circumstances of Ortega’s life have affected a number of aspects of the business route followed by Inditex. Accepting for the moment that this is true, there is no doubt that it could have turned out much worse. As we said, Amancio started working for La Maja at the beginning of the 1950s, attracted by the fact that Antonio and Pepita has already been there for some time, and the reality that it was a business with better growth prospects than Gala, where he had been working for almost three years with little hope of promotion. At La Maja he was in time to get to know a smart, extroverted employee, rather younger than he, to whom he was attracted and with whom in due course he began a relationship, the usual kind at that time, prudish and formal. Rosalía Mera was born in 1944, so she was eight years younger than Amancio, and for a young girl who wasn’t yet twenty, this was a difference that mattered. The relationship flourished and ultimately they married, on 7 August 1966. Almost two years later (19 July 1968), the couple had their first daughter, Sandra, and then almost three years later (1 May 1971) they had their first and only boy, Marcos, sadly afflicted by a serious psychological disorder. This drove Rosalía soon (1973) to give up working in the business so she could devote herself intensively to initiatives aimed at the rehabilitation of the disabled. This was particularly through the Paideia Foundation, built upon Zara itself, with a commitment to an annual contribution of 50 million pesetas and the usufruct of a building in A Coruña rented by the chain, with a yearly rent of 16 million pesetas according to figures for the year 2000.

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Zara and her sisters Much has been written and speculated about the effect which removing Rosalía from the business may have had on the marital relationship. It is very obvious that Amancio’s life was focused and concentrated on the development of the group, which at that time was just taking the first steps in the expansion of the network of shops. Some people could have seen this as a situation that could have given rise to a drifting apart in the marriage as a consequence of the fact that their ability to be in daily contact in the environment of the company had changed. The reality is that the rumours at the time very soon began to suggest the existence of hints of crisis in the marriage and suspect that Amancio was involved in other romantic relationships, most of which remained unconfirmed. The exception made its appearance years later, around 1982, when evidence appeared of a love relationship between the boss and one of the young machinists with GOA. The assumption spread several months later, when it became known that the girl in question, Flora Pérez, was pregnant and was swiftly transferred to the Vigo shop as manager. But it was still just rumour without confirmation. However, as it came out later, everything which had been speculated was the truth. Marta, Amancio Ortega’s third daughter, was born in 1983 and, as was to be expected, confirmation of paternity was bound to come out sooner or later. This came in 1984, and it’s still not clear whether Amancio and Rosalía had stopped living together before or afterwards. But the fact is that the business was threatened with a crisis which would not finally be resolved until 2004, almost twenty years later. The divorce came relatively quickly (1986) and years later, after living together for quite a while, Amancio and Flora married in 2002. The way the holdings in the group proceeded is explained in greater detail in the story of the public flotation of the company, but the operation which followed was no less important, with the company being quoted on variable yield markets, and it was for that reason that Rosalía Mera, who is still the second largest individual shareholder in the group, resigned from her position on the board to allow Flora Pérez, now legally married to the founder, to become a member. This was yet another procedure handled by Castellano, helped by two other directors, because some tension between the divorced couple was usual at board meetings. Ortega, who seems to be an enormously approachable person with the company, friendly, even warm close up, makes no concessions whatsoever when it comes to situations involving more than half a dozen people, including those which take place within Inditex.

An entrepreneur called Ortega… We have already seen how he never goes to the shareholder meetings or takes part in road shows organised with institutional analysts and investors, and it’s rare for him to agree to be interviewed by the many groups which over the years pay visits to find out about the Arteixo premises. So it doesn’t need to be stated that he has never agreed to be interviewed by a communications medium nor has he taken part in the very rare press conferences with journalists called by Inditex. This still didn’t prevent him from a couple of upsets, even shocks, regarding the media. The first occurred on 18 September 2003, when the British newspaper The Times published as an interview some statements which the paper claimed to have been granted to the editor of the Economy section, Patience Wheatcroft.3 Ortega angry about some of the statements not only being reproduced, but also because the comments had been taken from an informal chat with a few people who had paid a visit to the Arteixo plant, one of whom was a personal friend of his wife and a family member of one of the few businessman friends whom Ortega sees frequently. The journalist later claimed that she had not concealed her profession and that, though she had not been granted a formal interview, the Anglo-Saxon custom is to be able to reproduce everything which is heard without concealing the professional status, unless the opposite is requested, which neither Ortega nor the communications manager had done on the occasion of the visit to Inditex. Aside from the general irritation, which could look like contempt for the national media who had been trying to interview him for years, Amancio was particularly irritated by a statement attributed to him by the British daily regarding his start in the industry: ‘I thought it wasn’t fair that only rich people could dress well…’. It appears that nothing disturbs the founder of Zara more than the claim that his intention was to democratise fashion in Spain. The second upset, or even shock, was more recent and to some extent more serious. On 26 June 2007, the financial newspaper Cinco Días placed on its front page, over three columns, an article with the fascinating title: ‘An hour with Amancio Ortega. The philosophy of the creator of Inditex’,4 accompanied by a half-length photograph of the businessman. Inside were two full pages with a wealth of sentences and statements in quotation marks, together with an article which was cleverly ambiguous about the context in which they had been made. None of the information was lost, because there in black and white was a hefty raft of thoughts and concepts which until that moment had never been reproduced from the lips of Ortega anywhere. Yet the content formed no part

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Zara and her sisters of a statement nor were the pages of a newspaper the destination planned by their author. It had all arisen from a meeting which, weeks before, the top managers of Inditex had held with a select group of professors from business schools: IESE, Instituto de Empresa, Columbia Business School, INSEAD, IMD and ESADE, broadcast on the intranet to the spread-out heads of the business and in which Amancio Ortega took part to chat informally with the teachers. It would appear that one of them surreptitiously recorded Ortega’s words, though we don’t know precisely how they got into the hands of the journalist who published them. He had hardly got over his fury when, just days later, on 30 June to be precise, Cinco Días charged again with two pages giving the opinions of a number of businessmen and experts on the ideas and concepts expressed by the president of Inditex. It was exactly what he had been trying to avoid for years. STATEMENTS ATTRIBUTED TO AMANCIO ORTEGA Source: Cinco Días, 26 June • You must grow to survive. • Being a businessman is my vocation. I don’t like the way they used to be. I wanted to be a different kind of businessman. • The worst thing is becoming complacent. I am fully dedicated to my business. Our culture starts with Arteixo. • In this company we’ve never trusted each other. Optimism is negative. • Things are easy. We look too hard. Talking too much is negative. • You have to turn the organisation upside-down every day. • This business is less complicated than it looks, It’s very easy to run. • In design, the world copies Europe. European designers are young people and there’s a fast turnover. • Don’t design for 64 countries, design a garment for 64 countries. It’s not so complex. • We used to make new plans every day. We never had a preconceived idea. • Growth is a survival mechanism. • You have to stay close to people and take decisions with them. • To launch a chain, the first think you need is the people. And if you wanted to create a university, you’d need professors. • The company keeps on going. We’ve changed a second generation and we didn’t even notice. • Nobody invests as much in distribution as we do. You have to put money in the shop, the shop is the brand. • We give responsibility for 30 million Euros to a 25 year-old, that’s the lady who manages the shop. • All the chains are alike, but none are exactly alike, and they’re all independent. • Four chains are already in Barcelona and the fifth soon will be. • Never to buy an expensive item is stupid. Cheap is stupid. • I’m always involved in in-house competition. • I delegated the things that I

An entrepreneur called Ortega… didn’t like, taxation, finance and human resources. And it got interested in what I did like, distribution and the product. • My university is my profession. I was working for my living at the age of 13. • Without growth, a company dies. A company must stay alive through its people. • You have to invent a reason for suspending payment every now and again. • Success is never guaranteed. • Clothes are universal and the customer, too, is universal. • H&M is a model company, but we can’t be perpetually watching the competition. • China is just starting and the market in the eastern European countries is remarkable. • In the past we sold to third parties. • I never liked it, because it meant you couldn’t provide the customer with a pretty garment. • Nobody buys on price, the first thing is that you have to like the garment. • Without extra asset capacity, you have no room to move. A man of lengthy thought-processes, Ortega also needs time to digest setbacks. Weeks after that publication he was still telling those close to him how much it had upset him to see himself reflected in this way in a nation-wide daily. He also expressed his profound disappointment with the behaviour of at least one of the teachers with whom he had agreed to share some time in a way he felt was to be relaxed and informal. He used to feel a distant respect for this sector which claims to be educational, but he now realised that even the most basic standards could be discarded at any time. His irritation was not so much because of what had been printed in the economic information newspapers, but rather because it stuck to him. He couldn’t say that a single one of the phrases attributed was completely false, but he could say that, taken out of context as they were, they needed a considerable gloss. Neither was he pleased by the fact that you could assume that this had been a conference or a speech, when in reality it had been nothing by a chat. But what hurt him most was the fact that it had shattered one of the standards he had clung to throughout his professional life: the absence of personalisation. His decision never to give an interview is not so much the outcome of his desire to cling as hard as possible to anonymity, though that is part of it, or real embarrassment at seeing himself portrayed in the newspaper. These and other reasons are important, but the essence has always been in preventing the trajectory of Zara and Inditex and their unquestionable success from being seen as an expression of his own personality. For years he has insisted, actively and passively, within and outside the business, but above all within, that it is the fruit of shared work, dedication and

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Zara and her sisters effort, within which he himself is just one more participant. Is the humility genuine? Is it a tactic to encourage involvement? Doubtless a little of both, but in any case it had worked and it could not but disturb him profoundly that this egregious exception had occurred against his will. He knew and he assumed that copies and photocopies of the financial paper would have passed from hand to hand, plus comments and no doubt sections underlined, just where he didn’t want them to be: in the group offices, factories and shops. It didn’t bother him that people would read those statements, and it was more than likely that management and employees had already heard them from his own lips. It was the interpretation which they would give to their appearance. If there was anything that bothered Amancio it was rumour and what was added to it in the form of speculation. He assumed that it was inevitable that since the front-page article of that newspaper meant a total overturning of the well-known policy of the house, there would be no end of interpretations: why? What’s happening? What’s behind it? All these questions could disturb the stability and balance he felt were essential for the organisation to work. These matters were distracting, they wasted time and energy to the detriment of the optimal dedication to the task which was required from everybody. Even he himself, never mind anybody else, was wasting minutes, or was it hours, swallowing the initial fury and subsequent disgust. The single thing he knew full well was that this must not happen again. He would take personal responsibility for ensuring that never again would anyone convince him that he could not remain permanently hidden. Of course he could. Furthermore he must, and nobody was going to stop him. Perhaps by way of summing up it has to be admitted that, perhaps even more in other cases, there are more questions than answers as regards the profile to be attributed to Amancio Ortega. This is not so much because he is a complex character but rather because there will never be a solution to the dilemma as to whether he is closer to the ordinary man he claims to be and tries to demonstrate or, on the contrary, his image, all too blurred anyway, conceals characteristics and components which would confer upon him or render him deserving of some other description. Anyway, aside from more detailed data, it would be necessary to arrive at an indisputable definition of what is meant by normal. If not, the common opinion which connects any story of success to the essential requirement of an exception being behind it, should be forgotten. And if that doesn’t work, you’re left with the weird task of diagnosing that something strange must lie behind the claimed exception.

An entrepreneur called Ortega… It is hard to understand why it is so difficult to accept that successful people may be just like the rest of us, perhaps distinguished by the addition of a given ability or skill, just one, which has led them to transform an idea, a job, an ambition or a project into a successful reality… unlike others who didn’t try it or else did and it didn’t work. Also, we should not forget the possibility that luck may have had a hand in it, though making the most of luck also requires some skill. Often the direct knowledge of people who take the lead in, or are behind, important actions activates a memory that they felt or suffered something, had certain virtues or vices, succumbed to weaknesses or committed excesses rather more than the rest of the world. Further, it may even be that realising this helps us remember that what we call normality is what really lies behind the success. This means that all too often the efforts which are made to describe careers and build biographies turn out disappointingly when compared with the reality. There is no shortage of people who feel the need to decorate their actual importance with the story that their whole life has been exceptional, often paying homage to a level of precociousness which is embarrassing because of its unlikelihood. At least the founder-chairman never went down this path. Indeed, quite the opposite. It may be possible to doubt the sincerity and authenticity of his efforts to present himself as an ordinary person, no different from everybody else, and indeed, in some respects, worse. This is because, while it doesn’t appear clearly to a large extent through his efforts to hide it, the more the question receives no reply, the more mere common sense leads one to the conclusion Amancio Ortega must have something to have moved from being an employee in a modest shop to the head of Inditex. What could it be? Maybe if we continue with the story of the business, we may shed some light on the matter.

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3 And some ideas gestating

Ideas do not spring from nothing fully formed. Sometimes, often very appropriately, they can be referred to as being like a birth but even so this implies a previous gestation period. If something happens suddenly, it may be a shock and it is generally not a good idea if it happens like that. What is usual is for real ideas to flow as a direct consequence of the combination of at least two things: observation and thought. Amancio Ortega prefers to talk about dreams as being the really essential basis for the appearance and consolidation of a business success. Having an idea, or a business dream, is of little use unless a little more is added. It must be clear, and it must be possible to give it tangible form, to make it come to life and for the ingredients which will help it to materialise to be mixed in. But even then it cannot be more than mere philosophy. Effort and stamina must be added, perhaps luck is also required, and in general the observation and thought has to continue for a time before it can be assumed that the end is in sight. It is only then that the primitive germ, barely structured, will develop and transform into a success story. It has to be like that. So we must make the effort of backtracking to the Galicia of the days of post-war Spain, and try to enter the mind of a youth of just thirteen years of age, born only months before the Spanish Civil War broke out, who decides to quit his studies, or is unable to continue, to start work as an unpaid apprentice in a prestigious textile business in A Coruña, where we see him as sharp, smart and with a certain tendency to indulge his imagination. However, in that position all he does is help out as the store boy and occasionally take orders, and maybe deliver them to the home of a customer – his first contact with the consumer. It probably wasn’t here but more likely in his second job, where he became part of the team in another business, at the time well-known in A Coruña but vanished many years ago, lured by his brother and sister who were already working there, when his active, hungry brain began to work. 54

And some ideas gestating Thinking that the plan was born in a clear, articulate and stable format is a great deal to assume. What we can say is that this semi-apprentice, on his way to being a full employee ultimately to take of a position of responsibility, was little by little building up a conviction that the landscape of the sector as he saw it could provide some openings which, if they were properly examined and carefully watched, could be profitably used. It’s not easy to know exactly when he decided to make his attempt, the moment when observation gave way to putting ideas into practice and how he conceived of the desire to do so, to step away from the mental part of the process, but that it happened is beyond doubt. We must try to visualise the scenario, both as regards the Galician socioeconomic setup – demand – and with respect to the commercial map – supply – dedicated to the garment business. If the first revealed the incipient emergence of a middle class, though still with a very precarious way of life, still struggling to cover basic necessities, the second revealed a large number of small businesses. Clothes retailing at that time was carried on in tiny shops where the property and shopwork was all in the hands of a family unit. Some might even have a small branch, almost never outside the city limits. They had a loyal customer base whom they supplied with a modest range of garments, at low-average prices and of average quality. Clothing tended to be relatively uniform, so that ways of dressing were fairly similar. In fact, the three Ortegas were working in a business which perfectly exemplified this definition. To call their stock ‘fashion’ smacks of euphemism or exaggeration. This type of garment was then to be found in the very small number of boutiques which, whether they were backed or not by one of the brands in vogue, sold clothing at prices which the vast majority of the population could simply not afford. It hardly needs saying that in terms of quantity, they were more or less irrelevant in the commercial environment. It was in the final analysis the large department stores which, particularly in the larger cities, began to seize a market share as they took up a kind of mid position between the two kinds of businesses mentioned above. But this is an environment which is far from static, and at this time and in the years to come it was to undergo considerable transformations, and it is in this world that the initial Zara-Inditex project will find a place and will subsequently develop. It would probably be rash or even absurd to guess that at that time Amancio Ortega’s mind was hatching the sequence of events which developed years later. Nor is it easy, perhaps even for

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Zara and her sisters himself, to separate the ideas which were gestating and outlined at the time from those which, as events proceeded, emerged and subsequently took on solid form. Because, unlike the claim which has sometimes been made, the route traced by the group to its position of leadership today has been neither straight nor linear: it has gone forwards and backwards, but mostly through considerable corrections, marked by the development of the market and consumer response. We can’t know, for example, to what extent people hesitated over whether to remain bound by manufacturing activity which was outpaced by demand, recorded significant returns and showed broad margins for continued growth, based on a competitive model which in many ways was clearly innovative. Nor can we know how and why the decision was taken to stop working for third parties, quite a few years after entering the retail distribution sector, and not afterwards … or before. In this area, efforts to establish early ideas run serious risk of making mistakes as to the time-line of subsequent gestation and birth. Some ideas seem clearer than others, basically because they show themselves to have been supported throughout the length of the perceived development process and not because it seems too risky to see them as recorded in what we may call the Zara-Inditex DNA. Neither is it certain, because some give the impression of having been added, just in the wake of some more or less crucial mistake. However, risky it may be, but we should try. One of the starting-points to hold on to is that contact between the Ortegas and the business is increasing and becoming established in the shop; that is, contact with the public, when a given article is sold, at prices with margins more or less similar to those of any competitor shop. But tiny farms and family businesses tend to have everybody doing everything, even to the extent of allocating tasks set down on paper. In this way, based on the experience they were acquiring from their direct contact with the customers, the Ortegas proceeded to gather knowledge about wholesale supply channels, coming to realise that the majority of the garments they supplied came from outside Galicia, usually Catalonia, through well-established middleman networks. We should understand that the initial ideas arose from the suspicion that the garments arriving from the traditional Catalan clothing factories were rather expensive, leading to a feeling that it might be possible to make them more cheaply. They also noted that they were too similar to each other, excessively uniform, and that it was impossible to persuade female customers to wear the same garments

And some ideas gestating as their neighbours or the women in their social circle. It’s even possible that they began to wonder whether men would end up thinking the same thing, sooner or later. Thus they arrived at the conclusion that if anyone could produce at a lower price, that person would be able to get his or her stock into the shops. Could the two brothers, Antonio and Amancio, do it in those businesses they had been visiting for some time on behalf of La Maja? Their network of contacts hardly extended further than Galicia/León, maybe to Valladolid, but the thought that it might be enough for a start began to germinate. And such thoughts did not stop there, because certainly Amancio has always had and nurtured a tendency to think big, to remove the limits from his imagination. He noticed that ready-to-wear clothing, prêt-à-porter 1 was already a reality, created in France by Yves Saint Laurent, though his concept of mass-produced fashion with an haute couture flavour had hardly escaped from various select boutiques, where brand-name clothing, expensive and completely out of the reach of the majority of Spanish society at the time of the Stabilisation Plan, was sold. But he could do it! The crux was how and where to start. The objective would be to make garments which satisfied the fancies of various consumers who, particularly if they were women, would begin, timidly and from time to time, to replace the idea of just getting dressed by that of putting on clothes which matched their taste and choice. But it was obvious that many would be unable to do this; the expense was far beyond their level of resources or what they could allow themselves to buy was governed much less by their preferences than what was available. So another idea began to germinate. When, for whatever reason, someone buys a costly garment, that person is likely to wear it year after year, however noticeable the obsolescence of the style may be, and however noticeable that it is steadily distancing itself from the predominant clothing trends. The conclusion is that the production process must be rationalised: the life cycle of the garments must be adjusted to the changing fancy of fashion; in other words, durability should not exceed the short period during which a style, colours, design and the other features which do or don’t identify it as current are in vogue. Then, if it is not necessary and probably also not convenient for them to last so long, more can be produced at a lower cost. Whether they were aware of it or not, the idea was giving rise to one of the most derogatory imputations later to be applied to Zara: low quality, certainly at low prices, with just a touch of originality.

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Zara and her sisters While all ideas are in the air and taking on the feeling of reality, other ideas collide with them, at top speed. Among them is the possibility of replacing the dictates of the fashion designer with those of the purchaser. In other words, instead of encouraging the consumers to wear the clothes which the businesses design, manufacture and distribute, the businesses should be encouraged to produce and stock the clothes which the consumers want to wear. Of course, there is no way of starting from this point. There is no doubt that, even though the plan was still only half formed, it began to be apparent that to achieve this would of necessity require a new business concept. As far as the people in their immediate vicinity were concerned, it seemed impossible to expect that there would be anyone in the sector willing or even able to do things differently, or even in quite the opposite way, which was what was appearing in the new concept. Objectives could be seen increasingly clearly, but not how they were to be achieved, though the relative conviction that the changes would have to be made both in the garment production process and in the final marketing was beginning to make itself felt. There was also a point – before or after, who knows – when another idea began to take shape: middlemen were having a negative effect, siphoning off value which could, or indeed should, be part of the direct benefit to the consumer. They should be eliminated, then, rendered unnecessary in the path from factory to customer. In other words, the key began to be increasingly one which would be a distinctive element of Zara: integrating production and distribution. First of all, another certainty: there was no point in doing what was already being done. Opportunity lies in doing other things, or perhaps the same things, but in a different way. to find a place in a market which was competitive, broken up into small units … and yet basically dominated by a marked tendency to do everything more or less in the same way. In any case, it’s one thing to see the scenario as someone already in position, always assuming the scenario clearly exists, but a very different matter to organise the move to actually get there. The first step must be to make something which looks, and is, prettier and more attractive than the stock coming from Catalonia, at prices lower than those which the retailers and wholesalers normally pay. Another doubt as yet unresolved rears its head: was starting by producing clothing a means of ending up with a network of shops? Or did the shops arise as a result of a manufacturing project? The distinction may be false because the unique thing about the model is the absolute integration of both wings, given that this is one of the factors, not the only one, which differentiates Zara-Inditex

And some ideas gestating from its main competitors: except for a mere handful of exceptions, none of the distribution giants own their own production plants; that is, they source product from other companies which, in their turn, are not provided with a network of retail outlets. It is more than likely that Ortega had the idea of manufacturing and selling – very unusual in this business – in his head from the very beginning. In other words, he could not conceive of one without the other as a means of positioning himself in the market in line with his central idea. Later on, at some point in the trajectory, or more likely at several, the Ortegas discussed in depth how and where they could continue to develop the industry in which they had a foothold. They had a number of factories, they were selling everything they produced, and indeed could have sold more, but since they felt or guessed that competition based mainly on low prices would end up threatened by others, sooner rather than later, so that their business had no absolutely assured viability in the medium term, they had to settle for one of two alternatives: become part of an established distribution chain or start their own network of shops. Naturally, the first option seemed safest; when all was said and done it was a matter of concentrating their efforts to get out their product, which until then they had been placing with wholesalers and retailers, directly or through their network of commercial agents, by concentrating on a single relationship. But it gave rise to two problems: first it meant they would be absolutely in the hands of the partner they chose; and secondly, and much more important, they would have to jettison many of the ideas and convictions which had driven them to take on the risk of launching themselves on the entrepreneurial road. The three had focused their work experience on direct sale on somebody else’s behalf, and it was sensible that they should try to make the most of it in a new entrepreneurial undertaking. Amancio above all wanted to sell. He had thought of doing it in another way, in many aspects different from what was normal at that time. This meant that the option of associating his factories with one of the established retail chains meant first and foremost that he would have to start discarding ideas, because there was no doubt that the model of sale to the public would be established by the chain, without the faintest chance of applying what he had half worked out in his head. In other words: though he would be producing garments in a different way, based on a new system, the garments would reach the customer in the same way as those of everyone else. The thought of organising a process without any intermediary between factory and customer reappeared, with its advantage that he would be able

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Zara and her sisters to pass on a part of the value which the middleman retained: after all, a significant part of the end price. Among everything else the conviction that production and distribution must be integrated as much as possible took root. But more ideas were needed to put it into practice. Obvious as it is that Zara was intended from the start to do things differently in the world of fashion, we are obliged to ask what and why. We must start from the principle that not everything seen from outside can or ought to be the consequence of a developed strategy, predefined or structured in the mind of the driving force behind it. In reality, when we observe the way the group has developed over the four decades that have taken it from anonymity to number two in the world, after the US group Gap, we can see many evolutions, changes and even corrections of the course which has traced its position in the market. However, in this as in everything, it’s easy to work out theories based on present reality, on the assumption that the way things are now is the outcome of a plan, preconceived and followed from the beginning. Even though the Ortegas were not particularly familiar with them, it remains a fact that the development of the group has adjusted itself to some of the principles which are taught in the business schools and handbooks. One says that it is absolutely essential to select as your target public a certain segment of society. Another, perhaps more recent, says that the customer must be the basic focus of any business establishment. And just to add no more than a third, it is more important than anything that if a business wants to succeed, it must constantly implement strategies and policies aimed at motivating and involving the personnel to achieve that goal. More than once questions have been asked about how someone with no more experience than that of an assistant in a modest provincial fabric shop, lacking any kind of management training, could have managed to develop these principles in such a demonstrably efficient way. Or, seen from another angle, why was this route was successful where others with more degrees and pedigree collapsed? We have observed that Amancio Ortega is not pleased with the suggestion that his aim is to democratise fashion in Spain. His position is certainly sound, since this is an overly simplistic concept, which even smacked of the outcome of luck, if not chance. It was almost as if people wanted to believe that he must have found some kind of philosopher’s stone, lacking in any kind of insight as to what the market was demanding and the complex way in which it might be possible to satisfy it. And yet it is not wholly

And some ideas gestating inaccurate, in any case, to transpose the democratic concept – socialist, perhaps? – to his conception. One of the powerful ideas which seem to have supported the road to Zara from the very beginning is to substitute or at least complement the traditional dictatorship of fashion, planned and imposed from supply, via the – democratic? – consensus of placing within the reach of the consumers the garments they choose to wear. The likelihood is that, based on his essential and decisive experience of working in direct contact with customers, particularly women, Ortega will have internalised the fact that the consumers’ tastes and preferences were formed by a collection of factors, one of which was that the seasonal collections launched by the fashion houses were still only one. Also, in the same line of thinking, he perceived some unconscious resistance to this excessive uniformity. While it was true that the public tended to follow the dominant trends, though not always, it was no less certain that this was complemented by a tendency to maintain certain levels of individuality. Nor should it be forgotten that another important factor was beginning to make profound changes in Spain: the growing number of women taking on roles in the workplace. This went along with the appearance of a huge catalogue of clothing needs, not greatly generalised until that time, under the twin pressure of what was practical and what was fashionable at the same time. It is highly likely that this, too, would help to sketch out ideas as to how to meet that demand, which was assumed to be on the point of exploding. It was not that the market was not providing a supply: it was to be found in what were then known as boutiques, which supplied garments that, if not wholly exclusive, were sure to derive from short lines, to the extent of there being no more than one per shop. However, that meant a price which was more likely to keep them as ornaments in the display window than purchased by the large majority of society. Changing this was undoubtedly more than an idea: it was an aspiration. There was, of course, another side to the clothing business, the made-tomeasure area, but the huge numbers of tailors and dressmakers of former times were disappearing from most of Spain. Their numbers were dwindling, and anyway they were thought to be, or actually were, expensive, which meant they were used still less. Not to mention other disadvantages, their products were always slightly tinged by the craftsman’s hand, though they represented the maximum expression of production in line with the actual desire of the consumer.

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Zara and her sisters The concept which was slowly germinating drew to a certain extent on an intention to put together a range of factors: affordable price, low uniformity, consumer desires and preferences, acceptable quality, ease of purchase… something like a merging of the established models… discarding whatever in each of them could be seen as worse. In tandem, other ideas were developing, some of which, as time proceeded, would be vital in the territorial expansion of the group, including its international aspect: people’s needs and preferences depended on many factors, but none was connected with the geographical location. That is, they were identical or similar among those who shared age, work and profile characteristics. Or there was the need to factor in the principle that no one decides to wear a garment that they think is lacking in prestige; the fact that it suits them and is affordable – price – is not enough for them to buy it. As we shall see, something which played an important part when it came to the time to start opening the first shops outside the Spanish market was that they chose nothing less than Paris and New York… to start with. Some ideas which seemed so simple collided with a long chain of implementation problems. How do you find out about the customers’ preferences and inclinations? How could they be maintained over time and not vanish? To what extent could you organise the manufacture and sale process so that the product was affordable by more than the elite who were used to wearing fashion? How could you sidestep or completely escape from uniformity? And above all, how could you make fashion affordable, extending access to sections of society to whom hitherto it had been forbidden? It must have been this which gave rise to the idea of setting up the shop as something more than a point of sale, endowing it with the character of a listening post in the market, or, if you prefer, a centre of information from which the various steps in the production process could be determined. It may be that the concept was present long before Zara opened their first shop in A Coruña, in 1975. And it is probable that this conception was as important as, or more important than, the desire to retain the margins captured by the retailer, at the time of deciding to move from the productiononly model to that including distribution. It will soon become clear that the shop is, if not the decisive element, then certainly the most relevant element in the founder’s strategic vision. Amancio Ortega is about to apply strictly his conviction that a location, or if you prefer a specific property, is never either dear or cheap: quite simply, it is either good or bad for commercial use. And without going as far as to claim that from an excellent location you can sell anything, never mind

And some ideas gestating what, there appears in the DNA of Zara and her future sisters the principle that no efforts must be spared nor resources held back from the point of view that the shops must be of the best and must be in a better position than the others. The shop then becomes an competitive ingredient of crucial importance, planned as well as everything else to make the consumer’s life easier – or even better than everything else. However, we shall soon see that the initial concept has little to do with how it became established later. It is up to a point logical that the innovative concept which Ortega intended to apply to his shops adopted as its basis something which at that time seemed quite disruptive: the bazaar concept, which the large department stores took on to the highest degree. It is yet more evidence that the group did not emerge from anything like a mental laboratory, imagined and outlined with no practical connection with reality. It was for this reason that the initial attempt did not go well. Even the first Zara shops would have an outline and philosophy which were different from those which finally ensured their commercial success and the later brilliant expansion. It is likely that the first steps had as their reference the organisation which was undoubtedly the winner at that time: El Corte Inglés. This does not mean that an effort was made to emulate it, but rather to make the most of those innovations seen in the chain of large department stores to retain a share of the traditional retail business. Doubtless this is where history collides with an idea, or rather a practice which is rare or absent within the business environment, which Zara-Inditex has maintained and still maintains almost like an addiction: the capacity to correct and adapt to whatever is appropriate to achieve and maintain a position in the market. There will be evidence of this in the course followed by the group and we see no signs that it is likely to disappear in the immediate future. Recovering a picture of those early days reveals that a large proportion of society was becoming more concerned with how to dress: clothing and style were beginning to stand as distinctive signs of the individual person and marked incipient differences in social grouping. But even so, such concern did not go hand in hand with an increase in the available income sufficient to permit excessive spending on clothing, which meant that fashion continued to be for the most part a kind of territory occupied by the most powerful or, in their absence, by those prepared to sacrifice other portions of their income to dress according to the most up-to-date guidelines. None of this was missed by the eyes of an observer keen to open a way into the world of clothing. A potential demand clearly existed, largely

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Zara and her sisters unsatisfied on grounds of price and purchasing ability. In other words, the consumers wanted to buy fashion, but they weren’t being allowed to. This meant that moving into the market using price as the lever was essential. How could it be achieved? Whether it was chosen rationally or not, the method used was to question the process, from top to bottom, from start to finish: what steps were taken and why. One idea to start with was almost obvious, yet it seemed that no one had decided to introduce it in a coherent way: fashion was ephemeral, it had a temporary life which was much shorter than the estimated life of any of the garments which appeared on the market, including those of lower price and quality. It was illogical to expect fashion and the life of a garment to match, which meant that a large part of the wardrobe was full of garments being used less and less, yet which retained practically the same qualities and appearance as on the day they were bought. Was there no gap, no alternative way to plan the cycle which would significantly reduce production costs? In reality, fashion was expensive for a number of reasons. One was undoubtedly the seal of the creators. Another was the opportunity of the moment, which took advantage of the fact that a trend was expressed as a desire nurtured by customers who didn’t haggle. But it was also true that production costs were high, given that the most expensive fabrics were used, as much to ensure that they would not show wear for a long period of time as for a certain attempt to justify a higher price. But was the equation strictly necessary? Then there was the cost charged by the middlemen, and even the high margins which the retailers added in the final step. It seemed sensible that an integrated model would be able to produce significant savings, which could be passed on to the consumer, and this would largely help to meet the objectives which were being established, aimed at a situation where fashion would no longer be something set aside only for certain social minorities. But these aspects could not be tackled at the start; they would have to be left for later. And in the face of this somewhat predominant measure, there existed the conviction that people would prefer to buy something for 5000 pesetas, rather than one for 15,000, particularly in the women’s fashion area. Perhaps other sectors were also being considered, perhaps not. But it is certain that the conception of fashion tested and placed on the market by Zara

And some ideas gestating from the beginning sounds similar to that which sustains the proliferation of no-name brands in other consumer goods sectors. The establishment of the large department stores in the first place, followed by the large-surface area stores resulted in the appearance in the market of the so-called no-name brands, generally including in a generic format the name of the establishment which was offering them direct to the consumer. In theory, the lower price would come mainly from the savings made from not having to invest in costly marketing and specific campaigns, except that, while this is true, it is not the whole story. A good example is the case of electrical domestic appliances. In the opinion of the experts, there are no practical differences between the services and use of no-name brands and those with the famous names, but it is probable that difference do exist as to the life of the product. A television set from a well-known manufacturer may last twice or even three times as long as the anonymous product, but when you are talking about a minimum of 15 years as against a maximum of 40, it is all but certain that technological innovation or just simple aesthetics will ensure that the unit is replaced before it manages to break down. While it may appear something of a digression, it should be noted that one of the most interesting aspects of no-name brands is that for the most part they are manufactured by one of the better-known companies, in specific runs and large volumes so as to reduce production costs substantially. This being the case, it should be enough to take a careful look at the information shown on the packaging of the product in question to discover that it came from the same place as another which, located a few metres away, is being sold at a significantly higher price. It works for electrical domestic appliances, but also for a bottle of milk, a packet of biscuits or a bar of chocolate. This is by no means intended to imply that Zara was born as a no-name brand itself, but it did not exclude some aspects of the concept which was at that time rushing out into the commercial environment. In fact, what most clearly excluded any subsequent possibility of the application of the no-name brand is the process set up as soon as production and distribution were integrated, though it may be that not so much was necessary. It is important to bear in mind that a distinctive peculiarity of no-name brands is precisely that they never invest in advertising. Their credibility is assumed to have been established by the company offering them, and in this sense the Zara philosophy is a perfect match, even more than the rest

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Zara and her sisters of the chains, as the garment catalogues carry the generic signature of the shop without distinguishing by whom or where they were produced. The collection of ideas takes on the form of reality in successive steps, in a process that starts with the mustering of data, information, market signals and responses, which, when processed, allow the first commercial decision to be taken: what to design and produce. The manufacture of the garment follows, either by the company itself or outsourced to third parties, depending on the chain, in a reduced period of time, and it could be said that at least in the initial cycle it concludes with the accelerated distribution through the organised logistics system. In no way is it similar to what is characteristic in the world of fashion at the time and which still dominates that world. In this sequence it is possible to identify the underpinning of some power ideas which, some earlier, some later, will end up built into the management model. On the one hand it supplies the market with what it actually demands. On the other, it places it in reach of the market in a minimum period from the time when the potential of an article, or an actual article, is identified. And finally it positions it in a form which is attractive to the consumer, both as regards the price–quality balance and the characteristics of the establishment: from the location and extent of the premises, to the interior distribution of the spaces and the accessibility of the product. In other words, the customer is at the start and the finish...a process which is paid lip-service to more than it is applied by more than one business; indeed, it could be for almost the entire sector. There has been no shortage of statements to the effect that part of the intellectual property rights should in some way be held by the anonymous customers and citizens themselves who experiment with garments and from whose observations Zara extracts ideas and concepts to convert them into ranges. Was it at that time, or even earlier, that the perception arose the Spanish market was in the process of transforming itself into a scenario dominated by demand, instead of the supply model which used to characterise it? Whenever it was, what is certain is that the diagnosis was right. This would appear to have little to do with the world of fashion, but it is worth recalling that until the 1970s a market as dynamic and revelatory as that of the motor car remained subject to the dictatorship of supply. You only have to remember what people used to say then: they’ve given me a car… when the reality was that the consumer had paid a fixed price, with no reductions or promotions, following prolonged delivery periods which

And some ideas gestating were almost never met, and without your being able even to choose the colour. This is indicative of a more general guideline, which all the other sectors were affected by. In reality, the conclusion which must be drawn is that ideas were arising in some way not associated with the context in which each phase of a project materialised. This leads to the thought that very often maybe the same protagonists and identical ideas could not have produced the same outcome at any other moment in history, and who knows whether in some other country. Just pass your mind back over the past few years to confirm or deny this assessment.

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4 A family from a garage in search of gaps in the sector

You have the feeling that ideas are bubbling up in Amancio’s mind, even as he continues as an assistant with La Maja, where he’s winning points as far as the owners are concerned, yet he feels ever-increasing urgency to turn them into reality. He’s explained them many times to all the people he’s working with, trying to get them to come in with him and decide to share that first step which will lead him to turn those things which have been tempting him for so long into reality: to make the move from employees to entrepreneurs, putting into practice those things that he’s been thinking about for years. But it isn’t easy. They’re just a few people working for somebody else, with no savings or capital to invest, who have to keep on earning a wage to survive. He’s still single, but by now Antonio has married Primitiva Renedo, a dressmaker by profession, a calling which to a large extent will be decisive in the first final step they take towards production. She it is who will make it possible to launch out on the adventure without taking the fantastically risky step of forgoing an income that is theoretically guaranteed, that of the three Ortegas at La Maja; however much enthusiasm Amancio transmits day after day, they neither avoid nor remove the uncertainty that goes with every new activity. Amancio, however, is showing signs of the huge tenacity, which people later will see him capable of, to convince them that they can’t fail. He interminably describes how he has studied the situation in the market and where he thinks the gap is to be found which they can fill. And in the end he gets away with it, though in a somewhat conservative way. These first steps will be domestic, sketched out on the familiar dining-room table which is to be found in everybody’s house for great celebrations or maybe more everyday events. On that very rectangular table they take apart the 68

A family from a garage first garments, draft the original patterns, cut the pieces of fabric and at last move on to put them together, the sewing mainly done by hand. The person really responsible for this is Primitiva, the only member of the family group who doesn’t have to keep to the La Maja timetable, but she has the uneven, albeit excited, contribution of the others. However, they don’t plunge off completely into the void. Amancio has already obtained a commitment from the owner of the shop where they work: he has agreed to sell the garments – dressing-gowns – which they make as long as the price is lower than, and the quality similar to, the garments from their usual suppliers in Catalonia, and Amancio is prepared for this. This is not the same as one of the essential points of the subsequent career, but it is similar: manufacturing garments at a little below demand, on the basis of a prior knowledge of market availability, initially concentrating on the wholesale segment, in order to acquire production. The first dressing-gowns meet the requirements laid down by Castro Quintás, they are sold, and the journey to today begins. Yet they almost didn’t start like that… When the project existed only in the world of ideas, they would talk about exactly what they would produce, how and to whom they would sell it. The first garment they were going to concentrate on was the onepiece baby’s jump-suit, taking advantage of the baby-boomer years. They even went as far as dismantling a few items they had bought in order to create some patterns based on them, but an improvement on them, making something which was already to be found on the market. They also discussed the question of price, and it was here that Amancio placed a method on the table which was rather heterodox, and which he would stay with right up to the Inditex of today. Instead of adding a margin onto the production costs, thus arriving at a sale price, he insisted on turning the equation back to front. That meant setting the price according to the market, preferably less than that of the competition, and starting from there, with the margin deducted, working out the production cost. They found it was too difficult to do this for the jump-suits, so in a somewhat ad hoc way they drifted towards another type of garment which appeared when La Maja received a consignment of dressing-gowns made of the same basic fabric, quilted cloth, as the jump-suits, that is ladies’ dressing-gowns, popularly known as the boatiné, for which demand seemed to be rising. At that time garments such as these were popular, among other reasons because many homes had no central heating. The composition of the fabric was also very suitable for damp climates, normal for Galicia, and in addition

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Zara and her sisters Amancio and company had noticed that there was a certain tendency on the part of housewives to keep the boatiné on when they stepped out into the street to make short errands. This gave the garment a kind of character and, all in all, it suggested that there was a potential demand for something which incorporated design and above all uniqueness. So here was an opportunity, bearing in mind the fact that the market offered little variety in models, little effort had been invested in design, and they were not particularly cheap. Amancio braced himself to make an offer to his boss that he could supply those garments at a lower price than he was paying for the consignment he had just received. Thanks to his daily work he knew that demand was rising and he was convinced that if he could manage to sell the first items he would be in a position to make more. The owner of La Maja agreed, was satisfied, and the Ortega entrepreneurs set out to repeat the process they had already tried with the jump-suits, but now with the boatiné dressing-gowns. Here they also applied another of the ideas which would still be with them at Zara: applying the patterns to the fabric in such a way as to optimise use of the raw pieces. Initially this was done wholly by hand. In the future, they would use robots controlled by computer applications developed by Inditex itself. They were faced, however, with another problem before they could start, which was that they had to get hold of enough raw material – fabric – to start the production process. They got the first pieces from a travelling friend, but it was enough to cut and sew only a few garments, presumably on the family dining table: the improvised workshop. But the success of the experiment meant that they must face another challenge: they needed a supplier, and they also, of course, needed some premises somewhere other than the none-too-roomy family home. Galicia was, and still is, lacking in the production of fabric, so they had to look for a supplier outside the local area. Amancio, and particularly Antonio, had maintained somewhat sporadic contact with the dealers at some Catalan cloth factories and they were able to use them as a reference, so they set out for Catalonia, the first journey of many more or less similar trips they would make as development proceeded. The problem was that they were not exactly swamped with resources to buy bolts of cloth, which meant that when they set out, it was not just to buy: they also went armed with arguments to persuade. They chose as their destination Terrassa, a few kilometres from Barcelona, probably because some of the representatives with whom they had been in contact

A family from a garage were involved in a business located there. One thing was certain – if the raw material was to be sourced anywhere, it would have to be Catalan fabric. It couldn’t have been easy, and they were not successful on either the first or second attempt… but history shows that they were convincing in the end. At last the two brothers were able to set out on the return journey to A Coruña with a consignment of fabric in the car which was enough to initiate production. You could say that in one way 1963 was the year in which what we now know as Inditex was born. Even today it still remains something of a mystery as to how an assistant from an A Coruña shop, with a wage of around 8,000 pesetas at the time and with no assets he could produce as collateral, managed to get a Catalan manufacturer of quilted fabric to agree to hand over a consignment to be invoiced at 90–120 days. At that time the brothers Antonio and Amancio were in possession of no more impressive bank reference than a joint account they had opened with the Banco de Bilbao, in which they had managed to deposit no more capital than 5,000 pesetas. Whether it was by chance or not, this was the bank that a few months later would agree to grant them 500,000 pesetas credit, which they were to use to set up the first extension that was to be transformed into the business as it is at present. Returning to the ups and downs they experienced in their quest for stock, there is a story that it was a mixture of blarney and cheek which got the bosses of the fabric company to take on the risk, partly convinced and partly in fear that they would never collect. It is credible that, in their hearts, they were very scared that they would never see the youth of twenty-odd again, but something made them refuse to give in to that fear, as others of their colleagues whom Amancio had already tried to persuade certainly had. The Ortegas’ incipient project not only paid the debt, but also, years later, came to the rescue of the Catalan textile business, which had managed to find itself in an almost non-viable position. Many hints suggest that Amancio never forgot the trust placed in his entrepreneurial determination, and, whether or not this is connected, it may be significant that Catalonia is the only area, outside Galicia, where the Inditex group has head offices for its chains. As we retrace these first steps, it is often assumed to be an important part of the story to locate where and when the enterprise started physically. But in this story, and in many, maybe most, others, there’s nothing spectacular to tell. In fact, were that the case, we would run the risk of converting the story into a kind of myth which deflates what is really important: what

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Zara and her sisters happened next. It is not in vain that the possibility exists, almost as a certainty, that many other beginnings, the same or similar, remain lost and never find their way out. And indeed, the very story we are following would never have taken on reality were it not for what happened in the wake of that initial event, and it’s quite fair for the outline to have been sharpened, the vulgarity removed (in no pejorative sense). It’s a fact that modern entrepreneurial literature, maybe sociology too, has generated a degree of mythology about the gestation of financial genius between the rough, ugly walls of a garage, particularly when the focus is on the iconography of the Anglo-Saxon entrepreneur, immersed in a context of stimulus and reward for unfettered initiative, as a counterpoint to that other kind of capitalism, more corporate in nature, which some see as Teutonic and others feel is excessively dependent on the protectionism and safeguard of the public/state. This has come to be an updated version of the self-made magnate, coming from disadvantaged social strata, mostly self-taught, able to sidestep or overcome obstacles while at the same time making the most of choices and opportunities… to some degree submerged in the American dream, which claims that success is available to all. This is a vision which blends and interweaves utopia and a guilty conscience, given that historical analysis is normally supplied by social elites and the more comfortably off sections of society. This ends up meaning that, whether because of interest or hope, it is convenient to deny the fact that triumph is reserved – set aside – for the powerful, and the claim is raised that it can be achieved from different environments, alien and far away from the most powerful minorities in the social maelstrom. It hardly needs saying that the empirical assertion does not deny, in fact tends to confirm, the fact that success and power are in a positive feedback loop, since the powerful unerringly adopt patterns of accumulative behaviour without any distinction as to the origin and circumstances of their access to the circle of power. For this reason the way one acquires the potential to develop an empire is usually assumed to be more relevant than examining the strategy used to extend and consolidate it, once that status has been attained, on the assumption that the trajectory of one will be much the same as the rest. No clear explanation has ever been put forward as to why the iconography of the garage being seen as a more deserving startup scenario than others has become so established of late in business literature dealing with the good and evil of the new economy, identified with the internet. Thousands or even

A family from a garage millions of words have been printed in newspapers, magazines, books, business school courses and learned doctoral theses providing examples of creative entrepreneurs starting up between the three walls of a garage (the fourth has to be the door), particularly in locations in or attached to California’s Silicon Valley. The upcoming generations have watched and continue to watch these icons, established on the world scale, including Bill Gates among others, a man who flunked out of school; however, he didn’t do his creating in a garage but rather a university laboratory, dreaming up the germ of today’s Microsoft. Gates’ story, his passage from anonymity to one of the largest fortunes in the world in only three decades, is not unlike others in the business past of the United States, including his early decision to give up management of his multinational business to dedicate himself to philanthropic concerns via the family foundation. On the basis of the fact that all comparisons are inexact and to a large extent opportunistic (rather than hateful), there is little more than the anecdotal coincidence between the trajectories of the Inditex empire and others that are more or less contemporary, such as Hewlett-Packard or Apple, which also started in that particular building intended to shelter motor vehicles. The characteristics of their particular garage was that it covered barely 80 square metres, the best the Ortegas could rent in a street in the outskirts of A Coruña to substitute for the use of the domestic room in which they had made their first garments. Here they were able to install some machines and increase their production capacity, though very soon this, too, was too small, even though things were going so well. The move to larger premises would come later. Making the garments was necessary, but more was needed: they had to sell. It is likely that Amancio already had some ideas in his head about how to introduce some changes in the direct relationship with the customers. His time working as a shop assistant had not been wasted, and he was interested in what the customers wanted, thought, perceived, and even suggested to the staff whose job it was to serve them. In fact he had already started to do something of this nature in his first job with Gala, when he was entrusted with the job of delivering customers’ private orders, but what interested him above all at that time was women’s perception. For the moment, however, their hands were full with producing and placing the stock on the distribution circuits. Nor was it easy. At that time the normal thing was to sell garments made in Catalonia, where the long textile tradition was seen as a guarantee of quality and reliability.

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Zara and her sisters Amancio was fully aware of this, given that at both Gala and La Maja almost everything they sold came from there. But his approach as an observer, almost a detective, seemed to have revealed some areas where he felt he could dispute that dominance: basically, he felt there were two. The first was undoubtedly price: he knew he could offer lower prices than the Catalans, among other reasons, because he had established the price-margin–cost chain. He also assumed, and experience confirmed this, that it was going to be no easy job to convince wholesalers and retailers that a tiny workshop in Galicia could produce garments of the same quality as those brought from Catalonia, albeit at a significantly lower price. It was certainly difficult but, as in the case of the initial consignment of cloth, everything which happened subsequently shows that he succeeded. However, he had one more card to play: he could make his deliveries with absolute reliability. He knew at first hand that it was common for orders not to arrive on the promised day, causing problems with the customers, even losing sales, and in general straining the relationships between shops, wholesalers and manufacturers. He had learned something about this in his time at La Maja, but it was not all negative. Some or all of the lessons had been learned by Amancio, including the example of the owner of the business when it came to keeping your word, certainly, but also as regards ensuring the fulfilment of commitments entered into by others. It is likely that this gave rise to another of the principles which Zara-Inditex boasts: think of your suppliers as something like partners, collaborators more than you actually have to, and treat them as such. It’s hard to tell if in time that crude comparative advantage which they managed to establish was the basis of the subsequent distribution model set up by Zara and her sisters years ago. It may be impossible to know, but what is certain is that it something, directly or indirectly, to do with it. What is clear is the on-time deliveries, an obsession with Amancio Ortega from those early days, worked in his favour, supporting a growing relationship of trust between the wholesaler and the supplier. The fact that the first ranges of garments were well received encouraged them to seek new opportunities. One, which was later abandoned, was the idea of producing just for the sales seasons. Today, under the strict standards dictated in this area, this would be impossible, but it was accepted at that time, in the absence of regulations, as a device to give added drive to incipient productive activity.

A family from a garage From making dressing-gowns they swiftly moved on to other clothing lines. The first ones they developed were men’s shirts and sportswear, but every time they visited the shops and the wholesalers they would come up with new ideas, additional manufacturing opportunities. Little by little the Ortegas were winning the trust of the buyers and they began to feel that their production methods could be applied to any type of garment, with lower prices and more punctual deliveries for a product of more or less similar quality, and which they insisted was exactly the same. They had also managed to persuade the raw material (fabric) suppliers that they were very serious, and the suppliers became less and less distrustful and insistent on payment for supplies, very unlike the absolute insistence on cash which characterised them at the beginning, when these strangers were so determined to get into the manufacturing area. The San Rosendo garage-workshop had become too small when they had barely been in the business for three years from the time when the first garments were made there. They decided to move to more roomy premises, some 500 square metres, in Noia Street, where they would be able to expand their production capacity. Already by that time a kind of network of working housewives had begun to be organised around the Ortegas’ workshop; they took away the pieces of cut cloth to their homes to sew them and bring them back to the production room. This was, beyond doubt, a clear introduction of the formula which would subsequently be set up as the manufacturing model in everything which would eventually be known as Inditex, operated in full for everything which was not supplied by third parties. Although Antonio and Amancio became increasingly exasperated when they saw that their garments were being sold to the public at prices which were multiplied by up to two and a half times that which they set for the wholesaler, the dream of opening a shop remained beyond their reach, or at least was incompatible with the growth they wished to apply to their production lines. They wanted, and needed, to make more every day, not just because this improved their margins, applying economies of scale to their cost structure, but also because they were unwilling to give up penetrating new spaces in a market which, in parallel with economic development, was beginning to blossom. It should be borne in mind that the Spanish economy was growing well during those years (1959–73) at average rates in the order of 7 per cent, only bettered by the Japanese rates. This facilitated, or perhaps favoured, the takeoff of domestic consumption, with the appearance of new distribution

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Zara and her sisters and marketing formulas. Among other things, the first large-surface area stores, the hypermarkets, made their appearance, mostly with French capital. Spain’s neighbour had pioneered in Europe the introduction of this type of business, generally located on the outskirts of the large cities, following the example of the USA, where the concentration of commercial premises in wide open spaces little by little replaced the medium-sized city shops and businesses in the majority of cities of average size spread out throughout its geographical area, from the beginning of the 1960s. Very soon, the outskirts of the major capital cities of Spain would be decorated by the names Pryca, Continente, Alcampo, etc., opening the way to an activity which over time would be ruled by a kind of duopoly between the French (Carrefour, Alcampo, etc.) and Spanish (Hipercor, Eroski, etc.) capital during the first years of the twenty-first century. In this situation the Ortegas immediately saw that this new commercial format could be particularly propitious for their production model. Not in vain, the penetration of the hypermarkets was based to a large extent on offering the majority of their articles at prices lower than those of traditional businesses, in the form of the shop. The large-surface businesses used the purchasing power they gained from bulk purchasing and made additional savings, both by using cheap floor space and establishing selfservice which almost completely eliminated the need for shop assistants to serve customers. This was a model they saw not only as suited to the sale of their products, but it probably suggested to Amancio some concepts which were later incorporated into his shops; sometimes to establish them, or to reject them and replace them with other alternatives as a differentiating competitive element. There was no doubt that they were ahead of the rest of the manufacturers, among other reasons because many of them thought at that time that their product deteriorated if it was stocked in the hypermarkets, almost in bulk, you could say, but also because of the pressure applied by the traditional trade, which in no few cases threatened to withdraw from its display windows those articles which were also being sold in the hypermarket established in the same municipal district. Mainly, however, they were ahead of them because they saw the opportunity before the others and their production was especially suited to what the businesses operating in the new model wanted: their own brands which they could use as a support for the product they included in their range. Everything contributed, then, to the obsession for growth which consumed Amancio and which he continually communicated to the rest of the

A family from a garage family. He spent two out of every three weeks visiting wholesalers, customer and suppliers, alone or with Antonio, though the standard came to be that they would share out the visiting as the business grew and complexity increased. Of the days when he was in A Coruña, however, he spent most of the time in the manufacturing shop, then in the various plants, being particularly interested in the designs of the garments they were sending to market. It hardly needs repeating that the business was a typical family operation. In successive steps the Ortegas quit their jobs and involved themselves in the project, as is usual with this type of business, with complete dedication, hardly making a distinction between their personal and business lives. This approach was also adopted by Rosalía Mera herself, soon to be married to Amancio, joining Antonio’s wife, Primitiva Renedo, in the early efforts to start production. This total dedication was not to change for years. Some of the people present during those early – and later – years remember the respective daughters of both couples, ensconced in their cribs which also served as their transportation medium, sleeping peacefully for a good part of the day next to the noise of the manufacturing machinery. This was unavoidable because their parents were there, in their first factory, from dawn to dusk, and they couldn’t leave them in the care of anyone in the family home. Not to put too fine a point on it, they essentially lived in the factory. What Amancio was particularly concerned about was that the garments and designs should match the consumers’ tastes as closely as possible. What did they want? What did they need? How did they want it to look? What would they pay for it? There were many questions to which, for the moment, there were very few answers, but direct contact with the customer was yet to come: in fact twelve long years would have to pass, which seemed like an eternity to Amancio. Less time would be needed to get started on direct sales, though with limited success, as we shall see. The unit was bursting with ideas, opportunities were all around, but there were limited resources to undertake projects of greater scope, such as replacing the workshop in Noia Street by a properly fitted industrial installation that might be called a real factory. It must have been around then that the Ortegas entered on one of the most difficult periods in their business life. This was a time when all the energy they could muster had to be directed to the task of remaining convinced that it was possible to carry on… we shall never know whether this was both within and outside the family nucleus. This was a time when Amancio’s

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Zara and her sisters willpower and perseverance, yes, what some call pigheadedness, had to be decisive to overcome the incredulity, or at the very least the scepticism, with which the majority saw the increasingly determined attempt to occupy a position in the complex sector of fabric fashion which was quite heterodox. Perhaps that experience, from the time when there was no one or at least almost no one prepared to listen to Amancio and still less to back his ideas, was behind one of the pet schemes which at a given moment he felt was appropriate for the foundation which bears his name: to set up a situation in which any potential entrepreneur, particularly in Galicia, would be able to receive adequate support to put an entrepreneurial project into practice. However, there was no way in which to realise the idea and in the end he set it aside. To tell the truth, support was not entirely lacking at this initial stage. Not only was there definite and important support from the owners of La Maja, but there was also that from the Catalan manufacturers who had taken on the risk of providing fabric for the lad who had cheekily asked for payment terms for something which was little better than a dream. There were also moments of cooperative trust on the part of other businesses, who accepted the test of offering their customers’ garments made by a group of people who wanted to start out on the manufacturing road. Not forgetting the bank, Banco de Bilbao, which decided to offer credit to a project which was known to be seen as possibly valuable by no more than one business; among other things because in the Galician capital at that time, bank or no bank, everybody was aware of what was meant by a direct competitor. Support also came from the sector itself. That from the Caramelo family, to some extent involved in a process not dissimilar to that which the Ortegas had just initiated, was far from negligible. The germ of this would end up being the present Caramelo Group which was also taking its first steps in the clothing production world, though it was orientated towards other market segments, that helped to establish a close commercial relationship between them, destined to last until Amancio decided to move away from producing for the rest and concentrate the factories on supplying the ever-increasing number of Zara shops. This, however, would be many years into the future. At this time, what was required was to consolidate manufacturing.

5 The concept takes shape: manufacturing becomes industrial The first step towards the industrialisation of the project was the establishment of Confecciones GOA, with shares in the hands of Amancio, Antonio and Josefina, Amancio holding slightly more than the other two. They chose the name because it was the acronym of the initials of the forenames and family name of the two men, although they reversed it because they thought that the way it stood – AOG – was difficult to pronounce and ugly. The new company held just enough finance to build a new factory, and they chose the La Moura trading estate, in A Grela, within the A Coruña city boundaries. There they shifted the bulk of their production which until then had been located on the ground floor of the building in Noia Street, though they did not abandon it completely, and were soon to set up Samlor there, which initially specialised in making overcoats and trousers. GOA would be the main business of the group for years, to the extent that once they relocated to the Sabón trading estate (Arteixo), the company offices and Zara design and marketing sections were located there until they moved into the new premises in 2000, in the same industrial area. Company activities, soon to be complemented by new plant around them and in distant locations, such as Lithuania, would grow on a range of fronts, until reaching a sales figure in the order of 2,000 million pesetas in 1974, with very significant export activities in the French, German, Belgian and Lebanese markets. They were selling mainly to wholesalers, hypermarkets and similar large businesses and they also developed a sales line via catalogue, as some kind of a sop to the much-desired and long-delayed direct relationship with the consumer. The manufacturing expansion which the group needed to deal with in order not to hold back growth was still short of resources as essential as they were interrelated: physical space and capital. 79

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Zara and her sisters To deal with the first shortfall there was a plan to acquire more space in La Moura, but prices were rising fast and, setting aside for a moment his philosophy, Amancio Ortega decided to explore other possibilities in varying degrees of proximity. He learned that in Arteixo, a little further out from A Coruña, and at that time with little or no industry and poor communications, a trading estate project was about to be embarked upon. He took a look there and, very much in keeping with his style of doing things on a large scale, he set out to purchase more or less one third of the surface area available, demanding in return a suitable discount and payment terms on the price per square metre. It is not at all clear who accepted, but there is no doubt that this was a key decision because, for whatever it was worth, this put Arteixo town council on the world business map and has contributed to the generation of unprecedented wealth in the region and possibly for the entire autonomous community of Galicia since. Amancio’s gamble was clear: he wanted enough space available to grow, even though in order to do this he would have to overcome the hesitations of his siblings and partners, who saw this as rather disturbing audacity. As time went on, however, what might have seemed, and sometimes was, rather daring ended up too small, and Inditex was obliged to take over new areas in the Sabón trading estate to expand capacity. This has actually given rise to a lengthy, complex and so far harmless succession of legal disputes (claims, disagreements, etc.), lodged by an A Coruña businessman, José María Vecino, which seem to have been generated by some kind of enmity or personal fight with the president of Inditex. Later on, the Sabón trading estate would cease to be able to offer the possibility of housing new plant for the group, which would result, among other reasons, in some relevant changes in the philosophy of logistics activities, leading to locations in other territories, particularly the Barcelona metropolitan area, where several Inditex chains have their head offices. Going back to the beginning, opening factories needs finance as well as new space. It wasn’t enough to carry on raising the mortgage, which had for the most part been overrun: they needed to raise resources in the form of capital, which in turn meant that they would have to add partners who were not family members. It wasn’t the most appropriate formula, since Amancio has always felt that it is essential to retain room to manoeuvre, but also because he was aware that his policy of not giving a dividend and reinvesting surplus in developing and expanding the business was not a lure which would attract investors likely to contribute capital. In actual

The concept takes shape fact, this unwillingness would again play an important part in the many hesitations and subsequent delays which preceded their flotation on the stock exchange, as will be described below. However, between the unwillingness to have outside partners and the possibility of ceasing to grow, Ortega decided to overcome the first and discard the second. New production plants came into being, unevenly specialised, accompanying GOA now duly relocated in the Sabón trading estate. Little by little more plant was added, with the definitive concept of the group became increasingly clear, so that in the end they would be converted into the essential base for the launch of the Zara project, with the first shop being opened to the public in 1975… but other things had to happen before that. Taking on outside partners was neither easy nor simple to manage. Ortega needed capitalists, but what he was offering was not exactly exciting because his priority of maintaining the growth objective would lead to the reinvestment of the surplus, profits, in fact, with the hope of a dividend distribution clearly in need of improvement. It created endless tensions which, after many vicissitudes, led to the holdings being bought back by the family nucleus (1984–85), mostly by Amancio himself. This, in turn, led to the group having to pay more than one financial penalty, one of the critical stages of which was the need to take out a second mortgage on all the group’s assets – at the beginning of the 1980s – which most banks refused to grant, until the Caixa Galicia took the step which, had it not been taken, could well have meant that it would have been impossible for the Inditex of today to have emerged. Another similar episode would arise years later, when they had to face rejection from the majority of credit organisations to cover a loan of 5,000 million pesetas needed to build the great logistics centre at Arteixo, which was essential to support growth. After many fruitless applications at last only JP Morgan, at that time with barely a presence in the Spanish market, agreed to cover it. There is no doubt that the financial ups and downs which have marked the story, from the GOA beginnings to Inditex on the stock exchange, are one of the areas which has given rise to many legends, not necessarily praiseworthy, around the group. This is to a large extent because the certainly precarious birth is directly related to the success and size achieved years later, setting aside the matter of whether or not there were critical moments: times when they were at the point of collapse. The truth is that they happened, some more difficult than others, particularly in the times when the opening of new shops and the need to increase manufacturing volumes coincided. Perhaps the most difficult time, the Rubicon

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Zara and her sisters between being and not being, occurred between 1983 and 1985. Let’s see why. During the first of those years, whether they continued or not was hanging by a thread. Financial tensions forced them to have recourse to the above-mentioned second mortgage on the plant and to hold a loan secured by the Ortega family shares. This means interest rates of around 20 per cent. Tensions between the partners also began to arise, from unhappiness with the policy of not paying dividends and other aspects of management. Then everything became a great deal more complicated one year later… The welcome which had greeted the first Zara shops was an undoubted encouragement to open more quickly, but this created serious problems in the manufacturing area. On the one hand the chain philosophy refused to purchase garments from third parties, though they did it, albeit incidentally at first, perhaps in an effort to dislodge the cut-price store image which was being applied to clothing marketed by the Ortegas. It was a temporary incursion into a format which at that time was expanding everywhere: multibrand shops, with an undifferentiated stock from various types of manufacturers, even cohabiting with their own brand, and they are still common today. Was there, perhaps, some lack of faith in the first Zara clothing catalogue, based on a desire to gain prestige rapidly in the A Coruña market? Very probably this is the case, though we shall never know for sure. What was more, the time had not yet come for them to stop manufacturing for others, which they would continue to do until 1987, since it was on this that the availability of resources to carry on extending the network of shops in the recently founded chain depended. In other words, from 1976 they began to experience production shortfalls. At that time the group was running three factories, basically specialising in pyjamas, dressing-gowns, shirts and sports clothing, under two companies, GOA and Samlor. The first, as we have already indicated, was entirely owned by the three Ortegas. The second, however, had been set up by three external partners. It was at that time that they decided to merge them, creating Goasam as the basis of the future Zara, and this coincided with the move to the Sabón trading estate. The new company, however, did not have sufficient capacity to tackle the financial needs arising from the virtuous circle in which they were involved: more demand, more shops, more manufacturing capacity. They could easily have secured more resources with a mortgage guarantee, but it turned out not to be sufficient because, in addition to the installation costs involved

The concept takes shape in the opening of each new shop, they first had to deal with the actual purchase of the property. This meant that there was nothing else to be done but to open up the capital for the entry of new partners, not in the recently established Goasam, but in freshly minted companies which had the task of building and operating new plants. This is how a number of different companies came to be, different factories mostly specialising in different clothing lines: Kettering (1977), Noite (1978), Jema (1979), Fios (1980), Choolet (1982), Nikole (1982), Trisko (1983), etc., all located in Sabón, with the exception of the first, Kettering, which set up and established in Barcelona, and Jema in Ferrol. The Ortegas held shares in all of then, asymmetrically rather than all in all, accompanied by partners who were seldom included twice over and who in general were unconnected to the business, and had been invited to participate on a personal basis. It was one of the new plants, Fios in fact, that would eventually decide to take a step which at the time was considered daring, because it almost never happened in the environment of medium-sized Spanish companies: to hire as their consultants for the design and organisation of the factory a team of Japanese engineers then thought to be pioneers in the question of industrial efficiency. The job was given to some professionals who were working for Toyota, the Japanese company that undoubtedly revolutionised mass car production techniques from those which had persisted practically unchanged since the earlier innovations introduced by Henry Ford. The experience was doubtless valuable, but the consultancy didn’t go far enough and after a few years it was cancelled. Whether or not this was a direct consequence of it, the groups in the plant began to use robots shortly afterwards and nobody disagrees that the factory heads adopted a good part of the rationalisation techniques and probably refined the ‘just in time’ model that, perhaps even without being aware of it, they had been applying since the first steps with GOA. More than once progress had to face the imperative of the model which comprises the concept of just in time. This happened, for example, when they had to decide how to organise the fabric-cutting work on the basis of the pattern. Common sense would recommend the use of a single robot-automated plant which would serve all the plant for the purpose of optimising use and providing better profitability in return for the large investment required by such a sophisticated tool. Cutting occupies only a short period of time and installing one unit per plant would mean lengthy periods of inactivity for such expensive machines, unconnected with the financial outlay required to purchase them.

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Zara and her sisters When it was time to calculate the organisation of the tasks, however, it became apparent that each and every one of the production plants would need, indeed demand, that the cutting of the respective pieces be done in the same time slot in order to speed up the process and meet the adjusted delivery deadlines, from the order from marketing to the distribution centre. The result was therefore a logjam of requests for immediate cutting, or the existence of possible waste or the favouring of one factory over another. As was to be expected, maintaining the essence of the model, just in time, prevailed over what might have been seen as more sensible in the decision which was finally adopted. The result is that the majority of the plants now have their own exclusive robot cutting unit, though for a good part of the day they are motionless, with no fabric to cut. Although it might have been seen as unavoidable, the way the companies were configured as described above was by no means easy to manage. On the one hand, the policy of not paying dividends, reinvesting all surpluses, created tensions and discontent, which were not offset by the salaries that most people involved were receiving by way of compensation. On the other hand, there were serious discrepancies in matters like the prices and margins affecting the various factories which were supplying Zara. Basically, not everyone shared Amancio Ortega’s vision of keeping production and direct sale to the customer together. Some people, it was never known exactly who and how many they were, thought that it was more interesting to stay involved only in production so that the complications and risks caused by the network of shops could be ignored. There were others, however, who, as shareholders, demanded to be involved in the whole of the process, under the assumption that the factories were to some extent financing Zara’s expansion, in which they had no share. The situation reached crisis point in 1984, partly because of an external event: the breakdown of the marriage of Amancio Ortega and Rosalía Mera. It will never be known for certain, but it is likely that the collapse would have happened anyway since day-to-day work, not just the strategy of running the business, was becoming something which was simply impossible to tolerate. It was at that time that Amancio Ortega found himself in the compromised situation of possessing only a minority holding (23 per cent) in Goasam, with his share in the other companies in the group falling as an immediate consequence of the liquidation of profits imposed by the marriage separation. This was exacerbated by the fact that, as had always been feared, the presence of external partners made management very difficult,

The concept takes shape to say the least, especially as regards the growth process, which not only looked like stopping or slowing down, as some partners insisted, but which needed drive to effect the business with greater decisiveness. It is to be assumed that this would have been among the most critical and decisive moments in the project which started so modestly in 1963. In barely twenty years they had managed to consolidate a group of factories and a network of 24 shops, but they were now faced with a decisive situation, in which they had to clearly decide to keep growing, or try to finance what already existed, in a scenario which was lacking in a financial basis and bordering on insolvency which any of the creditors could trigger. To avoid this Amancio could not even muster up a sufficient majority in the company. He kept day-to-day management running thanks to a power of attorney that he had been granted by his still legal wife Rosalía Mera, which allowed him to keep together a holding effectively corresponding to the totality of earnings in the process of being disbursed. It was not so clear, however, that he would be able to adopt decisions of greater scope or reach: probably those which were necessary to determine the immediate future of the group. As will immediately be seen, he decided to continue with the expansion. It is easy to attribute the decision to Amancio Ortega’s drive to seek out and take advantage of new opportunities, in short the growth which persists to this day. But we must also ask ourselves whether any other option existed. To a large extent, the group sustained itself by a kind of physical principle of equilibrium, similar to that which keeps a bicycle upright; pedalling can be compared to the opening of new shops, while the product of their sales provided the funds that made it possible to keep on expanding production capacity, which in turn supplied a margin from the simple application of economies of scale… which in turn generated fresh resources so that the number of points of direct sale could keep on growing. It is highly probable, then, that opting for growth was at that time the only real alternative to disappearing. A little later on it will be possible to appreciate this with greater clarity. Amancio, however, was required to start by clarifying the outline of the company, which gave rise not only to a considerable proportion of the tensions between the partners but to a considerable extent also froze the financial restructuring urgently needing to be dealt with. The formula chosen to extract themselves from the quagmire was the creation of Inditex as the head of the shares in all the companies existing up to that moment, which took place on 12 June 1985. At the same time the purchase of the majority of the shares held by non-family members was negotiated, along with the terms of separation of Amancio).

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Zara and her sisters This was the first significant contribution to the project from an economist who until that time had specialised in IT: José María Castellano, who had been collaborating with GOA on matters related to his expertise. This was the start of a professional relationship that lasted twenty years until its abrupt termination, which equally was on the personal level. The operation was by no means easy and found itself in danger of coming off the tracks on a number of occasions. This was not so much, as might have been feared, because of matters relating to post-marriage arrangements, always a minefield, but because the situation in which the business found itself was coloured more by the suspension of payments than viability. In general, the opinion that Rosalía Mera was generous and more than reasonable as regards the separation prevails. The complications arose when it came to Amancio Ortega’s taking over the shares of the rest of the partners, both as regards valuation and the resources needed to make it effective. This was the second time that two financial organisations showed they had faith in a project which the others undervalued, or did not value sufficiently highly: Banco de Bilbao and Caixa Galicia. Years before, Banco de Bilbao, where they had opened a current account with 5,000 pesetas, had granted a personal loan of 500,000 pesetas to Antonio and Amancio, and the savings bank agreed to open a second mortgage on the group’s factories. From both of them Amancio received a loan sufficient to buy the shares of the non-family member shareholders. And, certainly for the first time in his entrepreneurial career, he must have felt relatively free to follow his dreams of presence and size. It should be remembered that it was in just that year that Spain formalised its entry into what was then the EEC, and though textile manufacturing and fashion were not generally included among those sectors which predicted prosperity as a consequence of joining the Community club, as they were more frequently to be found among the most threatened, it seems that Ortega always thought that what was before him was an unrepeatable opportunity. Or, to look at it from the opposite point of view, it was essential to have a presence in the market before foreign competitors climbed in under the umbrella of the internal market. Manufacturing and retail sales had to grow in parallel. No other alternative could be considered. It’s easy to understand, in any case, that production capacity did not suddenly rush forward – it continued to take shape steadily, depending as much on the development of demand expectations as on the financial capacity which the Ortegas could manage. As a function of these factors, the group of manufacturing plants continued to take shape, reaching today the position where they stand as

The concept takes shape sole suppliers for the Zara shops. As we said, in 1987, manufacturing for others ceased. To assume that a business can survive for long doing everything in the same way, from the beginning and for ever, is to misunderstand reality. In this sense the trajectory followed by the Ortega businesses is no exception, indeed it is quite the opposite. Throughout its history it has been governed by, or if you like has practised, correction rather than business as usual. This has also applied to the production process. Naturally, the journey from the first hand-made garments in the early days to processes guided by robots and computers as they are now was neither sudden nor the outcome of a more or less spectacular quantum leap. There were certainly key moments, decisions which in some cases consolidated and others which had to be corrected at full speed. The same thing could be said to describe the move from a model based on sale to the wholesale circuit to self-supply and self-service provision. No more than 35–40 per cent of the over 600 million (estimate for the year 2007–08, according to group forecasts based on past performance) garments which are sold annually in Inditex shops come from their production plants. The rest are bought from other manufacturers, spread throughout the world. In general terms, the percentage shown corresponds solely to the supply from the Zara chain, since the other seven are almost totally supplied from outside the group. There are a couple of exceptions: knitwear comes mostly, though not totally, from two plants in Narón (A Coruña) which supply all the concepts, and footwear and leather goods, also partly supplied by Tempe, a subsidiary located in Elche (Alicante). Zara, too, includes clothing manufactured by third parties, although only in part. In any case, to speak of your own production or that of others does not sit at all comfortably with the standard concept, and requires a little explanation. It would be more useful to try to describe the whole process, or at least the various stages which take place until the garments reach the display stands, racks, hangers and other supports on which they and other articles are placed in the shops, within reach of the consumer. Before everything else, as the initial ingredient, the greatest possible quantity of information is sought. In order to do this, each chain is supplied with a mixed team of scouts and designers who seek inspiration from every medium imaginable: attendance at fairs, access to all types of publication, actually just observing in the streets, squares, markets, fiestas, shows and any kind of public meeting place in cities and towns throughout the entire world. To a similar or even greater extent, however, the

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Zara and her sisters shops act as aerials, detecting the directions and preferences of the market, in every specific area, with a transmission capability which is almost instantaneous. This means that no less than some 3,000 to 5,000 people are in a position to transmit at any time what they want or what they think the market is going to want, at least twice a week, all year round and practically anywhere in the world. This is the group which includes shop managers, a vital link in the organisation for this and other reasons, as the experts in sensing trends, constantly on the move, and the commercial teams current in the area. The boss of each shop therefore acts as a leader and prescriber at the same time, but not in the traditional sense – this is the consumer’s place – but within the actual organisation. The information which some provide and others transmit and process in the central department in a continuous way, from as early as 1989, is to some degree made completely available to the suppliers, including on-line access. Here we come upon a characteristic which so far has hardly been mentioned: the philosophy of the group as regards its suppliers, who from the early days were received and treated more like partners than mere occasional suppliers. This may be because of the memory that the Ortegas’ businesses took this role for a long time: they produced what others would sell, even up to several years after the first Zara shop became reality. This philosophy has not, however, prevented a high turnover rate among suppliers, for the reason that the requirements – price, quality, speed – cannot be allowed to conflict with a desire to earn their loyalty. Priority in all cases must remain as it stands. Common sense tell you that nothing is like this from the start. The designers, for example, did not start travelling outside Spain until 1977 and only gradually have they become free to go where and when they want to take up an observation position. To quote an example, the first time that a Zara designer suggested Tokyo as one of the great observation positions was not easy. Today, however, the great cities of Japan are one of the very best locations for observing trends in the way the youngest generations dress. Other things have persisted since the very early days in the work dynamic. One of them is the daily consumer behaviour drive. The till data – sales – of each and every one of the shops arrive every day at the main office of each chain, sent as soon the shops close to the public. Originally computing and mustering data was carried out manually and communicated every night, by phone, to the Arteixo office, but the soaring number of points of sale soon made this transmission method impracticable.

The concept takes shape The first step was to seek a device which would enable shop managers to bypass the manual procedure. At first they used faxes, but expansion ended up collapsing both the transmission and, more importantly, the processing of the information in each central department responsible for the task. It consequently became essential to speed up on-line communication with the shops as much as possible, overcoming in many cases very real limitations arising from the lack of adequate telecommunications infrastructures. After a number of tests an Apple product was chosen, a kind of rather early PDA which you could almost call rustic (the year was 1988), renamed Newton. On this one of their own applications was developed which even today, with subsequent developments, allows the shop managers to pass on orders, receive information about the stock they will be receiving from the central area in the two-weekly deliveries and to key in the daily sales data which are transmitted to the chain’s marketing team. At that time Inditex became Apple’s second biggest customer. Finally, as of 1995, all the shops became able to communicate with the central offices. Also present since the beginning is what could be called job collectivisation, and very particularly information collectivisation. We have already said that designers and marketers work in a single physical space, without any separation or anything to distinguish them, but it should be added that this kind of transparency extends not only to the relationship or osmosis between the two specialisms, but also, and you might say above all, governs interactions between the specialists in each field. This means that information and ideas are also shared: they are team members and this is not even a professional group dedicated to design but the joint commercial-design group. This condition is important, because the decision as to whether a given product, or if you like, a proposal moves on to the next stage, before actual production is in the hands of the marketing team. It is this section which starts off the process towards the physical existence of the article that will end up in the shop or a decision to discard it permanently or for a better occasion. This section is also concerned with the location or possible rotation of the garments in the logistical procedure, though this is done at a later stage. Nor is it mere happenstance that it is in the commercial-design zone where Amancio Ortega used to sit – indeed still does, on occasion – for the majority if the time he spent in the group head office. It is more than likely that Raquel, his secretary (he prefers personal assistant) throughout the whole of his career, is permanently grateful for the technological innovation which is the mobile phone, which means

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Zara and her sisters she can maintain contact with her boss without having to scurry at top speed through all the rooms separating her desk from the area where he happens to be at any moment: this could be anywhere given his inveterate habit of going walkabout. It should be borne in mind that Inditex designs much more than what is produced in integral format, though not everything which is sold, but all that is stocked is decided or sanctioned by the marketeers. In general terms the whole process corresponds to only the clothing sold in Zara. The rest of the chains design some of it, but entrust production to manufacturers outside the group. All of them, including Zara, additionally buy garments wholly produced by third parties, though to different degrees they make up only a minority of the stock. Something similar occurs with accessories and articles not seen as clothing: Inditex is responsible for the design and deciding upon the materials, but production will be passed on to specialist factories, not forgetting the fact that finished products are acquired from the many suppliers who each day visit the central offices at Arteixo or make contact with someone in the group’s buying department. An example would be the businesses located in Asia, more specifically in Hong Kong and Shanghai. The accessories area has been gaining in importance in the stock offered by the eight Zara-Inditex chains, both as regards volume and the efforts made to ensure that this keeps in step with the commercial strategy of the group. Not all come from unconnected industries: since the mid 1980s the group has had a controlling share in a business in the Alicante area: Tempe, specialists in the production of footwear and leather goods, which also acts as a centre for buying from third parties, particularly other factories in the Spanish Levant, Turkey and Morocco. It is responsible for distributing products in this range to the shops in the eight chains world wide. Growth has continued at such a pace, largely because of response to demand, that the group is on the point of trialling a new format – this will be the ninth – specifically dedicated to the supply of accessories, and the first shops are expected to open in 2008. Other products, as is the case with beads, are usually sourced from China, while the entire range of perfumes and cosmetics is directly supplied by the Puig companies, in this case with no relationship with the company apart from the status of sole supplier signed years ago with the Catalan group, which is the producer of the no-name stock, selling it under the trade name set by Inditex, particularly Zara.

The concept takes shape Leaving aside the possibilities of purchasing direct or direct commission to third parties, once the decision that a given article or garment is to be included in the catalogue of the chain’s products, the design moves on to the pattern development procedure. Here we find another of the stages which has taken on a highly relevant technological underpinning, from the beginning until today. In the fashion world, the pattern is seen as a fundamental ingredient. It is crucial because on it depends to a large extent what is known as the hang of the garment, which is often the quality most appreciated by the purchaser. And it’s fair to say that in this respect the garments produced at Zara have always had a good image; greater, even, than the quality of the fabrics, which is another of the factors seen as crucial to whether the garment has a better or worse hang. Even more, some critics have always admired the fact that Zara achieves a much better hang than that theoretically given to the garment by the worker employed to make it. Another of the secrets of Ortega’s success? Perhaps. Other reasons may be added to the convenience of optimising the pattern. Doubtless one is the best use made of the fabric pieces purchased: depending on the way they are cut there will be more or less left over, remnants, of little or no use. Naturally this was much more important in the early days, when things were much tighter, than now when real margins and volumes can permit a certain relaxation. However, to ignore this would mean breaking one of the maxims: spend the dollar, save the cent, apocryphally or definitely attributed to Ortega, and it has dominated many of the aspects of management. Anyway, there’s the final argument: a good pattern means that the garment can be made more quickly at a lower cost. It is said that the same thing applies to infrastructure projects: a good plan means that building can be faster and meet the budget more closely than a faulty one, which means that corrections have to be made on the run, incurring what we call alterations, for many reasons the black mark in this sector. Some degree of differentiation is already built into this part of the process, depending on what the next step is to be which matches the system established in the chain of shops for which the product is destined. In the case of Zara, it will remain in the Arteixo district up to the logistics stage. As regards the others, the usual procedure is for the pattern to be delivered along with the fabric, at least in the case where it is supplied by the chain, to the outside supplier, who will subsequently deliver the finished garment.

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Zara and her sisters The operative formula in place is, in general, sell the fabric and the developed patterns to the supplier in order later to buy from him the garments he is responsible for, made up in accordance with the designs supplied by Inditex. In the beginning, the patterns were drawn by hand. This was initially done by taking apart garments which were more or less similar to those to be made up. The cutting of the pieces was likewise done by hand. By the middle of the 1980s, IT intervened to give a hand in the process. The first applications were entrusted to Investrónica, part of the El Corte Inglés group, which had already trialled similar projects at the Induyco plants, the production division of the great store chain. In this way a suite of programs was obtained which made it possible to blend patterning with maximum fabric use. The next step was to acquire robot cutting machines, manufactured in Germany, a later development of which is still performing that function. The system is rather more complex than the description suggests. The operatives responsible for translating the design to the pattern repeated the drawing shown on the screen, seeking maximum fabric usage, and in many cases correcting the parameters the computer program recommended as best, applying the corporate maxim – everything can be improved. The cutting machines in question have the appearance of a very long, flat, loom, on which small rollers move, each fitted with blades which do the cutting according to the specifications – shape and number – of each part of the garment drawn on the computer screen. On the top is placed a heap of various pieces of cloth which are cut just once. As soon as they have been cut and, as mentioned above, numbered, the pieces are placed in a plastic bag, into which buttons and any accessories are also placed, later to be delivered to the workshops where the actual making up of the garments takes place. After this, however, the concept of the integrated process which Zara claims to operate breaks down to a certain extent. A part of the actual production of the garments is carried on outside the plants and workrooms which are owned by Inditex. This is where those external workshops which have figured so significantly in rumour and speculation come into play. In general terms, production for Zara is practically subdivided into two halves: one of them seen as local, which is spread through workshops in Galicia, Castile and León, Portugal and increasingly Morocco, in physical terms in the area surrounding the city of Tangier, now responsible for over 30 million garments. Quite recently the possibility of including in this concept some of

The concept takes shape the workshops working on the remote system have been under trial. These are workshops in Turkey, Romania and to a lesser extent Bulgaria, and the plan is to include them in the local line. Exploration is already going ahead into the possibility of having work done in other parts of the Maghreb, such as the Casablanca area. It is certain that production is becoming increasingly important, both purchased production and production which has been partly outsourced to countries other than Spain and Portugal. This is a general trend in industry and the markets of the developed world, and despite the unusual nature of its model, Inditex has been unable to resist it. Taking world production as a reference, almost two-thirds (72 per cent) of textile clothing comes from factories in only four countries: China, India, Morocco and Turkey. The case of Spain is slightly unusual, since these four countries supply less than half (40 per cent) of the domestic market, which probably makes Spain the developed country with the highest percentage of domestic supply in the world, and certainly in the European Union (EU). In all, the production present in the shops of the eight concepts in the Inditex group comes from 43 different countries, which demands a management approach that is undoubtedly complex, both as regards coordination and logistics, and the supervision required from the point of view of corporate social responsibility (CSR). Within the Zara-Inditex production model, the essential and almost unique difference between local production and remote production concerns the manufacturing time periods: a week in the first case, up to four in the second. This means that a decisive factor for the former must be not so much the speed of the workshops as the logistical possibilities of connections with Arteixo, both as regards the supply of material for assembly and sewing, and subsequent delivery to the finishing plants for transportation to the logistics distribution centre. As a general rule each Zara production plant is supported by a network of thirty outside workshops, most of which employ two or three hundred people. No workshop can have a relationship with more than one factory and the rule is that neither can they work for companies outside the Inditex group. The role of the workshops has been fundamental in the productive structure of the group and, perhaps because of this, it is one of the aspects which has developed most over the years of life which has not been so long. The history of the workshops could be seen to have started at the very beginning, since right at the start in the San Rosendo garage they were passing out work to some housewives who were sewing garments in their homes. What probably made it easier was the fact that Primitiva Renedo,

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Zara and her sisters Antonio Ortega’s wife, used to work as a dressmaker, and it is likely that she had a handy acquaintance with a number of women involved in the same work. But establishing this arrangement as an organised chain took place well into the 1970s, to be precise, when GOA and some of the other Ortega businesses had already been involved for some years in direct production and sale to wholesalers, and they moved into the retail segment only when the first shops were opened under the Zara logo. It is not entirely clear why the decision was taken to outsource the making up of garments completely. It did not happen abruptly, but steadily, among other reasons because production could not be held back. One explanation says that Amancio was always concerned about the responsibility involved when any new people were hired. Every increase in the payroll bothered him, which is one explanation for the fact that he always wanted to change the format of that part of the business that was labour-intensive and unlikely to become highly mechanised. The explanation is that, unless the mindset of the president has changed a great deal, he felt weakened by the growth procedure being followed by the group, which in late 2007 included over 76,000 employees, a circumstance – successive increases in payroll – displayed with pride on each and every one of the letters with which Ortega has opened the majority of the annual reports the group has been publishing since 1998. Another interpretation, not necessarily contradictory, sees the situation as the result of an external initiative, run by Fr Jorge López, the parish priest of Neira, one of the poorest quarters of A Coruña. He frequently received applications from women seeking some reference or opportunity to take up work which would help them to increase or supplement the family income, though the reality is that this theory appears to have been created by the priest’s own version of how things happened, and is questioned by the oldest Zara-Inditex veterans. What does sound likely is that the clergyman might have collaborated to cover a portion of the demand for making-up labour which Zara had been needing in increasing volume to cover its production requirements. It is important to take another look at this period, characterised by the occurrence, or at least the threat of the occurrence, of a collapse in the industrial sector, particularly the leading industry which in Galicia had a basic part to play in the business fabric. It should be recalled that the first half of the 1980s went through what was known, whether accurately or not, as the industrial reconversion, an intense effort to cut the losses which, particularly in the public sector, businesses in the steelworks area were

The concept takes shape suffering, some in the capital equipment area and, more particularly in Galicia, shipbuilding. In the north-west of the Peninsula most of the shipbuilding was concentrated in two parts of the country: Vigo and Ferrol. There the companies, all members of the nationalised National Institute of Industry (INI), were in a very delicate position, verging on failure: Astano, Bazán (specialising in only naval construction) and Hijos de J. Barreras. All combined excess capacity for a decreasing demand, inadequate technological grounding and an oversized workforce which led to production at costs over and above international levels that were being violently forced downwards, particularly by the competition from Korea and East Germany. The situation in the nationalised naval shipbuilding industry was practically unsustainable: the majority of the factories survived without work thanks to the provision of funds provided directly or indirectly by INI and topped off by the state budget. The speeding up of the process whereby Spain became fully integrated into the Community club was not only difficult to defend in a context of scant public resources, but was also against EEC rules governing anti-competition practices and one of the priority aspirations of the Executive. Faced with this situation, the first socialist government which took office in the dying days of 1982 decided to implement a plan to reconvert the sector, which, as was to be expected, triggered a wave of labour union conflict. The consequence was that the then Minister for Industry, Carlos Solchaga,1 had to abandon his initial plans to terminate contracts on a large scale, and substituted a plan for temporary layoffs which almost completely covered wages with Social Security funds. This certainly eased concerns and expectation regarding unemployment in large areas of Galicia, but it provided no solution to the fact that large numbers of contract workers were about to have no jobs and that auxiliary industry activity depended totally and essentially on the work created by the great shipbuilding companies. At the same time, other industries were being affected by decay and a discrete, yet persistent, flowback from abroad of former Spanish emigrants, not all of whom were provided with skills or sufficient assets to survive without working. In short, there was plenty of motivation for a growing number of housewives to find work and there is no doubt that it is here that a substantial part of the legend which the group has been forced to suffer has its origin. Presumably the nature of the workshops will have evolved, just as the general socioeconomic and legal context of the country has, with an outcome of

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Zara and her sisters the steadily increasing size of Inditex. It is highly probable that the initial steps went no further than a predominance of home working in making up, to some extent complemented by efforts on the part of the actual manufacturing plants in the group and of Fr López to arrange the situation so that new outworkers could buy their sewing machines on loans with almost no down payment in order to start work. It was only later that the workshops started to take on the form of a cooperative enterprise, largely urged in that direction by the Regional government, the Xunta de Galicia, favoured by legislative measures which were progressively being adopted to facilitate this kind of business organisation. In fact at one time the Xunta itself had a direct holding in the cooperatives, which made it easier to obtain finance and resources for modernisation. At the beginning Zara acted basically as a provider of work in the workshops. It applied a formula still in place today: delivery of the raw materials and collection within the deadline set, paying the pre-agreed sum per unit: not much more to it. Zara hardly had anything to do with how and in what terms the workshops were organised, which at one time gave rise to one of the few labour union disputes that the group has had to tackle in its entire history. It occurred because accusations were being made that Zara was applying piecework methods which bordered on exploitation. Whether the accusations were true or not, the heads of the group decided to move into a phase of greater and increasing involvement. The first step was to stabilise the workload as much as possible, while at the same time strengthening the principle of exclusivity; not only as far as the group was concerned, but also in each and every one of the plants. This was far from easy, given that the scheme had to be compatible with one of the principles which has always governed the production model: competition between the factories in the group to win the job. This competition was transferred to the various workshops, either before or after. A second undertaking aimed at greater involvement of the head of each factory in the design of the procedures, the organisation of the work and even the possible level of mechanisation. And there was still a third which had to be tackled: to force the workers operating according to parameters associated with the underground economy towards legal/fiscal normality. None of the three aspects was easy and much less instantaneous. In particular, it was thought that the third requirement would test aspects of the pricing system which supported the Zara-Inditex model. It was not by chance that exactly at that time, the beginning of the 1990s, the network of workshops expanded towards neighbouring Portugal initially, and then

The concept takes shape to north Africa. When marketing decides to include a garment in the chain catalogue, an offer goes out to some or all of the factories in the group who are required in their turn to propose a costing and deadline plan, and to work this out it is essential to involve the workshops to varying degrees, so that, if they are successful, they will be responsible for the making up. The decision to make the order firm once again becomes the strict responsibility of marketing and it is only downstream from this that the actual manufacturing process begins. The increased involvement of each factory with its network of workshops naturally assumes that its heads will take on advisory and even support duties as far as the management is concerned to optimise each factory’s yield. This in turn led to the first moves to demand that they undertake their duties in full compliance with the laws in force. In this way the illegal activity, whether much or little, which might have existed in connection with Zara became diluted; this, as we have seen was, and continues to be, one of the most common accusations made to explain the company’s remarkable development. These are moves which would be stepped up to apply the code laid down in the application of corporate social responsibility (CSR) which governs each and every activity and the work of the group. Once the garments are made up they go back to the manufacturing plant where they are finished, effectively ironed, and the quality checked, before they are ready for transfer to the logistics centre responsible for distribution. This stage has also developed in parallel with the availability on the market of mechanised equipment, with less requirement for direct labour and a sufficiently high level of productivity. The robot ironing machines currently in use have replaced the human ironers who handled this important task for years, given that a significant proportion of the garments are distributed hung on racks and arrive in this way at the shops ready for display to the public without any further work or handling being required. There remains, however, a small ironing team specialising in hand ironing to fix faults or deficiencies which occur in what we could call the industrial process. Although it should not be exaggerated, the system has given rise to more than one controversy between the heads of the factories and those of the shops in the chain, when the factory heads realised that not all the points of sale devoted quite as much care as they should to the placing of the garments, which then revealed noticeable shortcomings in presentation to the consumer. This is a comment frequently arising in the observations made by the teams of inspectors and ‘pretend’ customers whose job it is

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Zara and her sisters to supervise each network of establishments on a regular basis, and it is a shortcoming which in the production area is seen as due to high staff turnover. It would be logical to assume that the socioeconomic development of, and increase in, the volume of the production from the group plants has given rise to problems affecting the proximity formula. This is indeed the case to the extent that some years ago, maybe five or so, the opening or contracting of new workshops in the Galicia region had ceased. In reality, as early as the 1980s, outsourcing had spread to localities in the north of Portugal, but soon the problems would reproduce themselves in the neighbouring country and it became necessary to seek other locations in which making-up could be situated. The choice was Morocco, specifically the Tangier area but initial experience was not as easy as it had been in Galicia. In the first place north Africa was lacking in any trace of an established textile tradition such as had become established, little by little, in the Galicia region. Then the foreseeable cultural mismatches regarding work practices and philosophy made themselves immediately apparent. Nor to be forgotten were the serious defences in place as regards labour law. Perhaps the most important thing of all was that Inditex had considerably raised its expectations, both as regards the actual production procedures, and the no less important aspect of quality. Although production heads insist that things have improved considerably in recent times, they admit that it has been hard for them to manage the failures to meet deadlines which occur on a regular basis. One way or another, they have had to adapt to a dominant feature of that culture: time commitments are seen as estimates, which means that failing to adapt to them very strictly is not seen as carelessness, but fatalism. It’s easy to imagine to what extent a delay in the delivery of a consignment of garments affects the carefully adjusted meshing of supply to the shops which is one of the essential characteristics of the Zara-Inditex model. It is for this reason that several heads of the production plants decided to become involved in the design and organisation of the production processes in the Moroccan workshops with which they are working. However, some symptoms of the fact that the success enjoyed has been uneven can be detected since they admit that they are examining other possible alternatives, either in Morocco itself, specifically the area around Casablanca, or in Turkey and Romania. However, both cases involve the difficulties arising from geographical distance in sticking to the deadlines set for local

The concept takes shape production: not exceeding two weeks for the process between the order from marketing and delivery to the shop via the distribution centre. In any case, a network has become consolidated which, as a whole, is responsible for what is now approximately one third of the total outsourced making-up work, while Galicia and Portugal still cover something over 50 per cent. The remainder, making use of improving facilities in the logistics circuits, is carried out via the above-mentioned trials and tests in countries such as Turkey, where high hopes of consolidation are being placed, and Romania or Bulgaria, though in this case it appears that results have not been quite so satisfactory. It should be borne in mind that, on top of the capacity expressly allocated to making-up itself, there exist possibilities of a logistical nature for sending out the materials and recovering the made-up garments. The other half of the production, described as not local (remote), is dealt with in workshops spread out through nearly forty countries, mostly developing, mainly in Asia, but also in eastern Europe. In this case the longer deadlines lie between three and five weeks and the involvement of the group hardly extends beyond the requirement that they at all times comply with the principles laid down as regards CSR. The garments and articles marketed by the eight Inditex chains which are purchased from third parties, as finished products, are governed by three different systems. In some cases the chain supplies the design and the raw material, fabric, for production. In this case the supplied party buys and pays for the consignment at the time of delivery in order subsequently to sell the garment or finished product to the group. In other cases, the group supplies only the design or specification for what is required. Then there is a third procedure whereby the finished product is simply purchased, perhaps in acceptance of the spontaneous offer of the manufacturer or in search of a possible supplier on the market. Naturally, in these latter procedures all that takes place is the financial transaction relating to the purchase in question. It should not be forgotten that in all these systems the group operates from the principle of a purchasing activity, not only as regards the cases described above in respect of a finished product, but also in the crucial procedure of supplying the raw material, that is, the fabrics and textiles needed to complete the product. The situation has developed enormously since the two Ortega brothers went in search of a manufacturer who would allow them credit to acquire a small consignment of quilted fabric so they could begin making up the first dressing-gowns La Maja had promised to sell. Today, and this has

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Zara and her sisters been the case for a long time, the group is a special customer, both because of its accredited solvency and because of the volume it handles from the perspective of any supplier of raw textile materials. This still does not mean that it is easy to buy. An examination of the dynamic of the production model shows that beyond doubt it is pointless for the commercial network to decide that it wants to produce a given garment, with its appropriate texture, material and colour, if the stocks of raw material held by the group do not match this demand. Multiply this by the millions of garments produced and ordered every year and you get an idea of how disastrous the mismatch could be. However, by no means could this aspect be seen as ignored at a time when the group’s strategic principles are to be implemented. Crucial here, too, is data gathering, as is the fact that these data must then be made available. With a suitable degree of forward perspective, the shop managers and trend scouts decide where they expect the demand for fabric, particularly as regards colour, to be going for each of the two or three seasons into which the year is subdivided in this field. Essentially the bulk of supply (65 per cent) depends on this; as has been stated earlier, this is both for their own production and for orders given to the third parties who are to be provided with raw materials. However, a part of the purchases will be set aside for later stages (35 per cent), almost at the same time as the commercial decision is taken to include the garment in the catalogue of a given chain. It may be, however, that the raw material will be supplied in-house, given that Inditex also undertakes direct activities in the area of weaving and dyeing. The main company active in this area is the company called Conditel, based in Barcelona, owned by the group and a specialist in the production and finishing of fabric solely for the needs of the group. This is not the only one, however. There are other significant contributors in Catalonia, such as Textil Rase (Cardedeu), Burotex and Fibracolor (Tordera), who are also involved in dyeing. This presence in what could be seen as raw material production became a reality in the early years of the project. It is not entirely clear if this was because a need was identified or whether it was an opportunity, making the most of the viability difficulties that became established in the Catalan textiles sector, which was subject to a lengthy, expensive and, it has to be said, inefficient conversion procedure in reality not more than a huge injection of public money between 1979 and 1992. It was probably a mixture of both.

The concept takes shape At least in one case it seems proven that Ortega came to the help of businessmen who had believed in him and supported his project in the difficult startup period, allowing him credit and facilities without which he would never have been able to get the primitive garage-based unit working where the garments which La Maja swiftly sold were made. But it is also natural to assume that a group with the size and presence which ZaraInditex was achieving would be interested in having a direct presence in this basic segment of the production chain. Covering the raw materials supply stage guarantees on the one hand that the group could tackle any possible supply problems, to be expected in view of the characteristics of a production model responsive to the signals emitted by the market. On the other hand, of equal or greater importance, having a presence in this activity provided information which could be decisive in opening negotiations and reaching agreements with other raw material (fabric) suppliers for the bulk of their own and purchased production, as well as having a clear picture of the costing processes applied by suppliers of the product when finished. In any case, purchasing was organised by chain, following the instructions of the marketing section. This means that each team involved had complete independence to decide what type of fabric to buy and of which main colour. There is no doubt that the model demands a large input of planning, finetuning and above all flexibility. However, is it possible, or even certain, that it contains one of the keys or secrets which lie behind its success and also is very probably one of the reasons why nobody has yet managed to replicate it, since there is no disagreement that it operates close to what is seen as perfection. Another question is whether this alone is enough. It is more probable that something else will be discovered…

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6 Market and customer … the start and finish of everything

Rather than the direct or indirect object of a sale, the customer, particularly the female customer, was a real obsession. The world of fashion was undergoing important changes at the beginning of the 1970s, particularly under the initiative of Yves Saint Laurent, a contemporary of Ortega himself, forerunner of prêt-à-porter (ready to wear, off the peg), which it was said had escaped from the hands of the artists in the haute couture studios to the world of mass production, opening up a one-way street in the clothing business. And as we have seen, sales and marketing circuits were also being transformed. This was to some extent a response to social changes which were taking place throughout the world and which sooner or later were to be repeated in every country in the world at a comparable level of development. The typical neighbourhood family shop was surviving, but the city centres were being converted little by little into energetic, crowded commercial areas, to a large extent supported and driven by the successful installation of the large stores, which at that time offered almost everything for sale except comestibles. New approaches were also observed, such as the tendency of the large-surface businesses to establish themselves in the city outskirts, where shoppers could find foodstuffs, too, as well as other homeware articles, clothes and more or less everything a human being could need. As in the supermarkets and hypermarkets, self-service was the basic concept, which demanded further efforts in placing, presenting and arranging products to facilitate the purchaser’s choice. In many ways Spanish society at the end of the 1960s and the beginning of the 1970s was changing quite fast. Economic growth supported the buying power of the population, and the population was keen to 102

Market and customer buy, as it still remembered the privations of earlier decades, and took to consumerism with a will. But there were other factors influencing the situation, and Ortega guessed that as time went on their effects would be unavoidable. The opening years of the 1970s have not received the fanfares of such years as 1959, 1977, 1986 and 2002 in the recent history of the Spanish economy. The year 1959 we have highlighted already as a turning point, when the self-sufficient system which had emerged from the Civil War was terminated with the implementation of the Stabilisation Plan. Nineteen seventy-seven will never be forgotten as the year of the Moncloa Pacts, while 1986 was the famous year in which Spain joined what was then the EEC and, of course, 2002 was when Spain joined the group of countries which had replaced their national currency, the peseta in the case of Spain, by the new single currency. No less important, though much less mentioned, 1970 was the year when Spain signed the Preferential Agreement with the EEC, without which events would undoubtedly have been much less rosy as time went on. Of course, it was during this period of events and milestones that what is now Inditex and what Inditex currently represents was developing. It was not a unique case as it was sharing with others, though they were in no great numbers, the successive leaps that a country experiences as the economic framework is opened up and liberalised. A process which may appear very smooth from a bird’s-eye view was, on the ground, much affected by events and upsets that left many a company which had appeared promising at the outset cast by the wayside. Spanish society was emerging from its isolation, and this was driven by at least two factors: on the one hand the nation was taking up the foreign sociocultural customs and lifestyles it saw on television in a big way;1 on the other, there was the growing influence of visitors, tourists,2 throughout all the Mediterranean coastal area and the Balearics and Canaries which was osmotically generating effects as fashions, customs and trends rapidly made themselves felt as far as clothes were concerned. At the time few Spaniards were in a position to travel abroad, except for those who lived on the French frontier in Catalonia and the Basque Country, and from another point of view Galicia as far as Portugal was concerned. Two sectors of society were displaying clear symptoms of behavioural changes which in time would come to define very important demand segments, though at the time nobody seemed to be paying them much attention. One was women, who were joining the workforce in the cities, and this in a

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Zara and her sisters way was leading to the emergence of a new type of female public – urban, professional, endowed with a greater degree of independence, individuality and decision-making powers than the traditional housewife, and with new needs on the clothing front. The other sector was the young, who were expressing new forms of independence and individuality which above all defined ways of distinguishing themselves from, and even completely breaking away from, everything contained within, or that looked like, the world of their elders, a world they tried to distance themselves from to varying degrees. Added to this were the migrational movements, from the country to the city and from the centre of the peninsula to the coast, which were gaining in strength and becoming a norm, along with the expansion of the urban centres and the growth of a middle class as a dominant factor on the social map. As the urban centres expanded they generated new districts of singlefamily dwellings much in demand by the middle and upper-middle classes. Within these suburbs the commercial infrastructure took on new outlines, supported by the high purchasing power and consumer styles of these categories of consumer. New trading concepts were born and immediately proliferated, particularly the large-surface area businesses, but mainly the centres which combined shops, leisure facilities and restaurants. The growing number of cars being bought by the population also supported these trends since now they could not only contact their close neighbours, but also other, more distant, destinations were available as a journey of a few kilometres to go shopping was no problem. The signs were everywhere that a new type of consumer was appearing and multiplying, one who responded to the new sales styles with new approaches and attitudes at the time the purchase was made, and who furthermore personified specific needs, such that business saw an obvious opportunity in satisfying these needs, particularly in the garment field. It was obvious that whoever got it right first would have seized a position in the market from which it would be difficult to dislodge them – and Ortega was keen to occupy that position, was indeed planning how to do so. At that time, very much more than today, the framework of the market in terms of supply was based on the individual point of sale. What that meant was small shops which were generally run by individuals or families, and which generally occupied more than half of the retail area of a country. This is a feature which even today is very much an aspect of the Spanish situation, since this type of business accounts for 45 per cent of the total, as compared with an average of 25 per cent in the EU as a whole. This

Market and customer was and is the scenario in which first Zara, and then the other eight Inditex chains had/have to compete. On the demand side consumption took off at full speed. The stage of high economic growth was followed by a period which, though it would be a disaster in the long run, contributed in a large degree to the increase in family spending: between 1973 and 1979, wages grew at almost twice the inflation rate. While the Consumer Price Index (CPI) was moving in the 15 per cent range, average wages were rising at a rate of 30 per cent, which boosted the consumer’s purchasing power. The overall development of the textile sector, however, was not at that time what you could call outstanding. Between 1970 and 1990, it grew by only 16.1 per cent, while in the clothing area growth was somewhat better at some 26.1 per cent for the two decades as a whole, which gives an average of merely 1.2 per cent in annual terms.3 The truth was that the period, particularly the first fifteen years, was not particularly brilliant for the Spanish economy as a whole, either from the point of view of entrepreneurial initiatives or from that of demand trends and spending on the part of society. This is one circumstance which, notwithstanding assessments, should serve as a frame of reference of one of the periods in which the energy imparted to the project by the leaders and managers at Zara-Inditex took shape. Even at that time Amancio Ortega never stopped repeating his mantra that factories (a number had been added to GOA [AOG, his initials] must specialise in producing what the customers wanted. He felt that the procedure whereby the ideas of the industry’s designers and creators were marketed was out of date, obsolete, or at the very least, could be bettered – it meant that the consumer had subsequently to make the effort to agree to wear them and so to buy them on the marketing circuits. He was unwilling to fill people’s wardrobes with the fashions that he or his colleagues had come up with, and wanted to design and fill his factories with what the consumers wanted to wear. However, thinking it, even saying it, was much easier than doing it. How could you find out what the customer wanted? The attitudes of consumers have been studied and analysed from a good time back. In the 1920s what was known as the Nîmes School had done no less than raise them onto a pedestal. One of the theorists, Charles Guide, felt that they were the forgotten third estate and he called for cooperative organisational concepts which would boost their role. But such innovations as were aimed at the consumer saw the light much more in the USA than in Europe.

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Zara and her sisters As early as 1909, the city of Salem, Massachusetts, notorious for other reasons, witnessed the birth of an original method of managing discounts. It consisted of setting aside a specific space in a commercial store – the basement was chosen – for the sale of articles sold off over a non-extendible period of 30 days through the application of successive 30 per cent discounts for each week that the article remained unsold. The success of the experiment meant that it spread quite quickly. The initiative was the brainchild of a businessman called Edward Albert Filene, a theorist in the field of distribution, who also at that time popularised a kind of handbook stressing three innovations which in his opinion were essential to commercial activity: using capital in the most efficient way, by economies of scale in sales, the purchase of supplies in large quantities and perfecting inventory management; improving the training, equipment and organisation of the sales staff; and finally designing a new form of business practice. He also felt that the experiment had to be organised through the systematic exchange of information, with each commercial culture challenging the others in the field of best practice. He was convinced, moreover, that marketing could and should be organised with the same rationality and effectiveness as the manufacturing processes. Does that remind you of anyone? It should. There was also no shortage of theories and interpretations regarding the interconnected mass approach to supply and demand, such as that which states that mass production does not consist of the mass production of goods, it means production for customers en masse. And there is the statement attributed to Ford that mass marketing means constantly thinking about each of the elements of the exchange which have any influence on the consumer’s choice: from the actual design of the product and the way it is presented right up to the way it is sold, the shop itself. As you would expect, any number of theories and proposed practices in marketing science emerged: the effort to highlight the personality of the product, which requires a direct insistence on the delights that will compensate the consumer for his or her efforts and decision in buying it, despite his or her ignorance of its origin and its intrinsic qualities. It is appropriate to add here the perception that a group’s lifestyle arises as a consequence of, and conditioned by, the collective image it has of itself.4 All this, and a good deal more, had already been worked out for over a century when Ortega was striving to take those first steps closer to the market in a very different way from what had been traditional in Spain in the last third of the twentieth century.

Market and customer The world of fashion used to be a combination of the season and the collection. The margins of the successive links in the chain were high, with a general differentiation between manufacturers, wholesalers and the retail sector. This gave rise to a very fragmented picture, with small individual businesses, mostly with a branch relatively nearby offering low-quality garments at low prices, which the majority of the population seemed to think was all it could expect. However, some small shops with a more exclusive profile, known as boutiques, had begun to make their appearance. They were few in number, some backed by one of the respected brands, and sometimes they operated in small chains offering expensive garments with a high-quality designer label. There were also some large stores which were focusing on quality and medium prices, with uniform designs and, more importantly, a new way of relating to the consumer. Some even included a small boutique inside the premises, but apart from these their range was essentially standard and traditional. They were only to be found in the large cities, which logically restricted their power to penetrate the market as a whole since they were located at very specific geographical points. Something similar could be said of the large-surface area stores, the hypermarkets, which, though they were fundamentally specialising in foodstuffs, also included clothing and other articles, usually of low price and quality. It was into this context that Ortega was obliged to launch his dream of satisfying the consumers’ needs which they had no way of expressing. How was he to know what customers wanted and needed if he had no direct contact with them? He became haunted by the recurring idea of opening his own shop. It was probably on the basis of these perceptions that subsequently one of the legends or stories which upset Ortega most arose: that his teams started copying. The truth was that they had been doing so from the start. Taking apart garments so that they could use them to reconstruct designs and offer similar products to the wholesalers at a lower price – what was that, if not copying? Call it what you will (Ortega preferred to talk about inspiration, claiming that everybody did it), what is certain is that he started to seek new ways of approaching the objective of producing what the customer wanted, instead of perpetuating the traditional backward method. His trick was immediacy. The industry had been used to working with a system oriented towards two seasons, three at most, with its planning, designing and production done

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Zara and her sisters several months in advance. The method suffered from significant limitations, and above all it lacked reaction speed. Ortega refused to accept the former, but the latter offered a clear window of opportunity for competition. Before they launched the season’s collection, the manufacturers would collect together garment stocks which to a greater or lesser extent they subsequently shifted to wholesalers and retail shops, involving the financial effort required to cover the costs of the fixed assets. For Ortega, on a margin which might or might not be deemed absurd, this was unacceptable, not just because he was short of financial reserves, though this too was true, but because it involved taking resources away from his main objective – to grow. This was to say nothing of the repercussions to be felt if the collection failed: profit losses through having to increase discounts, buying out stocks and, in the worst-case scenario, taking on a significant volume of unsold stock which could lead to a negative trend in the operating account. There were quite a few cases of successful manufacturers who had collapsed after one or several collection failures in a row. Ortega wanted to create a production model which, in addition to reducing stocks to the minimum possible, zero if it could be done, would place him in a position where he was not exposed to the market risks inherent in producing product in advance. He therefore had to combine systems for driving consumer preferences, what sold and what didn’t, with maximum flexibility and agility in the factories so that he could produce those garments for which sale was practically assured the moment they arrived on the distribution circuits. The identification of the customer as the essential subject and object of the group’s activity had been built into its structure to a very considerable degree. What this really means is that while everybody who comes into one of the group’s shops is certainly a customer, albeit only potential, there are many others who also deserve that level of consideration: essentially each and every person who works in Zara-Inditex. Although you won’t find it written down in any handbook for in-house use, one of the essential elements built into the culture of the group is that everybody who is involved in a given job is in a position where they can be seen as a customer by everybody else. This is a rule which is applied more for the centralised areas than for other areas, but even so it is not absent from the other levels of the organisation, and is probably supported by the persistent presence of an organisational and structural layout for the company which is effectively flat; it must be admitted that this is rare in a group of the size which Inditex reached quite some time back.

Market and customer A crucial aspect of all relationships with customers is how the price is set: this is an aspect for which from the very start the Ortega project chose a mechanism that was relatively unorthodox, both as far as consumers and, for reasons of essential coherence, internal dynamics were concerned. In this area, as in other sectors, price setting is based on the application of a margin on the costs incurred in obtaining the appropriate profitability. Naturally, this is rather more sophisticated, complex and susceptible to exceptions than may appear or be expressed so simply, but that is the general system to be found in the economy of a market which is not subject to the rigidity of governmental intervention. The normal trend works like this but Ortega decided at the outset to follow the path in the reverse direction. The process starts off with the market, the customer. The competition is studied and analysed, the readiness to buy and ability to spend money on the part of the potential consumer are assessed and the price is set at that for which it is thought the product can be sold. In the early days the comparative element consisted of the most regular suppliers, because the customers were essentially wholesaler networks, who were offered reduced prices … the fact is that there were really no guarantees that they would not pass on prices originally lower than those set by their retail customers, shops, and that they in turn would pass on their savings to the final prices charged to the consumer. When the group obtained the first shops of its own, naturally the situation changed: the reference became the level of prices of the other businesses located in the same area, and later the country in question. But the basis of the system continued as before: starting with the price set for the customer, the margin set as an objective to guarantee the desired profit was then deducted, which gave the production cost which could be – indeed, ought to be – accepted. This method of setting the cost and the actual price naturally impose some concrete parameters on the entire process of buying from external manufacturers, but it also translates to the in-house level when garments directly produced by the twenty or so factories owned by Inditex are concerned. Each request from the marketing section to include a new garment in the Zara catalogue is transmitted, with the corresponding quality, cost and deadline specifications, to the various businesses operating the group’s plants for them to submit tenders which meet or improve upon the set minimum requirements. They in their turn do the same thing to the various workshops they rely on to outsource the most intensive part of the

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Zara and her sisters production labour. In other words, the marketing section sets up an internal competition procedure to optimise the efficiency of the model to the greatest degree possible. Among other things, this is a justification for the fact that each plant has its own group of external workshops which it doesn’t share with the others. In-house competition which cannot be sidestepped is likely to result in the work being given to a company outside the group, particularly if one or more third parties has or have been invited to bid from the start as they may be added in on the final stretch. This means that everything is in place to facilitate the concatenation of savings, cost reductions which should be passed on to the end price, because the overarching concept is that all improvements in efficiency, or at least the most relevant of them, should end up to the consumer’s advantage. The system therefore sets a different price for each garment in each country. A few years back this gave rise to an important problem: it happened when the euro was established as the single currency of most of the fifteen countries which made up the EU at the time. Up until that time Zara-Inditex garments emerged from the appropriate logistics centre with a single label which contained, along with detailed advice about washing, care and use, the price in each of the markets, identified with the colours of the national flag. Naturally, if you wanted to amuse yourself calculating the corresponding equivalents you would immediately see that they were all different in absolute terms, but it was not really likely that consumers would be going into the shops armed with the cross-rates between the various currencies and a calculator to perform the conversion. The establishment of the euro, however, gave rise to two alternatives: harmonise the prices of the countries in the euro zone, or seek another solution which would prevent, say a French customer from noticing, just by looking at the label, that she was paying more, or less, for the garment than she would in Belgium, for example. The first option ran counter to the essence of the company pricing policy and was therefore more or less disregarded. The second, however, required a change to the labelling procedure, whereby a specific label for each market would be produced – in reality, for each shop. As was to be expected, this was the option chosen. Yet again, thanks to technology it was possible to solve a problem which only a few years previously would have been much trickier. The answer was to plan an on-line price distribution system, in parallel with the physical merchandise, so that prices were transmitted to the shops along with the order, twice a week. This device is known as Cobi in company jargon and operates so that the employees of each shop mark the prices set for each

Market and customer garment in the middle of the chain. This is a system which has also had the effect of simplifying to some degree the subsequent process of relocation on a another market as well as pricing in sales or clearance sales if needed. This means that at the present time a customer has no way of knowing whether she is paying more or less for a garment than she would be paying in another country or market, even though she is fully aware of currency cross-rates, unless she visits shops in different parts of the world in a couple of days, or someone supplies her with the information. Thus the group has escaped a significant risk because the prices are indeed different,5 depending on the location. There was no other way of dealing with the problem, given the technique used to set the prices.

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7 The first attempt to open a shop doesn’t take … but the success of Zara can be seen

People say that one of Amancio Ortega’s favourite remarks is that we should never forget our origins, even less reject them, and it’s a fact that there are plenty of examples from his life that seem to chime with this conviction. They can be found in his entrepreneurial approach, too. His initial years in the world of work, almost fifteen to be precise, he spends as a shop assistant, in direct contact with the public. This is where he gains the experience and knowledge which will be essential to the business project he decides to initiate. His first dream, then, is to establish a relationship with the consumers, the customers, in which he can apply everything he has learned about concepts which are new, different and in his opinion better than those in place in the final step of retail selling. Clearly, to do this he has to reach them without intermediaries or middlemen between the clothing he is manufacturing and the potential purchaser. During the years when he is manufacturing he must have come up with many general ideas about distribution. Some he is actually applying, but they remain incomplete, limited, because an essential aspect is to organise the to-and-fro movements between the markets and the fashion he is manufacturing. The shop is clearly the element missing from the model, but it isn’t just any old missing part – it is the essential part. And as though that isn’t enough, there is more. Sales and factory production are growing, but Ortega cannot stop applying his mind to the difference between the prices he invoices for the merchandise and those paid by the end customer. He is completely familiar with the ins and outs of the business and knows that the retail sector, the shops, are working with margins in the order of 112

The first attempt to open a shop 70–80 per cent, sometimes several times greater than could be possible for the manufacturer. Thus he begins to toy with the idea that, fundamentally, he has to become independent: he has to get started in direct sales, with his own shops, integrating the whole process right up to the consumer. He is not moved solely, as has often been written, by the desire to claw back the profit margin retained by third parties. It is indeed a motivation, but in his brain other ideas, additional concerns are fermenting, perhaps more importantlly the desire to increase his revenue by moving into the retail trade directly. On the one hand he is thinking that the size of the margins applied offer a potential comparative advantage: if he can reduce it by a few percentage points in his shops, he will clearly gain in competitiveness. On the other hand, he knows that if he is in direct contact with the end customer he can find out what the dominant preferences and tastes are with more certainty. When all is said and done, so far he has been producing what the shops ask for but he would like to proceed to the next step, manufacturing what the consumer wants. As far as this is concerned, his lengthy experience at La Maja has provided him with a good number of ideas about how to organise the shop, about the presentation of the garments, customer service, staff motivation, and so on. In short, he has a shop in his head, and he is becoming impatient to convert it into reality. It is probable that another fact could be added to this which Amancio Ortega often mentions in private, yet which has become a part of the profile that, halfway between legend and reality, has been built around the enigmatic figure of this successful entrepreneur: perceiving the potential of the shops is one of his specialities, albeit not the only one. This is based on a simple criterion: they must be in the central zone, the most commercial area of the cities, and satisfy the principle that the most expensive of what is available will usually be the best. However, opening a shop is not so easy. Naturally, it should be located in the best commercial area in A Coruña – for the moment, let’s just concentrate on this city – in a spacious building with an attractive appearance. It doesn’t even occur to him to take the first step by opening a shop in the suburbs because this would naturally have to be stocked with clothing of the cut-price variety, as, indeed, some people are beginning to accuse him of. No. His model is to manufacture fashion at affordable prices, but without making it look cheap in the eyes of the rising middle class whom he intends to dress. All this means that a large investment is required and he is not exactly flush with funds, given that the profits he makes are being reinvested to extend and modernise his production plants.

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Zara and her sisters It is not the financial side of things which bothers him most, however. He is much more worried about the fact that opening a shop means coming into direct competition with the people who are now his customers, the businesses which are buying his garments, and there is clearly no way he can do without them. It turns out that, with one thing and another, he chooses to take the step with the support of other partners, and so what will be the first shop makes its appearance, in Torreiro Street in the very heart of A Coruña. The building is big, spacious and set up like a bazaar: it sells not only clothing produced by Ortega’s plants and those of other manufacturers, but also records, books, gifts and an assortment of items which only lacked the café and the extended hours to emulate, perhaps without realising it, the formula that was soon to spread all over Spain under the name of VIPS. This was a model brought from Mexico by a smart businessman named Plácido Arango, whose family had been operating this concept for years through the Aurrerá supermarket chain, which they also owned. At that time it was more or less inevitable that anyone who wanted to establish an alternative to traditional business had to a greater or lesser extent the large department stores as an essential reference. It wasn’t even necessary to look to the foreign experiments. Spain had by then seen plenty of examples of how the formula worked, given that an appreciable market share remained in the lifelong shops, not only in the cities where they were established, but also within a radius of around a hundred kilometres. They were an encouragement for making a journey with the sole aim of taking advantage of a grouped, attractive supply, albeit perhaps no longer cheaper than products found in establishments which were closer to home. Nevertheless it wasn’t just that: there were also added facilities like payment by instalments and the possibility of exchange or return which were to some extent common in retail establishments. Spain at the time was full of famous names such as El Corte Inglés, Galerías Preciados, Sepu, Simago, etc., which specialised to a small degree or at least were more identified with different purchasing power sectors than was characterised by a range of specific articles, given that everyone sold practically everything that made up the usual basket of home consumables, perhaps excluding food, though not for long. It is understandable, then, that Amancio Ortega might have had the idea, if not to replicate the model of the great department stores, then at least to adopt some of the innovations which were being introduced in the world of distribution. This is why, even though his main focus was on fashion and clothes, his first moves

The first attempt to open a shop in the way of a shop would include associated offers combining facilities and difference, perhaps in an effort to attract customers. He could also include some concepts like building the kind of relationships with the customers that seemed to him most innovative, while matching the philosophy which emerged from his first dreams of becoming a businessman in the sector. Zara, though, had not yet been born because that initial establishment, open in 1972, remained under the name of Sprint, which in the end completely matched the speed with which it became apparent that the experiment was not a success: things were not turning out well and the shop would end up closing its doors in 1979 without even having made a mark in the A Coruña retail world. The experiment is not even mentioned in the corporate histories of the career of Inditex . Nor is it easy to find out, given that this initial experiment involved the inclusion of other partners, how far Amancio Ortega was able to incorporate the whole of his concept or had to complete or limit it using the ideas and contributions of those who shared the adventure with him. That first shop, however, is still to be found in the world of Inditex, now one of the A Coruña Massimo Dutti shops. Before that, Ortega had to give life to Zara, as a form of summation and confluence of his ideas and the mistakes he made with Sprint. This was the first example, and would not be the last, of the trial-and-error mechanism which is hard-wired into the DNA of what was to become Inditex. It is not easy, and amounts to guesswork, to try to divine what he gained from that experiment and what he discarded. However, both aspects must have been present when, having realised that it wasn’t working, very soon Ortega began to gestate in his brain the design and basic concepts of what would be the first shop of his own, which was to be located not so far from Sprint and would be born under a new name. In Ortega’s strategic vision, the shop was still a fundamental ingredient. It would act as a barometer of the needs, tastes and fancies of the customers, in such a way that this current of information could be used to organise and plan the production from the factories. At that time, the first half of the 1970s, the plants which would eventually become Inditex were already producing all kinds of clothing for men, women and children. It would be possible to say he was swamped with orders, his sales potential in many cases exceeding his production capacity. The Ortegas had set up a large network of suppliers, and at the same time they had won the trust of both the major wholesalers and purchasing centres

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Zara and her sisters of the two or three chains which were opening large commercial surfaces at various locations throughout the nation. It is not strange that, in this situation, more than one of his partners, including his own family, would try to persuade Amancio to continue concentrating on developing his production model, at least for a while. But he was thinking and never stopped repeating that this scheme was lopsided and also vulnerable, because at any time, at any place someone might appear who could do just the same, but at a lower cost, in other words, better. The evidence that his prices to the wholesalers were more than doubled by the time they reached the end consumer must have gnawed at him. Nor was that all. He knew that the shops usually added a margin of 70–80 per cent to their sales, among other reasons to cover themselves against the risks of unsold stock, sales or liquidation, not to mention the financial pressures arising from the need to maintain sufficient stock to cover the demand for each season; he thought that this offered an opportunity to open a crack in the competition which would be worth exploiting. His underlying idea was to reduce the retail margin by around 30–40 per cent through two routes. One was, logically, to take charge of direct distribution from the factory, since the group now possessed sufficient industrial capital. The other was to consolidate his production systems, adjusting the manufacture of the garments to meet the effective demand of the shops so as to eliminate or reduce as much as possible both stock and the risk of unsold stock or liquidation. He felt, or even knew, that this way they could make savings which could be passed directly to the price to the consumer without necessarily reducing the margin in order to press forward with what really interested him: to ensure that the group he had decided to drive would continue to grow and expand. He was certain that if he put together the shaving of the margins and the lower production prices which he had spent years achieving, capturing a sizeable market share would be more than just a probability: he would end up attracting a portion of the demand which was in the hands of the others. There were basically a couple of giants, such as Cortefiel and El Corte Inglés, setting aside others that were already in decline, such as Galerías Preciados, which years later Amancio would refuse to buy, though he almost did, and above all the huge mass of traditional shops and businesses, mostly family-owned and run, which struggled individually to retain a customer base that had so far remained loyal, plus other formats involved in advice and consultancy about the fashion trends which had to be followed perpetually.

The first attempt to open a shop However, there was something else. A new style of shop was rapidly making its appearance in Spain which would give plenty of headaches to the Zara bosses, particularly when the time came to decide which model they would choose to expand. These were the highly visible Benetton shops. The Italian chain entered the markets of Europe, including Spain, with the force of a concept as attractive as it was new, based on franchises as the operating system. It offered bright, colourful, dynamic and cheap fashion, and more importantly it offered young and dynamic entrepreneurs the possibility of running their own businesses in the major cities of Spain. All this was under the umbrella of a brand which communicated the values of modernity. What was more, they were not only appearing in the kind of environment Zara was seeking for its shops, but they also threatened to compete in seizing the two elements which were absolutely essential: locations for opening the shop and capable individuals excited about running them. On top of this was the fact that the franchise system made for fast expansion without the need for the corresponding investment. Although there is no mention in the story of the company, it may be assumed the presence of Benetton gave pause for thought, at least as regards the option of using the franchise system to multiply presence without wasting too much time. Taking it into consideration, however, did not mean imitating it – just making an in-depth analysis of the similarities and differences between the concepts of both projects, and watching where the advantages and disadvantages emerge in each option. What is certain is that, when studied carefully, the two models had fewer points in common than appeared initially. One substantial difference was that Benetton was not an integrated business, because it had no manufacturing base. It placed, and still places, orders for garments with third parties and its supply and distribution systems require around sixty days between order placement and delivery to a shop. These were time periods which the Galician group was convinced it could cut back; in fact its production chains were already working in a reduced time frame. There was, however, a greater approximation to the concept of the season, since the Italian chain subjected a proportion of the garments to the established consumer trends, and as a consequence needed much less stock. The formula consisted of manufacturing clothing in a kind of neutral shade, ‘greige’, even colourless, and making reduced runs of different colours which were delivered to the shops to test how the market accepted them.

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Zara and her sisters Afterwards, once it had been decided which colours would be most in demand, dyeing began for the selected garments which were going to make up the bulk of the collection. In other words, this included a variant on the formula of manufacturing against orders which GOA and the other companies in the future Inditex had been operating since the start. Nevertheless, the fact that the stores were franchises instead of being owned by the company added enormous difficulties to the task of ensuring that the sequence was effective. This meant that the Italian experiment did no more than confirm the suspicions which Ortega felt about any formula other than the one he had in mind. Despite the fact that he realised setting up a network of shops was going to be more difficult, time-consuming and expensive than opening franchises, the original idea would finally prevail. Later on, however, there would be some exceptions. This would occur, in part, because of the acquisition of two chains that had developed outside the group which had begun to expand using the franchise concept, but also because, in the wake of an agitated in-house debate, they concluded there was no better form of business in certain markets: some, because of their characteristics, as was the case in the Middle East (Persian Gulf), and others because their small size excluded the possibility of economies of scale, as in Andorra, the tiny Pyrenean nation balanced between Spain and France. The franchise model with which the group chains are working largely matches the most extended format of this type of relationship. It has, however, some peculiarities. The franchisee takes on all the costs of installation, rent or purchase of premises and takes responsibility for hiring and paying the staff. The usual system is that the internal and external image are decided by the management of the chain in question; they also deliver and invoice the goods in accordance with the supply prices laid down in the contract, with an option to return articles up to a limit of 10 per cent. Sale prices to the public are also set by Inditex. Agreements last three years, are renewable and have a guarantee of exclusivity in the neighbourhood, though with the exception that the chain can open one of its own businesses, run directly, in the same area. It is essential, in any case, not to lose sight of the fact that it was probably a foundation stone of the professional beginnings of Amancio Ortega as a personal vendor to the public, and that the shop was one of the basic platforms of his business model, albeit with a rather unusual focus. The starting criterion was to decide upon the location of the shops, and this was twofold: first choosing the cities, then the actual location of the shop.

The first attempt to open a shop What would follow no doubt depended on that. The first step gave rise to few doubts: A Coruña had to be the first point where the new commercial activity would be established. This was the easiest from a number of points of view. Everything was to be found there. The Ortegas’ experience with face-to-face customers was rooted in the city. No less important, the proximity of the production plants meant that the delivery process could be completed in as short a time as possible. From this point it would be a matter of extending the system without affecting the standardisation of the products…but that would be for later. The second step was equally clear: the shops had to be in the commercial heart of the city. There was to be no seeking more affordable premises, in outer areas, with a lower cost due to lower expectations of affluence and hence profitability. The shops had to be visually attractive and well known. The cost was not important. This was a criterion which was connected in a certain way with another from among Ortega’s criteria which are seen as most original: his perception of advertising. It doesn’t appear on the façade of his office or in any of his premises. Nor is it included in his articles of association, but one of the almost biblical facts about Inditex is that it does not advertise. Or, does it? It’s a fact that the group and its eight chains don’t put ads in the communications media. The sole exceptions are notices to the effect that the sales season is opening, to be found referring to Zara and any other brand, and some small campaigns for brands like Massimo Dutti and Stradivarius, purchased and not set up by Inditex, and already possessing a publicity presence in the media. A separate matter was the campaign which opened in due course to broadcast the public offer of sales of shares which initiated its entry as a quoted share on the stock market. It is slightly more questionable to state that no investment is made in advertising. Investment takes place from the moment that the concept of the shop can be seen as an enormous advertisement, bearing in mind that a significant portion of the investment is to be found here, both as resources and dedication. The reasoning behind the refusal to make use of advertising campaigns or other normal features of the industry, like getting famous personalities, particularly women, to enhance the collection, is that the brand is in danger of being damaged or eroded by the continuous and direct battering of messages to the consumer. The importance of the brand is not at issue, quite the opposite: it is cosseted, cared for and looked after with special dedication. However, it is understood that the attributes which the market and the consumers associate with it should be unique or at least

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Zara and her sisters preferentially related to the product, the sale and the customer care…in short, the shops and everything which happens in and around them. A mass of advertising, however, is seen to involve the double risk of damaging the brand because of omnipresence – saturation – and also the fact that the message may carry aspects or ingredients which are undesirable or inconvenient for the brand in question. It becomes increasingly clear that the emotional component of an advertisement, something which the experts would see as essential for it to be effective,1 could be and often is seen in a different way by every individual who reads it. It lies within the realm of probability that this perception will result in the brand assuming a different attribute, even one opposite to that which was intended. It is probable that the policy of not investing in advertising, so much a part of the Inditex culture, arises from this analysis or similar ones, as debatable as they are worthy of consideration. It is also possible that top management are aware of the fact that the meaning of the advertising message in no way lies in the intention of the communicator but rather, to a larger extent, in the reaction which it produces in the recipient. But the point must be laboured – does this mean that the group does not advertise? It’s far from crazy to argue that, contrary to the way it may seem, Inditex maintains in all its chains an active and permanent advertising strategy, despite the fact that it never places advertisements with the press, radio or television. Why not assume that the shop and everything about it is nothing but pure advertising? Without disagreeing with those who think that it’s better to advertise in the media and indeed do so, it’s not difficult to work out which form of advertising is more profitable: a television advertising campaign, a mass of hoardings, hundreds of radio slots, attractive pages in newspapers and magazines…or a visible and attractive shop in the very heart of the city? It is likely that any response is acceptable, but that chosen from the beginning by Zara does not give the impression of being any more in error than the rest. The certain fact is that the brand is one of the most recognised2 both within and outside Spain, along with others which are among the biggest advertisers, such as Iberia, Telefónica or El Corte Inglés. This suggests that both formulas have achieved the aim of fame, though it is impossible to say that one is better than the other, but neither can it be seen as worse. An outstanding position, however, was barely one third of the road which the imagined shop had to cover. The next step was to give it visibility, and

The first attempt to open a shop clearly the display window was very important from this point of view. The fact was that Ortega had no skills or collaborators in this speciality, so that he had to scour his memory to find the best way to deal with this necessity. Whether it was the first time or not, at this point an element which was to play an important part in the subsequent development of Zara revealed itself: the ability or power of Ortega’s dream, or perhaps his own power, to explain his project to professionals who were capable of dealing with aspects and subjects where there were shortcomings or which were simply lacking in sufficient interest. Often the two factors were put together and he proceeded to divest himself of what he was unaware of or unfamiliar with. It forms a part of the mystery as to how and why accredited professionals, in some cases lacking in any prior connection with the arcane world of fashion, left their jobs and positions in other organisations and disciplines and devoted themselves to Ortega’s project with considerable enthusiasm. It may be assumed that they were influenced by an observed fact: the financial offer, since his salaries were always over and above what was being paid in the other companies in the area. However, this must be set against the fact that, in most cases, it was a question of changing an employment position which was more or less guaranteed for involvement in a project which had neither been laid out in all clarity nor could boast any certain viability. As time progressed it became crystal clear that some sort of choice had been exercised, but this cannot deny the fact that many must have felt serious doubts and hesitations both before and after accepting. We shall never know how many decided to reject the offer, and then, in sight of the facts, have never stopped regretting it. Recalling those decisive moments reveals a certain unanimity in stating that both the project and the way in which Amancio Ortega used to present it, including his explanation of the role he was claiming to offer to each contact, created enough enthusiasm to receive a yes. Perhaps one of the most attractive features of the offer was precisely the fact that the project was still at the development stage. What would finally be Inditex had not yet been defined or even foreshadowed. Of course, there were basic ideas, real aspirations, but none had been realised, nor had the majority which would subsequently be applied actually been enunciated. It is likely that the leeway for creative manoeuvre, which a large part of the work consisted of realising – freedom of initiative, in fact, was an argument as attractive as, or even more attractive than, the prospect of earning more. However, it was not always exactly like this. Towards the beginning of the 1980s Ortega began to delegate the search for managers, with the

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Zara and her sisters exception of those directly related to the areas of design, production and marketing. Mostly it was José María Castellano who was responsible for choosing and hiring, which suggests that at that time the attraction of the project, not to understate the persuasive abilities of Castellano himself, mattered as much as, or more than, the undoubted charisma which Ortega was able to muster. Ortega wanted and, indeed, needed to find a way of organising the display window in a way which was attractive, suggestive and innovative at the same time. In short, he had to differentiate himself radically from the rest and, as a consequence, start tongues wagging. He then remembered that during his years with La Maja he had met a rather unconventional display window designer who actually suffered when he saw his initiatives restricted by the imposition of the traditional formats which his client businesses would set up. His name was Jordi Bernadó and not only did he need persuading to join the project, but he also had to be persuaded to come and live in Galicia, away from his native Catalonia. What is certain is that he succeeded and the innovative display window designer became a key element in the project, working very closely with Ortega, with plenty of room to move and clear authority to decide how the shop windows were to look and how they should match the interior. In this sense it can be stated that Bernadó was much more than a display window designer, since he contributed philosophy and concepts as to how direct sales to the public should be organised and staged. This was so true that his subsequent defection from the group, coinciding with other desertions which took place shortly after the stock market flotation described later on, seems to have left a bitter taste evidenced by the way he completely distanced himself from the project to which he had contributed so much and so importantly developed. In line with Ortega’s wishes, the display window set tongues wagging. Bernadó, perhaps because he had experience with set design, created a kind of theatrical, almost cinematographic, scene rather than a conventional display window. It matched exactly what Amancio was endlessly suggesting. It is said that he gained his inspiration from the atmosphere of a very successful film of that era, Grease, the soundtrack of which was endlessly pumped out by the main popular music broadcasters, which had just been released at that time and was taking off, particularly among the younger members of society. The fact is that the first Zara windows were powerful attention-grabbers. They showed moving scenes, with predominant colours which suggested or

The first attempt to open a shop emulated the chromatic trends of the clothing on display inside. The models, mannequins, were not locked in static postures but were in movement. They were not standing, staring forward, as was normal in shops and large stores but were seated or in postures which suggested group scenarios, at home, at a party, or strolling through the street of some city. Everything was studied and analysed. More importantly, it was partly renewed every two or three weeks and completely at the end of four or five months, anticipating the reference to the impulse to buy: holidays, Christmas, new year, and so on. Work had already been started on a kind of pilot shop fitted out on the ground floor of the central HQ. It had, and continues to have, a completely authentic layout: an access road, display window and interior, life-sized and fully equipped with clothing, changing rooms, till, toilets, décor, lighting, background music, seating... everything to be discussed, compared, tested and changed as many times as is necessary until it gets the green light – at that time by Ortega himself – and is transferred to one of the shops in the network. It is natural that the concept of the shop would continue to develop, as the pilot shop provided data which were then implemented, plus opinions and in general all the experiences communicated by the managers and the group of area inspectors who monitored the establishments so carefully. Later on, as a general way, what was known as the false customer came to be included, a person sent from head office to do everything which a real customer would do, and then issue a detailed report about everything which was not working to perfection. From the time that the first shop was opened the idea arose of introducing perpetual renovation processes. This meant neither more nor less than making the type of production already established make sense, so that the customer would feel a sensation of scarcity or perhaps that the way things were was only temporary. It was, and continues to be, normal for many people to come and visit a shop without any preconceived ideas or even the actual intention of buying anything. In actual fact, the average for purchases made compared to shop entry stands at around 10 per cent in this sector. The aim sought by the still embryonic Zara was to create the feeling that anything the customer could see at any given moment as an article they might possibly buy would cease to be available within a few days, which meant that it was worth the trouble of repeating the visit a few days later. We cannot be sure that the concept was perfectly articulated from the start, but it is clear that it

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Zara and her sisters increasingly took shape, until among other things the above-mentioned 10 per cent had almost trebled for the majority of the eight chains which Inditex was running. In other words, three out of every ten people to come into the shop would end up making a purchase. Another aspect also began from a premise which has continued to develop up to its current situation: size. Zara shops were spacious from the very beginning, with the idea that at least two things should be possible: there should be zones for different groups and type of clothing, and each should display the complete stock so that everyone could see directly what they could buy. The first Zara shops did not reject all the arrangements trialled in Sprint. Although by 19753 it already seemed obvious enough that the initial experiment was not going according to plan and as required, this did not mean that the concept of the bazaar expressed by the department store format should be completely rejected. There were at least two reasons for this. One was that it was obvious it worked because it was capturing a market share of the shoppers in the vicinity of the new shop, taking it away from the traditional businesses, which as far as the project was concerned were the main competitors to beat. The second was that the aim was above all to create something different, separate, and it should be seen as such from the first day. The aim has always been, rather than competing directly with the established businesses, to sell the same kind of product, but in a different way, and not only or even mainly in terms of the correlation between price and quality. The basis of the business concept includes the integration of production and retail sale, but also the ability – speed – to respond to the perception of market demand, and, in the final stage of the process, the layout of the shops and the way they relate to the customer. Various innovations were made, more out of necessity than because of the philosophy. It was established at the start that no shop should use space for storage. This was in line with the principle of keeping stock to the absolute minimum, and it should be centralised. Distribution would be controlled by the management of the chain, with all the logistical implications which will be described in due course as one of the basic aspects of the Inditex model. No shops, however, would hold more garments than were seen as necessary to cover immediate demand: no more than for one month. The decision to limit stocks was imposed in particular by the pressing need for finance. It is possible that here we can find a credible answer to the question most

The first attempt to open a shop repeated: how did the group, in those early days, provide itself with sufficient finance for its rapid expansion? The question has frequently been answered by many dark legends, ranging from the claim that the networks were in receipt of contributions from smuggling and the drug trade no doubt present in Galicia, to the assumption that the property was actually owned by the Banco Pastor, the Jesuits or even Opus Dei. Following a guideline which is still fairly closely adhered to, ZaraInditex financed itself mainly by credit from the supplier. It bought raw materials with a payment date of 90–120 days, manufactured product in a little over a week, and sold this for cash within the following 15 to 25 days. It should be borne in mind that these were the days of double-digit interest rates, in some areas as high as 20 per cent. A clever management of working capital could, however, be very productive. Extending the network of shops, however, strangely freed the group from the financial tensions which on a number of occasions had led it into situations where it had to suspend payments, with bankruptcy a possibility, though they never actually reached the point where they had to lodge their books with the court and apply for the bankruptcy proceeding to be opened. One lucky circumstance, unconnected with Ortega’s wishes, lies in the source of the brand name now recognised world wide. Zara would have been Zorba had there not existed another business with this name only a few metres away from the premises in A Coruña where the first shop of the chain was opened in 1975.4 The coincidence would probably not have given rise to any obstacle to the registration, but Ortega didn’t want his shop to have the same name as another in the same street, and since he had already ordered the name sign, he looked for an alternative which would let him retain the same letters: zora, zaor, zobar … ¡zara!, probably unaware of the fact that in the Quechua language Zara means maize or that there is a town with that name on the shores of the Caspian Sea. Or that it’s also the name of a town on the coast of the Adriatic, originally belonging to Italy and today part of Croatia, a circumstance which would give rise to some trade mark problems when Zara decided to enter the Italian market. It is hard to imagine that at that precise moment Ortega and his people could have imagined where those four letters they had just chosen for the façade of their first owned shop would end up. Fewer traces and data exist about the choice of subsequent trade marks and concepts which Inditex has continued to introduce into the market, but some level of concern can be discerned or at least a serious effort to endow the hundred or so companies controlled by the group with a name that can be used commercially. The

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Zara and her sisters only exception we know about is the process which led to the choice of Oysho, where the graphic shows the name written normally and then backto-front and upside-down in exactly the same form (oysho – the ‘h’ is written as an inverted ‘y’). The added discussions fail to eliminate the assumption that the intention has always been expansion at the international level. Concepts and layout have developed in an observable way from that first shop, but what is certain is that a large part of the features of the first shops to open has been retained. The main thing is the principle of location, whereby efforts are always made to choose the best situation, in the busiest and most accredited areas of cities, except where this has later been extended to newly built shopping malls. However, albeit with perhaps some slight modification, the best match between environment and shop plus the outstanding part played by the display window have also been kept, like the correlation with an interior which, while gaining in size, has continued to be laid out so as to facilitate customer movement and access to the various distribution spaces for the product. Some innovations, or rather experiments, have not taken and have been totally or partially abandoned not long after being set up. One of the betterknown dates from the very early days, the third shop to be opened in A Coruña, in Real Street, was a trial multibrand shop, perhaps as an attempt to get rid of the cut-price image which had attached itself in the early days…and perhaps with reason. Nevertheless, the trial was carried out with enormous caution, to the extent that the most recently established brand was not used, and N&B was chosen instead, which hardly had time to be identified because it closed a few months later. What has been retained over time is the direct execution of the project and the adjustment and reform measures applying to each and every shop in the group. The method has varied, however, as has the section to which the job is allocated. For some time, only Zara was supplied with teams and departments specialising in these commissions, but little by little specific units were set up for each of the chains, most of which have become independent from their older sister. The workload for which each section is responsible has also varied: each year the group opens around five hundred new shops and tackles the refurbishing of them all, given that the policy of reorganising the layout of the shops at least every four or five years persists. Although there is no doubt that it was Zara which established the guideline, subsequent concepts have continued to adopt specific features, not only as regards size, but also in relation to product type and the public

The first attempt to open a shop targeted. This even means that one chain, Stradivarius to be precise, has replaced the attractive display window with an open façade so that the complete depth of the shop can be seen from the outside. In almost every case the interiors share the size, colour and brightness criteria, the essential aim being to make the brand pleasant and to make for accessibility to the product, so that it can be looked at, touched and bought. The design of the spaces opted from the start to eliminate the counters which up to that time had been normal in most businesses, particularly the small shops which made up, and continue to constitute the bulk of the distribution network. The aim, in short, was to allow the customer to buy in the way that suited her, without any interference or suggestions from the assistants, who would, however, always be ready to help if needed. It has recently been thought that this is an aspect which may have been relaxed slightly more than is comfortable throughout a large part of the network. In theory, interior design, layout and the display window of the shops are managed centrally and follow guidelines common to each chain, regardless of the country in which the shop is located. There are very few exceptions, and where they occur they are a consequence of specific circumstances which cannot or ought not to be ignored. One is that none of the shops in the Persian Gulf is fitted with changing rooms. Another is that in Japan all the furniture is of a different size from the standard to be found elsewhere. But there are very few more. Every effort is made to ensure that the shop matches the stock on offer of pretty garments, well-finished, well-presented, in an attractive, pleasant, peaceful space, but one which suggests an image of luxury that is affordable because the price to be paid is well below that demanded by the top-of-therange shops. But from a logical point of view, the shop is much more than a physical space: as a point of sale, it includes consumer services. In this aspect, Zara was to some extent a pioneer in being open all day, following in the wake of the department stores which had been operating in this way for some time. They also swiftly introduced their own loyalty card, Affinity Card, managed by BBVA. It is valid in all the chains in the group, though at present limited to the markets in Spain, Greece and Mexico. It currently includes around 700,000 accounts, with over 800,000 cards issued. The services offered extend from delayed payment to the granting of personal loans, including travel and other offers of various types. Other services provided by the shops are quick alterations to the garments, almost unrestricted return and exchange, and the search for articles

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Zara and her sisters which have run out in other shops in the chain, particularly on Saturdays, which has been very well received. In addition, the garments usually include a label with important advice about storage and care to give it longer life. There is no need to add that the strategy persists whereby an attempt is made to induce in the customer a feeling of unease or scarcity, or however you like to call the effect produced by the constant renewal of the product, with weekly orders and deliveries to the shop managers by means of a stock control PDA device known as Casiopea which provides information services about available stocks and handles supply applications addressed to the chain centre. However it sounds in theory, the reality is that statistics prove a regular Zara customer usually visits the shop on average 17 times per year, which suggests that the method has worked. What we don’t know is whether the shop as we know it today is, or is not, about to change, and if it is, whether the Inditex chains will incorporate the changes before or after the others. Tracing future developments is always difficult, and risky to boot, but some experiments which have been carried out already suggest that some are ready to be set up. One example may be what is known as the ‘magic mirror’, a sophisticated (magic!) mirror which allows the potential buyer to get a perfect impression of how the garment will look on her without having to try it, by means of a bar code reader system. The device has already been installed in an experimental form in the Mitsukoshi commercial centre in Tokyo, though it is not certain that Zara has yet begun to study it. But between the start and the finish which is the shop, something very important must be optimised….

8 Logistics: the challenge of marrying production and distribution

As with other matters, the ‘what’ was well known from the start – the ‘how’ was not quite so clear. The method was destined to develop as a function of factors which were largely external, though it would absorb and incorporate all the experience which had been learned in one form or another from mistakes that had been made. One of the most significant mistakes was the outcome of a decision that could be seen as laid down in the handbook – outsourcing logistics, placing the matter in the hands of a specialist company that could use its experience to take over and implement the requirements which emerged from the ZaraInditex production and distribution model. After a few approaches, a British company with a very good reputation in the market was chosen. Among others, their clients included companies like their opposite number in the clothing sector, H&M and the car makers BMW and Mercedes Benz. But the experiment didn’t work out and the company had to do what had become the norm in the life of the group, which was to entrust a member of the house who had a thorough knowledge of the company’s operating philosophy and details to take charge of what at that time was still seen as warehousing. After that things started to work and they adopted the route which, as time has gone on, has become increasingly complex and sophisticated. Integrating production and the shops in keeping with the system of rapid response to the needs of the market was without doubt a crucial challenge, and many people believe that its solution was the key to the Inditex success. This perception is so common that a good proportion of the analyses and studies of the group which have been carried out see the logistics model, rather than the fashion business, as its main innovative component. 129

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Zara and her sisters This is a view which is not shared at all by the members of the group, least of all by the chairman and founder. Nevertheless, there must be something in it, since on several occasions the group has gained the distinction of being dubbed Europe’s number one logistics company. There is no doubt that logistics plays its part. It is only a tool, of course, a resource which serves the essential business, that of producing and selling fashions. Nevertheless a lot of data support the perception that the distribution model is largely based on the competitive approach, which is the determining factor in the success achieved by Inditex. It must always be remembered that any disruption in the process as a whole shows up in the logistics chain, as happened as recently as August 2007, the details of which are given below. One of the group’s competitive factors, if not the main one, is that even today it keeps to a time period between the decision to produce a garment and the moment it is ready for the consumer that no one else has ever achieved: an average of two weeks for any of the shops in the 68 countries where they are to be found. Its main competitors times lie between fortyodd days for H&M and over sixty for Benetton, to mention only those which have managed to get anywhere near the Inditex times. The logistics chain is driven to a certain extent by the orders which the shops place twice a week, on Wednesday and Saturday afternoon, and the subsequent delivery, first thing on Friday and Monday morning, before business hours. This is basically the Zara pattern, essentially repeated, with specific adaptations to the various concepts and subject to some degree to location. Naturally, logistics is one of the aspects of the development of a company which is most affected by factors external to its own procedures. Put briefly, it depends on the infrastructures which it is obliged to make use of. It is a fact that the group has had to overcome huge difficulties in this area over the years. Those of us in Spain who are over forty can imagine the obstacles which had to be faced until quite recently to ship goods from the north-eastern corner of the peninsula. Theory would suggest that no sensible research would ever have suggested the outskirts of A Coruñu to set up a logistics distribution centre serving four of the five continents on the planet. No analysis of viability, suitability or cost would have supported such a decision. However, Zara was there at the beginning and it should be borne in mind that the Ortegas never considered the possibility of looking for an alternative location, for neither the logistics centre, which of necessity had to be close

Logistics to the manufacturing plant in line with the established production model, nor the plant itself and the Inditex nerve centre. In hindsight it isn’t too difficult to imagine what would be required to distribute goods to the shops that the group was spreading throughout the territory of Spain and, later on, to those on the other side of the Pyrennees: twice a week and fitting into the 24–48-hour deadlines which have always been in place for arrival at point of sale. It had to be done on main roads that were appalling, initially with a lorry fleet which was constantly in motion, crossing Spain and a large part of Europe. The veterans remember, with some degree of sarcasm, that it was a good job that the heads of the Department of Traffic had not yet acquired their later obsession with scattering radar machines all over Spain and fixing strict speed limits. Zara, first, followed by the other chains, have suffered like any other logistics system from the evidence that, when it came to shipping merchandise, Spain’s railways were inadequate. Their delivery deadlines were too slow and the reliability of consignments was much too poor for rail to be considered as an alternative, which placed the absolute responsibility on the roads and lorries. The question of decentralising distribution gave rise to a lengthy debate at management level. On the one hand, it was felt to be little short of essential, since the Arteixo centre was reaching the limits of its capacity, but on the other, extending the Sabón Polygon seemed impossible. And the safety argument was also important. In actual fact, on the risk chart drawn up by the Board of Directors the possibility of a disaster, a fire in particular, in the logistics area, particularly if it happened on a distribution day, showed up as one of the most critical points the company would have to cover. Nor is it to no effect – indeed it has been instrumental to a considerable degree – that the Inditex distribution system, and especially that of Zara, is something like the key to the range which supports the business model. A hypothetical disaster such as that mentioned above would not only result in an important loss in merchandise, but it would also paralyse a significant portion of activities. We should recall that the shops usually hold no more than stocks for a month’s worth of sales, and in the high season barely for a fortnight. This would exceed any loss which could be covered by insurance: stocks, profit losses, etc.… the effect of practically having to close shops where operations are based to a large extent on constant stock turnover could never be covered even with the best policies the market could offer. There were therefore powerful arguments in favour of decentralisation.

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Zara and her sisters However, reaching this point was no more than step one. There were more, and they were of equal or greater importance. In the first place a system of sharing out the jobs between the Arteixo centres and those which were to be built had to be worked out. Options were few, but there were enough for a list of advantages and disadvantages to be drawn up for each possibility. Specialise by product? By destination? By production plant? These were the main ones, but it is likely that plenty more would have emerged, and, depending on which option was chosen, the next step would be to change considerably the circuits and methods of delivery from the plants to the distribution centre. Furthermore, a critical element would have to be adapted – the systems which support information flows. Logically, the logistics centre in Arteixo has been and continues to be the reference: it works satisfactorily and has been adjusted and optimised over the years. After successive extensions it is now over 400,000 square metres in surface area, occupies some 1,000 staff members of the 3,500 who make up the complete Inditex payroll at the Sabón Polygon, and is connected to the eighteen plants which supply Zara clothing through the various tunnels and over 250 km of automated tracks. However, it would be impossible to replicate this completely if it were finally to be located at a distance of some kilometres from the factories. The connection between production and distribution, however, displayed a clear distinction as far as Zara or the rest of the chains were concerned. What distinguished them was the significant fact that the former was concerned with actual manufacture, while others were not. Neither did they share a single supply model, however, apart from the fact that they got the majority of their garments from external suppliers. There was more – they were even becoming differentiated on the matter of supplying the shops: without altering the characteristic component of immediacy, each format, as we shall see in due course, has continued to adjust its practices to the market segment it hopes to cover. This meant that not all the chains were distributing in the same way. The first step consisted of consolidating a distribution centre which would be differentiated for each of them, factoring in not only the size they had grown to, but especially the growth at which it had been decided to aim. Reasons existed, such as the independent commercial management of each format, which demanded direct communication with the individuals in charge of merchandise distribution, and the convenience of being able to continue adapting the procedures and timing of the delivery of their

Logistics respective specialities. This was why differentiated logistics centres made their appearance, to a large extent consolidating what had been established by the two businesses which had been purchased, not founded, by Inditex: both Massimo Dutti and Stradivarius continued to retain their distribution centres in their original locations, the outskirts of Barcelona. It was decided, therefore, to locate the platforms in the same places where the management of the chain was based, in order to obtain a close connection between the marketing and distribution sections. The first unit to become independent was that located in Narón, in the mid 1980s. This is where all the Pull and Bear activities are situated. Shortly afterwards, the second effort in this direction emerged as a consequence of the two acquisitions made by Inditex, given that both had their central services installed close to Barcelona: this is why Massimo Dutti today shares a logistics centre with Bershka and Oysho in Tordera, while Stradivarius, whose distribution systems retain certain specific differences with respect to the rest of the group, operate from Sallent, both localities being in Barcelona province. Finally, there is a centre annexed to the premises of the subsidiary Tempe, which is dedicated to the production of shoes and leatherwear, in this case further to the south and following the line of the Mediterranean coast, in Elche, Alicante province. The case is similar to those of Massimo Dutti and Stradivarius given that Inditex has been taking control of Tempe in successive stages. The steady growth being achieved by Zara was finally to oblige the business to tackle a second stage, something of an exception to the principle mentioned above of proximity between the head office of the chain and the distribution centre. The insignia that currently continues to represent over half of the group’s business was testing the capacities of the centre located at the Sabón Polygon, which also appeared to be at the limit of its possibilities of expansion. No more space was to be found in the area for growth, with all or part of the surface area in use by the production plant, and it seemed neither advisable nor sensible to exceed the size which had already been reached for management reasons. The outcome was that the analysis of the options began to point in the direction of building a new plant, which led to an examination of the functions that would have to be split and where the location should be. In the wake of lengthy discussion, disagreements and debates, the final decision went in the direction of a formula mainly orientated along the lines of the criterion of specialisation by destination: the new centre would be devoted mainly to supplying Europe, the Middle East and Asia, with

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Zara and her sisters the emphasis on distribution by air as a complement to the majority of the distribution, which was by road. A number of locations were investigated as a result. Consideration was even given to the possibility of locating it in neighbouring Portugal, but the successful candidate was eventually to be Zaragoza. At that time the capital of Aragón was developing an ambitious project for an intermodal logistics platform covering 13 million square metres, known as PLAZA (Plataforma Logística de Zaragoza – the Zaragoza Logistics Platform), driven and partnered by the regional government, the city council and the local savings banks, Ibercaja and Inmaculada. The area is located between the A-2 motorway which links Barcelona and Madrid, the future AVE complex (Spanish high-speed train), planned specifically for what was at the time seen as the imminent arrival of the high-speed train (later to be delayed by almost two years) and the nearby military airfield, converted into a civil airport. The Zaragoza location also had additional advantages to be factored in: it is a crossing-point of a number of high-capacity land routes linking three cardinal points of the peninsula (north-east, north and north-west) with the centre between them, and is provided with at least two access routes to the other side of the Pyrenees to connect up with the European motorway network. Even though everybody was in favour, the experience was to give Inditex a shock. The project was made the responsibility of the CEO, at that time Juan Carlos Rodríguez Cebrián, and he handled it badly; so badly, in fact, that some creativity had to be applied to the accounts in its opening year. At last the new centre went into operation at the beginning of 2004, covering a surface area of 125,000 square metres. Even so, the debate had to be reopened the moment these plants were launched, since the group was consolidating a growth rate in the order of 20 per cent per year, when meant that all operational parameters were doubling every five years. It was decided then that the logistics framework should be planned for the longer term and the capacity estimated as necessary for the 2012–14 horizon was adopted as a reference. At the same time a decision which was to some extent secondary was implemented: to remove from the Arteixo centre the growing volume of returns and garments being redirected for the clearance sale procedure. It was not that the percentage of goods sold off as a proportion of the stocks handled or sales was growing: this remained stable, but the increase in volume was generating a parallel increase in this area of stocks which also required an increasingly specific style of handling as a consequence, among other reasons, of the consolidation and development of the outlet sales business.

Logistics All this led to the decision to create a centre specifically for the reception of stock to be sold off, and a location relatively close to Arteixo was chosen for this, situated on the transportation route of a large proportion of the goods handled by Zara: León. The historical capital was benefiting from the recent opening of a number of dual carriageways which placed it in the position of a communications node of great importance in the routes from the north-west of the peninsula to the north/north-east and centre/south, which in the period of just a few years has boosted its role as a large-scale logistics centre. A 40,000 square metre platform has been built there in the Onzonilla industrial zone, opened in 2006. In addition to this specific centre Zara’s growth forecasts led to the recommendation to build another large platform. The location analyses led to the pinpointing of Meco, some thirty kilometres from Madrid and a mere twenty from the now extended Barajas airport, in the exact geographical centre of the peninsula. The authorities contributed in a way not very clearly specified when, from the outset, they revealed themselves ready to provide support in the form of the conservative leader of the regional government, Esperanza Aguirre, who felt that the fact that Zara would have a plant within the confines of the Madrid community was of enormous importance. This ended up forcing Inditex to pay the small political price of officially opening the centre several months before it was ready for full operations, as a response to the insistent request to do so before the municipal and regional elections of May 2007. The Meco centre has a constructed surface area of 160,000 square metres and 120 loading docks. The concept decided upon for Zaragoza has to some extent been revised. In Zaragoza the decision was for specialisation by destination, while here the preference to organise it as a function of product lines has been re-established. This means that the Madrid unit will be essentially dedicated to the Zara-Kiddy’s Class children’s clothing and practically the whole of Zara Home. It is also an innovatory experiment as regards management. For the first time what has been seen as one of the essential principles of the group has been set aside, that of not mixing the distribution of products of their own make with that of other makes. This has happened because Zara Home acquires the whole catalogue of its stock on offer from third parties, while the Zara children’s clothes come from the group’s own factories, as does a proportion of the clothing marketed through Kiddy’s Class, which has recently been hived off. The challenge of handling large volumes of household articles is seen as more of a challenge, since many of them are very

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Zara and her sisters fragile, because, however you look at it, these products are unusual for specialists in the shipping of textile goods. The Meco logistics centre faces another challenge: the launch of sales via the internet. In October 2007, Inditex began its first experiment in making electronic commerce available to the consumer, concentrating for the moment on its youngest chain, Zara Home. In theory it will be limited to thirteen European countries: Spain, France, Germany, Belgium, Denmark, Greece, the Netherlands, Ireland, Italy, Luxembourg, the United Kingdom, Portugal and Sweden. The initial catalogue consists of some 2000 products, identical to those available from the network of shops and at the same price as that charged in each of the markets in question. The payment medium chosen is the credit card, including that issued by the group itself, Affinity Card, with a commitment to home delivery in under ten days from the confirmation of the order. In addition, the articles purchased can be changed or returned in any non-virtual (street) Zara Home shop. As a backup to their new virtual distribution network a specialist customer support service has been set up using email and telephone, available in five languages in addition to Spanish: English, French, German, Italian and Portuguese. There is no doubt that this new sales system will result in changes to the logistics dynamic which so far has been centred on distribution to fixed, stable and pre-established points, such as the shops, with a delivery rate of at least two per week. It will be necessary to incorporate a need for random shipping, presumably to single points spread through over half of the EU, with a capillarity which is impossible to predict and external distribution networks which are very unlike each other, depending on the country and the actual area in which the delivery is to be made; a new challenge, for sure – just one more. It is to be assumed that the experiment will result in an additional facility. For the time being the group leaders have been careful to insist that this is by no means a pilot experiment, stating that there are no further plans to extend on-line sales to other concepts or chains. It is, however, hard to believe this, particularly in view of the fact that e-commerce is developing with enormous speed and energy, including in the couture field; starting in the USA, but also to be found in Europe. Even data from Spain suggests that this is something destined to grow, sooner or later. Recent studies, including those carried out by the National Statistical Institute (INE), calculate that some 15 per cent of Spanish internet users are already buying clothing on the internet. Other sources count between

Logistics 2,000 and 3,000 clothing orders being placed daily via the internet on the national market. Will it be possible for Zara-Inditex to resist this trend? For how long? Other competitors have already launched themselves onto this sales channel, and have been accepted with a fair degree of satisfaction. So it is difficult to see Inditex turning away from the potential they can gain from being present in the on-line sales market, particularly in view of the fact that one of the characteristics of the group is precisely the propensity to review everything when their own management principles require it. As an expressive statement attributed to Amancio Ortega puts it: ‘There is no reason that what works today will work tomorrow – in fact it probably won’t be any use at all’. In all probability what stands as an essential principle has been applied on many occasions. Alongside these theories it would appear that the calculations carried out to set up a network of logistics installations able to cover needs until 2014 are undershooting and some of the extension programmes already planned are having to be accelerated, but the possibility that another centre will have to be built must also be factored in. The probability is that the most pressing need will arise from the launch of the new chain uterqüe, and progress here will depends on the completion of the work on extending the surface area of the warehousing in Elche (Alicante). Plans are also in place to bring on stream a new logistics platform in Palafolls of 80,000 square metres, intended to meet the Massimo Dutti, Bershka and Oysho needs, located in the neighbouring district of Tordera (Barcelona). Also a number of projects are in progress for increasing the capacity at Ferrol, Zaragoza and Sallent centres. A description of the logistics procedures is not limited to the distribution of the merchandise to the shops in each of the eight chains in the group, as you can imagine. Although the management of purchasing falls under a specific department as far as raw materials are concerned, and the central departments of each chain handle acquisitions of finished product, all flows revert to the corresponding logistics centre, with the consequent management implications. Just as lorries and aircraft are responsible for distribution to the points of sale, ships are the main agent for Inditex supplies. It has already been explained that a proportion of purchasing from abroad concentrates on raw materials and articles with low or very low obsolescence rates, which means that the reduced cost of sea freight can be combined with the more lengthy transport time involved in sea transportation. Moreover, from this point of

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Zara and her sisters view, A Coruñu has always enjoyed a privileged position, since it has one of the best harbours in the country. It should be added here that the logistics centres also perform a redistribution task, acting as an intermediate step between the actual shops in the chains to carry garments from one to another, in accordance with decisions taken by the marketing section on the grounds of sales, demand and even local weather conditions. Again and again we have seen how the logistical ingredient is not merely fundamental in the Inditex model – it probably constitutes one of the differential competitive factors that explain the success which has been achieved. If there is one thing that Zara has done, Zara first and then the rest of the chains in the group, it is to achieve distribution and stock rotation times faster than anyone else has been able to replicate so far. It is, of course, debatable as to whether or not this is actually the basis of their competitive capability, but what is not up for discussion is whether the other companies have even managed to get near this distribution speed, agility and flexibility. Does that mean that the model is perfect? The most common response from most people directly involved is that it is not. Nor are they saying this merely for effect, to imply that they are always guided by the idiosyncratic, even unorthodox, perfectionism of the chairman-founder. There is no shortage of information and reasoning to support the perception that there is room for improvement. Rather than studying the systems on paper, take a trip to one of the group’s distribution centres and you will see that the installed capacity is underused. The challenge is to extend the use made of the resources, though taking care, of course, to ensure that the competitive ingredient of the shop network is not affected. One idea going the rounds is to change the twice-weekly deliveries system. Would it be possible to deliver stock on more days? Or if the twice-weekly pattern is retained, why not have some days for some shops, and other days for other shops, so that the flow of deliveries is smoothed out? As a matter of fact, one chain is already working this way. The opinion of the management is that this will make it possible to organise all merchandise deliveries and consignments more efficiently, including those concerned with redistribution between points of sale, incidentally reducing the peaks which are becoming increasingly critical as a result of the growth in the volumes to be handled that are being recorded year on year. Although the effect of the season on sales differs between the various markets and chains, in aggregate terms there tends to be a greater

Logistics concentration in the last quarter (33 per cent), followed by the July– September period (26 per cent), the second quarter (22 per cent) and then the first three months of the calendar year (19 per cent). Even so, Inditex, is not innocent of possible exceptions to the rule of Reason. In this case you run up against implacable resistance from the marketing section, both at head office and from the shop managers, none of whom is willing to accept a change to the delivery cycle, which would in turn demand changes in organisation and task distribution. As we have already seen, the last word on most matters is had by the marketing section, and without their blessing nothing in the group moves forward. Are they protected because this was Ortega’s preference way back in the distant days of the garage in San Rosendo or that he never delegated it even while he was completely under the Inditex thumb? The point is that the debate is now up and running, and, while the outcome is largely unpredictable, it is the fact that a breach has been opened in one of the group’s DNA elements, but that is all it means, so to some extent this suggests that things will continue unchanged. More than one precedent hints that, other things being equal, a dynamic of reviewing and inverting any principle does indeed dominate as long as the outcome is an improvement. There is no doubt that logistics has had to respond to the challenges imposed by the accelerated process of expansion and growth that has consumed the group over the last ten years in particular, which makes for clear suggestions and indicators that it is going to continue. The strategic situation reflects yearly growth rates of 20 per cent, both in sales volume and square metres of commercial area, with a shop-opening rate of between four and six hundred shops per financial year, and with the addition of two or three new countries – markets – to the extent of the company’s reach. Nevertheless, it is a fact that a large part of this increasing complexity is eased by the development of communications and transportation infrastructures and systems, particularly as regards advances made in the territory of Spain itself. This has meant that, as time has passed, the primitive distribution system, using only lorries which came and went over the dilapidated and often twisting roads that linked Galicia with the rest of Spain and the routes to France for the connections with the central European routes, has been left behind. That effort has been complemented and to a large extent replaced by the advantages offered by new intermodal options, basically using high-capacity motorways and increasingly air transport.

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Zara and her sisters Zara-Inditex has signed agreements with around a score of airlines to cope with its logistics requirements as regards distribution and supply in order to guarantee delivery times to the shops which never exceed 72 hours to any geographical point on the planet. One of the most recent was signed with Air France-KLM to make a number of weekly flights by Boeing 747 Jumbo from Zaragoza airport to ship merchandise to sales points in the Middle East and Asia, outward, and supplies, inward from the plants and suppliers who are mainly Asian, connecting the Aragon platform with Hong Kong and Bangladesh via Dubai and Bahrain. This route has replaced to a large extent the one that in the past started from Paris, where connections were made by air via Oporto (Portugal) or by road. Although significant progress has been made in the direction of intermodal logistics planning, the majority of the goods are still shipped by road. Road transport satisfies 80 per cent of needs, while the remainder goes by air. It should be made clear – nothing goes by rail. The infrastructure limitations were not only important when it came to linking up land transport systems, but they also affected the air option to the extent that the basic airport for the centre located in Arteixo is not Alvedro (Corunna), which is barely 10 kilometres from Sabón, nor La Bacolla (Santiago de Compostela), 70 kilometres away, but Oporto (Portugal), which is almost 300 kilometres from the central logistics hub. The situation is easier for the other distribution centres, with the exception of Narón (Ferrol), since they are respectively located in the metropolitan areas of Barcelona, Zaragoza and Madrid. Of the approximately 600 million garments which were handled in 2007 by the group’s logistics centres, the majority (65 per cent) were delivered to the shops folded in cases, but a significant proportion (35 per cent), some two hundred million units, arrived at their destinations hung on racks. These totals do not include, as has been said before, the considerable volume of provisions and supplies, both of raw materials and other finished articles sourced from third parties.

9 Thinking big: Galicia is too small… Growth is probably one of the most decisive tests to which an organisation can be subjected. Knowing how to grow is seen as one of the subjects which a large proportion of management has yet to master, particularly in the Spanish case. The list of disasters which have occurred because the way to manage or digest the processes of expansion is long, but even longer in the case of companies which have suffered crises because of having to undertake jumps in size. However, Zara-Inditex has managed to find itself in neither category so far. This is not exactly because its growth has been unhurried: it was not so at the beginning when activities extended no further than manufacturing for third parties, nor when it expanded its shops throughout Spain and half the world, and it is not so at the moment, when figures show it as doubling in size every five years, if not more. The subject is not uncommon in entrepreneurial literature. One approach, often repeated in the case of Spain, claims that Spanish culture is not suited to the management of large enterprises. Or rather, it used to make that claim, because in the past ten years very significant leaps have been made around the edges of some businesses which have grown from being strictly domestic to a global profile. The difference is that in practically every case growth has been a result of takeover and consolidation operations; that is, by buying other businesses or merging with previously independent companies. And in some cases more than others there have been many critical episodes involving restructuring, adjustment and above all the recasting of the strategic orientation, including the business model… and often the business teams. This is yet another dynamic that is absent from Zara-Inditex. This is partly because the contribution made to growth by takeovers has only ever been secondary: essential growth has derived from its own capacity to expand its presence and activity. It is also the case because growth has 141

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Zara and her sisters been compatible and supported, without the need for substantial changes in the management model. Although this too is true, thanks to the decisive circumstance that its founder has remained and still remains in charge, with no discontinuity, it is also because the most well-known changes which took place in the upper managerial levels were caused and driven by factors that had nothing to do with growth. It can be imagined that more than once there will have been discussion at Zara-Inditex as to whether growth should continue to be organic, or whether takeover and merger operations should be involved; at least the two former concepts might have been considered, since the latter sounds hardly credible given the philosophy which has informed development since 1963. And in the light of the facts, it is obvious which approach was given precedence over the others. Taken as a whole, the only two takeovers which have been carried out stand as an obvious exception. Nor did they occur for the same or similar reasons, and this may be the reason why the exercise has not been repeated. Not that this means that opportunities have not arisen, or more precisely offers of all kinds; more as the group became more famous. Little is known of these, partly because of the almost obsessive secrecy which only partly let up after the public flotation, but also because, when the other party was not taken over, it was natural for it to keep silent. Only one exception is known about, and in no great detail. Clues exist that Zara-Inditex was on the point of buying Galerías Preciados, the chain of department stores which for years was the rival of El Corte Inglés for the leading place in the market. Over the 1990s the Galician group was immersed in one of its intense growth and expansion phases, and it is likely that it received more than one official suggestion that it should consider taking over the company which had suspended payments, with its thousands of employees and some dozens of huge stores in the major capitals of the country. The Galerías Preciados story had been taking a negative turn for some years. It had been founded in the 1930s, by a returned emigrant, Pepín Fernández,1 who had made a fortune in Cuba and decided to replicate a successful large department store format in Havana, taking a small establishment, Sederías Carretas, located a few metres from the Puerta del Sol (Madrid) as his base. He took the name from another of the local streets, Preciados, towards which faced the façade of the large building he constructed to house his project. The initiative soon had to compete with one started by another returned emigrant family, the Areces, who, also using

Thinking big a fortune built up in Cuba, founded the El Corte Inglés project, moreover physically located just a few metres away. The Preciados stores enjoyed a brilliant initial start, but soon began to give ground to their main rival. There are many apocryphal legends about supposed connections with the Franco family, even claiming Carmen Polo, the General’s wife, as the main shareholder in the chain. The reality, however, is that Preciados ended up by executive means in the hands of one of its major creditors, Banco Urquijo. The Bank, not really knowing what to do with it, decided to sell it to José María Ruiz Mateos, at that time the daring leader of the Rumasa Group, who immediately framed some grandiose re-launch plans, behind which there lurked schemes to take advantage of the real estate potential of the centres in the chain. Whether this was true or not, Rumasa had no time to do anything, because the first Felipe González government decided to buy out the group over 23–24 February 1983,2 whereupon the ownership of Galerías Preciados passed to the hands of the state, though with a plan at the ready to proceed to immediate re-privatisation. The only problem was that it was not easy to find a buyer. Later legends aside, it seems that the only person interested in buying the huge stores was the Venezuelan businessman Gustavo Cisneros, famous for his activities in the communications world, but also owner of beverage distribution companies, travel agents, etc. However, it rapidly became apparent that he had no idea how to re-float Galerías, which was now in ever accelerating decline because of the mounting bad luck it had experienced, both before and after expropriation. The British group Mountleigh then appeared, a group with its major activities concentrated on real estate, and took over the property, leaving Cisneros with a healthy capital gain, one which became the subject of a lengthy and confused dispute afterwards. The actions undertaken by the new owner, however, could not prevent Galerías Preciados from moving into suspension of payments, with a more than average likelihood that it would end in bankruptcy and subsequent liquidation. This occurred, however, during a delicate political moment for the last of the Felipe González governments (PSOE: Socialists), attacked on all sides because of corruption scandals, suspicions and accusations, to which a possible collapse of a department store chain, re-privatised by one of the previous governments, could only add fuel. Between this and the possibility of thousands of employees thrown out of work, the government made some discrete moves to find some reliable

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Zara and her sisters buyer who would be capable of making the chain viable, should he be in a position to do so. The strong likelihood is that one of the parties contacted was Zara-Inditex, but whether or not there was an official suggestion, what is certain is that the operation was examined in Arteixo, and the step was about to be taken … except that Amancio Ortega didn’t go for it. Many years later there are still people in the group who think it would have been an excellent operation. They are saying this, of course, from the point of view of how profitable it has turned out for the party which did take it over, El Corte Inglés, but they add plenty of reasons as to why Inditex could have done as well or better. It’s far from certain, however, that Amancio Ortega shares this assessment. It’s more likely that he retains the feeling which caused him to reject a purchase which looked brilliant in figures and projections, on paper; but there was the more important evidence that Galerías was imbued with a culture that had nothing to do with that of Zara-Inditex and Ortega’s firm conviction that changing what has become established is very difficult, verging on the impossible. The same applies to people: what is not acquired in the formative stages of youth and adolescence tends not to be changed when the individual is an adult. Different considerations, of course, guided the two takeovers which he did decide to go through with, though in the first the assessment turned out to be faulty. The reasons why Zara decided to buy a share in Massimo Dutti are far from clear, so any speculation could be risky. The Catalan company was in a rather delicate position and needed to take on partners, but its position in the market was in no way comparable with or similar to that of the Zara shops at that time. It may be that it was precisely this factor which made it interesting to incorporate it into the Inditex world. The new name meant entry into a different business segment, not only because Massimo Dutti specialised in men’s clothing, and particularly that which had little to do with the trends arising from seasonal changes, but also because it neither manufactured nor distributed as in the model which the Ortegas had set up with such hard work. It may be that the challenge component weighed more than other factors, with the rider that at that time Zara was already nurturing desires and even plans to free itself from the image of copy and cut-price, largely created by some competitors who had been taken by surprise by the growth being achieved by the Galician logo. The operation began in 1995 with the purchase of a controlling share, albeit not complete, in the capital of the Catalan company and without

Thinking big adding anybody to the management team. The management of Massimo Dutti remained, therefore, in the same hands, though Inditex directors took their seats on the board of directors and made some suggestions about reorientation, both as regards the purchasing and distribution procedures, and the focus of the market to which the product strategy should be directed. Barely six months had passed when it became clear that a mistake had been made. Massimo Dutti in no way chimed with the Zara philosophy nor had its managers any intention of changing. It then became apparent that they had accepted the entry of Inditex more as a financial partner than as a professional partner, taken on to help reconvert a business which was leaking cash on all sides and was incapable of competing with the other brands who were concentrating on the same, rather small, market segment. A second phase was then instituted in which the majority holding became total and the entirety of the management team was replaced. Other motivations led to the second and, so far, the last purchase of an outside business to be taken over by the group in 1999. Stradivarius, though of Catalan origin, had originally made a powerful appearance in Valencia with a very attractive concept, oriented basically towards a public which was female, urban, modern, largely very close to the subculture and under twenty years of age. It was precisely the same group which was targeted by an Inditex chain which had just been launched on the market a few months before: Bershka. It was not that they had copied each other, but they had both detected and decided to work in the same niche, seeking the same opportunity. The plan, then, was to buy and then control the main competitor capable of holding back Bershka’s penetration into the market. A financially attractive offer had to be made to the partners in the embryonic chain, making use of the abilities of an already well-consolidated group, no doubt more impressive than those entrepreneurs who were just starting out. Thus the operation was concluded, but with different results from those achieved beforehand. Whether or not it was a part of the purchase agreement, Inditex decided to retain the name Stradivarius in the market and confirm all members of the management team. This time it was the right thing to do, as is evidenced by the fact that it still remains a part of the group. It was probably easier, because the initial philosophy of the Catalan company was similar or close to that of the buyer. This has not, however, led to similar experiences, whether they have been investigated or nor. Following this purchase, growth has always been within the company itself.

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Zara and her sisters Of course, none of the sections of the organisation has remained either static or free of the consequences of the expansion process, but the reality is that they have adapted to the demands made by growth, proceeding without the traumas, shocks or declines which are so common in this situation. Progress, in fact, has been sustained steadily and has required no slowdown periods to consolidate the consistent growth. This may conceal another of the much sought-after secret keys to revealing the hows and whys of the development of the business to what it has become. So it’s worth examining what steps were taken, and how they proceeded, from that first shop in A Coruña to the scores of businesses soon spread out initially all over Spain, and then to the multiplied presence abroad now to be found in fifty-odd countries in four of the five continents of the world. It may be that another ingredient clearly rooted in Ortega’s entrepreneurial gene is the vocation, some would say obsession, for growth. This was something that was undoubtedly favoured by success: it’s always easier to build on contrast, if you prefer the evidence that the formula works, than to do it from the pure risk of not managing to sense or calculate the response of the market. However, it’s no less certain that success also frequently leads to the relative complacency of acting in a fashion that lies between timid and conservative. The growth engendered by Ortega and his team is evidence that they are not like that. Going back to the beginning, the opening of new shops had to follow guidelines which took account of the main restriction of that period: the ability to maintain the distribution model. This limitation had, among others, a financial component: Zara did not want to, basically because it could not, maintain stock without sales. Speed in dealing with orders, flexible rotation of garments, the two-weekly deliveries of stock to the shops had to, and must, be maintained. We have already seen how, in the beginning, it was the Ortega brothers themselves and some of their colleagues who physically dealt with this crucial part of the business model, but once this stage was over they had just managed to organise an embryonic logistics model which was appearing expensive to extend. They chose, then, an expansion scheme like a drop of oil, theoretically following the routes they normally followed, both in order to keep placing their product in other shops and to supply themselves with raw materials for the manufacturing plants. In other words, the first wave of new shop openings followed the course of the highways which respectively linked Galicia with Barcelona and Madrid. That means that Zara began to have a presence in Castile and León, Aragón and finally, Barcelona and Madrid,

Thinking big with a preference for capitals with a population over 100,000 and where, of course, the philosophy was maintained as regards location of premises: big, spacious buildings located in the best shopping area in the centre of the city. It is important to try to place each thrust in the expansion of the shops network in Spain (see Table A9.1, p. 269) in context, given the socioeconomic circumstances of the country. This gives rise to the impression that the first step forward taken by Zara was one of acute uncertainty and rather confused expectations, both politically and as regards aspects of a social and economic nature. Zara opened its first shop during the summer of 1975, just before the death of General Franco and the passing of the regime established some four decades before became inevitable. However, it was barely a year before that, also in midsummer, that a serious attack of phlebitis had made it clear the biological decline of the dictator was a reality. This was something that directly affected an economic situation which would call for a serious and rigorous process of adjustment, something like a full stop to the exuberant prosperity which for over a decade had presided over the consolidation of a huge middle class: this was precisely the market which Inditex was targeting in the initial incursion into the retail market. Two years previously, in 1973, the first oil crisis had undermined the foundations of the majority of the economies depending on imported crude to satisfy their energy needs. Spain, however, had disguised the effects by means of an active policy of public subsidies for consumer prices, due to the insistence on the part of the authorities not to run risks of a social nature at the time when the decline in the regime began to reveal itself. Naturally, therapy such as this was as short-sighted as it was counterproductive in the medium term, given that, counter to what any authority in the government’s economic area dared think, the shortage of petrol was not temporary. The second half of 1975 was appearing, then, highly unpropitious for any business adventure. More than ever, it was concerned with consumership which was far from being set in stone, given that the delayed adjustment could only rein in the acquisitive capacity of a large part of the population. Just to add to the complexities, the prospect of the death of Franco gave rise to all sorts of uncertainties as to what kind of scenario would follow his passing. Seen through the perspective of the intervening decades it may appear that a large part of what was then everyday life may have fallen through a crack in the memory, but the fact that the final dénouement should be even better than the most optimistic forecasts cannot, and should not, hide the fact that these were times, in almost every sense, of extreme difficulty.

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Zara and her sisters Everybody knows that a large part of what was forecast came to pass. Franco died on 20 November 1975, the economic crisis gained momentum until well into 1979 and those four years passed by riddled with problems, risks and uncertainties of all kinds, among which we should not forget rising unemployment, runaway inflation,3 aggravated by feedback from unrestrained rising wages and a high rate of labour unrest. The same day that Don Juan Carlos was proclaimed King in Madrid, barely 48 hours after the death of Franco, Zara was opening its second own shop in A Coruña. It hardly needs adding that the socioeconomic landscape not only failed to put Ortega’s plans on hold, but it is even possible to think that it also encouraged them, since it can be imagined that he might have been persuaded the circumstances could be exactly the most propitious for establishing the model he had in mind. The policy for opening a shop in a given city in Spain, later to be replicated in each new country, has kept to the guideline of initially opening a Zara shop. The most iconic logo of the group has always acted as the advance party, both as an indication of its presence in the corresponding square or market and to act as a base upon which the subsequent installation of the rest of the chain can be planned and developed. This was only sensible, in view of the thirteen years during which Zara was the only experience of direct contact with consumers. This strategy was maintained when the various Inditex concepts began to establish themselves in the shopping centres which, mainly on the outskirts of the large cities, were beginning to make their appearance throughout the entire geography of Spain, combining sales, relaxation, leisure, sport and restaurant services. It is a fact which appears proven that Zara and her sisters have in many cases acted as the engine of many new centres, receiving privileges and advantages as regards location and space which can easily be imagined. To some extent, the few complexes in which Zara and the other concepts are not present have actually had to deal with serious problems as regards attracting and holding a consumer public. As might be thought, the proliferation of points of sale at no time allowed the rule whereby points of sale should be visible, if not actually iconic, and in the best and most central areas of each city to be set aside, or any exceptions allowed. Sometimes this has even excited a certain degree of surprise and scepticism on the part of seasoned observers. It happened when it was realised that Zara was installing itself practically in parallel and in locations adjacent to the positions chosen by El Corte Inglés, the undisputed giant of the distribution world.

Thinking big The theory used to be that the department stores were direct and threatening competition for Zara sales, but experience showed very soon that the presumption was false. It turned out that the leaders of the Galician chain had greater commercial vision than those who had dared to suspect that this was a mistake. Quite the opposite: the proximity strategy turned out to be a good move which undoubtedly helped consolidate their penetration of the textile fashion market. Essentially, the thesis imprinted in the strategic brain of the group which considers that a good location is a good location was shown to be true, even helped rather than hindered by the fact that it is surrounded by similar businesses. This situation is so much the case that the urban landscape of the majority of Spanish cities includes not only the various Inditex chains side by side, but even some of the same concept, particularly Zara, separated by just a few metres, all maintaining the same average sales levels per surface area of the chain. Only recently have trials been run that stand as an exception to this rule, which has been kept since the start. Under the colourful name ‘dead street’ they include the opening of five or six shops of different chains in roads with almost no commercial presence, the plan being to revitalise them, leading to the installation of other businesses, drawn by the influence of Zara and other brands on the consumer. It seems to some extent similar to what has already been tried in the commercial centres in earlier stages of the process of expansion, presumably with similar advantages as regards cost and the choice of premises. Presently it has been tried in A Coruña and Moscow, and the plan is to transfer the model to other capitals, preferably in the countries of eastern Europe, since it appears to have worked satisfactorily. Somewhat earlier, though a novelty in its time, there was a decision to expand the Zara shops by using areas and buildings which were iconic in nature, adapting cinemas, theatres and even the odd monastery to the provision of large commercial spaces, retaining what was essential about the architecture, both internal and external. Once, towards the end of the 1980s, the extension of their own points of sale claimed a victim: the commercial network, which up to that time had been busy maintaining relationships with wholesalers and other Inditex customers. Problems had been developing as the Zara shops were taking increasing proportions of the garments which arrived from the plants around GOA and Goasam. As Zara-Inditex sold more and more to itself, the network of commercial agents watched their activities fall. Given the payment scheme via sales commissions which is usually applied in this type of business, this meant

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Zara and her sisters that agents were headed for an income in the region of zero, with the consequent disappointment on their part that is easy to imagine. In view of this a policy of incorporating the commercial department of a large proportion of those which made up the network in question was implemented. There was, however, a salient exception. Going back a little in time, it should be recalled that a family involved in the textiles and fashion business has been involved since very early days in the Ortega projects: the Caramelos. One of the members, specifically the nephew of the man who saw himself as the patriarch, was working with the Ortegas at La Maja and joined the budding GOA practically at the first moment, working at the time as what was known as a traveller or commercial representative. At the same time the bulk of the family had also become involved in production at a location also near the city of A Coruña. This manufacturing orientation, however, did not prevent the patriarch in question, José Antonio Caramelo, from occupying the position of marketing manager for GOA for a long period of time, and later, becoming the group’s commercial agent for the whole of Galicia. But when manufacturing for third parties totally ceased in 1987, this put an end to the arrangement and marked the start of a period of understandings and misunderstandings between the Caramelos and the Ortegas. This was at the same time that the Caramelos launched a predictable drive in the way of commercial development from which, though it came nowhere near the share achieved by Zara-Inditex, it is today one of the Galician fashion groups with an international presence. The expansion of Zara and the rest of the chains has been for some time the significant event on the commercial landscape of a large part of Spanish territory. Nevertheless, it has not occurred alone nor is it lacking in sharp competition, which sometimes has replicated its multiconcept model and disputed locations and premises in an effort to emulate, without too much success, the multiplication of points of sale and presence in the majority of the capitals in the country. The 1,724 shops which Inditex has opened in Spain (as of 20 December 2007) directly compete with those which Spanish and foreign groups have or had established in their vicinity. (see inditex.com for the latest data) H&M This Swedish group, within and outside of Inditex itself, is seen as the major competitor at world level, and has been expanding over recent years – since

Thinking big 2000 – its presence on Spanish soil. It owns 70 businesses in some fifty cities, covering fifteen of the seventeen autonomous communities in the country. H&M, the acronym of Hennes and Mauritz, is the outcome of the merger between the former, founded in 1947, and the latter, which took place in 1968. It consists of a network of over 1,400 businesses, 90 per cent of them outside Sweden where the head offices are located. Germany is their primary market, which takes around a quarter of annual sales, at a figure of around 6,000 million euros. The payroll is 60,000 strong and though it is seen as the competitor most similar to Inditex, while it is responsible for garment design, it has no production units.

Cortefiel To a certain extent this can be seen as the fashion group which was always most similar to Inditex. It includes a certain amount of production and distribution in its operation, though the plants are outside Spain – the most recent, in Málaga, closed at the beginning of 2006 – and in Morocco and Hungary, essentially. It also adopted, at an early stage, other common features such as the multiconcept model and an international presence. There was also a time when it tried to emulate some aspects of Zara, particularly as regards the organisation and presentation of its shops given that it had opted for wide spaces and an interior distribution by category of product. However, the correction strategy failed to work and it was unable to avoid the crisis which nearly put an end to it. It also shares with Inditex a family firm origin, in this case the Hinojosa family, though viability problems with a vague strategy of diversification into other businesses ended up with an Initial Public Offering (IPO) launched by a group of investment funds, CVC, PAI and Parmira, in 2006. The new management of the business is trying to reorientate the strategic focus of the various formats, among other things by reducing the cycles for renewing and offering new models in periods of time close to those currently operated by Zara. In addition to Cortefiel, the main brand in the group, concentrating on men’s and women’s clothes, combining fashion with other more classical lines, it has developed concepts which could be seen as similar to those of others, including some of the Inditex chains. Thus, for example, Women’s Secret specialises in lingerie and homewear; Springfield deals with some aspects of the youth fashion market, similar to that found in the Stradivarius and Bershka collections; Milano concentrates on catalogues similar to those of Massimo

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Zara and her sisters Dutti, while the shops under the Pedro del Hierro sign are developing very sophisticated women’s fashion. Adolfo Domínguez Adolfo Domínguez is the logo of the Galician designer of the same name, based on the family tailoring business founded by his father, who became extremely well-known in the market in the 1980s with a fashion concept that was extremely innovative because of its informality, which popularised the commercial slogan la arruga es bella [wrinkles are beautiful]. Unlike Zara-Inditex he has almost no integrated production of his own, though he owns some plants in Galicia, in the neighbourhood of Ourense where his head office is located. He currently has something over 400 shops, his own and franchises, both in Spain and in various countries abroad, and also has preferential placement rights in multibrand businesses and department stores such as El Corte Inglés. His range includes about ten lines which cover men’s, women’s, children’s clothing and home linen. In 2006 he achieved sales of 181.8 million euros, with a profit on sales of 15.7 per cent and a gross margin of 66.4 per cent. The major shareholder in the group is the founder, Adolfo Domínguez (32 per cent), followed by Myrurgia (15 per cent), Luxury Liberty, a company connected with the finance firms Valenciana de Negocios and Banco de Valencia (10 per cent) and Caixanova (5 per cent). The presence of the perfume house, belonging to the Puig group, is attractive given that it is the exclusive supplier of the range of fragrances marketed by Zara and the rest of the Inditex chain. The company shares, quoted on the Madrid Stock Market, have fluctuated considerably in recent months: the share value reached a peak between 51 and 52 euros in April–May of 2007, subsequently tumbling to 25.26 euros. Share capital value is around 231 million euros (at close of the market on 19 December 2007). Caramelo The history of the group starts in 1969, in A Coruña, driven by the Caramelo and Gestal families, who currently retain over 55 per cent of ownership. The founders were José Antonio Caramelo, Luis Gestal and Javier Cañas

Thinking big Caramelo, nephew of José Antonio, who decided to leave the business in 2003. They started in the manufacture and marketing of gabardine raincoats, in strong demand because of the climate in Galicia. They subsequently developed a number of relatively well-known lines, such as Charlton, Yale and Tommy Harrods, and by 1984 they had nearly a hundred of their own shops. Some years later they decided to turn the business strategy around, concentrating on the production of expensive men’s clothing and a line of denim garments, Caramelo Jeans, diversifying their marketing to include multibrand shops and dedicated spaces in department stores. Finally, in 2005 they bought the company of the Galician designer Antonio Pernas, whose collection of female fashion have come to be included in the group’s lines. (Sfera) A chain belonging to the El Corte Inglés department store group, in direct competition with Zara and the other Inditex concepts, with three differentiated lines of clothing: men’s, women’s and children’s, including formal and sportswear, lingerie and underwear. It, too, maintains a policy of introducing new models on a twice-weekly basis. There are already around a hundred shops (Sfera), located in the main Spanish capitals, Portugal, Greece, Persian Gulf and Mexico. The sales figure for this chain is not broken down in the company’s financial data. Mango The Catalan chain Mango is thought from many points of view to be most similar in its trajectory to the one followed by Zara-Inditex. Founded by the brothers Isak and Nahman Andic, coming from the wholesale trade, it opened its first store on the Paseo de Gracia in Barcelona in 1984. Its activities are concentrated exclusively on women’s fashion, with products of its own design, though manufacture is in the hands of third parties, in what could be seen as the medium-high range of the market. It works almost exclusively in size ranges between 36 and 46, and its target public is around the twenty-five years-of-age mark. Its businesses have a relatively characteristic identity which in some ways matches the Zara iconography, and in others with Stradivarius. It has a network of over 1,000 shops, in 89 countries, and its target is to reach 3,000 points of sale before 2010. Its

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Zara and her sisters expansion policy does not for the moment provide for bringing in alternative concepts or lines of business, nor additions to the layout it has maintained since it was founded. The last complete financial year accounts showed sales of 1,257 million euros, with a profit of over 100 million euros. The payroll is in excess of 6,000. It was one of the pioneer chains in opening up an e-commerce channel, Mangoshop, which in its first year achieved sales in the order of four million euros. C&A No less worthy of mention is the German-Dutch group C&A, which now has around a hundred points of sale in Spain, of the approximately 1,200 it has throughout Europe, Latin America and recently China. Although the concept is closer to that of the department stores, it competes in the lowprice, medium-quality fashion segments, with products of a fair degree of uniformity. It has recently, however, announced plans to reduce the stock renewal cycles, which until now have been based on great stability and breadth of existing stocks in the inventory. It is probably one of the oldest businesses in the sector. It was founded in 1841 by the brothers Clement and August Brenninkmeijer who, though they originated from Germany, decided to set up their business in the Netherlands, which was where they opened their first shop-store. It currently has a head office which is part-German, part-Dutch, and its operational centre is in Brussels. It is owned by a conglomerate with varied business interests, the finance, energy and property-related Cofra Group, based in the Swiss city of Zug. The others… The fashion distribution segment consists of many other groups of smaller or larger size, in direct competition with varying degrees of success in the field in which the various Inditex chains are to be found. Approximately 45 per cent of the total sales is in the hands of individual shops, much higher than those belonging to chains (19 per cent), department stores (15 per cent), hypermarkets (7 per cent) and street markets (9 per cent). Despite what is often stated to the contrary, the analysis of effective prices reveals that, leaving aside periods of sales and liquidation, the prices for

Thinking big comparable articles does not swing over a greater range than 6 per cent for female garments and 16 per cent for male. To some extent this contradicts some assessments of market profiles and has certainly led to a number of attempts to introduce into Spain the hard discount concept in the textiles business. So far, it doesn’t seem to have taken, at least not to the extent that it has in other countries or even here, too, in the foodstuffs area (Día, Lidl, Plus…), footwear (Merkacalzado) and others. Closer at hand is the case of Blanco, a dynamic women’s fashion group, a designer and to a small extent a producer, which among other things shares the constant replacement criterion of which Zara was a pioneer. Its head office is in Móstoles (Madrid) and its logistical centre in Seseña (Toledo) just a few kilometres away. It also has similarities to the Bimba & Lola concept, pioneered by María and Uxía, nieces of Adolfo Domínguez. Following some initial steps concentrating on offering accessories, it has moved to a medium-high range women’s fashion concept which is renewed every week .There are now some hundred points of sale in Spain and Portugal, and the plan is to expand in the short term to Asia and the rest of Europe. The initial, and still basic, profile of this chain is the essence of the new entry into the market which the Inditex group has been preparing. Inditex has launched a new branch for accessories, called Uterqüe, in Spain, Portugal and Greece. To this almost endless list could be added names such as Noa, Javier Simorra, Ikks, Intimissimi, Punto Roma, Habitat, Chicco, Prenatal … not forgetting Armani, Gucci, Hugo Boss, Valentino and many others which, though they may be thought to occupy only the highest segments, are in the market offering products that are the same as or similar to those of the current eight chains operated by Inditex.

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10 And Spain, too It was natural that Ortega would come up with the idea that Zara could and should expand abroad, strongly agreed to by his immediate circle, and this very soon became the slogan: we must have shops outside Spain to compete. At that time it was much easier to say it than to do it, particularly when the founder revealed precisely where he was thinking of going: Paris and New York. Hey, it’s nothing! It wouldn’t have been surprising if cold sweat were trickling down the back of more than one of the small groups of managers who formed the nucleus of the group, but all had ample evidence their leader did not recognise a ‘no’ or a but’: if he was convinced, then it was going to happen. Zara now had more than a decade of experience in the Spanish market. The four-letter sign was now very visible and in the majority of the most central streets and squares of the city landscape, but the image could not really be said to contain what you might call location. It was sharing footpath space with some of the most approved and prestigious brands, at least, so to speak, door by door, but it was not really possible to say that it was identified in terms of prestige, distinction, magic… There was also always the brightness and spaciousness of the shops, including the consistently eye-catching and carefully designed display window – you could even say that it compared well with the signs of Loewe, Armani, Prada and, of course, Benetton, Adolfo Domínguez or Cortefiel. But that was where the favourable aspect of the comparison ended. The actual clothing still had the feel of being cut-price, understood as cheap and low-quality. It’s a fact that wearing Zara at that time was not the way to show off. There is even evidence that people concealed the fact, choosing to cut out the label, and not a few would say that the clothes they were wearing were another brand, supported by the widespread belief that all the company did was copy. Not that the generalisation was accurate, but plenty of evidence exists from that time which assures us that any model which was introduced 156

And Spain, too into the market by one of the prestige names, the above-mentioned or others, would appear after two or three weeks in Zara’s display windows, discounted to a significantly lower price and made up using fabric of lower quality. As people might have said, their clothes only lasted a couple of seasons, but they had the look, and they gave the (mainly female) consumers with rather more limited budgets the chance to renew their wardrobe each season, without placing excessive strain on the family or personal economy. People would frequently not correct you when you commented that they were wearing, expensive, exclusive clothing, with a name common in the most prestigious catwalks and fashion shows of the world, remaining silent about the fact that it was really Zara. Whether or not it was known in Arteixo, a maxim which rules the world of fashion says that no one wears a garment with a name that they feel is not sufficiently prestigious, never mind how well it hangs. And something like this must have been in the mind of Amancio Ortega when he began to toy with the need to take a qualitative leap in Zara’s range: it was something like coming of age. It must have been something like this which caused him, impelled by his drive to raise the stakes increasingly higher and higher, to think that the only thing that would work would be to get his model out to be compared with – and challenged by – the outside world. Not that he felt that the Spanish market was saturated. Quite to the contrary: from that time on the presence in Spain has continued to grow, but he was convinced that other countries and markets offered identical or greater opportunities, persuaded of his conviction that the clothing requirements – demand – are identical throughout the world for the same category of consumer. In other words, a personal assistant from Zamora wears the same clothes as one from Singapore. Considerations regarding the margin, really the key factor for choosing the moment, were rather casual. It happened that in both Paris and New York a variety of locations were available which were attractive and satisfied enough of the requirements for them to house the first Zara shop in the country. The location chosen in the French capital was back-to-back with the iconic Opera theatre, it was large, and had a long façade upon which he could set up a spectacular display window. The situation was rather similar in New York, a corner of Lexington Avenue, which, while not the most prestigious hub, was still a very busy shopping area in the heart of Manhattan Island, and good enough for a start. So the decision was taken, the shops opened and the pair of them still form part of Zara’s network outside Spain.

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Zara and her sisters However, though the opportunity to occupy suitable locations was important and probably decisive in terms of the calendar, it was not the only reason. It was not by chance that the two locations happened to have become available precisely in these two cities. There was something else. In the mid 1980s Spain had already joined what was then the EEC. It was still in the middle of the seven-year transitional period laid down in the membership treaties, but it was only a matter of time before complete membership would mean that the textiles business would see the borders open to the rest of the Community, and even more the adoption of commitments to opening-up and concession preferences as regards imports from the third countries laid down by Brussels as far as the Member States were concerned. What this meant in real terms was a horizon of fiercer competition in the Spanish market, no less. Zara was in no worse position than anybody else, except that its lowprice policy might make it more vulnerable to a possible massive influx of product from developing countries, where costs were significantly lower. The company itself was well aware of this, since even then a small amount of its supplies already came from these areas of the world, and a good proportion of the competitors, Spanish and foreign, were outsourcing their supplies in that direction as fast as they could. Relocation, however, was an option which Zara was obliged to consider, given the enormous limitation imposed upon it by its model of rapid response to consumer demand. Maintaining the cycle of delivery to the shops within two or three weeks meant in turn that production had to be kept nearby. It was, in fact, a much more competitive and decisive advantage than the price based on the evidence that the competitors were not achieving it, but it was possible that other competitors might make their appearance who were able to obtain garments at a lower price – in fact, they already existed. This meant that there was no other option than to ratchet up quality standards and one good way to do that could be to tackle directly the markets in which competition was fiercest. The decision-making process at that time had not been laid down as an established system. Ortega did some thinking, talked things over with his colleagues, listened to what they had to say, asked some questions… but in the end, once everything had been considered, all that remained was to take up the challenge, with the boss as the driving force. Those were the days when the first shop outside Spain was just being, or just had been, opened, in Porto (Portugal), but that was really like doing it at home, among other reasons because the north of Portugal was just a stone’s thrown from Galicia

And Spain, too and the Galicians have always seen it as a twin country which, because of the vicissitude of history, has ended up as another country. Without going into the matter any further, the languages are effectively the same: the Galicians and Portuguese can chat in their respective languages and understand each other perfectly. However, the new project sounded as though it were actually on the edge of impossible though nobody was game to admit it. As far as New York was concerned, in the first place there was the English language. This was not the only hesitation buzzing in the heads of the various managers who, one way or another, directly or indirectly, knew that this step was going to impose the introduction of very important changes in their operational methods. Paris of course would not be easy, but at least it was nearby, they could all have a go at French, and you could actually make it there in a day to deliver merchandise. It was even thought that Spaniards travelling to the French capital might take the place of French customers, super-proud of their past or present glories as one of the centres of European fashion, together with Milan. The city which stood as an icon for the United States, the Big Apple as it’s known, effectively Manhattan Island, was thousands of sea miles away, and everybody knew – they had the data – that Ortega was planning to raise his standard for the first time in the best zone in the city. Forget Queen’s or New Jersey which might have been seen as a backdoor, with a Hispanic public which might be more open to the kind of fashion that was doing so well in Spain. What did they know about Americans? The majority of the decision-making nucleus at Zara had never been there. Aware of the fact that it was his initiative, Ortega set out to explain what his intentions were, what he thought his determination could achieve. He began by explaining at length how concerned he was that Zara would be in no position to tackle foreign competition in Spain, which he was convinced was bound to arrive. Both he and his colleagues were aware of the fact that opening up borders after 40 years of Franco’s dictatorship was an irreversible move which the UCD (Democratic Centre Union) government had adopted and that entry into the EEC would force them to open up much more. This was why Zara needed the contrast with its foreign competitors and, applying the philosophy of thinking and acting big, there was nothing better than penetrating to the heart of the two places seen as most difficult and competitive in the world at that time: Paris, the cradle and reference frame for European fashion par excellence; and New York, the city in which people said it was the hardest to sell. Anyway, the capital of France had been in the Ortega’s plans for some years.

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Zara and her sisters When Zara was nothing more than a gestating idea and activity was concentrated on GOA, Amancio and Antonio had taken the train from A Coruña to Paris, via Barcelona. The plan had been to see what was happening on the fashion front, where trends were going, what was in the shops, how was it sold, what were young people wearing, and so on… but Amancio couldn’t see the charm of the city on the Seine, and wanted to go home, mentioning almost in passing that in a few years he was going to open a shop there. He mentioned it as they strolled through the quarter in which the impressive Opera theatre is to be found, and who knows whether it was because of that, or mere chance, that it was at the back of this spectacular building that he opened the Zara on French territory… some years later. The problem was to find someone who could be in charge of the first truly international move. Portugal had been like acquiring a local shop. Whoever was to operate in the USA, however, had to have good English and if possible, experience of shops, but no one who was in a position to move there had both requirements and there was nothing else for it but to choose someone. Pragmatism came to the fore: learning English in a short space of time looked difficult, while as far as shop experience was concerned this was something that could be picked up along the way, taking advantage of all the support needed. And so it was, in line with the never stated but often applied principle Yes, you can!, that a young man who had earned his Master’s degree in the USA and with a more financial than commercial background left his post in the monitoring section, only a few months after starting to work for the company, and set out for New York. Around a year later, Zara opened its now remodelled shop in Lexington Avenue, a stone’s throw from the legendary Bloomingdale stores. It was probably not the absolute best shopping area in Manhattan, but it is what was possible, faced with the countless administrative hassles and bureaucratic hurdles which foreigners wishing to operate in New York would be forced to overcome. At last, years later, a Zara shop would be opened in the heart of Fifth Avenue, very near Saint Patrick’s Cathedral and the Rockefeller Center, side by side with the most prestigious names in luxury and distinction. At the commercial level, Paris was a pleasant surprise: though the first days, or even weeks, were somewhat difficult, very soon crowds and queues emptied the spacious store so that stock deliveries from Arteixo had to be doubled up on more than one occasion. But New York was not going well. The situation was so serious that some timid suggestions were even made that at worst it might be necessary to take the decision to close the shop

And Spain, too in Manhattan and stop throwing good money after bad. However, Ortega was far from critical about the way sales were going in New York and was moved to undertake a few renovations as regards product, display window and even price, being more concerned with adapting the operations of the shop to the international challenge. And from that point of view, things looked better. To a certain extent, the USA remains a kind of work in progress. Over twenty years after the opening of the first shop, there are still only twentynine businesses throughout the entirety of this huge country and they are all Zara; none of the other chains have dared open there. There are even factors within the group who feel that they should never have initiated their international expansion campaign in a market which is thought to be so opposed to the majority and, as a consequence, a breach of the essence of the Zara-Inditex model. It may be that even Ortega himself does not disagree with this idea, but withdrawal has never been considered, and the decision was taken to expand at a measured rate into US territory, which has never been a priority in the expansion process. It is a fact that the USA is in many ways a peculiar market. First a distinction has to be made between the huge cities such as New York, San Francisco, Miami and Chicago, to name some of the most famous, and the rest of the vast territory. This is the difference between the various metropolises and so-called deep America, who knows whether accurately or not, with profiles and contracts which are much more dramatic than can be found between European cities and their corresponding rural hinterland. As far as the fashion world is concerned, the conviction reigns that average Americans put on the clothes they need when they need them, rather than seeking garments which will satisfy some personal style preferences… which they are very far from being able to express. And this, to be precise, is the opposite of the market, and fashion, concept behind the Zara-Inditex model. In any case, everybody in the company accepts that these two shops outside Spain were crucial for the subsequent development of the group. As Ortega had foreseen, the simultaneous comparison with two locations seen as very difficult was useful on a number of levels. On the one hand it revealed the fact that it was essential to climb a few step in terms of quality. This may well have been something which Spanish consumers were not yet demanding, but it was certain that they would end up doing so, orienting their preferences as customers to whosoever could offer it to them.

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Zara and her sisters There was also the matter that placing product on the other side of the Atlantic twice a week was a logistical problem which so far had not required a solution, but was critical for any foreign expansion project. And then the idea arose that if they could set up shop and sell product in those two locations it would mean it would have to be much easier to do so in some other venue. Soon they were to understand that this was not exactly the case. The aspects of the business which proceeded in the absence of a pre-established method, a definite recipe or a template of prior questions and answers most definitely included the decision to expand into a new country. This was not in the sense of how to go about it, since the choice has always been to proceed according to the general guidelines, among them that Zara would be the first chain to become established, followed by the others, but as regards the choice of one country over another. Of course, today the methodology has acquired a certain logic, in the wake of careful study of options and alternatives, but in the past, at the time of what could be called the great leap abroad, the initial stage was distinguished by what might be called opportunity and intuition. Shops were opened in certain cities because they were there. It might have been London, for example, or Berlin. But in general the choice was to move into a country on the basis of the idea that there was a market opportunity, a good location, or sometimes because a foreign party opened the track, sometimes making the offer of investment. Things have changed somewhat since the first steps in the direction of international expansion. At the beginning the initial decision went no further than Anancio Ortega’s feeling, which, with or without a prior visit to the country in question, resulted in the decision as to whether they had to be there. Sometimes the decision appeared accompanied by prior choice of the location, even of the actual position the Zara name would occupy. On other occasions the physical space or zone would be chosen later. Finally, still without completely discarding the primitive method, the heads of each chain would run brief studies before they set about the installation process. In reality, the first openings outside Spain (and Portugal) had more shortcomings. It wasn’t until 1991 that the group decided to optimise its company architecture, both in fiscal terms and from the point of view of the actual organisation itself. In that year the decision was taken to set up a holding company based in the Netherlands to which they could attach the subsidiaries that were appearing, at least one per chain or concept, in each of the countries in whose market it had been decided to operate. The idea was none other than to make the most of the tax advantages offered by the

And Spain, too country in question, which were actually closer than most people would think to those typical of what are known as tax havens, but without the disadvantages arising from companies based in such locations. It was also around that time that subsidiaries began to be set up in the majority of countries in which it was thought that operations might be started, without the need to actually take the decision. This happened largely as a reaction to what they knew from previous experience: the haste and impatience expressed by Amancio Ortega, once the decision had been taken to enter a new market, to open the doors and start to sell. What has never been undertaken, neither then nor now, are studies aimed at working out the outline or extent of the demand, in the traditional sense. The normal method is to analyse the market from the point of view of supply, that is, who is present, how, and with what product type, price and location. This supplies the information as to whether or not opportunity exists. The fact is that on very few occasions has the opening of a Zara first, and the other concepts later, been seen as wrong. This dynamic has certainly given rise to some complicated market penetrations, as in such dissimilar places as Belgium and Mexico, or partnerships which became complex and in which it has been enormously difficult to regain full control, such as Germany, Italy or Japan. The reason for this is that, since the start, expansion was based on the opening of subsidiaries which were 100 per cent owned by Inditex or the chains. This means that, unlike its most direct competitors, Zara and her sisters have applied the franchise model only as an exception. In actual fact, the majority of the shops in this formula within the group today come from two chains which have been acquired: Massimo Dutti and Stradivarius, which had undertaken expansion via the franchise system before becoming part of the group. One limitation still persists today: an unwillingness to install a largescale presence south of the equator. Operating in the other hemisphere gives rise to considerable difficulties in respect of the established model. Among other things it involves working with two opposing season frameworks, with all the implications which became apparent in respect of the presence in Argentina – which has only six Zara shops – and some other countries. This is why the majority of the presence world wide is to be found in tropical or sub-tropical areas, around the tropic of Capricorn, because in these regions the complex seasonality changeover is absent. In other words, the group is wary of extending the practice of having to sell winter and summer clothing at the same time throughout the network.

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Zara and her sisters The presence of Zara in the southern hemisphere was, as always, urged by Ortega, and not without giving rise to considerable objections on the part of a significant proportion of the organisation. The solution was a strategy whereby they would place in the opposite hemisphere the bulk of the articles demanded in the northern hemisphere during the previous season. However, everybody was well aware that the system was far from perfect, which gave rise to the reluctance to extend it further. This does not, of course, mean that the group has given up the idea of penetrating markets such as the Southern Cone of Latin America, Australia or the southernmost regions of Asia. It merely means that other short-term priorities have been chosen, among other things a presence in all five continents, not just the four currently covered. Logically, expansion outside Spain has become part of the nucleus of strategic development. One the one hand, while the Spanish market is still far from saturation, it already contains almost half of the shops in the group and, as we have indicated, it contributes nearly 40 per cent of the total sales for a given financial year. This means that, without having exhausted its options to continue growing, it cannot, nor should, represent the only priority. In other words, it appears that other countries offer more opportunities for growth and expansion. But a rider should be added. The group is not looking at a future limited to the eight concepts which it currently operates. In actual fact, it has forged ahead to start a new chain, Uterqüe. This is the new commercial format of the Inditex Group that proposes fashionable accessories and a selected range of first-class textile and leather garments. The collection is entirely designed by the Uterqüe creative team and comprises exclusive goods in the latest fashion trends. The appearance of the 31 stores, located in Spain, Portugal and Greece, is elegant and sophisticated and interior spaces have been designed to allow maximum comfort for customers in a functional environment. The Uterqüe chain offers high-quality and affordably priced products under continuous renewal and is intended to extend the spectrum of Inditex’s presence in the market. In reality this is not an entirely innovative move, as was its entry in the homeware sector with Zara Home, since a number of chains in the group already include these types of articles in their range, but it does indicate a willingness to include a clear specialisation, definitely intended to compete directly with other names concentrating in this field. Although it cannot be known with absolute certainty, nor is it marked with an asterisk in the medium-term plans, everybody is fairly sure that this ninth chain will not be the last to emerge from Inditex. This is a

And Spain, too conviction in each and every one of the circles of the group, definitely originating with the president, who remains convinced of at least two decisive factors: one, that many interesting opportunities remain with a view to continuing to develop the distribution model which he started to set up thirty years ago; and the other is that every organisation needs to set itself, and tackle, new challenges, at least every two or three years, in order not to fall victim to established complacency and the loss of excitement. Growth priorities are therefore to be found in two directions: establishing a presence in certain areas and countries, and at the same time promoting new concepts, theoretically as closely connected with the world of fashion as possible, since this is always the underlying company objective. In geographical terms, the focus is directed above all to eastern Europe, or more precisely the countries which previously formed part of the extinct Comecon, including Russia and various ex-Soviet republics not yet included within the EU. For the most part, they are markets which meet the requirement of having a large middle class, educated and not, to a large extent sharing consumer guidelines with the majority of the countries in the Mediterranean basin, where Zara’s penetration has undoubtedly been effective. The Asia-Pacific is the other reference point in terms of expansion, in this case motivated by circumstances which hardly need explanation. The growth of countries like China and India – where Zara presently has no presence – and the rest of the continental south-east offers a raft of opportunities which no one is in any doubt the group will attempt to exploit as soon as possible. It is likely that identifying priorities may lead to confusion about the real strategic path of expansion. The reality is that allocating a part of the 1,000 million euros of annual investment to a given market is as much a response to pre-established priorities as it would be to the detection of the appearance of a genuine opportunity. In other words, concentrating efforts on eastern Europe and the Asia-Pacific in no way excludes moves to continue adding presence in Latin America, the Middle East and even Africa, while still expanding the points of sale of the various concepts in the countries in which a vast network is already present. In the immediate term, plans are afoot to establish a presence in South Korea in 2008 and research is well advanced as to Egypt. Already five Zara stores have been opened in South Korea and one Pull and Bear and one Bershka have been opened in Egypt.

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Zara and her sisters The fact is that expansion, like many other matters, is much easier today than in the past, when everything proceeded in a much more hands-on way. But it is also no less certain that at that time you could make more mistakes, commit faults which now cannot be permitted. These are the consequences of the prestige and size which has been attained, but above all of the fact of being quoted in the variable yield stock markets, subject to the scrutiny, analysis and observation of experts who are not only measuring what is happening, but also in more detail the way in which this is related to what they worked out was going to happen. What does remain as a criterion is the much-commented-upon Zara advance party, the first establishment in each new country. The philosophy applied to the launch of a chain has changed, however. If before the beginning this was restricted to one or more shops in Spain, leaving expansion into other markets for later, now what happens is that shops are opened in a number of countries, if not simultaneously, at least within a time frame of a few months or weeks, such that a new concept will have two or three dozen points of sale, in different markets, in the first year of life. It should be said, in any case, that expansion decisions, whether domestic or international, are handled by the team responsible for each of the chains. This is not the same as saying, however, that there is a concretion of generic lines of group strategy, operating case by case, country by country, at central level, but rather that the managers of each concept take their decisions with no more limitation than the most minimal coordination guidelines. The multiconcept model reveals some features which are worth setting down in detail…

11 Concepts aimed at reaching everybody: adding chains

Zara’s success, however broad the spectrum may appear, does not disguise the fact, at a given moment, that the market is bigger than the supply can cover. More than that, even the breadth of this spectrum is seen as highly vulnerable to the threat of specialisation. It is also the case, as is keyed in daily by the individual shops in the chain, that consumer guidelines are becoming increasingly segmented – since the end of the 1980s – in line with the general trends of society. There is also the fact that the formula itself, managed so as to fine-tune the range increasingly, concentrating it on determined strata and needs, soon comes to be seen as saturating the parts of the market targeted by Inditex more than is comfortable. As is to be expected, many alternatives are in play. One is to continue extending the range of garments sold at Zara; in actual fact the chain has been doing so since the beginning, adding sections and segments to the original layout. However, this path seems to have been exhausted or at least it runs the risk of blurring the outlines of a brand that has achieved a high level of identity. Other problems exist, too. One, an important one, is the desire to preserve at all costs one of the real fundamentals of Zara: selling only clothing produced directly by the group’s factories. Also, though there are only eighteen in Arteixo, it is seen as more appropriate to use the potential for growth to increase the number of shops under the name, which today has only just started. Another aspect which must be factored in is biological: keeping the customers within the ambit of the group at each and every stage of their lives. Also there is socioeconomic pressure, which may result in the customers migrating to other shops in segments they feel more are appropriate. Of course, consumer tastes and needs vary, or, if you prefer, they develop in line with their age, as well as with variations in socioeconomic status, 167

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Zara and her sisters which is tantamount to saying their purchasing power and their image as far as they themselves and others are concerned. Being aware of this, the head of the group has tackled the challenge, taking the route of diversification. It is worth pointing out, however, that Zara-Inditex has resisted the temptation to extend its model to other sectors of activity. More than one theorist in the capacity of consultant has suggested in Arteixo the possibility of taking advantage of the group’s proven capacity for distribution and sales of other products, on the basis that a person who has a demonstrated ability to sell can sell anything. However, Ortega has maintained and maintains that fashion is his speciality, particularly clothing, even though he may have admitted the odd exception. The most obvious is, of course, Zara Home, though its initial conception is far from certain. The chain, probably much discussed before it was set up, was designed as specialising in dressing the home, that is, with a range concentrated on what you could call clothing for the home: bedclothes, sheets, blankets, towels, etc., and it was only as an addition that household articles and domestic equipment were included. It was later, in response to a market different from what had been expected, that the shops under the youngest logo in the group started to concentrate on this kind of product to the detriment of textiles. But there was more. Between the end of the 1970s and the beginning of the 1980s, they briefly introduced the car sales branch, with a holding in various agencies in the Galicia area, to some extent influenced by the huge fascination cars had always had for Ortega, driving him to change his model at every turn. It soon became apparent that the activity was sufficiently different for the Zara model (see Figure A5.1) to have little or nothing to do with the field, and it was abandoned. Without going outside the frontiers of the world of fashion, opportunities exist, and Ortega does not want others to step forward and seize them, replicating to a greater or lesser degree the philosophy which has cost him so much time and effort to implement. Moreover, the idea of embarking on a multiconcept scheme, with new chains of shops specifically orientated at different segments of the Zara public, perfectly matched the main aim of the business: to grow. Before starting off with new concepts, it is necessary to fine-tune the concept of what is already present in the market, to consolidate it and to attempt to avoid the risk that it will be cannibalised and become a zero-sum game as a consequence of the extension of the business lines.

Concepts aimed at reaching everybody From then on, the process of analysis has continued to be repeated before the launch of a new chain... until 2006 when the last was initiated, presumably giving rise to a new concept, specialising in accessory lines, to open its first shop in the 2008–09 financial year. The plans for the creation of a new chain follow the same sequence as the rest of the relevant decisions: they begin by deciding on the person who is going to be responsible for the project in its entirety. Upon this person will depend both the membership of the team to cover the subsequent stages and the bulk of the decisions which will have to be adopted to give reality to the project in the initial stage, and then to the management of it afterwards. Only at the key moment when the study is completed plus the analyses, the design and planning will the decision be passed up to Amancio Ortega who, before he gives, or withholds, his approval, will put the project before quite a number of people, both within and outside the group, for their opinions and attitudes; this has included, in recent years, discussion by the board of directors. Once the green light has been given, however, the responsibility to proceed comes back to the team who will have the power to make decisions according to their particular criterion, from the range of products to the suppliers, moving through where and how the first shop is to be opened, who will be in charge…and everything which subsequently forms part of the subject of management. This is done while adjusting the parameters fixed for the group, of which there will not be too many and they will certainly be well known, given that the heads of new projects emerge from within the group, almost without exception. The first decision, or one of the first, maintained and applied to the subsequent concepts has been to source production from third parties, without extending the manufacturing lines. The sole exception have been knitted articles for which two of the group’s factories located in Narón (A Coruña) provide all the shops which include this kind of garment in their range. And it lies within the bounds of possibility that the new chain of which the project is under construction will also base its range, at least partly, on products manufactured in the Tempe subsidiary, based in Elche (Alicante), which supplies footwear and other leather goods to the chains in the group. A second premise, carefully copied from Zara, was to give each chain its own buying, design, marketing and logistics departments, allowing them full independence, as will be explained in greater detail in the description of the management model.

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Zara and her sisters Zara The first Zara opened its door on 9 May 1975, in a roomy building on a corner of Juan Florez Street (64–66), in the very heart of A Coruña and barely 200 metres from Gala, twelve years after GOA had commenced the industrial production of articles of clothing and three after the first failed experiment, Sprint (1972), in fact. It initial conception, logically constructed with the aim of dealing with the layout of the market and the aspiration of having a competitive option, was based on a number of principles, not all of which were retained in later stages of its expansion. Briefly, the aim was to offer stock of a quality which was comparable with that presented by the department stores, with designs in line with what was being offered by the boutiques, but at a lower price, close to that of the hypermarkets, where quality was noticeably lower. On top of this there would be a garment turnaround rate much higher than was standard for the market, in spacious, pleasant and well-lit premises, with eye-catching display windows intended to support what was required: to sell or, seen from the other side, to encourage others to buy. Thirty-plus years have passed since then, and the chain has 1,124 shops in 68 countries, 300 of them in Spain (according to December 2007 figures which can be updated on the websites at www.inditex.com y www.zara.com), with a total sales area of over a million square metres. In the 2006–07 financial year income on sales was 5352 million euros.1 As a consequence it stands as the main line of business for the group, but it is also rather more than that. The first shop was not exactly as they are now: the starting concept needed polishing, because some things worked and others didn’t. The first Zara to open its doors retained something of the Sprint layout. This was still a bazaar-type business, where you could find books, records – even a hairdresser, though the main thing was clothing, which accentuated the differences from that failed attempt. Some of the garments in that first Zara shop, particularly the lines for men and children, came from third parties; the rest, that is the majority, came from the group’s factories. The concept, in any case, had not worked and Ortega proceeded to correct it, until it achieved the format in which fashion was the sole merchandise, and only that designed and produced directly by his own factories. This is the layout which, with a few minor modifications, is still the main one today.

Concepts aimed at reaching everybody From the very start, Zara was trying to target female customers, fullfigured and over twelve years of age, via three differentiated lines: woman, which was aimed at professional women, high-quality fashion, a considerable design input and an average price compared with the competition; basic, aimed at working women, focusing on garments designed never to go out of fashion, average quality, and at low prices; and trafaluc, for the daughters of these women, intended for casual wear, also with average quality and low price. This arrangement meant that at one time the shops had to have a monitoring service to look after the children so that their mothers would be able to shop more easily. However, though this basis has essentially been retained, over the course of time it has collected other lines and specific sections: men’s wear, accessories, perfumery, cosmetics, and recently clothes for the expectant mum. The choice of the premises was originally subject to the general criterion of location in the busiest shopping area of the city centre, preferably larger than 1000 square metres in size, though at a later stage the area became larger and the concept came to include a significant presence in the shopping centres which were beginning to appear on the outskirts of the cities of Spain as of the second half of the 1980s. Initially the venues were purchased, whether directly or, on some occasions, through a real estate investment company which the Ortega family had set up, but in any case a long-term lease contract would be signed with the managing company of the chain; some of these contracts are still in force. The basic reason for purchasing the shop properties was the fear that at the expiry of the contract the location would be lost, which at that time was felt to be an unacceptable risk. Soon, however, the Zara real estate policy changed to the lease, except for some exceptions arising from specific market circumstances. In fact only a small fraction of the over three thousand shops directly run by the group for its eight chains are owned by it. The majority are covered by medium- or long-term leases sufficient to guarantee stability. The size of the Zara has been steadily growing, mainly because of the initiative of remodelling and restoring historic or iconic buildings so as to run them as commercial premises.2 Some of the chain’s most recent openings have been in buildings with several storeys, and even complete buildings, with large spaces for each of the lines included in the commercial range. Zara has centralised departments specialising in real estate management, interior architecture and restoration. These sections do not work for Zara alone, but provide services for her sisters which cannot supply this kind of service for themselves. The tendency, however, is to allow all of them

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Zara and her sisters the greatest degree of operational independence and autonomy, steadily reducing the part played by the former as the initial and central nucleus of Inditex. In reality, Zara encapsulates the essence of the model. On the one hand, it is the only chain which sells garments produced by the twenty plants owned by the group, and at the same time, the only one for which they manufacture, with the exception of the above-mentioned knitwear, footwear and leather goods, together with cosmetics and perfumery products marketed under the Zara name, but purchased direct from Puig, with whom no shareholding connections exist. The salient features are the characteristics of the production model, the essence of the logistical layout and in reality the philosophy subsequently applied to each and every one of the chains. In actual fact, as we have mentioned before, until relatively recently, Zara’s central services acted, and still act, as service providers for all the others. Likewise, the rule remains in force whereby the first shop in every new territory to be penetrated, be it a city or a country, carries this name, and, depending on their experience, the other chains may decide to follow it or not. It should be mentioned that the decision to start up new concepts has always been reached on a basis of, or as a consequence of, the identification of gaps or zones of unmet demand in Zara’s area. In some cases, such as children’s clothing, the opening of Kiddy’s Class, there has been a breaking off in the direction of a specialist product design, which has been warmly received in the Zara shops. The logistical heart in the Sabón trading estate in Arteixo occupies around 420,000 square metres and employs an average of 900 to 1,000 people. There is also another centre in Zaragoza, specialising mainly in consignments to Europe, the Middle East and Asia, and in recent times it has come to share new Meco (Madrid) premises with Zara Home. Also used is the platform in León for surplus, sale and liquidation products. There are also small plants in Mexico, Argentina and Brazil. All deal with the twice-weekly orders and deliveries for the network of shops. One of the mysteries of Zara is its capacity to connect up with such different customer groups as, to name just a few, those in Spain, Kuwait and Singapore. Although it can cause problems, it is a tangible expression of globalisation. It means that, without abandoning their own cultural parameters, the citizens of different places and latitudes prefer to dress the same. Does the Zara style exist? Is it possible to know, just from looking at it, that a garment comes from the Inditex factory? Probably not, or at least

Concepts aimed at reaching everybody not to the extent that you could separate it out from the related groups. Even more, without ever having sought an elitist or exclusive profile, the brand lacks contraindications in any stratum of society. Seen in Zara communicates – it is not concealed – completely naturally. In no way has it established itself with a kind of pride at other times to be found in brands that were overloaded with glamour. Neither is it at all clear that the brand and to some extent her seven sisters have introduced into the market a new way of selling or buying. What is more probable is that they have incorporated a mix of both, definitely increasingly copied by many shops and chains which have emerged since.

Bershka The market experience gained at Zara was decisive enough for it to be possible to set up Bershka in 1998. The intention was to fill a gap in the demand which seemed to arise from the children, and particularly the daughters, of regular purchasers from the parent chain. For this reason the target groups was girls between thirteen and twenty-threee years of age, with uninhibited tastes and highly individualised requirements. Quality would be average, but with prices towards the lower end of the market. One, probably apocryphal, anecdote tells how when Marta, Amancio Ortega’s youngest daughter, was around thirteen or fourteen, she confessed one day to her father that she never bought or wore Zara clothing, neither did other girls of her age. They weren’t at all pleased with the clothes that were sold in the family’s shops and preferred to shop elsewhere. The claim is that this opened the president’s eyes and he immediately decided to launch the new concept. Of course, there’s no evidence that this is the case, though that hasn’t prevented more than one journalist from claiming it as gospel and including it in subsequent histories. Whether or not this was the trigger, Bershka was created with the aim of meeting this adolescent demand, a demand, moreover, which was increasingly capable of making its own decisions. Efforts were made to respond to the conceptual changes which were taking place in the way families bought clothes: fathers and above all mothers had stopped deciding what their children should wear as the youngsters themselves claimed the power to choose. There was no sense in assuming that children should go with their parents to a Zara shop, but that they would each look for their own space, a type of concept which would more closely match their lifestyle.

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Zara and her sisters In keeping with this approach, the shop emerged much more as a venue for meetings and spending time than a point of sale per se, and there would be music, a hairdresser’s, and maybe some experimental areas, such as a place where you could relax or chat, equipped with magazines, catalogues, and the like. Bershka has 508 shops in 31 countries, 243 of them in Spain (according to the December 2007 figures, which are updated at www.bershka.com), all directly run and adjusted to the Zara management model, though in some other countries the shops have been set up as franchises. Their invoice figure for 2006/07 was 798 million euros. The typical size is set at 400 square metres. These figures should be topped off by the first virtual shop in the group, opened under the name Bershka in Second Life, in June 2007, still staying in the vanguard. The Bershka range is the one which has the greatest proportion of creativity of all the chains. All the designs are their own, arising from presentations at fairs, of course, but mostly from observing the usages, tastes and preferences to be seen wherever young people congregate in any given locality. The production scheme is set to match three seasons yearly, with a high percentage of production adapted to the preferences and behaviour patterns observed in the market. It doesn’t have its own production base and garments are sourced from about a hundred suppliers, seventy of which are based in the Iberian Peninsula. In general it supplies 25 per cent of the fabrics, following the method of sale, then later purchase back of the commissioned product. Head office is in Tordera (Barcelona), and garments are distributed from the logistics centre there twice weekly, with one of the highest rotation rates in the group (29 days) and a delivery time no longer than 24–48 hours from the receipt of the order. There is also a small distribution centre in Mexico.

Massimo Dutti Massimo Dutti was the first acquisition of a pre-existing chain undertaken by Inditex. Set up in Barcelona, in 1981, basically focusing on men’s shirts, it was completely taken over in its entirety by the group in 1995 from Cofir(4), following an initial majority purchase (65 per cent) in 1991. In that initial stage, despite controlling a majority holding in the company, Inditex opted to allow the management team to continue running the business,

Concepts aimed at reaching everybody but it soon became apparent that there was an acute and irreconcilable dichotomy between the perceptions of business the two organisations had espoused. Basically, the chain was not going well and the inherited directors were unable to take on the reorientation proposals promoted by the new shareholder. The outcome was that the managers were replaced, and then afterwards the remainder of the company shares were bought. Massimo Dutti means, and today still represents, an incursion of the group into a segment which is somewhat unlike the rest. It is, in some ways, most like the traditional clothing chains from which Zara had dissociated itself. Its product is high quality, high price and relatively well established. It works very well in keeping with the seasonal collection (three) with only 20 per cent of production deriving from the pressure of demand and the specific requirements of the customer which are expressed from time to time. In short, it is more establishment-oriented and more expensive than Zara. Although initially it was almost completely restricted to formal men’s wear, joining Inditex meant that the range could be extended, with the addition of more informal lines, followed by women’s clothes (1999), finally arriving at the current concept. It is also the only chain-brand in the group which undertakes advertising on a regular basis. The network of shops consists of 425 stores, 192 of them outside Spain, in 30 countries, and includes a high percentage of franchises, most of which were in place before the takeover (according to December 2007 data updated on www.massimodutti. com). The sales figure for the last financial year (2006/07) was 614 million euros. Typical shop size is around 400 square metres. It does not have its own production base and contracts stock from outside suppliers. Around 60 per cent of the total is its own designs, worked out on the basis of trends shown at basically urban fashion fairs, for which it purchases the raw materials, fabrics, which are sold to non-excusive manufacturers from whom the commissioned work is subsequently purchased. The remaining 40 per cent is contracted as finished product. Eighty per cent of all purchases are concentrated in Spain and Portugal. The head offices of the chain was moved in 2000 from Martorell to Tordera, both of which are in Barcelona province, and deliveries are made from the logistics centre there three time a week (one more than the others). Delivery times from order placements vary between two weeks for shirts and from four to eight weeks for tailored garments. Stock management in this case is rather more efficient than in the rest of the group because of the fact that it is handling a more repetitive product

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Zara and her sisters and barely one fifth of production consists of commissions for the current season. Pull and Bear The Pull and Bear chain was founded in 1991, initially intended to target young males, between fourteen and twenty-eight years of age, though as time went on the range extended to include the same female slot and shifted to a great extent towards leisure and sports clothing, with a style known by some people as Californian, and others as posh, but which is in any case aimed at a self-confident purchaser, someone at ease with their own taste. The chain has a total of 501 shops, in 35 countries, 272 in Spain, with an average surface area of around 550 square metres. Of them, 90 per cent are directly run and managed, while the rest are franchises, mainly abroad (according to December 2007 data, updated on www.pullbear. com). The sales figure for 2006/07 totalled 519 million euros. Practically the totality of the range is supplied by third parties, organised in three campaigns. The garments catalogue covers approximately 60 per cent of the total, while the remaining 40 per cent is purchased according to demand development and trends. Stock turnaround is the slowest for the group, around 60 days, mainly due to the type of clothing the chain handles. Its supply system is organised on a basis of purchasing the raw material which is then sold to the suppliers from whom the finished product is later bought back. It works with a small number of suppliers, mainly in Asia, who supply 58 per cent of the men’s wear and 25 per cent of the women’s wear. Spain and Portugal are the source, respectively, of 23 per cent and 65 per cent of purchases, the reason for which is the larger degree of variability and design input involved in women’s clothes. The head office of the chain and the logistics centre are located in Narón, near Ferrol (A Coruña). Stradivarius Stradivarius is of Catalan origin, but opened its first store in Valencia in 1994. This is the second, and so far the last, chain which was created outside the group to join Inditex. Ninety per cent of the company was bought in November 1999 for 108 million euros (at that time 18,000 million pesetas) with an option to buy the remaining 10 per cent remaining executable until 31 December 2010.

Concepts aimed at reaching everybody It seems obvious that this takeover was more of a defensive strategy than anything else, given the similarity in the territories occupied by Stradivarius and Bershka, still noticeable today. It is plausible, even without necessarily implying any precedent, that on this occasion Amancio Ortega may have chosen to buy a competitor who may have threatened the establishment of the chain which he had just launched a few months before. As with Massimo Dutti, the purchase did not involve the replacement of the management team, but on this occasion it worked. This was probably largely because of the crucial coincidence of the establishment, criterion and market focus between Stradivarius and Bershka, already launched by Inditex. Stradivarius focuses its range of clothing and accessories on a young feminine public, between fifteen and twenty-seven years of age, medium quality, low price, in very eye-catching shops, with music verging on loud and interiors very open to visibility from outside, often without the proverbial display window. The chain includes 377 shops in 21 countries, 241 of them in Spain (according to 2007 data updated on www.e-stradivarius.com), directly managed in Europe and franchises in other areas, such as the Middle East. The invoiced total for the financial year 2006/07 was 428 million euros. Average surface area is 400 square metres. The range is divided almost equally between the basic product and what is strictly fashion, with a fast turnaround rate and supply closely linked to the demand of each particular moment (50 per cent of the total). The designs and patterns are their own, reworked on a month-by-month basis, and production is wholly outsourced to some thirty-odd suppliers located in Spain and Morocco. Ninety per cent of the fabric is purchased directly by the chain and sold to the manufacturers from whom the made-up garment is subsequently purchased. Head office is in Sallent de Llobregat (Barcelona), where the logistics centre operates a slightly different strategy. On a monthly basis newly created fashion consignments are sent out, while stock is replaced on a daily basis. Delivery times after order placement are less than 20 days for basic garments and not longer than 45 days for new creations.

Kiddy’s Class/Skhuaban So far, this is the only case of where a chain has been completely turned upside down, albeit in a positive way, to create another independent one. Until 2002, what today is a specific concept for the sale of children’s

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Zara and her sisters clothing was a section which had been included as a part of the majority of Zara shops since 1991. In actual fact, it continues to be so today, even though new separate premises are being opened with the new sign. It may be because of this that management has remained for the most part with the main chain of the group, which means that it can be seen as the least independent of the eight opened so far. This is also the only case of the same chain having different names in different countries. The first, Kiddy’s Class, is set aside for Spain and Portugal (210 shops), while Skhuaban is displayed in the 16 shops opened so far in France, Italy and Greece, the plan being to retain that name in other countries where the concept is established (according to December 2007 data updated on www.kiddysclass.com). The sales figure for 2006/07 was 182 million euros. The size of the shops is usually around 200 square metres and in some cases they are actually annexed to Zara. The franchise operating system had not yet been included in this network. Head office is still in Arteixo (A Coruña) and distribution follows the routes which supply Zara to a very large extent, though the greater part of the production comes from outside suppliers, appropriately approved as able to satisfy the requirements of the law regarding children’s clothing. The target is babies and children, from nought to fourteen years of age, with two separate lines: baby, up to age three, and another for all the rest. The range includes comfortable, fun clothing, plus childcare articles, bracelets, necklaces, colognes, etc. The shops are brightly lit, with zones clearly differentiated by age group.

Oysho The chain was set up in 2001, initially concentrating on ladies’ lingerie (experimentally also men’s underwear, though this line was soon abandoned), though later on comfortable nightwear and homewear has been added, along with swimwear and a children’s line aimed at the three-months to three-year-olds, with bright colours and attractive designs. The first six years of its existence witnessed the opening of a network of 286 shops, in 20 countries, 142 of them in Spain, with an invoice figure for 2006/07 of 165 million euros (according to December 2007 data updated on www.oysho.com). Most of the shops, with an average area of around 200 square metres, are run directly, though there are some where use has been made of the franchise system in some countries.

Concepts aimed at reaching everybody The head office and distribution centre of the chain is in Tordera (Barcelona), which supplies the shops on a twice-weekly basis, though with the specific factor that the range of products is renewed each week. The chain buys all its production from third parties, based on its own designs and fabric supplies, though its catalogue also includes garments already fully made-up. As well as clothing, Oysho stores also offer cosmetics sourced externally.

Zara Home The chain which is so far the youngest in the group commenced operations in August 2003, with its first shop in Marbella. It has 201 businesses in 20 countries, 106 in Spain (according to December 2007 data updated on www.zarahome.com). In 2006/07 the invoice figure was 139 million euros. The minimum size permitted for the premises is 250 square metres. It operates mainly in its own shops, though a portion of its expansion, something less than 10 per cent of the points of sale, is being achieved through franchises. The group’s move into this line of activity was preceded by lengthy investigations and research into the market and the competition. Everything seems to suggest that it was launched with a good deal less confidence than the previous chains. Nor has this penetration into a segment only indirectly related to what has so far been the essential activity of Inditex been in vain. This may be the exception to the rule which has mainly been seen as taking advantage of the main brand – Zara – so far. To a large extent it was calculated that the potential customer base could be or ought to be the same as that which had shown itself to be loyal to the remainder of the group’s concepts, particularly Zara, given the characteristics of the housewife who was seen as the potential buyer. But the global concept was harder to apply in this case. Perhaps it was because of it that the initial forecasts were mistaken and the significant success of the concept came from an unexpected quarter. In keeping with its tradition, basis and image as a textile supplier, Inditex worked out that it should focus its range on textile items for the home, and complement it – but only complement it – with the rest of the items usually handled within the domestic environment. But it was wrong. Whatever was the reason, the perception of the customers was much more acceptable as regards the items which Zara Home had been seeing as

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Zara and her sisters secondary and subsidiary to that which they had planned as essential. The outcome was that the textile product sales did not rise, but sales of the rest of the range grew much more than was originally assessed. The market reaction once again tested Inditex’s flexibility. With the first shop of the chain barely opened, and all efforts being concentrated on expanding the number of shops to reach the critical mass, the managers converted the concept at top speed, involving a rapid changeover of suppliers, layout in the shop spaces and, in general, of the original business model. The pre-eminence of textiles (sheets, towels, etc.) had to be rapidly replaced by crockery, glassware and all the other household and décor articles. The dressing the home concept did not work at all. An in-house analysis, generally carried out with the maximum of discretion, confirmed the fact that the low quality of the textile products on sale was the source of the strategic back-flip which the market reaction had forced in them. High quality was not the characteristic which consumers saw as necessarily associated with articles bearing the Zara signature, with or without the Home added. This differentiation, however, did not apply to the rest of the articles in the chain’s catalogue, in which the degree of price competition did not present the same contraindication. Like the majority of the sisters, Zara Home does not have its own production base. It buys the totality of the range marketed from third parties, mainly in Asia and some from eastern Europe; this is probably the chain which sources least from the Europe area. The strategic U-turn performed by Zara Home also tested logistical capabilities. Handling a significant proportion of the article involves a fragility element which is absent in the case of textile products. This is a circumstance that affects the supply procedure, at the time when delivery is being taken of the goods from the suppliers as well as when they are subsequently distributed to the shops. This is so important that it is probably the reason for setting aside a special centre for each chain at the new centre opened in 2007 in the Madrid suburb of Meco. Being the youngest of the group, Zara Home has been chosen as a pioneer to develop an aspect which was until recently seen as little less than an anathema: internet selling. Homeware opened the path to e-commerce at Inditex towards the end of October 2007. As is traditional with Inditex, no firm plans are made for the future: depending on how the experiment develops, a decision will be made as to whether to leave the situation as it is or extend it to the rest of

Concepts aimed at reaching everybody the concepts. For the moment the experiment is limited to the markets in thirteen countries, including Spain. What will remain, however, is one of the topics attributed to the group: its refusal to extend its innovative profile in the matter of technology to the world of its consumer relations.

Chain X: Uterqüe… by Zara? The decision to introduce a new concept is well advanced. Neither has the name been finally decided, but the one which seems to be supplied with most options is a Latin word, Uterqüe, which can be translated equally well as ‘both’ or ‘one and the other’, but in Spanish it is also the name of a city in the Netherlands. A possibility is that the first shop will be opened in Lugo, though recent policy has been to open the business in a number of cities during the first few months after the launch. As was stated previously, the new chain will concentrate on the accessories which are already to a large extent included in the range of other chains in the group, such as footwear, bags, leather goods, and other items associated with clothing. It will therefore have a presence in one of the fashion market segments most notable for a wide range of differentiation in extremes of price, brand and quality. And it will do so, as usual, based on a demand drive which is different from the rest of the concepts, most especially at Zara, where those products have gained presence and acceptance. This does not mean that this type of range will disappear from the catalogues of the other chains, but it will imply a new line of specialisation, based on its own designs, just like Zara, combining its own production with product provided by external suppliers. One of the mainstays of the new chain will the Tempe factory, a subsidiary of the group in Elche (Alicante), which already supplies these components to all the chains and is provided with its own special logistics centre. It is not certain that the name finally chosen will be that of the business in question, as it may contain references to the group’s main brand. It is within the bound of possibility that the name already picked, Uterqüe, will also include by Zara when it begins to open. Apart from the name which was picked, another of the names which was toyed with was Tribeca, the Manhattan (New York) neighbourhood located to the south of Canal Street, the name of which comes from Triangle Below

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Zara and her sisters Canal Street, which was an industrial area for years and in the last two decades has become fashionable, with warehouses, stores and attics that have been restored for commercial and residential use. Each spring it is host to a prestigious film festival, which is probably the reason why some of the celebrities of the ‘seventh art’ have taken up residence there. The effective start of the project took place in mid 2006, as soon as the team responsible for starting it up was chosen. As from then, the subsequent stages of the layout have led to the various decision-making units, from the management committee to the board of directors, to be subject to the last word from Amancio Ortega, who passes the final verdict on matters commercial.

Lefties… by way of a sale Although the production and sales policy adopted by Zara-Inditex tends not to result in the accumulation of unsold items, there is no doubt that they existed in growing numbers and volume in absolute, if not relative, terms, and this has led to the need to take some strategic decisions to handle them. In reality, though there is a slight tendency for the percentage to rise, the amount of garments destined for sales stands at around 5 per cent of the total. But this percentage, albeit tiny compared with the majority of the competitors or the sector as a whole, has begun to be relevant in a group which handles in the order of 600 million units per year. This has led to a decision to adopt an increasingly active presence in the area of business devoted to the sales. A number of chains in the group have set aside sections of this type in their shops or have taken up space in the multibrand areas which specialist companies have been opening for years in the major cities of Spain, almost always in the outlying zones, industrial trading estates and areas where the large area and hypermarket-type stores are located. Zara, however, adopted its own approach to move the garments for which the sales seasons failed to find a buyer. First, it introduced the Zara Reduce concept, which it later broke down into what, without exactly being a new independent chain, has begun to be a series of shops, with good locations, which have even replaced Zara itself on the name board of the business in question. The name chosen was Lefties, which is now beginning to be seen in many of the main commercial districts of the country. The range consists

Concepts aimed at reaching everybody above all of garments from Zara, but they may also come from other chains in the group. In any case, wherever they come from, the original label is replaced by another with the new name, and it is then impossible to know precisely where the garments initially failed to find a buyer. The aim of the entire process is for unsold garments to end up being practically nonexistent or at the very least what you could call symbolic, in which case it goes out to street markets and as gifts to NGOs and other organisations in the world of aid. Moreover, as we stated when discussing logistics, a special distribution platform had to be built, located close to León city.

Often … and other fiascos Not all the ideas for new concepts have actually taken shape, nor have all of those which have materialised turned out well. On at least three occasions, almost four, a chain which has been launched has had to close its doors, be sold off, or started again sometimes almost from scratch. And this has all happened in the slightly more than three decades which have passed since Zara opened it first business. The first disaster was called Often. The concept was very similar to that of Pull and Bear, with an essentially masculine product, and a low price: shirts, sweaters, footwear, and so on. In all, fifty-four shops were opened throughout Spain. But it didn’t work. The failure was so final that no consideration was even give to organising a strategic shake-up to try to save it, and it was sold to one of the group’s suppliers, Julián Imaz, a Romanian tee-shirt manufacturer, who re-christened the shops under the name Friday’s Project, and some are still around today. There is no shortage of versions of the story, however, which suggest that in reality the sale never happened, and what took place was a kind of transfer on conditions, the dénouement of which would be uncertain, with the rider that the group might find itself obliged to resume ownership at any given moment. Whatever the situation actually was, the chain is no longer included in the consolidated Inditex group. A second failure occurred in a completely different field: expensive ladies’ clothing, seen as ramping up the Zara range. There were never more than five shops under the chosen name, Brezos, soon to be transferred to Bershka. The third and last of the known fiascos, the outcome of the move to take a position in the jeans business, to some extent following in the wake

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Zara and her sisters of Armani jeans, or maybe with an eye on the world giant in the sector, the American company Gap, was quite serious in just this clothing segment. What happened was that barely a couple of shops managed to get the sign X-Dye on view, and were closed the minute that it was realised that they were unacceptable. At least one of the businesses is still to be found as a member of the group, part of the Lefties businesses mentioned above. Also the fourth effort, Bershka, was just on the point of going bad, but in this case the decision was taken to undertake a strategic turnaround and this did work, such that the chain is today one of the best for growth potential.

12 On the road to the Stock Exchange Even today there are a good few people in the company still wondering why Inditex had itself listed on the Spanish Stock Exchange, and still others who think that doing so led to the serious disadvantage of exposure to the public, something which had been quite deliberately avoided for years. There are also plenty of people who are of the opinion that the stock market flotation was the event which triggered the crisis that, associated with the resignation of José María Castellano, led to the abandonment of the company by a number of top-level managers. These are matters regarding which a completely unanimous in-house evaluation is not to be found, and opinion generally depends on the seniority of the person holding that opinion. Perhaps the hardest thing for some to take on board are the ups and downs of the stock market itself, raising and dropping the share price, not depending on whether the results – sales, profits – are good or bad, but more in line with the expectations of the market, that is to say, the opinions uttered by the analysts beforehand. Many simply say they cannot understand it, expressing unease at being observed, having been long accustomed to anonymity and almost no external interest. Of course, it is to be assumed that the managers and staff who hold shares in the company are not of the same opinion. It is assumed by many people that stock market listing has clarified the real value and position of Inditex. In the past you could actually be certain that nobody really knew the size which had been achieved by the group. Everybody knew they were involved in an endless process of expansion and growth: more shops, in more countries, more sales, more staff… but they are quite sure that it never occurred to them to wonder where they had managed to get, or indeed where they wanted to go. Listing on the stock market, however, calibrated the position of the group as the second (by 185

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Zara and her sisters invoice) largest in the world, lying above one firm who had been assumed to be a direct competitor, H&M, and only beaten, albeit by a big margin, by the American group Gap. It also forced people to acquire a better knowledge of company data and strategy, both externally and internally, as a means of boosting in-house communication circuits. Most company members, however, are quite certain that it has not substantially changed the way they work. Like so many parts of the Inditex story, there is no single version of how it was decided to float the company. Some connect it to uncertainties as regards who would succeed Amancio. Others state that it was simply essential to add value to the group. And plenty are of the opinion that it was an inevitable step to provide a foundation to the process of expansion and growth which Ortega had no intention of stopping. What does, however, seem to be more or less shared by all is that it did not arise out of a need to seek additional capital or finance to fund the expansion process in which the group was – and still is – immersed. This is a fact because there was no initial contribution from the portfolio of repurchased stock on the occasion of the IPO1 nor did the company hold a relevant number of its own shares for subsequent placement. In actual fact, the fate of the few shares which it did hold was to endow a fund to distribute options among the managerial staff. This meant that there was no significant inflow of cash in the company coffers, nor has a subsequent capital-raising operation taken place. Nevertheless, mention should be made of the statement made in the official leaflet which accompanied the IPO regarding the completion of the operation: ‘The purpose of this offer is to expand the share base of Inditex, in order to achieve the spread needed for the shares to be admitted for official negotiation, and with the idea of establishing a situation whereby the value of the company might be more visible on the markets and the company perform its activities under more exacting conditions in respect of the investor community’.2 Whatever the fact of the matter, including the probability that all interpretations are valid, and until a further explanation appears, the reality is that this was a long gestation period. The fundamental point is that Amancio Ortega couldn’t make his mind up. The required agreement had to be put to the company general meeting on two separate occasions. The first was on 20 July 2000, and the second almost a year later, on 20 April 2001, because for eight months nothing had happened. And it was on the brink of being put off yet again, since some of the assessors and banks commissioned to perform the operation

On the road to the stock exchange were justifiably of the opinion that the Stock Market was not particularly healthy. It should be recalled that in mid 2001 the markets were striving, largely unsuccessfully, to digest the debacle which followed the collapse of the dot-com promise.3 The idea of floating the group on the Spanish Stock Market began to take shape around 1997, coinciding with the inclusion of independent members on the board of directors. You could really say that up to that moment, Inditex had hardly had a board at all. The companies in the forefront of the group, both de facto and de jure, operated under a sole director who was usually Ortega himself or someone to whom he had decided to delegate the function. The main supporter of the idea was from the start José María Castellano, then the head of group management on all matters which were not directly related to the commercial product. However, he was not alone. Very soon the project was joined by the second shareholder and Amancio’s ex-wife, Rosalía Mera, who was keen to monetise her shareholding, among other reasons, to implement more comfortably her plans and activities with the Paideia Foundation, which, as has been mentioned, focused on initiatives aimed at finding employment for the disabled and other matters of a social nature. There had been an occasion some time before when some board members and managers had inclined towards floating the company, but Amancio Ortega would have none of it. There were two things which worried him above all: losing his majority and losing his managerial freedom. Something told him that his position as the man who made things happen could be compromised, and he would have to submit to external checks or the scrutiny of markets with which he was unfamiliar and did not understand. To some extent he felt different from the large companies quoted on the market, from the analysts, the funds, and so on – in fact, everything which did not lie under his control, which was the world of fashion in all its expressions. Later on, he would express surprise when evidence began to accumulate supporting the theory that a high price for the shares quoted depended to a large extent on guarantees that he would remain heading the group. He found out, for example, that the banks who were in charge of the IPO required a non-competition undertaking to be signed to last a minimum of five years, applicable should he decide to sell his controlling holding. For him the Stock Market symbolised for a long time a threat to what he valued most: freedom. Nobody recognised him, nobody published photographs of him and it was only very occasionally that he appeared

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Zara and her sisters in the media, without any information or references other than his name and the fact that he was the founder, owner and president of Zara-Inditex. But he was unable to deceive himself, and he knew that the moment he was quoted on the Spanish Stock Exchange he would become known. He must at that time have believed that his exposure would in fact be much greater than it actually has been: the facts show that, despite being quoted on the market, he was able to maintain, and indeed has continued to maintain, a surprising level of anonymity and privacy. Towards the end of 1999, Amancio gave the green light to starting work on the process necessary to have Inditex shares listed on the Spanish Stock Exchange. But he continued to hesitate, and on a number of occasions, up to the final date, when the authorisation proceedings were finally tabled with the Comisión Nacional del Mercado de Valores (CNMV – the National Share Market Commission), he felt tempted to abort the operation. Hesitations notwithstanding, a working group was set up within Inditex to coordinate the actual procedures which in the end consisted of: José María Castellano, CEO; Borja de la Cierva, financial director; Antonio Abril, secretary to the board; José Arnau, fiscal director; and Diego Copado, communications director. Of those men Antonio Abril alone retains his position with Inditex; José Arnau moved on to take charge of the office which manages Amancio Ortega’s investments and the other three left the company. Castellano involved himself in his professional pursuits, with a seat on a number of boards of directors, and De la Cierva and Copado took up seats on the board of El Corte Inglés. Active in the design of the IPO were the offices which provided consultation services for Inditex on the matters of Spanish and international law respectively, Uría & Menéndez and Davis Polk & Wardwell, together with the auditor Arthur Andersen. The insurance syndicate was organised by the law offices Ramón & Cajal and Shearman & Sterling. And from the wings, Castellano managed to convince Amancio Ortega of the need to have a lobbying specialist on board who, among other things, would clear the path to easier contacts with individuals who could influence and direct opinion, in the shadow of the public float. Ortega was not particularly keen on this, but in the end he accepted, on the conditions that the majority, if not all of them, would not necessarily require his direct participation and that Castellano himself could deal with them. It was from this moment on that the group, and Castellano in particular, began to be known in Madrid, where up to that time little or nothing had been known of the obscure fashion group that had become so huge in the north-east of the country.

On the road to the stock exchange At the time when the decision was taken to float the company, the Inditex capital stood at 93,499,560 euros, divided into 623,330,400 shares of 0.15 euros face value held by a total of 35 shareholders. The most relevant factor in the expansion agreed to by the general meeting of 25 September 1992 had been seen as the growth in the share capital. In that year, 1992, Inditex had a share capital of 400 million pesetas, holding unequal shares in the framework of companies with activities which were interrelated, and related to those of Inditex, the holdings being distributed in a fairly asymmetrical way between the Ortegas, their partners and descendants. To give some sense to what was really a mess, it was agreed that the Inditex portfolio would take over all the personally held shares in the associated companies. This required the share capital to be increased by 15,000 million pesetas, not including an issue bonus, to be subscribed wholly by the family partners by means of the contribution of their holdings in the above-mentioned associated companies, without the need for any cash payment. The new shares were distributed according to the valuation assigned to the contribution made by each of them. In other words, the 3,000,000 new shares issued with a face value of 5000 pesetas per share were issued as shown in the table in the Appendix (Table A12.1). Table A12.2 shows the specific contributions made, though the individual contribution is unknown. On the basis of this, Inditex took control of all the companies, thus establishing the basis of its subsequent group layout.4 Years later, the company made some changes to the share capital, partly so that it would be appropriate to the entry into circulation of the euro, but doubtless foreshadowing a possible quotation on the share market. Indeed, on 20 July 2000, the general meeting agreed to re-denominate the share capital in the new currency, setting it at 92,555,854 euros, while at the same time dividing the face value of the shares by 200, leaving them at 25 pesetas, subsequently to be converted into the 0.15 euros it is today. On that same date a decision was taken to increase the capital by the addition of 1,848,000 euros, which on 19 January 2001 was reduced to 1,099,560 euros, with the corresponding issue of 7,330,000 new shares to cover the plan regarding options and free issue to the company board and management, implemented in advance of the new imminent public flotation. This increase, undertaken before the shareholders formally waived their preferential purchase rights, included, unlike previous increases, an issue premium of 2.78 euros per share. The subscription was divided between the Bilbao Vizcaya Argentaria Bank (BBVA) which took up 41 per cent,

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Zara and her sisters acting in its capacity as the agent for the Options Plan, and the Santander Central Hispano Bank (59 per cent), agent for the Free Issue Plan; both organisations would at the appropriate moment be appointed as managers of the IPO. The operation as described involved a total payment of 21,478,072 euros and required the share capital to be held at the 93,499,560 euros at which it stood at the time of the share placement. In actual fact, this was the only funds contribution which the company received before it was quoted on the Stock Exchange. This was not the first time that Inditex had implemented an options plan. In September 1998, by way of an incentive scheme involving the achievement of certain objectives, the company had arranged for an options issue to a total of 26 higher-level staff, including the directors: José María Castellano, Josefa Ortega Gaona and Juan Carlos Rodríguez Cebrián, up to a total of 1,405,600 shares, which were issued as follows: 309,000 to board members and 1,015,600 between the managers. Later on, in the year 2000, a second plan was implemented, whereby a maximum of 494,875 options were allocated for distribution between board members and 2,523,525 between key staff and managers, with an individual limit of 9000 shares per board member and 57,575 per staff member or manager. And lastly, on 20 April 2001, the eve of the IPO, the board decided to allocate a total of 367,321 options to board members, 394,951 to executive officers and the like, and 620,641 to other managers and staff members. The board executive committee was also authorised, as long as the Appointments and Remunerations Committee had been informed, to allocate up to a total of 1,635,487 options on surplus shares to key managers and staff within the group.5 Table A12.3 shows the options allocated to the members of the board. The price established for the formalisation of the allocation of the options, a process which could be carried out in stages and tranches over the period of the following five years (up to 2007), was 2.93 euros per share. Bearing in mind the Inditex public flotation procedure, it can be calculated that for the total of the options an overall payout slightly greater than eight million euros (two million for those allocated to board members and six million for the management and staff tranches) was made for shares which on the date of the stock market flotation reached a value of approximately 40 million euros (10 and 30 million, respectively) and at current prices would total 143.1 million euros (35.9 and 107.2 million, respectively).6 This means that the profits theoretically realised, or the potential or actual capital gains, if you will, arising from these options equal between 32 and

On the road to the stock exchange 135 million euros, depending on the actual date that the cash is realised, for all the beneficiaries in the plan. The exercise of the options was altered by a circumstance unconnected with the group. In the summer of 2001, the financial newspaper Cinco Días revealed the existence of an options-based incentive plan for the board members and managers of Telefónica, most of which could be exercised in the short term, which meant multimillion payouts for the beneficiaries. The political-media scandal which was triggered led to the government taking a decision to change the tax system as it applied to this type of incentive, which would shortly afterwards lead to the resignation of the president of the company in question, Juan Villalonga. The change in the tax system covering options had a profound effect on plans already made, among which there were two organised by Inditex, which now bore a tax burden almost twice what it had been before. In the meantime, in the wake of lengthy negotiations between the partners, the decision was taken to allocate to the IPO several tranches of shares representing 22.69 per cent of the capital, which could be increased to 26.09 per cent, to be contributed according to Table A12.4. The IPO was organised as divided into four tranches as shown in Table A12.5, reproduced in the Appendix. The price was to fall within a range of 13.50 and 14.90 euros per share, with the share market development one of Inditex’s major competitors or reference points. The chosen range meant that the group would be assigned a capitalisation value of between 8,415 and 9,228 million euros, which the members of the placement syndicate assessed at around 9000 million euros. The sector-based shares used as a reference were those of the world leader in the sector, the American company Gap, plus those of the company which was seen as most similar, the Swedish H&M. The first was assessed as having a capitalisation value of 22,600 million euros, while the second was estimated at around 15,000 million. In other words, Inditex was positioned well below them, a datum which the markets would soon correct. Gap is a Californian company, founded in 1969 by Arnold Fisher on the basis of his own brand specialising in denim clothing. At the beginning of 2007, it had a network of 4,100 shops world wide, owned and franchised, with names such as its own Gap, Banana Republic, Gapkids, Baby Gaps and Old Navy Store. Business volume was in excess of 16,000 million dollars annually (14,000 million euros) with a payroll of 150,000. Eightyfive per cent of sales are in the USA, with the rest mainly in Canada, the

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Zara and her sisters UK, France, Germany and Japan. Its products are of its own design, like the layout of the shops, but it does none of its own manufacturing, product being sourced from third parties. The price band set for the IPO assumed that, taking as a basis the consolidated profit for the previous financial year (2000/01), Inditex shares could be allocated a PER7 of between 32.4 and 35.8, at that time quite high in the range of companies quoted. This was certainly a risk expectation, given the less than optimistic situation in which the share markets found themselves, which probably led to the fact that the final price fixed per share did not reach the maximum figure for the band stated in the IPO information booklet. It is worth taking a look at how this unfolded.

13 The market price

All prior precautions and hesitations went for nothing the moment that the Inditex shares landed on the floor, first quoted on 23 May 2001. The market response to the IPO was spectacular. In total, applications for an amount in the vicinity of 54,000 million euros were lodged, some twenty-six times the value of the offer, in one of the largest-volume placement operations recorded in the history of Spanish share trading. Even so, the issue price remained at 14.70 euros per share, failing to reach the high point in the range fixed in the IPO. There was, however, a remarkable exception which even today nobody can completely explain. The tranche set aside for group employees was not covered. Low acceptance was attributed to a defective plan, but the reality is that nobody was really convinced this was the actual reason. People also toyed with the theory that the group’s workers, mainly female, were unfamiliar with stock market investment, but that, too, failed to convince. As time has passed it is possible that there might be many who regret having ignored the IPO, given the way the shares have risen, but this still fails to provide a convincing explanation, particularly in view of the high level of involvement and identification which has always been a feature of the personnel working for the group. The operation was an excellent piece of business for the insuring organisations, which not only had a chance to take up some of the shares into their own portfolios or those of their clients, but also received a commission for insuring an issue that did not have to be covered by the syndicate, at least over and above that paid for the actual placement. Payment for insurance and placement was something in excess of 36 million euros out of a total payment of 44 million estimated for the IPO. Inditex very soon transformed itself into one of the stars of the Madrid market, both because of the rate of climb and of the volume of capitalisation, and, at some stages, particularly early, because of the amount to trade. 193

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Zara and her sisters The result was that the share very soon made its appearance in the very selective IBEX 35 listing, despite the fact that the free float1 was not one of the highest in the group of big shares included in the index. Almost from the first moment, the Inditex value appeared among those normally included in reports issued by analysts, share dealers and investment banks, alongside Telefónica, the Santander and BBVA banks, power companies and more recently, construction companies. It is almost always recommended, the opinion being based on the fact that it maintains a lower PER than its competitors and has higher growth rates. The issue of the half-yearly figures is one of those most analysed and anticipated, and is subsequently published in the pages and sections of the specialist information media. Of course, from the point of view of the company itself such attention has the negative aspect that anything which the company does or does not do is likely to be transformed into news, and that includes anything Amancio Ortega does or does not do. This situation is now so entrenched that the strict development of the business often receives less cover than the progress of the personal or asset-based investments of the president-founder. Although the upward-moving trajectory, with a value increase greater than 260 per cent in November 2007, has arrived in the top-range area of around 52/53 euros per share, it has not been able to sidestep the occasional scare due to a sudden drop in value. The first, and therefore certainly the one which had most impact, happened on 21 March 2003, when the share value tumbled by 19.7 per cent over a single session, which rang all the alarm bells at Arteixo general headquarters. The reason was nothing more than the presentation of some half-yearly figures which, though they showed up as very positive against nearly all the benchmarks, were below the expectations the market had recorded during the previous months, when a sales increase for the last quarter of 2002 was revealed to be slightly below the estimate. The cause was nothing more than the weather: summer temperatures continued to be high in Spain and a large part of the rest of Europe for a few weeks longer than usual, until well into the month of October, during the hot year of 2002. The continuation of the summer weather postponed the demand for winter garments slightly, at a time when the shops were already fully stocked with the autumn range. The outcome was that sales fell during the first half of September, until the marketing and distribution departments had time to react.

The market price Although more or less the whole industry in this sector experienced the same problem, it affected the Zara-Inditex shops in a different way. On the one hand it could be said to be unfavourable, given that its policy of keeping stocks as close to zero as possible affected the majority of shops and chains which had no stock of summer wear to satisfy a demand that continued to be interested in warm-weather clothing, and which were in fact bursting with clothing for the season according to the calendar and the upcoming winter. On the other hand, however, the flexibility of the group soon rendered the situation favourable. Unlike its competitors, Zara and the rest of the chains more focused on fashion were able to reconstruct the range, stocking shops with garments which were more or less summery, but still including the autumn or winter clothing they were obliged to make available to the consumers. Nevertheless, the accounts during the second half of 2002 ended up closing with an appreciable break in the growth rate foreshadowed by the analysts on the basis of the development over the previous half-year. Shortly afterwards, in September of the same year, 2003, shares fell again, this time by 15 per cent, a drop that analysts blamed on the fact a few days previously Juan Carlos Rodríguez Cebrián had decided to sell 500,000 shares without offering any explanation. This meant that the company had to act fast, improvising data to demonstrate that no event or forecast of a negative nature had been recorded, and that this was a purely personal decision. The last share market shock so far followed the presentation of the quarterly results dated 31 October 2007. Although the figures have shown noticeable upward movement in almost all the benchmarks for sales, margins and profits, analysts and the market itself have interpreted this as a symptom of an eventual slow-down. Consumer demand dropped in 2008 (as in the rest of the world) but the sales for Inditex kept at an acceptable level (even with a slight growth). That slight growth did not prevent a fall of Inditex in the stock market because investors expected a higher growth at the beginning of the year 2008 since few were able to foresee the depth of the crisis. This assessment is clarified by the company in the light of the fact that the bulk of sales for the financial year takes place in the fourth quarter, and of its presence in a range of markets and countries, together with the general objection to comparisons made over excessively short periods to assess the present and future development of the business figures.

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Zara and her sisters Chiming with what is so often said at corporate headquarters in Arteixo, an unfavourable echo is based on the fact that it is the forecasts of external analysts which are failing to be realised, rather than those formulated by Inditex. Even so, it is a fact that a slight drop in increases as regards invoicing was recorded in the third quarter of the financial year in comparison with the figures for the previous half-year, given as 15 per cent, slightly lower than the figures quoted previously. The result, in terms of stock market quotation, was a fall of something greater than 6 per cent during the two sessions following the presentation of the results and a depreciation of 15 per cent from the maximum reached on 7 November 2007. These slip-ups merely confirmed the worst fears of those who from within the company were most sceptical about the public flotation, who pointed out that any news seen as negative, whether actually negative or not, would have an unfavourable effect on the behaviour of the shares. Inditex has no company share register and the shares are not named but they have bearer shares, which makes it difficult to find out exactly what the shareholder makeup of the company is. The only way to get any idea of what it might be is to examine the minutes of the general meetings or the data provided by the liquidation agency, given that only holdings over 5 per cent are required to be declared to the regulatory body, in this case the CNMV. The maintenance of the register of account postings arising from the share negotiations is in the hands of Iberclear, upon whose data are based the calculation which provides a figure of slightly over 64,000 shareholders in the company, of which over 61,000 would be individual holdings, while the rest are held by investment institutions. Estimates made by the company itself calculate that Inditex shares are largely in investment portfolios held by stable investors with medium- and long-term plans, such as investment funds and pensions. It is possible that they control in all some 70 per cent of the shares negotiated, that is, around 28 per cent of the company capital. According to the registers declared to CNMV, the board of directors controls, as a whole, almost 60 per cent of the group, distributed as shown in Table A13.1. Table A13.2 shows the main shareholders who are not represented on the board. Presence on the Stock Exchange has not been neutral, but it has probably not excessively changed in-house procedures or forced the company to migrate to transparency from the lack thereof, contrary to what has often been said and written. In actual fact the account filed annually and mandatorily with the Companies’ Registry since the mid 1990s now contains the bulk of the information

The market price which it is now obligatory to submit quarterly to the CNMV in its capacity as the regulatory body. What can neither be proved nor disproved is whether the company was acting in the knowledge that sooner or later it would find itself under the control of the rules governing quotation on variable yield markets. In reality, as we have already seen, towards the end of the 1980s the group made considerable efforts to surface and illuminate its activities as a whole. Were plans already afoot to float the company in the medium term? Whether they were or not, account must be taken of the general development of the country at that time, with a collective effort being made to structure a modern economy, with clear rules and which were above all to be observed by the majority of the agents, in contrast to previous periods which were characterised more by a considerable degree of concealment, even perhaps anarchy, within corporations. It is natural to assume that listing on the Stock Exchange will have brought about other changes in the dynamics of management, such as regular meetings with analysts and investors, whether it be on their initiative or the outcome of a proactive policy implemented by Inditex. As a rule the top executive team of the company undertakes two presentation rounds per year, the first half-year and then the end of the financial year, normally in London (UK), Madrid (Spain), Frankfurt (Germany) and New York, Boston and San Francisco (USA). The effects of listing on the Stock Exchange and the consequent repositioning of the group as a consequence of its evaluation by the markets are revealed, albeit extremely cautiously, in discreet expressions of pride by a large proportion of the staff, including management. It is relatively easy to detect, however often it may be concealed by instructions and to some extent the example which Ortega perpetually offers. More than one staff member recalls a rough telling-off from his president for having displayed pride as being the next thing to arrogance, whether in a general way or in respect of a competitor. Also the fact that listing on the Stock Exchange has made many of the managers and workers at Zara-Inditex rich is another matter that should not be forgotten. It isn’t that in the past these people couldn’t be sure of satisfying their acquisitive instincts, but the capital gain, realised or potential, received by staff members who acquired options or shares in the company has meant a noticeable improvement in many people’s standard of living, as can readily be appreciated by a glance at the garage of the Arteixo corporate headquarters where the employees park their cars, or by

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Zara and her sisters checking out where many of them have moved their family home to in the last two years. The story is told that Amancio Ortega doesn’t like to hear that his colleagues have sold any Inditex shares, particularly when the shares sold arise from the options allocated as part of the incentive and loyalty-building plans and programmes. In actual fact he has cancelled, or at least delayed, more than one, seeking a formula which looks more like a kind of retirement bonus, though the technical difficulties and taxation standards applicable have so far rendered this approach difficult. Difficult though it may be to admit it, there are plenty of hints, almost amounting to evidence, that the defection of a number of managers, not only those connected with the exit of José María Castellano, though including them, has been seen as motivated by the noticeable increase in value to be had from the sale of shares in the company. It makes sense to some extent though not with the loyalty-raising plan underpinning the allocation of the options. ‘We give them shares so that they’ll stay, not go’, is something you can hear at quite a few other premises on the Sabón trading estate. Anyhow, the truth is that Ortega would never be able to understand anyone, particularly someone directly related to the group, who would prefer to invest their money somewhere other than Inditex. As far as he is concerned there could be no better place to put your savings and look for a share price rise. Neither is he comfortable about the idea of paying out the dividend. If it were up to him, he would continue with the practice of the first thirty years: reinvesting all or most of the annual profit in more progress and growth, certain that there will be no shortage of opportunities to do so without affecting profitability. He is aware of the fact that paying off each shareholder is part of the ritual and practice of variable yield markets: to some extent, this is just the price you have to pay for listing. Nevertheless, he is bothered by this unwritten requirement that you have to pay out a dividend which if possible should be higher than the last, which he understands is closely associated with the other requirement of stock markets – that he does share: the growth imperative. This is a criterion he would never abandon, not even taking into account the fact that his holding in Inditex for the last complete financial year (2006/07) brought him in a dividend income of around 310 million euros. Whether by nature or strategy, Ortega never eases up on the effort to maintain a culture of humility and has declared war on the risk of selfsatisfaction, which he sees as the certain road to relaxation and aspiration to

The market price the disaster that, as he constantly repeats, others have experienced, known in modern entrepreneurial literature as dying of success. It is a fact that this approach has to a large extent become a part of the organisation. His theory and probably conviction that at any place and time someone else can appear able to do things better, in his opinion, keeps him permanently on his toes, always built into a growth dynamic and a readiness to occupy gaps in the market still far from being filled. It cannot and should not be denied that the group will have to meet testing and threatening situations, to which it must respond. For many years the board of directors has followed a kind of Ten Commandments – actually between twelve and twenty – regarding risks which may arise. This looks something like a map which, even so, was unable to predict the most convulsive stage that the company has been forced to live through in recent years.

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14 Isla for Castellano: the light and shade of a scare in the form of a crisis The actual protagonists themselves are, even today, unwilling to provide information to explain the how and why of what was the most dramatic disagreement to date within the Inditex management team. We know that the outcome was the professional and personal collapse of a double act which had until that time appeared as a crucial and indestructible element in the success that had been achieved. From that time on Amancio Ortega and José María Castellano have neither spoken to each other nor is there any evidence that they have even physically been in the same location, despite the limited extent of the socioeconomic map of A Coruña, where they both still live and carry out their respective professional duties. To some extent the final moment of the episode was played out outside Inditex. It was concerned with the frustrated effort at taking control of the power company Unión Fenosa, put on sale by Banco Santander in mid 2005. A group of Galician businessmen, including Ortega himself acting personally, made an offer for the share tranche (22 per cent) which controlled the company, and in September an agreement in principle was reached with the bank vice-president, Matías Rodríguez Inciarte, to close the deal. At this point the prospective buyers had agreed to offer the presidency to José María Castellano, who was at that time rather uninvolved with the day-to-day management of Inditex, where his position was that of first vice-president, and he had no concrete duties. However, Banco Santander had other plans… and Amancio Ortega did, too. The story continues that the Galician operation to take control of Unión Fenosa was far from acceptable to the president of the financial organisation, Emilio Botín.1 It may be because he felt that the price was unsatisfactory, or perhaps for some other reason, but the fact is that he was checking out other options and he was about to use a tactic which 200

Isla for Castellano many say he was a master of: setting up a kind of auction between parties possibly interested in the takeover. The result of this was that the president of ACS, Florentino Pérez,2 raised his offer to 33 euros per share, which would place a value on the power company almost 10 per cent higher than had been previously agreed with the Galician investment group, and Unión Fenosa became part of the construction group. In the meantime, the parties keen to see the power company in the hands of Galician capital found themselves short of a declared leader because Amancio Ortega had vetoed the candidature of the man who was still his entrepreneurial travelling companion. The surprise of his presumed partners was enormous, both because of the fact of his opposition to Castellano heading the management team and the way he expressed it. ‘Over my dead body’ is usually said to be the way he reacted when he heard the suggestion, though he claims he never said it and says he only objected because he felt that it involved Inditex too deeply in an investment he had made as an individual. Although the real reasons lie within the inner sanctum of secrets possessed by the protagonists themselves, it would be understandable for Ortega to feel hurt because Castellano had not consulted him about such a possibility. He states that he never did consult him, and regrets that he took no initiative whatsoever on receiving the offer to chair Unión Fenosa, though he claims that the idea arose from the rest of the potential shareholders in the power company. He also acknowledges that Ortega’s firm opposition was extremely painful to him and was the deciding factor in his leaving the group, which he did a few days later. Whatever actually happened, it would appear obvious that the relationship had already deteriorated or had been deteriorating for some time past. Would it be absurdly risky to wonder why? The Ortega–Castellano relationship did not appear all of a sudden. The founder of Zara had for some time been concerned that they should take very seriously the introduction of IT into the various production and management processes. He was in regular contact with the School of Business Studies in A Coruña, and he had harvested from it various managers and auditors. Someone put him in contact with a teacher from the centre who was a professional specialist in this area: José María Castellano, at that time the manager of Sistemas 3, a subsidiary of the insurance company Aegon. It is not known whether it happened immediately, but they both liked each other and shortly afterwards Castellano accepted Ortega’s offer to up sticks and work full-time for GOA, shortly before the birth of Inditex.

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Zara and her sisters The newly hired executive very swiftly familiarised himself with the management areas with which Ortega felt uncomfortable, and in short, actually did not like. His love was fashion, clothing, the shops, distribution, sales… but he could not work with, nor was he interested in financial matters, systems, organisation in general. He enjoyed being creative, designing, manufacturing and selling. The rest of the business, even though it might be necessary for him to have some feel for them, particularly as the group gained in size, failed to excite him and he had no interest in learning about them. This was what Castellano was for, and increasingly so, together with the team he built up around him. A very obvious schism grew up within the company, which, even though it has been corrected, can still be seen today. This is nothing different from what happens in many other areas, whether in production or support functions. What was, perhaps, strange was the fact that the business started to become two-headed: in a way Ortega was, as well as being president, the CEO of the production area, while Castellano was in charge of everything else. However, there was an added factor which would perhaps be crucial regarding future developments: Ortega never took part in any public action; but Castellano did. As far as this latter point is concerned any speculation is in danger of being groundless, but the fact is beyond doubt, particularly as regards the way the group was seen from the outside to a greater or lesser degree, that it could not possibly be neutral. With increasing intensity, observers on the outside began to discuss whether the engine was Ortega or whether Castellano was to be thanked for the fact that Inditex was becoming known. No information or facts are to be found about who was behind this question, just as there are no data as to whether Ortega was bothered about the existence of the whispering and the fact that it did not go away, but in such matters the most obvious candidates are the protagonists themselves. Was something of this germinating over more than twenty years of collaboration? Or was there something else? Nor is it easy to work out how important was the steady encroachment of Juan Carlos Rodríguez Cebrián, Ortega’s nephew by marriage, who had been climbing the ladder from an unpaid apprentice, to assistant in a Zara shop to general manager of the group, working in a close and mutually dependent relationship with the president-founder. Shades of opinion vary, but the underlying attitude is unanimous that this was important. In truth, it is hard to find supporters for Rodríguez Cebrián among those who remain in Inditex or have left. Taking fair account of all positions,

Isla for Castellano the opinion clearly leans towards his having used and abused his relationship with Ortega to undermine Castellano, despite the fact that he was theoretically beneath him in the pecking order. We are told that this was a relationship which became so firm that even Amancio started to toy with the possibility that this might be his successor. What was the basis of it? Rodríguez Cebrián had in Ortega’s eyes one invaluable quality: he never said no. He was always prepared to carry out any task that was entrusted to him. He acted as a kind of hit man. It didn’t matter whether the problem was company-related or personal. His uncle didn’t even have to ask: he anticipated the need, offering to solve problems without leaving complications… and without explaining how he did it afterwards. Initially, before being promoted to general manager he shared limits of the areas of activity with Ortega. He had no training or knowledge of the ins and outs of corporate management, but he had plenty of intuitive capacity, drive, daring, ambition and more importantly he could guide and support the president-founder. But moving up to number three in the company is possible by the application of what is known as the Peter Principle,3 or at least, so it seemed. The disagreement, bordering on enmity, between Castellano and Rodríguez Cebrián festered for years, and to a certain extent it expanded to all of the board, without anyone noticing the slightest intention on the part of Ortega to mediate between his nephew (he was married to the daughter of his brother Antonio) and his first executive. The veterans say that before and after being appointed general manager, Rodríguez Cebrián perpetually boasted of his personal relationship with the president-founder: during family gatherings at the Pazo O Drozo he was particularly fond of revealing confidences – instructions? – picked up during one of the trips that he used to take with Amancio. No less perceptible were the extreme differences which separated the personalities of the CEO and the general manager at all levels or, indeed, those they displayed in their relative duties. One was utterly devoted to carrying out every task entrusted to him, in however unusual a fashion, while the other was bound by procedures and standards, concentrating on making his presence felt outside the group, sharing his time between the company and the chair he had won at the University of A Coruña. Somehow or other, Ortega managed to remain neutral, yet still entirely relying on his nephew… until a shock made him open his eyes. The critical, indeed decisive, episode came with the project to set up a new logistics centre at Zaragoza, a project which Rodríguez Cebrián offered to take

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Zara and her sisters direct control of, setting aside the difficulties which other managers raised, particularly as regards execution deadlines. He was accorded full powers to do so, and the outcome was such a disaster that even now, after so much time, most people prefer not to recall what happened. It was decisive because it opened Ortega’s eyes, among other things, and because the fiasco gave rise to a significant collapse, shortly after which they had to adjust the yearly accounts to disguise how serious it had been. Months later, at the beginning of February 2005, Cebrián resigned from the management team, resigned his seat on the board and left Inditex. But Ortega had to live with the disappointment: a few weeks later Rodríguez Cebrián cashed in the shares in the group he had obtained by exercising the options he held. Although the departure of Rodríguez Cebrián could be, and indeed was, seen as a victory for Castellano, it is possible that it happened too late to be a real victory. For years Rodríguez Cebrián’s insults had accumulated to the complete indifference of Ortega, with no explanation of any kind ever being offered by either of them... while Ortega still nurtured the relationship with his nephew, which was closer and different from the strictly professional relationship that existed between him and his CEO. This, of course, had damaged the reciprocal relationship, as would be expected. Was there something else? It’s more than likely that we shall never know, but there are plenty of examples and precedents of how the relationship between the executive and the owner can become complicated, however wide the delegation of functions, authority or powers awarded to the most important and closest colleague may be. Some versions of the story have Ortega and Castellano cheating each other through the long twenty years they shared together. Was it because they were too different? It seems an easy explanation and to some extent runs counter to the obvious way they complemented each other, of which they were so proud, but for the time being there is no way the story can be added to, given the silence and discretion which the pair have maintained and still maintain about how and why what happened did, in fact, happen. Ortega is the undisputable owner and behaved as such. It’s possible that Castellano never took sufficient account of this… or maybe he did! The time sequence of the events is probably more revealing than any other speculation. Rodríguez Cebrián left the group in February of 2005. Pablo Isla was taken on as CEO months later, in June of the same year, leap-frogging Castellano to take up the position of vice-president of the board of directors, now with executive duties. Castellano tendered his resignation at the end of the following September, which resulted in Pablo Isla adding the

Isla for Castellano first vice-presidency of the board to his post as CEO, with Carlos Espinosa being appointed second vice-president. Shortly beforehand another significant change to the board had taken place: Rosalía Mera resigned from her position as a director in June 2004 and then, in December of that year, Flora Pérez, the current wife of Amancio Ortega, took up her seat on the board. To all appearances, 2004/2005 were particularly disturbed years, and the only thing which can be absolutely believed in place of possible explanations is the time sequence of the events. Nothing else. Aside from the frustrated operation to take over Unión Fenosa which we have already mentioned, there is another factor that cast an even greater shadow on the relationship between Ortega and Castellano. Castellano decided to sell a large portion of his Inditex shares and invest the capital gain in shares in Fadesa, which at the time was a powerful Galician real estate business chaired by Manuel Jové. It never actually came to pass, but more than one witness has suggested that joining Fadesa was part of a procedure which would directly involve Castellano in their management. This is borne out to a certain degree by the fact that shortly afterwards the real estate company was to take on Borja de la Cierva, a close colleague of Castellano on the financial management front, in the final stage of Inditex. True or not, speculation collapsed when Jove decided to sell the company a short time later.4 Withdrawing capital from Inditex to put it into Fadesa angered Ortega, because of his personal conviction that the group he presided over was the best place in the world to invest. It seemed, moreover, that some complications had arisen, because the sale of shares held by the person who was still vice-president of the board of directors was not communicated as it should have been to the CNMV. Also, as usually happens, the versions are contradictory on some points: Ortega states that he knew nothing about it beforehand; Castellano maintains that he advised him of the need to do so, among other reasons because of the need to raise a massive loan – to the tune of 15 million euros – for the purpose of buying shares in the company. Whatever the facts might have been, the deterioration was irreversible and from that day on, as we have already mentioned, Ortega and Castellano have never spoken to each other again. In fact they didn’t even say goodbye to each other, nor is it known whether this was because Castellano never tried to or because the chairman-owner followed his usual custom of not issuing the dismissal personally or creating an opportunity for anybody who, whether of their own accord or unwillingly, decided to leave a managerial position in the company.

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Zara and her sisters Everything points to the conclusion that Ortega had foreshadowed the exact design which would eventually emerge to rejuvenate the management team. Some of those who claim to know him like to stress the fact that his highly introspective thought processes lack human warmth. Their claim is that it was never a part of his plans to bequeath the full control of the business to his nephew or to Castellano. Even more, they like to think that he acted absent-minded for years, pretending that he wasn’t certain which one to chose, while in reality he was incubating another option, aware of the fact that neither of the pair possessed all the abilities he realised were needed to run it in any case. Rodríguez Cebrián was a kind of all-terrain operator, with the ability of the executor, if not the executive, but lacking in a strategic vision, training or people skills. Castellano, on the other hand, was brimming with the two latter abilities, though he showed scant willingness to become directly involved in procedures, to roll up his sleeves, as Ortega used to say, when he was frequently sarcastic about his theoretical second-in-command’s habit of never leaving the office later than six in the evening. And there was another contradiction: Castellano was only eleven years younger than Ortega, which meant that he failed on yet another of the parameters required for succession. In other words, the nephew could not represent the business and lacked the virtues needed to lead and hold together a team – he was not popular in the company – while Castellano, who did possess these qualities, lacked the ability to get things done, and there was also the fact that his age counted against him. According to what both interpretations agree on, Ortega had for some time been turning over the idea of seeking and trying out an alternative which would be someone in possession of the above-mentioned qualities, and was around forty years of age, in order to implement the generational handover he intended to programme. In reality it is not absurd to say that he may never have abandoned his perception of the group as a family firm. Inditex had to be for his heirs, not for some employee, however brilliant he or she might be, but there was no possibility of this working out as a matter of course. His eldest daughter, Sandra, showed little interest in the business, and was very close to her mother, which means that, in view of the divorce, Amancio’s relationship with her was uncomfortable. His second child, Marcos, had been disabled from birth and there was no possibility of his being a successor to him. So then there remained his third child, Marta, the fruit of his relationship with Flora, his second and current wife, but there was a disturbing age gap

Isla for Castellano between them: forty-seven years, which meant that he had to consider the possibility that he would not have time to prepare her before his possible physical/biological passing. The situation was that, in line with the tradition in family firms, also matching the training criterion which ruled everybody at Inditex, there was no escaping the fact that the possible heir would have to experience each and every one of the steps, departments and companies in the group before taking up a managerial position. Also there were doubts as to her personal attitude. Her love of horses, which began when she was barely ten years of age, plus an acceptable, but not brilliant, academic career also sowed seeds of doubt in the minds of her parents, who were in any case aware of the fact that this was not the right time for the girl to display any preference whatsoever as regards posterity. When the time came, would Marta want to grasp the Inditex reins? Whether that moment came or not, Ortega ought to consider the probability that between him and his daughter there would at least have to be a transitional period. So he needed an executive around forty years of age – but how and where could he find one? Some of his friends recommended that he use the services of a head-hunter, but it seems that it was not this procedure which in 1998 caused him to decide to hire Carlos Dexeus, a 44-year-old executive, as his general manager. The story here is that it was a consequence of a visit he paid to the chairman of Barclays in the London headquarters of the bank, where Dexeus happened to be. The impression made by the young man was so favourable that he asked Castellano to negotiate the possibility of his joining the group. Of course, in keeping with his usual custom of checking as long as possible before making the decision, he did nothing on the spur of the moment. It is far from certain that this investigation supplied him with any favourable recommendations, but he allowed himself to be persuaded by his initial impression, and proceeded with the idea of entrusting him with the position of general manager. The candidate had good references in the world of the investment bank. He had worked brilliantly for JP Morgan and managed, with some degree of success, Inversiones Ibersuizas, a company which included among its partners the Banco Pastor. Some sources have supported the theory that the hiring was due to the relationship established with JP Morgan, to whom Inditex was obliged to have recourse on a financially delicate matter for a loan of 5000 million pesetas to settle the investment in the logistics macrocentre at Arteixo, but unfortunately the dates which would support that connection don’t tally. There was also the circumstance that Dexeus came

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Zara and her sisters from a Catalan family with a textile industry background in which he had worked for a time after completing his education. The ease with which he had handled dealings on international markets must have stood in his favour. It was around that time that the idea Inditex should begin to be quoted on the Stock Exchange was being talked about a great deal, and the perception that foreign investment funds would be crucial in the placement process carried a great deal of weight. Little was made, however, of the ostensible differences of all kinds which exist between the sophisticated and to some extent glamorous world of investment banks, and the pragmatic, humble and even slightly shabby culture which dominated Zara-Inditex at that time. It was a disaster. No sooner had Dexeus joined the company than he began to show off the habits and customs he had nurtured in a finance multinational. In other words, his style was completely at odds with austerity which at that time, much more than today, characterised the group which he had just joined. Some anecdotes, perhaps apocryphal, going the rounds of the company will serve as examples: it is said that as soon as he signed the contract he immediately complained that his office was inadequate, that he had to travel tourist class and follow other guidelines which were part of the Inditex culture. What was decisive was that Dexeus breached the clause in the contract which required him to take up residence in A Coruña within six months of his joining the firm. It was never made clear whether it turned out, or whether he knew in advance, that it was likely that his family, particularly his teenage children, would refuse to move, and for this reason he placed special emphasis on the conditions whereby the contract could be terminated – protection – in the negotiations leading up to his joining the company. The fact is that he never made any real attempt to move from Madrid and travelled to Galicia on a weekly basis during the few months he remained in the position. Whether or not the anecdotes and other ups and downs are true, the fact is that barely six months after his appointment, he left. His short stay was, in any case, enough to make it quite clear that he didn’t get on very well with Castellano, and didn’t get on at all with Rodríguez Cebrián and frankly there was little love lost between him and all the other managers. And how did he get on with Ortega? From within the usual mystery there emerges the feeling that the initial enchantment soon dissipated. Shortly afterward, Dexeus jumped on the bandwagon of the new economy, founding an internet service provider company – Netjuice – which failed when the dot.com bubble

Isla for Castellano burst at the turn of the century, before there was any chance to profit by an attempt to sell it with the massive capital gain earned by many contemporary businesses that had a similar invoice figure. We have already observed other cases of the way in which Ortega is in no way daunted when he is convinced of something. Nor was he on this occasion. He continued to be convinced of the fact that he needed a second-in-command. The idea was probably enhanced when a routine medical check-up detected incipient prostate cancer threatening his health. The threat was fortunately and speedily fixed with the right treatment, and so satisfactorily that years later there has been no sequel. In the meantime, the day-to-day running of the company was becoming increasingly complicated because the disagreements between Castellano and Rodríguez Cebrián were showing no signs of fading. The most common opinion is that Ortega did nothing to pacify them – indeed, rather to the contrary, following the pattern he had adopted some time before. Now that the company was listed with the Stock Exchange, the situation was becoming increasingly unsustainable: this could not go on. Ortega decided to take advantage of the insinuations being made by Castellano, about the need for all the group’s executive power to be in the hands of one person, to ask him to find a candidate for the position of CEO, suggesting that he, Castellano, would take up the position of first vice-president, in a directly superior position. It is not at all certain that the suggestions made by Castellano would follow this solution, but Ortega made a choice for once, placing his unruly nephew under the effective authority of the CEO, terminating Castellano’s marginalisation, making the most of the direct line to the president and his dependence-relationship with him to act on his account and even, bearing in mind his character, sidelining the rest of the management, including his theoretically immediate superior. Whether this was the case or not, what is certain is that Castellano took up the challenge at the end of 2004 and started looking. Abiding by requirements of the corporate government, at the outset Castellano involved the consultant who chaired the commission responsible for appointments and remuneration in the project, called Carlos Espinosa de los Monteros. Also of interest was the added circumstance that Espinosa himself had once been Ortega’s preferred candidate for the number two position, though in the end the idea came to nothing. There is little doubt that the individual, who was also president of Daimler Spain (Mercedes), had a better relationship with, and knowledge of, the business world of the

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Zara and her sisters capital than Castellano, and also enjoyed an esteem and credibility as far as Ortega was concerned which could certainly lend weight to the success of the candidature. Adopting the usual practice in these cases, the quest was entrusted to a management selection bureau. However, the choice was to be by no means easy, not because there were too many candidates, but because none of the pre-selected candidates displayed much interest in moving to A Coruña, the one unavoidable requisite for the job. As also usually happens, the news that Inditex was on the lookout for an executive to take over the management of the company was in wide circulation, which gave rise to what always happens in these cases: a series of initiatives or offers, of the I would be prepared variety, others which declared that the offer had been made, but I have turned it down, and a healthy raft or rumours, almost all unconfirmed and mostly unfounded. To tell the truth, the name Pablo Isla, at that time joint president of the Spanish/French tobacco company Altadis, formerly Tabacalera, didn’t ring many bells. It had already been something of a surprise that César Alierta placed the reins of Tabacalera in his hands when he had to take charge of Telefónica, and from then on you could hardly say news of him had kept the communications media busy. He was more or less unknown, despite having held a number of posts of responsibility with Banco Popular and headed the General Asset Management section of the Treasury in the first government of José María Aznar. To his professional colleagues in particular, the state lawyers, his appointment to steer Inditex caused considerable surprise and the suggestion was that this had been a mistake for both parties. One person who did not share this scepticism was César Alierta, who had not only backed one of Isla’s appointments, but he insists from his seat on the board of Telefónica that he is one of the people he frequently consults. The time sequence of the events seems sufficient to accept that Isla’s arrival had little or nothing to do with Castellano’s departure, but was it really neutral? Although he took an active part in the selection and strongly recommended the candidature of the young state lawyer for the position of CEO, it is impossible to ignore the fact that this was nothing more than a complete handing over of the baton. In other words, Isla came to occupy the position and perform the duties which had been Castellano’s during the previous crucial twenty years at Inditex. What was more, the new first executive was to be permitted to operate free of interference in the shape

Isla for Castellano of Rodríguez Cebrián, with freedom to move and an executive setup which his predecessor had striven in vain to attain for himself during all the years before. There are no procedures or situations of this type which do not immediately reveal the fact that no two styles are the same – everybody is a unique individual. The crises tend to arise first within the management team, and secondly with regard to the management style. This is almost inevitable when, as was the case here, the person being replaced is required to carry on working in the company of his replacement, but without any direct authority over him. Isla decided to do something which works for some, and not for others, which was not to come alone. He chose to bring with him some people in whom he felt complete trust, which meant removing or replacing other individuals who had formed part of the circle that stood closest to Castellano. Naturally, nobody disputes Isla’s right to choose his closest colleagues when discharging the main executive responsibility in the group, but the persons being replaced on the one hand, and the veterans on the other are bound to wonder in certain cases whether the new appointee is a better professional or more suited to the position than the professional obliged to step aside. Are they right to do so? In the final analysis, the only operative benchmark will be to find out what works the same or better, and what doesn’t. The main areas affected by the changes were: Human Resources, Systems, Communications and Institutional Relations, and Finance, all of which were raised to the category of general management. This episode, not flagged as a crisis in-house, ended up with the departure of half-a-dozen important managers and their replacement by people from within the company or professionals brought in by Isla. It is difficult to assess to what extent this had an effect on the development of the company, given that more than two years have elapsed since it happened, and there are a number of reasons for this. One of them, attractive as it seems, is that not enough time has actually passed to make an assessment. There is no doubt that the inertia with which all organisations proceed, particularly if the subject at issue is one which affects the processes of success and growth, will need time to be rendered neutral, whether for good or ill; always supposing such an effect was indeed produced in this case. Another reason, no less important, is the discretion and caution adopted by most of the people from whom an opinion is acceptable. And there is a third, which imposes a very careful filtering on opinions uttered: but all things being equal, there is a vague

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Zara and her sisters split between the way the situation is assessed and even as to the sequence of events and how they were resolved between the veterans and the newer members of the group’s management team. This team has historical and unavoidable roots, which in the first place differentiate the people who have been with Ortega from the early GOA times from the others, with consequent gradation, depending on the time and stage at which the staff member joined the team. This is typical of organisations which have passed through large development processes starting from practically nothing in which the founder and main driving force is still present. It only happens because something over thirty years lie between the time when day-to-day operations allowed personal and direct contact between practically all the members of the company and the present time when no fewer than 1300 people are to be found in the corridors, factories and warehouses which make up the Arteixo corporate building. What is to be said, in the opposite sense, of moving from a situation in which every manager knew the majority of the staff by name, to one in which it is even difficult to guess the exact number of employees any more accurately than knowing that it is around 76,000? However, it cannot be denied that the departure of Castellano and several of his most direct colleagues, and their subsequent replacement by professionals from outside the group, gives rise to the danger of having exacerbated the phenomenon of dissociation. Nor are the theories which circulate in-house even in agreement about each of the resulting departures. They even vary on the lips of the few ex-employees who are willing to talk about the circumstances in which they felt obliged to leave. The triangle somehow constructed of Ortega, Castellano and Rodríguez Cebrián shaped a management style which was very different from that which has now been locked in by Ortega himself and Isla, which has been re-named in-house as 3.14 (Pi). No sooner had he taken up the position as CEO than he made some changes to key positions in the organisational framework which some of the veterans accepted only reluctantly, and about which they even communicated their unease to Castellano or to Ortega himself. But Castellano was now responsible for non-executive function – vice-president – and the founder refused to intervene. There were critical voices, from within and especially from those who were now on the outside, condemning Ortega’s attitude, saying that he never made the slightest effort to keep people who had undertaken their duties with enormous loyalty, dedication and enthusiasm. These are the

Isla for Castellano voices which take the view that the new people are in general worse than those who were let go. The counterpoint of this analysis arises with the shared acknowledgement that the asset gains derived from the exercise of the options allotted before the public flotation, or the income obtained from the total or partial sale of the resulting share portfolios, could easily have changed the professional attitude of various managers, or their approach to the job. In other words they saw themselves as, and indeed felt, rich, which changed their attitude to working in the conditions in which they found themselves; in short, they demanded more than they had dared ask for before. Some of them continued to share professional tasks and specialities but, to a greater or lesser degree, they also shared something of a feeling of bitterness and alienation, which was actually false, given that they showed every sign of being perfectly au fait with the day-to-day running of the group they had decided to desert. Of course, there were exceptions, but they cannot prevent a certain overriding attitude being adopted, and this needs looking at.

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15 A model for management

A great deal has been written and researched but mainly speculated about whether or not Zara has invented a management model. There’s no doubt that for quite some time now it has been the subject and object of case studies in schools of management, both the well-known and those less well-known, in Spain and outside. But there has always existed a doubt as to whether theoretical models can be applied to companies or whether practices are taught only when their effectiveness has been demonstrated in the actual economy. In this respect, however, some degree of consensus can be found: if it is not actually a model, Zara-Inditex would seem to have worked out a new way to do things, whether or not the term model can actually be applied to it. Perhaps the major difficulty in using the term model for their system is that it is far from being closed. This leads to an admission that in reality this is not a model. Indeed, one of the distinctive features of this method of proceeding is that it is almost constantly changing: in other words, the organisation is perpetually being turned upside down without attention being paid to continuity. Zara-Inditex is essentially devoted to fashion: this and nothing else is the company purpose. This being the case it is subject to uncertain demand and must above all be capable of responding rapidly to large changes in its consumers’ behaviour patterns and preferences. Its greatest area of risk is not being sufficiently capable and flexible to adapt or reorientate its production and supply systems, to which must be added its ability to obtain, process and analyse the signals from the market, that is, information.1 The question, then, is this – does this management model, or if you prefer, this way of doing things, satisfy the demands of this pattern? Results would suggest that it does. Theory and custom would suggest that an initial step in forming an idea of what the applied management model is would be to check the organisation 214

A model for management chart of a company or corporation. Inditex certainly has one, at least, one has been drawn up and published, but in this case, even less than others, it is of little use in providing an idea of actual operations. There are many people in the group who actually claim that such a chart does not exist, which was definitely the case for the majority of the life of the company, and a version has been drafted really only to satisfy what is seen as a requirement – yet one more – laid down by the Stock Market, to be checked and scrutinised by third parties who, among other things, insist that the company behave in the same way as the rest. So if the management structure chart is useless, the next step will be to examine what we might call the dotted lines, the actual decision-making machinery, interrelationships and procedures. In other words, who gives the orders? Who decides? Who is accountable? What powers are exercised by each individual involved in the management? Doing this raises some eyebrows, since the mechanisms are very different from standard procedures. Individual, even independent decisions take precedence over joint decisions, which are seen as more appropriate to large groupings. This means that in most situations a single individual takes the decision, without having to be located on the upper rungs or summit of the organisational chart, and it is only very sporadically that matters are tackled by committees, whether structural or ad hoc creations. A distinctive guideline could be that management manages so that things happen; it is not locked within a plan so that things stop happening. This means completely forgetting a development which would have occurred in line with the much-sought-after plan that would have guided the company’s steps from 1963 until now. This would be, then, an example of a company more built up than designed, with all the image of improvisation that may suggest, though it may be more exact to say that the trajectory has been a consequence of a powerful ability to react, as a response not only to the information revealed by market trends – suitably interpreted – but to the successive obstacles, needs and requirements arising within and outside the organisation. Whether or not they are connoisseurs of the perpetual crisis principle, the company is ruled by a sense of perpetual alertness, seeking ways to anticipate possible difficulties, whether in-house or external, where everyday checks are made as to what might be failing or how things could be done better. Turning everything upside down, if not every day, at least fairly often, might be another way to express it, to make it clearer.

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Zara and her sisters Whether this is a key feature or not, the group retains a plan which is more flat than pyramidal, and this has been so from the outset to the present day. There exists, of course, a summit, personified by the chairmanfounder, with a second-in-command in the person of the CEO and vicechairman, Pablo Isla, but below him management levels dissolve into a dynamic which mixes management, support and collaboration. This means that in the central sections, both of the company and the chain, the duties of strategic guidance, control and supervision, and supplying services to the rest of the organisation, overlap. In practical terms individual authority, credibility, if you wish, depends more on the amount of knowledge and experience exercised by the managers in question than their position in the hierarchy or position on the current organisational chart. Another kind of principle, too, is observed whereby the best managers are not those who have the best ideas, but those who have few ideas, even one is enough, but who execute an idea impeccably. Perhaps it is because of this that it is often said there are more ideas than people capable of implementing them, including at Zara-Inditex. As I said – the rule is to act so that things happen without the need to plan them so that they become reality. Leadership is therefore more personal than functional. In many ways it carries the stamp of Amancio Ortega, who has always given precedence and encouragement to this style of leadership. This does not by any means imply that firm control is lacking, but that it is exercised with plenty of leeway for debate and discussion upstream. Once the decision has been taken, all that remains is to put it into practice. So a closed model is not to be found, but is it possible to talk about a specific culture which is to a greater or lesser degree exclusive to ZaraInditex? Perhaps the best approach is to start from the point that culture is to a large extent an ambiguous concept, implying a set of beliefs and expectations shared by the members of an organisation, the origins and extent of which are never clear, and which in the final analysis are hard to describe as unique, lacking in traces of individual attitudes. It is, of course, in this case as in others, possible to speak of a culture as long as it goes no further than a collection of ways of acting, of doing business, starting from objectives and methods and including the essential ingredient which is the twin value of involvement/motivation. From that point of view, all you would have to do would be ask yourselves whether this so-called culture transcends or is limited by the ideas, principles and criteria espoused by Amancio Ortega himself. Or is there more to it?

A model for management It would certainly help to describe the various links in detail. It has already been stated on a number of occasions that the central hub of the company is the marketing section. This is where the product is decided upon: it is the criteria expressed by this section which govern the opening of new markets and points of sale, and it also sets the criteria for distribution and redistribution to the shops in the network. However, this section is not unique: each concept or chain has a marketing section which is independent and with small exception has absolute liberty of decision-making. Yet neither is this power complete; a significant proportion lies with the shops themselves, specifically with the person in charge of the establishment, operating as a cost–benefit centre which, according to size, can also be seen as an SME, even as regards payroll and invoicing: over two and a half million euros per year on average. This apparent confusion deserves, or rather demands, a restatement of the various interlinked steps, stressing the fact that the system operates with obvious efficiency, based on a generalised individual allocation of responsibility. Detecting, interpreting and satisfying consumer trends, demands and needs is, as we said before, the fundamental objective of the Zara-Inditex activities. But how is this articulated? Who exactly makes each decision? Leaving aside the various initial stages, at the present time everything starts with the information transmitted daily from the shops to the corresponding head office of each chain. This consists basically of the cashing-up figures calculated at the end of the day, reflecting sales, both the garments and the actual value, and from which unsold stock is deducted. But this is often fleshed out with comments on customer assessments and reactions recorded by the shop staff, matters relating to the behaviour of the competition, etc. Another obvious source of information is the two-weekly orders lodged by the shop managers, logically in line with demand trends and the acceptance or otherwise of the merchandise received beforehand. The processing, analysis and interpretation of all the data compiled is the direct responsibility of the marketing section. However, the decisions which emerge from that are not at all joint decisions and even less handed down from above; at least in the sense in which this would normally be understood. Two levels can be distinguished: inclusion of garments into the catalogue and supply of items and articles already in the catalogue. As far as the former is concerned, the marketing teams take the initiative in launching production by means of a process which is to a large extent

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Zara and her sisters personal. It has to be this way because everybody has the power to do it. The decision is almost always taken after a brief discussion in small groups of marketers and designers, who examine the proposal, but by one of their number normally directly trying out the garment and deciding as they go along whether or not it’s a good idea to include it in the catalogue. This means that anybody has the possibility, but also the responsibility, by a simple telephone call or brief email, of ordering the production of thousands of garments without checking with any superior, filling out any forms or subjecting their decision to analysis or the deliberations of a committee. Anybody at the chain head office can do this, but it can also be suggested by a local head or even a shop manager, in accordance with the trends directly observed in her or his area. Naturally, the freedom involves the risk that, if the decision is wrong, it is more than likely that the consequence will be not being permitted to repeat the mistake, and that may include dismissal… but in the meantime, no one will restrict that decision-making power. And what’s more important is that most staff like it like that. Logically the decision is personal, but it is not taken in a vacuum. Before making it, the person in question has had free access to a lot of information. On the one hand there is the pressure of the market – demand – which can be worked out from processing, analysing and assessing the data supplied by the shops. And on the other, the individual will be aware of the stocks of fabric available, either because they are in the warehouse or because the purchasing section has them located and available. Finally, he or she knows what initiatives exist in marketing/design so as to avoid work being repeated. At risk of stating the obvious, the target segment of the public in which each concept is positioned, or not as the case may be, will also be clearly identified. As a general rule, though differences exist between the chains, head office supplies the shops with a catalogue of garments at the beginning of each of the three seasons, which will cover around 60 per cent of the stock making up the supply for the period. On the basis of this the shop managers will make up their twice-weekly orders, organising the withdrawal, the increase and replacement of some or other of the garments, generally applying the principle of returning to head office any garment that has remained unsold for a period of two weeks. The development of the second level described above depends on this, though there is another distinction. The sequence of events which follows when the task is to put garments already in the catalogue into production is somewhat different. In this case

A model for management requests from the shops for stock replacements or increases are sifted by the marketing section and emerge as a decision to move stock from some shops to others, to embark on the manufacture of a new batch, or it may be that a decision is taken to reject the request. It is not in vain that the strategic criterion of placing only short runs on the market prevails in order simultaneously to create a feeling of scarcity and avoid an appearance of uniformity, both of which encourage consumer demand. This is such a powerful criterion that it is not uncommon to discontinue production of a much-sought-after product, sometimes to the relative desperation of the shop staff, who were sure they could sell it. We should parenthetically point out here that another duty of the marketing teams is to approve quality. The reasoning behind this is simple: a faulty garment not only loses a sale and more than likely the customer who was buying it, but it also incurs the risk of losing other sales, or worse, more customers, depending on how widespread the fault has become. This gives rise to checking methods which involve various factors: after supervising finishing, before delivery to the shops, an exhaustive analysis of the non-sale takes place, moving through regular inspections and the incident reports which the shops submit to head office. As we have seen, Zara is the only chain which sources supplies from the group’s plants, while all the others outsource or buy their product direct from third parties. This means that there are logical differences in the steps which follow the decision to supply a garment to the shops. When the intention is to manufacture it within Inditex, the marketing section reserves the decision as to which plant will be given the work on the basis of the tenders submitted by each one, in accordance with the cost and delivery deadline requirements. In the other cases it is the purchasing department which undertakes the job, in close coordination and following the guidelines of the marketing department. There is no question but that purchase management is a vital area. It has been stated that at any time the supply of raw materials, before the start of each season, makes up 56 per cent of the total order, the remaining 35 per cent comprising what might be seen as immediacy supplies. There is no need to go at length into the potential risks of buying a fabric and needing another when the production process is launched. In broad terms it means accumulating stocks without the ability to convert then into product and hence sales, and facing the danger of not being able to satisfy demand for want of cloth to make the garment which the customer would buy.

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Zara and her sisters Yet again, information is the key. Anticipating the directions to be taken by trends in fabrics, colours and the other features of the garments which will comprise market demand four, five or more months in advance may appear bordering on the impossible… unless a combination of data, statistical runs and experience lower the likelihood of a mistake. Even so, there is more to it. It is, of course, essential to interpret the market signals, but no less important from this point of view is the extent of the market spectrum and the range of garments with which, by now, Inditex is working. You could almost say that you have to buy something of everything, because it’s almost certain that some use can be made of it. Logically, it isn’t so simple, or plain, if you prefer, though there is some truth to it. It does reveal the purchasing power which results from such a large operation. Buying raw materials for hundreds of thousands of garments is much easier than doing it for a few dressing-gowns made up in a modest garage being used as a workshop. But without wishing to push the comparison too far, it is conceivable that the buying department do have some degree of leeway, particularly for instant supplies, which is greater than that of smaller competitors. We should also add that the group is also present in producing and dyeing fabrics, through its subsidiary Conditel, among others. Buying management has become fairly centralised, though this does not prevent the section from making use of terminals at a range of points that are remote from the decision-making hub which, as with other matters, combines the corporate section and the heads of each chain. This way an active presence is maintained at the main international fairs, such as those held in Italy and Germany, as well as permanent offices in India and China, coordinated from Hong Kong. And on top of all this, it should be stressed that a historical memory of the business remains essential. Fashion is generally cyclical, which means that something that is no good for a specific year is likely to come back in during some subsequent year. Something similar happens as regards a season’s colours, which are much more stable than is generally presumed from the outside. It should also be pointed out that the offer from the various chains can be organised in a mixed way: that is, put together to form what we call back-of-the wardrobe clothes: garments with a timeless appeal, and those that are very tied to fashion: to some degree ephemeral and conditioned by the trends of any given moment. By way of a setting for, and key aspect of, all purchasing, production and shop-supply procedures, including rotation between them, a logistical system of enormous complexity is

A model for management operated. This carries all the flows of external supplies, garments manufactured in the group’s own plants and the management of all stocks to, from and between the premises of each one of the eight chains in the group. However, the basis of management here could be described as unique: immediacy. This must cope with, and so far has coped with, the requirement to maintain the two-weekly deliveries to any location on earth, with the deadlines laid down for each type of product between the reception of the sifted order by the marketing section and the shipment being made from the distribution centre, and with delivery to the point of sale taking place within 24–72 hours, depending on the location of the final recipient. But the management is also responsible for taking delivery of, and handling, everything which is ordered from or purchased from another supplier, in any of the forty-odd countries where the two thousand suppliers are based who are used by Inditex. Since it is so crucial, the logistics process has been the subject of intense discussion in recent years, one which has just been reopened. The most important challenge which has had to be faced in the last few years was the decision to split Zara’s main platform, until recently in Arteixo, making use of those that had been opened in Zaragoza, Meco (Madrid) and to a certain extent León. A challenge which was by no means a foregone conclusion has turned out satisfactorily, possibly complicated by the symptoms of the risk of collapse that appeared to be being transmitted by the information systems. It is, of course, a part of the chain which is highly vulnerable to the effects of growth and expansion. Yet again, stress must be placed on the fact that everything depends on information flow and processing. Maybe for that reason it is appropriate to include at this point an assessment of those systems, effectively the IT base, which are the fundamental and determining elements of management. The setting between the various decision-making environments depends on this, as to a large extent does the fact that the group develops in a cohesive, efficient and effective way, bearing in mind the size which has been attained and the persistent dynamic of growth. The systems area is one which is centralised at corporate level, servicing the rest of the organisation. It is also one which has been renovated, with a large proportion of the team being replaced, as a result of the change in the executive line-up which took place with the arrival of Pablo Isla in the position of CEO and the first vice-chairman of Inditex. As recently as October 2007 the symptoms of a serious crisis appeared to have been

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Zara and her sisters detected in this environment, which led to the dismissal of several of the principal officers. Everything started with an episode which appeared to have begun in August of the same year: a collapse in the logistics chain that resulted in some tens of thousands of garments not being distributed. Although the lack of transparency typical of this type of situation means that those involved are obliged to see the gravity or triviality of one or more events as relative, the feeling nevertheless arose that the IT architecture of the group might be edging towards a crisis which called for an urgent correction. To some extent the development of the systems has proceeded through the superimposition of platforms that are specific for each need, which has given rise to a multiplicity of applications and supports, including terminals, and the plan for some time had been to integrate them. At the beginning of 2007 the Board of Directors gave the green light to an extensive and expensive systems renovation plan, intended both to support the abovementioned integration scheme and to tackle the challenge which growth had raised for the processing and analysis of information. It is easy to calculate the implications and consequences which could derive from the possible appearance of bugs or bottlenecks in the flow of data between the network of shops and the head office in question: a loss of capacity to respond to production decisions, failures as regards immediacy in the logistics supply chain, etc. These were definitely critical aspects in the competitive profile achieved by Zara-Inditex. Had anything like this happened before, or was it likely to happen? There was no way of knowing for absolutely certain, but it would also not be strange if it did. Re-tracing the route followed by the management procedure as far as the product is concerned requires a focus on decision-making powers as regards opening shops: from the actual establishment of the premises to the day-to-day management which follows. At the outset, this remains at the summit of the group, that is, with Amancio Ortega himself, as to the final decision whether to have a presence in a country, as with the more complex decision regarding whether to start up a new concept or chain. In both cases the process starts with the appointment of the individual who will complete the operation, who is supposed to be responsible for each and every one of the prior steps and research, and will ultimately be entrusted with the management of it. In general the person selected, usually a woman, comes from the company itself, in most cases from Zara, which also serves as the main source of the management teams of the rest of the chains.

A model for management Although the opening of a new shop is the responsibility of the team running each concept, its decisions must be adjusted to a range of criteria of a corporate nature, accepted by the upper echelons of the group. This is one area in which one of the few joint decision-making mechanisms to be found operational in Inditex comes into play. The above-mentioned collective decision-making body is referred to in-house as a business committee, which meets approximately every six or seven weeks, and it discusses mainly horizontal matters that affect more than one chain. Two typical cases are the shared intention to open a business in a given location, sometimes in the same area, and the introduction of a new product range, often coinciding with, or at least affected by, a range already existing within one or other concepts in the group. In the first case the intention is to avoid unnecessary internal competition, such as the case of several chains bidding for the same premises, and in both cases the aim is to analyse the risks of cannibalisation. Even so, in actual fact the latter procedure tends to be undervalued in practice. The abovementioned theories of Ortega himself take precedence, whereby a good location is a good location regardless of the businesses which surround it, even when they are under the same flag, or the conviction that there is no risk of losing sales in one or other chain because both have a line of clothing targeted at the same segment of consumers. Nevertheless, in reality efforts are made to minimise differences, above all so as not to dissociate each line which is introduced from the general identity of the brand. And in spite of everything, in-house analyses come up with a figure of around 5 per cent of sales affected by this kind of cannibalisation. In the final analysis, it would appear that it exists, even though official doctrine declares that it does not. Another criterion laid down at corporate level which the chains must factor in when making expansion plans is that of maintaining set ratios with regard to surface areas, sales, margins and profitability. Briefly this says that when new shops are opened and product ranges extended, there should be no variation in the gross margin set as the objective, nor deductions made from the invoice per square metre which the shops in this concept maintain in each country, as well as retaining an economic return set at 21 per cent of the invoiced figure. Within all these limitations, the heads of the chains design their expansion plans, recently projected over three years, though execution does not always fall in with forecasts: they usually go over that period and in any case are corrected. This is done by balancing decisions between head office and the management teams of each zone or country. In this case, contrary

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Zara and her sisters to what the general criterion of a broad delegation of powers might suggest, there is a rigid centralisation of the decision-making process, not only at the summit of the chain, but also within various given corporate units. A key element is a company called GOA Invest. This is responsible for both real estate management – the search for, preselection and acquisition of the areas – and the initial installation, plus subsequent maintenance and renovation work. And while the process is never defined or laid down, it appears to rely in part on the interior decoration, architecture and design departments which exist in each of the chains, though this centralised area reserves the right to decide in each case the level of its actions and involvement. Neither is it laid down anywhere how, when, and to what extent Amancio Ortega is involved in the various stages of the process, though there is evidence that each individual knows when, at which moment and in which actual case it is obligatory to seek out the chairman to ask his verdict, or at least his opinion. Directly connected to GOA Invest or the chains’ works departments are several teams which specialise in carrying out the work. In some countries even the person in charge of the work is supplied direct from the Arteixo office; at least this happens in Spain, France, Italy and some other areas. In other cases the usual procedure is to contract a specialist consultant to assist at each and every stage, including the choice of the local building company, and this consultant will then supervise the work until the final handover of the shop before it is opened to the public. What is handled centrally, however, in all cases, is the entire plan for the fitting out and remodelling of the premises. Although it looks rather more institutionalised today, the opening of new shops and everything involved with them continues to retain a large proportion of craftsmanship, as it has from the early days. Today, as in the past, groups of professionals in various trades travel from Galicia to wherever they are required, in Spain and anywhere in the world, to do the plastering, carpentry, lighting, and so on, in line with the reasoning that this will keep the basic characteristics of the group’s shops unchanged, and those of Zara in particular, where central involvement, starting with that of the chairman-founder, is much more evident than elsewhere. The section involved with the physical aspects of the shops is by no means unimportant. It is responsible for the bulk of the 1,000 million euros invested annually by the group over the past few financial years. The number of new openings is around 500 per year, while the stripping of

A model for management establishments affects a fairly similar number. This is an area which has, moreover, given some cause for concern in recent years. This is an appropriate point to turn to one of the first decisions taken by the CEO, Pablo Isla, when he assumed his duties. He had not been with the company long when, perhaps prompted by his banking background, he noticed that costs were rising each year by 3 per cent more than revenue, which at all events established a disturbing level of operating margin levels that in turn threatened profitability. With this in mind he set up what is known in-house as the Reduce 3 plan, the aim of which was to balance the development of costs and revenue between 2006 and 2008, and thus keep the margin and profitability stable. As was to be expected, the focus of the cost reduction programme would have to be found in two large areas, supplies and growth, with the latter aspect concerned with fitting out and remodelling work. His intention to improve operational efficiency focused on the importance of the budget as a management tool, involving monitoring by structured reports per chain and country, in order to control its progress to the greatest extent possible. Just before the second of the three financial years set aside for the implementation of Reduce 3, forecasts were suggesting that the cost-cutting objective was achievable a year before time, and this was confirmed by the closing figures produced in January 2008. What is, certain, however, is that this has given rise to addition friction regarding the traditional dichotomy between marketing and what is generally known as administration. This may appear a digression, but it highlights what various observers, some members of the company, have stated, which is that there may be a level at which strong growth and the undoubted brilliance of the annual results may be disguising or concealing areas of inefficiency, disturbing structural problems and creating risks for the future. Or then again, there may not be. Behind everything lies one fundamental question: does the success of the model mean that it is a successful model? Opinions, both within and outside the company, are not in agreement. What does exist, however, is agreement as to the current involvement and motivation of the personnel, and not just the shop staff, which is more visible, but each and every person working with the organisation. This naturally leads to efforts to try to find out to what this is a response. It goes without saying that greater or lesser motivation on the part of the team, particularly as regards jobs directly or indirectly concerned with

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Zara and her sisters the consumers, is usually the factor that results in success or failure in the development of a business, which determines its position in the market. The first point to be made here is that in human resource management no original styles can be identified, as they can in other aspects of the ZaraInditex model. Or perhaps they can... Although a corporate area exists which is responsible for establishing policy and criteria, day-to-day activities in this respect are almost as decentralised as everything else. Each of the chains is responsible for selecting, training and hiring the staff who work in the shops, generally under the direct responsibility of the team in charge of a zone or country. The process usually starts with the submission of candidates by an outside company that specialises in this field, followed by a brief training procedure which mainly takes a practical form within the shop. The structures under which staff are engaged vary considerably, emphasising part-time work, with less favour given to fixed-term contracts, most of which concentrate on special periods of time in the sales year, such as Christmas. Although this is not an exclusive feature of the group, one of the principles governing human resources management is a preference for in-house promotion to fill positions of responsibility. Almost without exception the bulk of the executive officers and middle management started their involvement with the group by working in a shop. Naturally this is also the case with the key executives and, as we have seen, it also holds for the majority of the managers of the chains at various levels. As you would expect, there are some exceptions. The most obvious would be in the more specialised professions, where the profile required is in no way connected to the work of the shop, though it does happen that, given appropriate training, sideways moves of this kind do take place, which the group model is always prepared to accommodate. Another notable exception occurs in the early days of moving into a new market or country. In these cases, given that group policy prefers employing local people, the normal procedure is for the first workers in the shops, like the chain management in the area, to be taken on without previous experience as employees. Given these exceptions we come to the appointment of the zone head, who may be from within the company or he or she may be a national of the country (recently the second formula has been preferred), and one of whose initial tasks will be to fill up the territory management framework, including those who will manage the first shops. All will spend some time, between two and six months, learning the company’s methods and procedures, either at the head offices of the appropriate chain in Arteixo, or in the group’s premises in neighbouring countries,

A model for management before they begin to perform their new duties. Some of them will also become able to train future trainers, so that they in turn will be able to carry out this function for the benefit of the employees who are taken on subsequently. It would appear, however, that in recent times the sequence is revealing some shortcomings which need to be corrected. On the one hand there is an overwhelming sense that the outsourced preselection systems are unsatisfactory. And on the other, the dimensions attained by the team in countries with the greatest number of points of sale are hindering the efficiency of the training system. The solution is to open special centres in the large capital cities, Madrid and Barcelona, in the case of Spain, in order to balance and harmonise the systems governing achievement of membership of the team, a project which will progressively be extended to the rest of the markets, more or less in order of size. The additional plan is to set up a kind of filter to sift the personnel supplied by the preselection companies with a view to avoiding the large number of failures appearing in the shops, which is also leading to high turnover rates. This point, turnover, is certainly one of the most critical problems experienced by human resources management at the present time. In terms of objectives, a figure of around 25 per cent is seen as ideal regarding staff working in the shops, but – no exact data have been distributed – it seems that recently it has been much higher, and is rising at some speed. Another important challenge is the need to find some 1,500 shop assistants per year, a result both of the annual opening of new shops and of the replacements necessitated by promotions to managerial positions and the wastage natural in any organisation. Leadership management is in any case crucial for the development of an organisation, and all the more so if, as is the case here, a process of growth and expansion is under way. Indeed, judging by the results of some recent studies, from this point of view the group’s progress is significant. Inditex, along with BBVA, is one of the most highly praised companies, beaten by only the Finnish company Nokia, in the development of leaders and of leadership as an aspect of corporate culture. This involves both the involvement and support of the management team and the efforts to develop talent and lock in effective programmes to stimulate and encourage the skills needed for this position. Whether this is connected or not, the reward systems established in Inditex feature the generalised practice of variable salaries, connected to objectives at the management levels and sales volume for the bulk of the shops.

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Zara and her sisters Logically, the gradation of the fixed and variable portions differs according to the effort made, but in overall terms they stand respectively at 79 per cent and 21 per cent of total salary. As regards the relative level of the salaries, they are generally higher than the average for the sector in some countries, with Zara slightly above the other chains. Does this explain the degree of motivation? At first glance it might appear that paying higher salaries than the competition acts as an ingredient to be taken into consideration. However, a more in-depth analysis reveals that what is demanded of the staff, their dedication, in other words, is also higher than normal for other companies in the sector. This leads to the suspicion that there are other factors to be investigated. The most useful response would be to situate them in a specific culture which induces and achieves this higher level of motivation and, as a consequence, involvement. The first problem arises with the realisation that there are no written culture principles laid down in the training procedure. In reality, training is far from theoretical: it is practical in execution, taking the form of immersion in the day-to-day reality of a shop, which is inevitably the first stage in getting started in Zara-Inditex. People under contracts which cover other specialities, or those going straight into management, are all required to spend a period in a shop before taking up their duties. This culture, insofar as it is one, can seem more a result of inspiration than codified in a user manual, as is the custom with other organisations. It consists of strategic orientation in respect of the customer, with the shop and product as central elements conceived and created by and for the customer, including the surprising addition of the delegation/allocation of responsibilities, and feasibility being the governing factor with regard to everything which is done and carried out to fit in with this view. However it sounds, it’s clear that it has worked and it seems too simplistic to put this down to mere chance. There is no doubt that to some degree this can be attributed to the osmosis started at the outset between drive created by Ortega and the team who supported him from that time on, but what then? Being with Zara rather than working for Zara was one of the distinctive features of the group, but is that still the case now that it has reached its present size? Or, and this would seem even more important, how long can it carry on like this? It is impossible to ignore the fact that Inditex now has over 76,000 direct employees, spread out through nearly seventy countries throughout the world, many of them with idiosyncrasies and sociocultural substrates which are very different from those which can be seen as proper to the initial nucleus. Even going

A model for management no further than the Sabón Polygon, in Arteixo, the number is already over 3500. It may be some hundreds in a single shop… It is precisely because motivation continues to be seen as a vital ingredient, decisive for the progress of the group, that there are those who dare to express some concern.2 You can hear assessments, some contradictory, generally sotto voce and very carefully expressed, that this motivation is on the wane among most of the veterans, is greater among the younger staff (average age is twenty-seven), or that a large proportion of the shop staff just do their jobs, but don’t go any further than what is required. Quotations such as the following are an anecdotal, yet expressive, way of illuminating both aspects: ‘In the past, when a problem appeared, there was no shortage of offers to solve it; now, however, watch them scatter! Because problems are beginning to be a drag…’; or ‘the sales staff put stock out, fold it, take care that it is presented well, but do they make any efforts to sell?’ In other words, a tendency to see bad news as unwelcome is making its appearance at some level, while at others a fundamental aspect of strategic orientation is being discarded – committed service to the customer as the raison d’être. Although the existence of such a problem is not officially recognised, nobody denies the fact that it is one of the crucial factors which must be kept to the forefront in order to follow one of Ortega’s maxims – act before it happens, rather than have to face it and deal with it afterwards. Whether or not it can be deduced from what has been said so far, one of the most obvious stamps of the Zara-Inditex trajectory, of great importance in the early days, is a powerful ability to do what is known as making a virtue out of necessity. Rather than the expression of a pre-established model, which would be inconceivable anyway, the subsequent reality of the groups looks like a collection of reactions and responses to the difficulties which their own development has obliged them to tackle… in order not to collapse and maybe every disappear. To a certain extent a large proportion of the features of the management model, what was done and how it was done, was at the time the only option available to face and overcome the difficulty. This should not appear as a criticism, quite the opposite, in the analysis of how they have reached where they have reached and why. A few concrete examples will illustrate this perception. Deeply engraved in the Zara genetic code is instant response to customer trends, needs and, in the final analysis, demands. Fitting the process of producing a product and getting it into the shop in between two and five

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Zara and her sisters weeks is without doubt an innovative break with the parameters on which the sector is based. But without disregarding in any way the fact that part of their basis is rooted in a strategic vision of market penetration and the generation of competitive advantage, was this perhaps not forced on them by the financial strictures of the early days? Whether you believe it or not, the recurrent mystery of how it was possible to grow from nothing becomes plausible when you calculate the capacities needed to acquire the raw materials on payment at 90–120 days and sell the resulting product for cash in a period set at two or three weeks from the supply date. A simple arithmetical operation suggests the possible financial return on these sums during this interval, even greater if it could be extended, at a time when interest rates were in the 20 per cent bracket. So to shorten the period for production and placement on sale was at least one added requirement for the continuity of the project. An assessment such as this can be applied to the policy of not accumulating stocks, understandable in terms of the difficulty, or rather, impossibility of financing them. Neither is it possible to ignore the idea that the accelerated expansion of the network of shops was partly driven by the need to survive. To a certain extent, as we have seen, though Ortega was clear from the outset that he wanted to do without middlemen and make direct contact with the consumer, it is a fact that the threat of competitors who could manufacture at lower costs, and the appearance of other brands which were rapidly expanding, forced, or perhaps accelerated, the opening of the first Zara shops, and later on the strategy of capturing markets by multiplying points of sale, dangerously putting the whole organisation to the test. The same could apply in-house. It was characteristic that, instead of preparing the structure for the successive stages of growth, the business found itself forced to adapt to increases in size. It wasn’t that this department or that of the fifteen or so in direct contact with shops had prepared itself at any time to be ready for establishment in a new country, the opening of a new chain or the rapid multiplication of points of sale in one or more markets… but they just ran into the fait accompli and found themselves obliged to deal with the inherent problems, with the unavoidable obligation to ensure that the meshing of the system continued unchanged. The probability is that the essential challenge continues to be rooted in size, on the one hand, because the orientation of the structure towards constant and sustained growth is perceptible, and on the other, because it is almost impossible to avoid wondering to what extent the values, attributes

A model for management and finally the strong points of the model can be preserved or will end up becoming weaknesses as the extent of the reach of the group continues to grow, both geographically and in terms of activity. In line with another maxim coined at the company, success in the past doesn’t guarantee future success, nor is there any reason why the rules and procedures that worked yesterday will do so tomorrow. Except that, taking the opposite tack, this doesn’t in any way mean that the trajectory followed so far by ZaraInditex is essentially a succession of moments of being able to deal with adversity. A lot of this might sound like improvisation, and hence potential inefficiency, but the main mystery is that it has worked without the appearance of crises or log jams which have threatened the considerable levels of efficiency and profitability. Although within the company a great deal of value is placed on the virtual non-existence of collective decision-making systems, this does not prevent some individuals from accepting a disturbing lack of established communication circuits, though this in no way implies (they claim) anything similar to obscurantism or an absence of transparency. The fact is that in addition to the above-mentioned business committee, there are only two collective bodies: the mandatory board of directors, and a management committee at which, chaired by Pablo Isla, the heads of the corporate units meet at least once a month. The meetings and operations of the board have become much more streamlined since independent members were included, and the adaptation of the board’s regulation to the code of good governance laid down by the regulator (CNMV – National Stock Market Commission). The board contains an executive committee, which seldom meets by itself, and the two compulsory committees: Auditing, and Appointments and Remuneration. The remuneration scheme has been public for a number of financial years and is set at 60,000 euros for directors, 30,000 for members of the executive committee, 18,000 for the chairmen of the other two committees and 12,000 for their members; all these amounts are cumulative, paid annually and topped up with an allowance for attendance at board meetings. The absence of other collective management organisations may easily be the origin of a factor which often occurs within the organisation: one body does not know about, indeed is unaware of, what the other is planning, even though sooner or later it will be directly affected by it. It’s not that this is being concealed, though secrecy is common in many areas, but neither has any communication channel been established. Yet neither does this

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Zara and her sisters give rise to the impression that serious malfunctions arise because of it; partly because it is known and accepted, but also because a high level of accessibility exists between departments where we find another corporate maxim holding sway: information exists, don’t wait for someone to give it to you – look for it, and when you have it, share it! The efforts which have recently been made due to the factor of increasing size to establish in-house communication channels within the organisation as a whole is a separate matter. The main corporate organ is a publication which regularly comes out in fourteen languages, currently only in hard copy form and possibly to be on-line in the future. In addition to this a few months ago all the shops and a large proportion of the central offices connected with them were provided with a device known as the TGT: an interactive touch screen showing updated information and the most relevant news and facts about the group, almost in real time. Much more restricted in use is the corporate intranet, which includes an email facility and is provided with a range of access and interactivity levels, recently used for the distribution of in-house documents and meetings, as well as for work meetings using videoconferencing. In-house communication functions are centralised in the corporate head office, while external communications, the image and institutional relationships are managed in a decentralised fashion by chains, zones or countries, though they are organised in respect of the strategic orientation of a central management. The external communication strategy maintains low-profile criteria, which in-house are felt to be lax, given the frequency with which the company appears in the communications media after decades of taking up no media space at all. Efforts are made, however, to avoid too great a lack of transparency and the company usually adopts a receptive attitude to requests for information, though it rejects the proactive policies so common in other groups of equal or smaller size and scope. Among other things, mention should be made of the fact that of the businesses quoted on the IBEX 35 the company’s annual report is among those providing the greatest amount of information. Returning to the subject of management, mention should be made of another source of friction which centres on the application of a corporate decision: company policy as regards CSR. The nub of its utterance must be seen as meaning, in this case, deciding up to what point, or how far, not only the production plants (but including them), but also all the two

A model for management thousand odd suppliers should comply with the minimum requirements of general and labour laws which apply to them. We are all well aware of the fact that the world of textiles is replete with appalling stories about the conditions to be found there, particularly in third world and developing countries, which is where the vast majority of ZaraInditex suppliers are to be found. The established code of best practice is not intended to apply mainly to the actual direct actions of the group itself; the plan was for it to be observed by businesses working for the group in an indirect fashion. Opportunistic for some, a con for others. . . what we call CSR is taken as being an essential plank in the Inditex management model. To some extent it is no different in this respect from what has been tackled by the majority of companies whose operations are exposed to public scrutiny, whether for reasons of relevance, size, or, more frequently, both at the same time. It’s just that as far as Zara is concerned there are additional circumstances in play which, one way or another, are directing efforts in that direction. More or less coinciding with the final stage of the maturity of the plan to float the company on the stock market, the heads of the group accepted the fact that they needed to adopt a more proactive position in order to destroy, or at least neutralise, a large proportion of the stories, baseless rumours, if you like, of which there were far too many in circulation. Up to that point the attitude of the company had been relatively passive, almost bordering on indifference to what everybody knew was bubbling up from the endlessly inventive wellsprings of society. In the final analysis rumours and guesses did not affect what really mattered – sales, the bottom line and the image that the consumers had of the clothing, fashion and the shops, that is, the real marrow of activity. But was it possible for the opposite to begin to appear? The fact was that floating the company on the stock market demanded a higher level of public exposure and that expectation acted as a trigger, or perhaps a pretext, for a change of attitude. It could be said to be a pretext, because at the same time another no less relevant circumstance was making its presence felt: the fact that the company was increasingly becoming established in markets and countries where a greater sensitivity to certain matters was expressed than was to be found on Spanish soil. Nor should we forget that some negative tendencies tend to be magnified more in the case of a foreign company than one from your own country. Perhaps of greater weight was the fact that a serious problem encountered in the Netherlands by one of the main competitors set off alarm bells

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Zara and her sisters in Arteixo. The major communications media in that country had picked up a report published in a magazine claiming that the H&M group was selling garments made by companies which employed very young children, working in a situation of forced labour. Sales on the Netherlands market collapsed for several weeks, until an intensive public relations campaign managed to isolate the case, presenting it as an exceptional practice, and a commitment was made that it would never happen again. The event seriously worried the Zara-Inditex management team. One of Ortega’s obsessions is to do everything possible to anticipate problems, to prevent them from occurring, applying the old saying ‘a stitch in time saves nine’. And that was without a doubt a perfect occasion to put it into practice, which called for the implementation of an idea that had been in the air for some time – to increase the level of supervision and control of the suppliers. They started with the nearest, the network of workshops working for the group’s factories, mainly in Galicia and northern Portugal. But the problem was to extend that vigilance to cover the rest, wherever they might be, because by this time supplies were being sourced for some forty countries, most of them developing, or at least, emergent, in line with the new regulation which was beginning to be applied. This kind of concern was not rare in a group already afflicted by any number of stories that concerned systems of production which were at the least unorthodox, if not illegal. Sales had never been affected, but that was no guarantee that they wouldn’t be, particularly when the number of suppliers was around 1,500, with an annual turnover rate of between 15 per cent and 20 per cent. The time had come to take steps. Indeed, a short time before, something similar to a strategic correction had already been implemented when the decision was taken to explain and expose what was being done and how it was done, in advance of the launch of a policy of denial, with efforts made to convince all and sundry that all the suggestions and accusations were incorrect. But were they? Some of the stories going the rounds verged on the ridiculous and enjoyed little credence. The tale of the ship which sank in international waters off the Galician coast, with the holds packed with slave workers, might have gone down well over a brandy in the bar, like the latest joke, but little more than that. But it still meant, as we have said before, that some direct explanation had to be given to more than one political leader who harboured doubts about the real basis of the Inditex success. Other stories, however, required rather more consideration.

A model for management Absurd though they might have been, nevertheless the rumours which connected the Galician networks to the drug trade were disturbing, particularly at that time when such tales were ubiquitous in the media because of the series of operations the Supreme Court was heading aimed at dismantling the drug rings. The version in circulation was that the funds which had financed the spectacular growth of the group came from the drug barons who were using the group to launder a part of their ill-gotten gains. From the point of view of common sense the fable didn’t hold water. It would be a different matter if some narcotics godfather had invested in the business and appeared disguised as a shareholder, but such an eventuality never appeared, among other reasons because it would have meant seeing Amancio Ortega as merely a straw man, which was very hard to contemplate. The Spanish rumour mongers held quite firmly to the conviction that a portion of the group’s production was hidden, outside the laws and taxation and Social Security requirements. This was how the outsourced workshops which handled production were seen and it’s more than likely that at least for a time, albeit partially, the picture was true. However, this was not exclusive to Inditex. The textile sector has always had a certain reputation for moving in, shall we say, the dark if not actually black economy or however you may like to name it. The idea that extensive areas of Catalonia have harboured this type of business is proverbial, and it has provoked active tax sweeps, such as that set up at the end of the 1980s by the Treasury Secretary at the time, Josep Borrell, a native of a village in Lleida and therefore presumably well aware of the Catalan socioeconomic situation. But as far as Inditex is concerned, the time came when the bosses realised that this could not be countenanced. This was not just for reasons of image. The operating system demanded that the whole of the process be rendered transparent. In the early days considerable problems arose because of the recurrent insistence on the part of the owners of the property which Zara-Inditex was buying: they wanted a part of the sum to be in cash that would be invisible to the tax authorities. The general system was, and to a considerable extent still is, stating the price of the property as lower than the real price in order to reduce the payment of conveyance tax, VAT in the case of new buildings, and avoid the capital gains tax which burdened the operation. From a very early stage, however, the company was unwilling to become involved in these arrangements or perhaps was simply unable to, because when a portion of the money is paid via the black economy it means that

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Zara and her sisters this kind of cash has to be available, that is, in this case by diverting the value of a portion of the same from the official accounts. Whatever the reasons may have been, the choice was made of a mechanism whereby the sum corresponding to the tax which the vendor must settle was added to the sale price. Naturally this raised the cost of setting up each new shop, but it is also true that the system didn’t last long, as very soon the real estate strategy shifted from buying to leasing. It is often felt that black money is a kind of bargain which is bound to benefit anybody involved, but it is not always the case, and is so less and less. This would seem to be given the lie to by the huge volume of 500 euro notes in existence, though not in circulation, in Spain, according to the actual Bank of Spain figures. But this is probably a separate issue related to real estate activities and has little to do with the rest of the business sectors. Staying with the Inditex example, assuming that some of their suppliers operate on the margins of the official economy, the sums paid for supplies would have to remain on the margin of the group’s official accounts, which in turn would mean that funds would have to be available that were obtained on the margin of those same accounts, basically sales undeclared in the shops. In short it would require the establishment of an actual Company B which would, in reality, conceal a part of the size achieved and as a result would involve serious risks of being detected by the auditors, the Treasury, Social Security, etc. It’s hard to imagine that such a well-known company could do this, and even less likely that it could be seen as smart. Returning to the question of CSR, a second front was opened, focusing on supplies and product coming from abroad. At this level the worst suppositions were supported by the situation shared by a number of countries, particularly in Asia, where labour was unprotected, without rights or decent wages, much closer to what the West saw as exploitation if not actually out-and-out slavery. Another factor was even worse – the use of child labour. This was all backed by the media impact of the revelations about the unmentionable origin of the goods marketed by some multinationals, the most striking example of which in recent years has been the sports clothing distributor Nike.3 From an objective point of view that attitude whereby a company does not feel responsible for whether the suppliers obey the laws or not is easy to understand; or even for what the actual laws are in each country. As always, account must be taken of the fact that certain comparisons or extrapolations contain a false element within them. This refers to such basic matters as the difference in purchasing power between the countries under comparison.

A model for management The decision that a given wage for an eight-hour day is exploitative may be an absolute fact in any country of the EU or the USA, but certainly is not in sub-Saharan Africa. To make the assessment, rather than taking the sum in absolute terms, what is needed is an evaluation of what the sum means in terms of purchasing power in each specific country, while assessing, at the same time, what alternative options are available for the worker in question. This is not to imply that scenarios of underdevelopment are undesirable, merely that it is inaccurate to make a judgement on the grounds of a reductionist approach which ignores the specificities of each situation. Theoretical philosophising aside, the Inditex management felt that they were obliged to assume some responsibility on the matter – excuse the repetition – of social responsibility. The first concern was to establish some standards which the group’s suppliers would be required to meet, both in Spain and any other country. A kind of code or collection of stipulations and rules was laid down, and all suppliers informed that they must comply with it.4 However, a start had to be made with suppliers already on the books, some of whom had been so for some time, and a process of regular inspection was put in place, with the suppliers classified in one of three categories: those who met the standards; those required to adapt their practices and procedures within a set deadline; and finally those whom Inditex would be unable to retain as customers with the companies in the Inditex group. A part of the audits was undertaken with the direct assistance of various NGOs which specialised in these matters, and a part with the help of the trade union organisation in the sector in the country in question. The outcome of the process was a genuine blacklist of supplier companies which brought about, in several cases, the termination of a collaboration that may have been in place for some time. In-house tensions were also created as a result of these audits, between the section required to carry them out and the marketing and purchasing departments. Some of the heads did not always understand or accept with a good grace the fact that they had to discard a supplier who met the price, quality and deadline requirements they stipulated in order to avoid a risk which at present was only a possibility. Some even maintained that their essential duty was to obtain on the market whatever most or best helped preserve the margins and to supply stock to the shops in line with the parameters of the model set up by Inditex. It would, however, be more accurate to speak about the present rather than the past, because the tensions have not disappeared: they reappear

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Zara and her sisters every time the CRS includes a supplier on the above-mentioned blacklist or is threatening to do so if the changes demanded to meet the code in force are not implemented. Complete agreement does not emerge from efforts to assess exactly what is the true role of the section responsible for CSR. Alongside the official version that it is ensuring scrupulous compliance with the established code, there are others which lean towards an interpretation according to which it is actually operating like an efficient fireman, hosing down the cases which are most likely to come to the notice of the public and risk eroding the image of the group as far as the consumer is concerned. In support of this perception they quote at least two episodes of different importance, both quite recent. The first occurred as a result of the collapse in 2005 of a factory that was a member of the Spectrum company in Savar (Bangladesh), in which 64 workers died and another 70 were injured. Inditex was one of the customers of the factory, not the only one, and decided to act swiftly, generously compensating the victims and their families, which certainly helped to reduce the media impact that the event might have had. The second, more recently, took place in Pisco (Peru) which suffered an unfortunate and devastating earthquake in August 2007.5 Several months before this natural disaster at least three Topy Top factories were the focus of trade union accusations that the factories were demanding working days which were far too long, and days of twelve and fourteen hours without a break were mentioned, children were employed, wages were pathetic (42.5 euros per month) and the workers had no rights. The Peruvian company was supplying over three million finished garments per month, to Inditex (Zara and Pull and Bear) among others, as well as competitors such as Gap, but their practices had not been detected by the CSR section. Or had they? The fact is that until that moment they had certainly not been added to the supplier blacklist. Speedy action on the part of the CSR heads of the group, forcing the supplier company to agree to wage rises, shorter hours and other social benefits, limited the public airing of the event to just a few Peruvian digital media; Peru is one country where so far none of the chains has opened a shop. The death rate, however, placed this region of Peru as the one most affected by the earthquake, including among other things the total destruction of the majority of the textile plants, almost the only industry in the area, including those which had triggered the work conflict the previous spring. This does not mean that the group is not involved in proactive CSR actions. Agreements have been signed and are being signed covering

A model for management improvements in working conditions, educational programmes, social benefits and other advantages available in the factories and countries where the bulk of the supplies and manufacturing are sourced. Regular inspections are carried out, backed by various NGOs, some of which have bought shares in the company so as to be able to sit in the general meetings. Of course, since no system is perfect, including this one, it is inevitable that certain irregularities continue to occur, particularly in the chain of subcontracting of which each link in the chain can be a source. Even in what is known as proximity production, more specifically the workshops of Galicia itself which are responsible for making up garments for some of the twenty factories the group retains, there exists the possibility – probability? – that a proportion of the work is outsourced, performed by people working at home, not directly under the supervision of Social Security and not declaring the income they receive for their work. It must be difficult if not actually impossible for the supervision systems Inditex has set up to detect everything, particularly when it is not easy for them to go further then requiring workshops to produce the Social Security accreditation documentation for each and every one of the workers in the workforce. So it is even less realistic to imagine that they can do the same for one of their suppliers in Laos or Bangladesh, to mention two countries that are often included in lists of failed states, which share few or none of the features required to apply minimum legal standards comparable to those of an organised nation. And it is also fair to wonder in any case, exactly how far the corporate social responsibility of a company extends. Many accept that CSR is itself something of a fashion, more concerned with image than what is grandly talked about as its basis, and they may be by no means on the wrong track. Even if you accept that the basis of this policy concerns effort to contribute to welfare and social justice, events nevertheless occur from time to time which give grounds for suspecting that this is really a tool to enhance the corporate image, the brand and all the rest. An illustrative example to bear in mind is the habitual practice of making use of a disaster to display solidarity, using advertising campaigns to show off the aid being provided for the victims of the tragedy. Inditex is no exception: not long ago it spent thousands of euros putting advertisements in the media, national and foreign, communicating the fact that it had donated a million euros to the victims of an earthquake.6 Have the CSR heads no shame? Is it merely a communication error? A fair question is whether it would have displayed greater solidarity if they

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Zara and her sisters had also donated the value of the advertisement to provide necessities for the victims. Always the same old question – is help given so that it’s known about or only because of solidarity? A close examination of the present day and the path being followed by Inditex as it is today reveals many inconsistencies, of different levels of strangeness, so many, indeed, that just selecting one of them is a risky procedure. However, if you were forced to choose, it might be better to keep your eye on how the management and control of the margins forms a part of its peculiar incursion and positioning in the fashion and textile markets, as well as distribution. It seems obvious that Amancio Ortega concentrated his attention on the opportunities offered by the very wide margins available in the sector from a very early stage. They were there in the manufacturing process, but in particular in the retail area: the shops, to put it bluntly. These wide margins were not entirely unjustified, the main justification being the risk involved in producing and placing a product on the market where ignorance of what the consumer’s response will be is crucial. Hence, from the designers to the retailers, passing through all the other links in the chain, everything was dominated by the need to be covered against possible accumulation of unsold stock or in any case stock intended to meet the presumed demand of the season which took several months to sell. Even today companies which are shackled by the traditional pattern of collections and seasons undergo frequent mishaps when the response of the public fails to match the calculations made in the design and production process. It may reasonably be argued that this feature is not exclusive to the world of fashion. Other sectors develop under similar uncertainties as to the response of the potential customer and not all have found a way to reduce the risks involved. An obvious example would be the airlines, which are obliged to launch their flight and booking programmes while subject to a low level of certainty as regards full seats, without much leeway to adjust the supply and costs to match the actual demand – and costs – until the next planning phase. This risk also affects the provision of assets, in that they have to calculate their investment in the fleet, the size and type of aircraft, with a horizon of ten to fifteen years and the consequences of the estimates of the demand they will have to satisfy. In general terms, the narrowing of margins, the outcome of cost saving, is usually the outcome of technological innovation, whether applied to the production equipment, the processes and nearly always both at once. But it would appear that this was essentially not the route followed by Inditex.

A model for management This does not imply that it did not take advantage of the most advanced technological tools in support of its model. It did so and satisfactorily, but more than this, what is underlying it is a different business concept which had the good luck to be right when it came to promoting a change in the way fashion is consumed, based on a new conception of how to produce it. It has been said more than once: manufacture what the consumer demands, instead of encouraging her to consume what the business has decided to produce. This is an approach which, contrary to what theory has suggested for years, turns out not to be more expensive; it even makes for savings which can be passed on to the market price and act as a competitive element that, while it may not be conclusive, is still quite essential. While not actually replicating made-to-measure models, in principle more common in the continuing more or less craft-orientated area of the sector, that of the dressmakers and tailors, there is no doubt that Zara constitutes a kind of mixture between mass production and the tailormade garment. And they have achieved this by means of a way of handling information which lies between intuitive and intelligent, and flexibility. Information flows constantly as a start and end point of the whole procedure. The constant flow of market feelings and trends arrive at the central decisionmaking hub almost in real time, both to predetermine what will be the needs and preferences of the potential customers, and measuring their response to the supply placed in the point of sale. But information is only the first step, worthless unless it is backed by at least two other factors: the ability to process the data captured, and agility/flexibility in the processes involved in production and getting the goods onto the market; not in a general sense, but in a specific sense: that is, where demand persists, and is real. Saying it is certainly easier than doing it. The proof is that after two decades of exposure to the public and fairly widespread knowledge of the model, either nobody has copied it or if they have, they have been unable to implement it. Strangely, or perhaps it isn’t so strange, it seems as though, as a fashion group, Zara-Inditex is not particularly vulnerable to the evolution of the economic cycle and the depressive or expansive effects it has on consumption. At least, not to the extent of other groups which are equally or more dependent on the purchasing decision of the consumers regarding items which are not connected with survival or of an essential nature; dressing according to the tastes and trends of the moment could hardly be described as such. Protection against the vicissitudes of the cycle for which so many have baselessly forecast the death is partly a direct consequence of the territorial

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Zara and her sisters diversification achieved, with a presence in enough markets to render an adverse trend in all at once very unlikely… though it could happen, at least in those which bring in the bulk of the income (Europe makes up 80 per cent). However, it is possible that other features of the business model provide greater protection; in which case they should have been functioning when the company was still far from its present size. The group keeps around 50 per cent of its production costs variable. This is basically thanks to outsourcing the part which requires the largest component of labour, but above all to the fact that around 85 per cent of its offer being manufactured, purchased or ordered throughout each season is to a large extent adjusted according to the state of demand in the various markets, segments and concepts where activity takes place. It is easy to deduce, then, that this gives rise to plenty of room for adjustment to tackle any eventuality. Although it could hardly be said that it was a critical phase in economic terms, the group was somewhat tested when summer weather continued throughout Europe right into October. The shops then found themselves full of stock for a season which hadn’t arrived, so, naturally, sales were poor, albeit only for two or three weeks. This was not, however, because the temperature fell, but because there was enough time to react and refill the shops with summer wear. It did, however, have one small effect, a drop in invoice forecasts which some months afterwards was the cause of a sharp fall in the share price, when the six-monthly figure turned out to be somewhat lower than that predicted by market analysts. Few things are as critical for a company, or for any type of organisation in general, than surviving growth with none of the hiccoughs which end up leading, in one way or another, to dying of success, a procedure that has almost become a cliché, because it really does happen. The more it is the case, the faster and steeper is the fall. Spain can produce many examples, so much so that for some time it was fashionable to believe that Spanish capitalism suffered from some congenital disease which prevented it from managing size. It has led many writers to talk about tiny, timid or even provincial capitalism to try to justify the fact that Spain was nowhere when it came to being the birthplace or home of leading businesses on the world scale. We haven’t got any multinationals! was for so long our apology for a war cry when it came to describing why we weren’t to be found among the ten major economies in the world and why we had no relevant positions in almost any sector.

A model for management Equally common are forecasts and hints of disasters with regard to generational takeover in the family business. The literature is full of them and they are taught in the business schools as something like the bible of business personified in a given name: few make a successful transition to the second generation and almost none arrives unharmed to the third. Certain exceptions exist, it is true, and they work, they are seen as the proof of the rule, seldom denied or doubted in affirmation. There is not the slightest doubt that a lot of both aspects flow together in the heart of Inditex. More than a family, the group is powerfully personalised in the figure of the chairman-owner-founder. Even though from the very early days very substantial aspects of his management were in the hands of reputable and accredited professionals, it is difficult to deny the fact that the model is always subject to the last word, the final verdict of Amancio Ortega and the most dominant aspects of his personality. It could be said most truthfully that Amancio might not always be there, but you feel his presence and everybody’s actions are influenced one way or another by what they know, or even what they think they know, he would do or ought to think. In short, the spirit of the founder is everywhere. And no doubt arising from that is the relative uncertainty about the future – what will Zara be like without Amancio, a time which nature insists will come? Some even go further, and cast doubts on whether the model can survive him. Is Inditex possible without Ortega? Is it inevitable that it will turn into something different, who knows whether better or worse, without him? The culture of the house, shaped from the very outset by Ortega himself, is such that it is impossible to speak of the success and the management in a de-personalised way. The official doctrine never ceases emphasising the position that everything is the result of a collective effort, and if any personality matters it is those of the two hundred or so managers who, at various different levels, participate in the day-to-day decision-making process. But if we probe a little deeper, we find that few actually believe that. The majority confess that their actions are inspired and motivated by, and above all carried out in reference to, the ideas and practices which Ortega has infused, extended and diffused throughout the organisation. Ortega thinks, says, believes, would do, rejects… the omnipresent name plus the matching verb appears again and again in any conversation about the present and the future, not to mention the past, of everything that makes up the Inditex group. Another way of looking at things is without doubt the appreciation and consideration which this extremely widespread belief grants everyone as

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Zara and her sisters far as the big boss is concerned. At the staff dining-room tables it’s common to hear people chatting about who he said hello to, what table he stopped at, who he didn’t look at, or how much time he chatted with such-and-such a manager when he came in to check out the pre-set menu in the self-service on one of the lower floors of the main building, as he does on most days. What it all means is that the model is really quite strange. A flattened organisation in which, rather than a pre-allocation of tasks and duties, what prevails is an effort on the part of every manager to design his own job. To some extent the arrival of Pablo Isla introduced some elements of rationality into a scheme in which it never really became clear where the responsibilities allocated to you started and quite how far they went. Or at least, you could say he’s trying to instil rationality, among other things by having imported some professionals who, apart from enjoying his absolute trust, have come from a more normal organisation, less accustomed to the accelerating trajectory which, for good or ill, previously convulsed the managerial dynamic at Inditex. It couldn’t have turned out any other way, but Ortega’s personality and habits have hugely conditioned the dynamics of management. Guided by his powerful belief that there’s nothing that can’t be done, it’s just a matter of effort and cost, but also protected by his unquestionable charisma, he has practised, and continues to practise albeit less than before, what is usually called bypassing as the theme of management. In that style which is characteristic of many managers, particularly those who have driven and grown a business from scratch, he has never felt himself to be limited or constrained when it comes to jumping levels in the hierarchy and having people reach whatever organisational level they want to. It’s a practice which management and even the staff of a shop appreciate, but at the same time it can lead to a loss of perspective, creating distortion in the hierarchical dynamic and even blurring roles within the productive framework. This closeness which everybody senses as regards Ortega is naturally more perceptible in Arteixo than in Zaragoza or Kuwait, but even so, it is assumed everywhere that it is a potential possibility, albeit with different nuances, of course. The fact is that the zone head of a chain, or even perhaps the boss of a shop, if she’s something of a veteran, would be convinced that they could call Raquel, Ortega’s faithful secretary for his whole life, and talk to him… though of course in reality they would never dare or would only do it for something quite crucial. Nevertheless, cases and examples exist from not so long ago suggesting that it was quite usual. Even with all the conditions, and unknown risks about the future you may wish, or

A model for management are able, to describe, the reality is that the management model works a lot closer to perfection than the usual pattern; which gives rise to a relevant hesitation – why has no one copied it? Or if they have, why doesn’t it work elsewhere while it does here? Although it’s impossible to give a complete answer to the question, it may well be that there are copies or parallels, maybe not total but at least to a degree, of what is Zara-Inditex. If we set aside for the moment the most direct competitors in the area, it could be interesting to mention some from abroad which, without being exactly the same, contain some features that reflect important aspects of the Inditex profile. It might be best to start with a country: China. The progress of the Asian giant is usually seen as the result of a fertile process of error and fresh attempts, being corrected every day, copying or adapting, always striving to capture a new market, studying every opportunity. Does that ring a bell? At least to a degree it does. Moving on to the managerial level, Griffin Manufacturing is a US company based in Bedford, Massachusetts, with a production cycle which consists of buying fabric from Taiwan, cutting it on the basis of their own designs and patterns at their highly automated plant, that are then sent to be sewn and assembled in workshops in Honduras and finally finished and passed through quality control at their Vermont (USA) premises from where they are distributed to all the shops in the Champion chain throughout the length and breadth of the country. Another telling experiment is taking place in Donguan, a city in the south of mainland China, where Luen Thai Holding has built, bit by bit, a citychain of textile supply which contains all the stages of production: from raw material supply (fabric) and garment design, to actual manufacture. The idea is to bring together in one place all the professional and industries involved in the process, with the objective of completing the product in not more than 60 days, as opposed to the 20–25 weeks which are the norm in traditional models. Everybody is of the opinion that it repays the effort to assess the similarities and differences which exist in respect of the ZaraInditex model, but these are merely two examples of a relatively identical philosophy, in the knowledge, of course, that others exist as a consequence of the unavoidable nature of the global market as it stands, both in general terms and in individual sectors. The official doctrine handed down from Arteixo maintains that the totality of the model is very difficult to transplant or replicate. It insists that copies never work and even less succeed: success emerges from originality, innovation, if you like, almost without exception. This does not mean

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Zara and her sisters that partial copies or replicas are impossible, and there is no doubt that they exist and will continue to appear here and there. However, leaving aside the actual size that the business has reached, it seems that the real barrier preventing the entry of a candidate into the competitive imitation game is something which lies at the very heart of Zara-Inditex: its capacity for existence as a group which is evolving from a position of immersion in the process of constantly reinventing itself, and that it has shown itself capable of doing this time and time again. It has come to be, in a way, what Ortega likes to express quite often: ‘this is only just the beginning’. Praised by some, sidelined by others, but essentially admitted by all, there is no doubt that the leadership of Amancio Ortega is a factor which, rather than being explicitly listed as an element of the path that has been followed, is noticeable in almost everything and is the hardest thing to copy, replicate or transplant to any project that aims to emulate what happens at Zara-Inditex. If the corporate culture turns out to be complicated to set down in a few paragraphs, however, it’s even harder to define, or at least describe, exactly what the leadership consists of, when and why it operates and why it can’t be expressed. There is not a single type of leadership or leader, but there exists a degree of agreement that it strives to eliminate doubts, to avoid the usual patterns and at the final moment in making a decision, to listen only to that inner voice that knows the right way forward.7 Also, to give credit and validity to the concept, it gives rise to the feeling that the path followed in the Zara-Inditex journey authorises Amancio Ortega to exercise a leadership which beyond doubt must have contributed substantially to the development that has led to the current situation. And there exists a mystery which no one has been able to solve. The majority of businesses in the world of fashion share an obvious feature: the imprint of a personality. This is not completely exclusive to this sector; most sectors, if not all, can produce examples of successful companies which have been started and led by an actual individual, but even so, the fact is that it happens in the fashion world more than elsewhere. Which all leads to the conclusion that it is neither strange nor surprising that the same question is to be found everywhere, within and outside the group, the question which at the moment of truth some try to avoid, and others cannot answer – after Ortega, what?

16 Amancio, Inditex and the future … with the family?

As much as the topic may be skirted around, the unknown cannot in the end be avoided: is the succession plan ready, foreshadowed or organised? And this in turn gives rise to other questions: who will take the reins? Is the group even viable without the physical presence of its founder? Will another, different, Inditex arise when he has gone? Amancio Ortega was 71 in 2007, still relatively far away from the average life expectancy for Spaniards: over 77 for males according to recent calculations published by the National Institute for Statistics (INE).1 All the indications are that his health is excellent, though he had to overcome an incipient prostate cancer, treated in time thanks to early diagnosis. And he has always been a devotee of the healthy life, which includes a daily workout in the gym. He is a good example of someone who is careful about his diet and … but however long the period may be, the fact is that one day he will go, and that is a fact which has to be tackled. Those closest to him are not sure to what extent he even cares about it. He has been heard on occasion to complain that, as regards all that lies ahead of Inditex, as a market opportunity, he will not have time to handle it and it will have to be done by others. Although no one can be completely sure, almost everyone is convinced that he is not seeing this as a scenario demanding immediate preparations. It is only recently that he has began to toy with the idea that it might be possible or convenient for his youngest daughter, Marta, to begin to have a presence in the company in the old style: from the bottom up, climbing all the steps, learning, in case one day it should fall to her to adopt maximum responsibility. But in any case, it still remains as just a possibility, even allowing for the fact that the learning process has begun.2 Although Inditex is now listed on the Stock Market, it has spent most of its life abiding by different standards: those of the family firm. We have 247

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Zara and her sisters already seen how its beginnings were marked by the very direct involvement of the closest of relatives in the management process, and if this family involvement has shrunk it has been because of the events which have taken place rather than because of strict intentions or plans. Antonio Ortega died rather too early, but his wife and daughter retained an important portion of the shareholding, though they took no part in management. The daughter’s husband, who thus became Amancio’s nephew, Juan Carlos Rodríguez Cebrián, was until 2005 the general manager of Inditex, though eventually he was dismissed as a consequence of the crisis described above which took place after the public flotation. The couple have two children who are too young to have even had the opportunity to work in the group. Josefa Ortega, Amancio’s sister, worked in the company until her retirement, responsible for nothing less than the till: in the strict sense of the term, since she directly and personally controlled the company’s cash funds. Her husband, Miguel Jové, who headed personnel for years in the group until he, too, retired, sold the majority of his shares when the company was floated. His daughter María José and her husband, the son of the Minister of Health in the Aznar government, Romay Beccaria, work in Zara-Inditex, as does the other child of the marriage, Miguel. The fourth child of the Ortega Gaona, Pilar, who died at the beginning of this decade, never became involved in her three siblings’ projects, nor did her husband, Jaime Cuesta, also passed on, have any professional connection with the company, though their daughter is on the payroll. Present and very active in the early years of the life of the group, Rosalía Mera, Amancio’s first wife, had progressively been removing herself from her duties with the company from some time before the divorce, and years later would also resign her position on the board, though she continued to be the second largest individual shareholder in Inditex via the assets she shares with her daughter, Sandra, the wife of Pablo Gómez, who works for Zara. They are the parents of Amancio Ortega’s first grandchild, for whom he confesses he feels a certain weakness. Flora Pérez herself, the second and current wife of Amancio Ortega, was on the company payroll for years, but she began to remove herself from her duties shortly after her relationship became public knowledge and shortly after their marriage. However, a couple of years ago she joined the group’s board representing one of the two holding companies through which Amancio Ortega maintains control of the share portfolio. This means that no close relative of Amancio Ortega is performing executive duties in

Amancio, Inditex and the future the company, which raises obstacles in the way of an immediate family successor, at least in the medium term. On the very few occasions that he has referred to the matter he has been saying that it seems unlikely, according to those nearest to him. Even so, in recent times there have been some indications that Marta Ortega may be called upon to take over the presidency, sooner or later. Apart from her appearances of a social nature, such as the extravagant party organised to celebrate her coming of age (not a coming-out party in the strict meaning of the word, but very nearly) at the exclusive Playa Club in A Coruña, the hesitant suggestions that she may have a fiancé, and the comments on her participation in riding competitions, Amancio Ortega’s youngest daughter is at the moment following in her father’s footsteps in keeping a low public profile. Apart from this, we know very little about her. She went to a Jesuit school in A Coruña, subsequently completed her education in Switzerland, and has recently taken management courses with the London Business School. This was until 20 May 2007, when El País published a long, documented article,3 three pages in the Sunday edition which has the largest circulation of the week, under Luís Gómez’s by-line, which among other things included the details of plans that were afoot to introduce Marta Ortega into the ins and outs of the company which she may end up inheriting, sooner or later. Amancio Ortega’s youngest daughter, having been born in 1983, took her first steps in her father’s group at the age of 24, shortly after finishing her education. According to the newspaper, the assumption was that in September 2007 she would start work in one of the 457 Bershka shops spread out throughout the world, probably one based in Spain. This would open a period of immersion in the actual reality of the group, the detail of the project, supposedly worked out by a specialist consultant, being said to extend over a period of several years. The offices in Paris, London and Shanghai would be the next steps, following her subsequent inclusion as just one more employee in the finance, administration, sales analysis, product and design areas, ending up in the department handling corporate responsibility. She would also have to undertake some general training stages in the legal, fiscal and communication fields. It would appear more believable for the procedure to be flexible so that it could progressively be adjusted with no rigid guidelines applied. However, it was then revealed that, at least as far as the initial stage is concerned, the so-called plan is proceeding differently. Not everybody sees Amancio Ortega’s youngest daughter finally replacing him at the head of Inditex

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Zara and her sisters as clearly as the newspaper report does. She would appear to have shown little sign of being interested in following this path to her personal and professional future. We learn that she does not share the entrepreneurial spirit of her father; rather, she has revealed a definite tendency to share the attitudes more commonly found in a young family enjoying comfortable prosperity. Until such time as she actually becomes involved in the day-to-day business of the company, it looks as though her life has followed the standard path of a normal student, one who has shown no interest if graduating from, or even taking courses at, any particular academic leadership institution, within or outside Spain. Of course, none of this stands as real evidence of what she will really take up professionally. It is easy to identify from the list of Spanish family companies, including those quoted on IBEX 35, many cases where presumptive heirs who have been thought to be ill- or completely unprepared from the point of view of ability to take up the reins of the business have actually, once the legacy has become a reality, provided ample proof of being able not only to maintain but even to improve on the task initiated by their parents. However, there are also plenty of cases of the opposite, of course, which means that any prediction must be very careful or at least given as no more than guesswork. This means that there is no guarantee Marta Ortega Pérez will in the future become the president of Inditex or that she will not. It is very probable that, at least to some degree, the matter rests with her as to whether she decides to follow this route to her personal and professional future or not. This must be the case with every family firm. Just looking backwards for a moment, it would appear, however, that it was Amancio himself who came up with the idea of designing a formula very similar to that which in his time was implemented by Ramón Areces to guarantee the stability of the share portfolio of El Corte Inglés. Notwithstanding all the differences there may be, it should come as no surprise that that chain of large stores should serve as a reference, which should include the question of succession. This may have taken place in relation to the diagnosis of cancer which threatened his health, and that may have given rise to the idea of setting up a foundation in his name, one which to date operates with complete independence in the Inditex company structure. Whatever the reason was, it didn’t work out in reality like this, and the Amancio Ortega Foundation is in no way parallel with the Areces Foundation, which, even today, operates as the main shareholder in the

Amancio, Inditex and the future department store chain, with one of the founder’s great-nephews, Isidoro Álvarez, holding the position of executive president of the distribution group. Was the Inditex public flotation, a step never taken by El Corte Inglés, chosen as an alternative? It lies within the bounds of probability, though some of the people who participated most actively and directly in that process claim that the listing on the Stock Exchange had a second stage as a supplement to complete the succession plan. This was a plan which, among other things, might have been intended to optimise the tax burden on a possible inheritance of Inditex shares assessed by some experts at around 700 million euros, at current prices, merely in order to take over the legacy of the 60 per cent of the group that currently controls Gartler and Partler. This is not all idle speculation. In 1997 Ortega himself sent a letter to the employees in the group in which he expressly stated: ‘The problem of succession in businesses anywhere in the world arises from the fact that not all legal heirs are suitable.’ Elsewhere in this letter reference is made to the foundation he was in the process of setting up. On other occasions he has mentioned his conviction that the company is only his temporarily and that another person or other people will control it afterwards. However, he has shown himself to be highly resistant to the suggestion made by some of those close to him that it would be convenient to organise a kind of group management to which all his powers could be delegated or a kind of family board that could act as a bridge to his heirs, while he is still alive. He appears to have been little drawn to either possibility. However it may turn out, the fact is that the Amancio Ortega Foundation has not, and does not, own a single share in Inditex. It was formally set up with the sum of 60 million euros in July 2001 and the truth is that the founder seems at no time to have taken the decision to endow the entity with a clear outline, perhaps as evidence that he had other ideas in his head when he set it up. Nevertheless, setting aside its role as a nucleus for the group’s share portfolio, it seems that more doubts than certainties have dominated the perception of the direction it would take. At one time the overarching idea was to endow some sort of institution which would nurture entrepreneurs with ideas, perhaps based on the memories that Amancio himself has of the difficulties he experienced in the early days, when there were so few people, hardly anyone, in fact, willing to listen and share his entrepreneurial projects and dreams. However, he was unable to arrive at a formula which would appear efficient within the framework of a foundation. He also thought about setting up advanced training

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Zara and her sisters courses in areas related to the world of fashion and textiles, until he finally opted to promote the use of new technologies in the educational field. In recent times, however, it has become more likely that the Amancio Ortega Foundation will steadily be absorbed within the group, as an instrument of, or addition to, his policies and activities in the field of sponsorship and CSR (Corporate Social Responsibility). Following the thread of the above-mentioned contradictions, Amancio Ortega is also said to have confessed on occasions that he feels that he has completed his task by giving a value to the shares (the Stock Exchange) and that it will be his heirs’ own business to decide what to do with them after his passing. Speculations apart, what is certain and indeed noticeable is that for a couple of years now Amancio Ortega, without actually retiring, has been distancing himself slightly from the day-to-day business at Inditex; but that’s all. Although he has granted and is effectively steadily extending the executive powers of Pablo Isla, the first vice-president and CEO, he remains on top of the majority of day-to-day group business, particularly as regards product, shops, distribution, and the like, in short, the same areas on which he has concentrated for the past twenty years since Inditex was established and formed as a group. He shows no tendency to hold back, especially when new projects are in the pipeline – there is almost always something afoot – or he notices imbalances in the way things are run. In other words, he remains abreast of everything, basically because, as he often admits, he finds nothing more fun than working in the company he founded. Apart from when he decides to cover a few more stages on the Road to Santiago, he still takes no holidays and still shows up every working day at the corporate headquarters in the Sabón trading estate. This is usually now a little later than previously, around midday, but he stays on the premises until well into the evening, taking his proverbial stroll through the warehouses and plant until the end of the day, somewhere between six and seven thirty. The tendency to withdraw a little into the background has recently registered an exception. He took on full executive powers and became fully involved during the crisis which led to the successive departure of his nephew, Juan Carlos Rodríguez Cebrián, from the position of general manager, and of José María Castellano, his right-hand man and the public face of the group for many years. He again transferred the powers, however, when the recently appointed CEO and first vice-president, Pablo Isla, was appointed and, as some put it, Amancio learned to trust him.

Amancio, Inditex and the future Once the structure as it emerged from the above-mentioned crisis stabilised, Ortega has continued to modify his habits. It is now normal, as stated above, for him not to appear in the company before midday, and to the amazement of the veterans, he may now vanish for several days together, treading the Road to Santiago, something he has now done on a number of occasions in the past two years, taking a morning cruise in his yacht, travelling over to Barcelona, where he owns a house, or taking a trip to Paris to supervise work on the magnificent penthouse he is fitting out in a Champs Elysées building he has just bought. Most days, however, he sticks to his routine of first stopping off at the Finance Club, then carrying on to Arteixo, staying there until late in the afternoon, and then returning to his new home in the outskirts of the old city of A Coruña. Is it possible to believe that Ortega is not concerned about the continuity of the company to which he has dedicated most of his life to managing and developing? Or that he doesn’t mind whether it remains in the hands of the family or ends up being taken over by who know who? Those who claim to know him state he is convinced that Inditex has a great future before it and that his executive team is sufficiently well-endowed with management skills to ensure its potential is achieved without him. Nevertheless, it is impossible to ignore reality. The heart of the matter is that, even though Ortega’s involvement in everyday management is becoming less hands-on, the Ortega spirit, usually called his character, charisma and leadership, can be sensed in the air even though his physical presence is less apparent than it used to be. Also he still has the last word on most matters of importance, and often on those that are not. Even today it is still inconceivable that a group chain could access a new market, launch itself into a new country, without Ortega’s assent. The same goes for the adoption of a new concept or the launch of a new format – he has to be fully convinced and to have decided that this is the way to proceed. There is also the fact that many of the executives, particularly the oldest, know that they can, and indeed they do, call upon their president to unfreeze or reverse a decision or some imitative which the corporate structure has rejected or shelved to some degree. Nor has Ortega given up his right to intervene in the decision as to where to locate the new shops, particularly Zara, but not excluding the others. Of course, he no longer takes personal trips to the various cities one by one, or personally examines the locations… and even the legend that in the past he personally used to select them may be something of an exaggeration. The number and huge spread of the hundreds of new shops which the group

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Zara and her sisters opens each year would make it practically impossible for him to intervene at this stage, but this in no way prevents him from taking an active part in the choice of one location over another. Not for nothing is this claimed to be something like his speciality. You could say that it’s above all a kind of hobby with him. He often spends time examining photos, videos, plans and anything useful to give him the most exact idea of the potential of each location pre-selected by the team responsible for finding new positions. Especially when the location chosen is a building of historical/artistic importance his interest does not stop with the initial choice, but closely follows the restoration and refurbishment process through the different stage of execution. Often, though not in every case, the decision to open a shop is based on the fact that a good location is available. Amancio Ortega will be bequeathing more than Zara-Inditex, his essential creation. In recent years, especially after the public flotation, he has accumulated assets worth much more than the value of his holding. His investment portfolio is now no longer limited to the real estate sector, even though the greater part of it may be there, but has moved to take up a significant holding in some of the companies which star with great frequency in stock markets. At least, this much is known from the mandatory communications from the CNMV, because it should not be forgotten that a part of his money is in companies, shares and markets which do not fall under the scrutiny of the Spanish regulator. His best-known portfolio companies, Ponte Gadea and Pontegadea Inmobiliaria, are also quite active, with frequent entrances into, and departures from, a range of companies and sectors. What they mainly concentrate on, however, is the ownership of buildings, mainly for purposes other than residential. Hotels, offices and shopping centres, both in Spain and outside, are what he prefers when it comes to making a purchase. It would seem that in recent years he has tended to prioritise Latin America, the USA, and central and eastern European countries, given the price rises recorded on that side of the Atlantic and the growing difficulties in generating capital gains or achieving appreciable profitability levels. However, this has not prevented him from selling off property built by the Banco Santander group, and buying some of the more iconic ones, though so far not the Ciudad Financiera – Financial City, where the organisation has its head offices, on the outskirts of Madrid. He also owns two variable capital companies, Alazán and Keblar, the direct management of which is entrusted to the great Spanish banks BBVA

Amancio, Inditex and the future and Santander, one by each, through which he maintains a strong position on the fixed yield market, domestic and foreign, but he also invests in the Stock Market, usually not exceeding a 5 per cent share. As is to be expected to some degree, his investments, portfolio movements and the makeup of his assets are matters in which the discretion which is a natural aspect of his personality are to be found to a very high level. Operational management is in the hands of the holding company which, despite having no connection with Inditex, occupies a part of one of the floors in the group company offices, on the Sabón trading estate. This is headed by José (‘Pepe’) Arnau, a Treasury Inspector, Galician to the bone, who was a key member of the Zara-Inditex management team for many years, displaying a commitment and presence which went way beyond his official position of the company expert on fiscal matters; this was a position which he resigned from when, in parallel with the restructuring that concluded with Castellano’s departure, he was chosen by Ortega to take responsibility for his personal fortune. The discretion, some would say justified privacy, which shrouds Amancio Ortega’s asset situation has not prevented the news media from becoming interested in it from time to time. It could even be added that their interest is out of the ordinary, compared with that of other equally well or better-known rich men. A fairly detailed dissection appeared in November 2006 in the pages of the Economy section of the Sunday edition of El País,4 under the by-line of Miguel Jiménez, editor-in-chief of the section. This assessed his investment portfolio at over 2,000 million euros, which when added to his presumed holding in Inditex gives a grand total for his fortune of over 16,500 million euros. Subsequent reports have listed some variations in the makeup of his portfolio, more or less in keeping with the general trends of the market in the disturbed months of the summer of 2007, arising from the problems caused by the collapse of the market in subprime mortgages in the USA and the subsequent contagion with the others. Other estimates have raised the value of his fortune to 21,500 million euros,5 deriving from calculations involving updates on his portfolio, essentially based on a reassessment of the Inditex shares. Coming back to the succession problem scenario, it would seem that a number of ideas are simmering in Amancio’s head, none of which appears likely to take concrete form. In a way, and this is only human, he seems to be fairly sure that the time is still far off, and that there is no hurry to decide, if, indeed, he ever does decide. One of the ideas which seems most established is the

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Zara and her sisters possibility of connecting his exit with the progressive involvement of his daughter Marta, 47 years younger than he, to be implemented if necessary via an interim presidency, not from the family, and this could be waiting for Carlos Espinosa, the second vice-president of the group and a board member since 1997, with an accredited business track-record. Other versions put forward the possible existence of a kind of board of executors composed of some of the closest, most trusted managers, but it is highly possible that such an idea is nothing more than pure speculation. What really matters as far as this history is concerned is how far the model can survive him. Most people on this point stake their money on it being impossible, though this by no means suggests that the group will be unable to proceed without the hand of the founder on the wheel. The possibility even exists that it may do better… or not, but what looks most likely is that sooner or later a different Zara-Inditex will eventually take shape. Whether people like it or not, the undoubted presence of Ortega, which doesn’t even have to be physical, directs and conditions many if not most of the things which are done or not done. And sooner or later, this will stop happening. Except that that is another story… Spain is a country where success tends to look suspicious and the account of how it has been achieved, disturbing; this may be because of more or less exaggerated data or, more frequently, because it has been woven on the basis of suppositions and inventions that gather in ever larger accumulations, each of which appears to be a validation based on previous material. This is a misfortune with effects which cannot be evaluated. And it is surprisingly unusual to meet people who admit they don’t know, that they have no idea and are completely incapable of producing an explanation … about anything at all.

Epilogue: a sensation… or perhaps rather more

Since I was asked to write this book I have asked many people many times for their view of the Inditex group, or more specifically of Zara, the brand which usually identifies the group. On odd occasions I have run up against the ignorant and no doubt honest reply: I don’t know. More than one person has kept me entertained with their theories, sometimes presented in the form of certainties, unevenly contaminated by the legends spread or created by those who like to create complex and sophisticated theses to make up for their lack of information. There’s no doubt about it, if I had taken notice of them it would have led me to another book, another story than this which I assume you have had the patience to read. One thing is certain, which is that part of the blame could – should? – be attributed to the company itself, as obscure as they come for a large part of its history, even if unaware of the fact, doubtless because of the ownerfounder’s taste for anonymity and aversion to cutting a dash and showing a high profile, aspects of his personality verging on an, albeit respectable, obsession. It must be said that this is only partly the case, since it ceases to operate as of around 1998, when the processes were initiated in-house which would lead to the group’s shares being listed and quoted on the Stock Exchange. In the years that have followed, the yearly Inditex report is one of the most informative among those lodged by the companies listed on the Spanish IBEX 35. In all fairness, it must be admitted that a considerable proportion of the content of this book shares its authorship with corporate reports. The rest has emerged from dozens of conversations with actual actors in the history of the company, visits to Arteixo (A Coruña) and others of the company’s centres, including the group’s eight chains shops in Spain and other countries. Nor should I forget the other works which have dealt with Inditex.1 The whole, however, is the exclusive responsibility of the author. 257

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Zara and her sisters Nevertheless, I owe a debt of gratitude to everybody who has helped me in this work. All know that they are really included and the fact of not having personally and explicitly mentioned them arises from the undertaking I made not to quote the content of a single conversation. One of the many things I have learned over the almost two years it has taken me to produce this work is that transparency can be, and in this case is, compatible with discretion. Not everybody understands things this way… and there must be a reason for it. Enrique Badía

Appendix∗ 1. Classification of Inditex business concepts The main activity of the Inditex group is the retail distribution of clothing, footwear, accessories and textile products for the home through shops with a range of commercial concepts aimed at a different target public. Each of these concepts is managed independently, such that it stands as a business segment, subject to different risks and yields from those of the other concepts within the group, even though they all perform their activities within the same sector. The eight Inditex business concepts are: Zara, Kiddy’s Class, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara Home. Each of these concepts manages its own supply chain, its business policy and its networks of shops, taking advantage of the synergies derived from membership of the Inditex group, mainly in the areas of support, market intelligence, economic solvency as regards third parties and in all corporate activities. Zara Women’s and men’s wear, accessories, perfumery and cosmetics, and recently clothing for expectant mothers similar to those of the large department stores, though with a faster turnaround of garments, of a similar quality and with design input, but at a lower price. Massimo Dutti High-quality and more expensive branded garments for men and women with a fair degree of stability (three collections or seasons). Bershka Clothing and accessories for girls between 13 and 23 years of age, confident in their tastes and seeking very up-to-date designs. Quality tends towards average and price is in the lower market zone. * Source: Inditex.

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Appendix Pull and Bear Casual wear for the young, between 14 and 28 years of age, men’s and women’s, designed for city living, sport and leisure, with a self-confident style and a very appropriate price. Oysho Women’s lingerie, comfortable home and nightwear, cosmetics, swimsuits and a children’s line aimed at ages between three months and three years, brightly coloured and highly attractive. Stradivarius Clothing and accessories for a young, female, consumer, aged between 15 and 27, average in quality and low in price. Kiddy’s Class/Skhuaban Clothing for babies and children, between nought and fourteen years of age (divided into two separate lines: baby, up to three, and another for the rest). Comfortable, fun garments, plus childcare items, bracelets, necklaces, Colognes, etc. Zara Home Textile articles for the home (sheets, towels, etc.) plus crockery, glassware and other homeware and decorative items at a very competitive price.

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Appendix 2. Sales by geographical area, number of shops, presence in countries and percentage of sales in international shops Sales by geographical area 60.4% 56.9%

Total international sales 8.9% 7.5%

Asia and the rest of the world

2006 2005

11.0% 10.7%

America

39.6% 43.1%

Spain

40.6% 38.7%

Rest of Europe 0%

20%

40%

60%

Number of shops 2002

1.558 1.922

2003

2.744

2004

2.692

2005 2006

3.131 0

1.000

2.000

3.000

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Appendix International presence of inditex, by number of countries 2002

44

48

2003

56

2004

62

2005

64

2006 0

20

40

60

Percentage of sales in international shops

Zara Resto de cadenas Kiddy’s Class/Skhuaban Pull and Bear Massimo Dutti Bershka Stradivarius Oysho Zara Home

2005

2006

68,9% 34,5% 14,0% 33,2% 45,6% 41,5% 17,4% 31,8% 23,0%

72,3% 38,4% 14,5% 40,2% 49,4% 45,0% 19,7% 35,1% 35,4%

3. Growth in its own shops The main development strategy adopted in the commercial Inditex concepts is opening its own shops, meaning those managed by companies in which Inditex holds all or the majority of shares. By 31 January 2007, 89 per cent of the shops in the group were its own and represented 89 per cent of sales. There were 354 franchised shops, 11 per cent of the total. In 2006 Inditex

Appendix acquired 100 per cent of Zara Russia and a majority in the share capital of Zara Poland. In March, the Group reached an agreement to take up a 78 per cent share in its German subsidiary, Zara Deutschland. In December 2006 Inditex announced that an agreement had been reached with Gruppo Percassi to buy the remaining 20 per cent of the capital in the companies with which it works in Italy. This means that Inditex now controls 100 per cent of all the companies in which it has a stake in Italy. 4. Comparison between activity for the financial year 2005/06 by segments The result of the segment refers to earnings before interest and taxes (EBIT) for that segment. For this purpose, and in accordance with the NIC 14, and for the purpose of maintaining coherence between the sizes of the balance and the results account used, the assets and liabilities for the segment indicated in the previous table are only those used or directly derived from the activity and do not include assets or liabilities relating to tax on profits, or accounts to be received or paid, loans, investments or any other element which might given rise to financial outcomes, nor are these aspects included within the result per segment. Those revenues, expenses, assets and liabilities which by their nature can be seen as corporate or related to the entirety of the segments have been allocated to each of them, in accordance with the distribution criteria which the group management sees as reasonable. The ROCE (Return On Capital Employed) is defined as the quotient between the result for the segment (EBIT) for the financial year and the total net average assets for the same, including those deriving from the activity, as they do financial and fiscal matters. 5. Consolidated financial statements BPA calculation on 620 million shares in 2005 and 2006. Consolidated profit and loss account for the 2006 financial year (in million euros). 6. The Inditex corporate social responsibility model At the instigation of the Inditex Board of Directors, in the wake of the approval of the Codes of Behaviour governing In-house Activities and those

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Appendix of External Manufacturers and Workshops in 2001, the CSR model is based on the following principles: • All Inditex operations are undertaken in an ethical and responsible way. • All persons who are directly or indirectly are involved in any work,

economic, social or industrial relationship with Inditex shall be treated in accordance with standards of fairness and human dignity. • All Inditex activities shall be performed in the way that is most respectful of the environment. The company is especially concerned with matters related to the CSR, because of its intention to act as a socially responsible company, but also because of the harm the image and reputation of the company can suffer from inappropriate management in this area. The group has developed a company audit programme based on external monitoring and unconnected with the extent to which the Código de Conducta de Talleres y Fabricantes Externos [Code of Conduct for External Workshops and Manufacturers] has been implemented and met, with a view to minimising damage to the image arising from the incorrect behaviour of third parties. The programme in question specifies the review procedures which guarantee that information can be obtained, as well as evidence about the minimum work conditions which all the external manufacturers and workshops must meet. The CSR department performs regular checks on the companies using teams of independent professionals, familiar with the language and the labour and environmental legislation, ensuring a satisfactory level of compliance with all labour requirements laid down in the Conventions of the International Labour Organisation (ILO) and on Human Rights contained in the main agreements in force in this area. Participation in international initiatives At the international level, Inditex has a presence on the platforms of the Ethical Trading Initiative (ethicaltrade.org), Multifiber Agreement (mfaforum.org) and GRI – Apparel & Footwear Sector Supplement (globalreporting.org): • The Ethical Trading Initiative is a multi-sector dialogue platform

which contains representatives from: a broad spectrum of multinational companies from a range of economic sectors (including Gap, Boots,

Appendix Marks & Spencer, and of course Inditex itself) international trade union organisations and international civil society organisations. Its area of influence covers a total of 37 multinational corporations with business models which affect over 25,000 suppliers and over a million workers. Objectives include: encouraging respect for basic human and labour rights in the various spheres of influence of its members; promoting the application of the Base Code in the production chains of member companies and developing instruments for the establishment of the Base Code among their members through the development of best practices. • Multifiber Agreement (mfa Forum) is a forum set up in 2004 with the purpose of achieving the goals established by the progressive disappearance of the quota system which governs the textile industry. This dialogue platform consists of: manufacturers and distributors of raw materials, finished products, footwear and accessories (as is the case of Inditex, which is a member of the executive committee of the forum), international trade union organisations (such as the International Labour Office), NGOs (such as OXFAM), and international dialogue platforms (such as the Ethical Trading Initiative itself). • The Global Reporting Initiative (GRI) is an independent multilateral platform with the main objective of developing methodologies for the drafting of Sustainability Reports. During 2005 to 2007, Inditex took an active part in drawing up the Apparel and Footwear Sector Supplement. This document is a supplement which allows for the adaptation of the textile sector guide, including, among other aspects, specific indicators for this sector. The participants in this initiative include Gap, H&M, Inditex, Timberland, Nike, Levi Strauss and C&A. The objectives include the definition of the new labour guidelines and indicators in the textiles and accessories manufacture and distribution sector. Inditex adopted the commitments of the group with the intention of implementing them in 2007/08. Inditex has also been chosen in the following sustainability indexes: FTSE4 Good Index and Dow Jones Sustainability index. These indexes are financial mechanisms used to measure the behaviour of corporations as regards sustainability. They identify the leading companies as regards sustainability, providing reference points for the management of portfolios with sustainability criteria, and that contribute to the development of responsible business practice. Inditex has been included in the lists of the FTSE4Good Index and Dow Jones Sustainability Index since 2002 and 2003 respectively.

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Appendix Sexual equality commitments Committed to equality of opportunity and the promotion of women, Inditex has initiated the measurement of the factors which affect vertical diversity, understood as the presence of women in areas of responsibility. For the development of the indicators, the project ‘Equal Working Diversity’ has been chosen as the reference, headed by the Spanish coordinator for the European women’s lobby CELEM, in which Inditex has been involved, and which suggests a measurement model for this indicator to be used for the Corporate Social Responsibility reports. A range of groups has been chose for this initial survey: the logistics centres, where 100 per cent of the employees in Spain are analysed; the company Zara Spain which is the group member with the largest number of employees world-wide and where both the shops and the central services are analysed; and the Group factories, located in Arteixo (A Coruña). Other initiatives The company has given its name to the Inditex Chair of Corporate Social Responsibility which is a meeting centre at the University of A Coruña (Spain), where experts with local and international reputations bring their experience in the field of CSR into the work of academia. Their basic objective is to promote and spread subjects related to CSR within the field of the university. Inditex works with organisations at the international level such as the Carolina Foundation, the Business and Society Foundation and the Spanish Association or Society for World Agreement. More information about the collaboration between the company and this organisation can be found on the Inditex website. Inditex also funds social and environmental development programmes in which it is involved via sponsorship, community development and emergency aid projects in which it invested nearly 6 million euros in 2006. 7. Inditex Codes of Conduct In-house Code of Conduct Employees: Inditex employs no one below the legal age. No person employed by Inditex suffers discrimination on grounds of physical disability, religion, age, nationality or sex. Inditex employees have a right

Appendix to membership of trade unions, association or collective bargaining, At Inditex no form of physical, sexual, psychological or verbal harassment is permitted. The wages received by the Inditex employees are appropriate to the duties performed, always within the guidelines of the agreements for each sector. Inditex guarantees that its employees perform their duties in safe and healthy environments. Business partners: Inditex guarantees that each and every one of its business partners shall comply with the provisions governing customers and employees in this Code. Suppliers: Inditex External Manufacturers and Workshops are required to comply with the provision governing customers and employees in this Code. They shall permit any inspection by Inditex or authorised third parties to monitor their compliance. Customers: Inditex undertakes to offer all its customers a standard of excellence regarding all its products and shall guarantee that they give rise to no risks to either health or safety. Society: Inditex undertakes to collaborate with local, national or international communities in the development of its business. Code of Conduct for External Manufacturers and Workshops To ensure that the In-house Code of Conduct is well established and subsequently correctly managed in the production chain, a second Code of Conduct for External Manufacturers and Workshops has been drawn up. The conceptual framework draws on the Human Rights Declarations, the United Nations Convention on the Rights of the Child and the International Labour Office Conventions Nos. 29, 87, 98, 100, 105, 111, 138, 182 and 190, with special emphasis on policies governing remuneration and employment, health and safety, children and the environment. This second Code turns on eleven points: 1. Children in the workplace. The External Manufacturers and Workshops shall not employ children. Our definition of a child is a person under the age of 16, or exceptionally, 14, in those countries covered by article 2.4 of International Labour Office convention No. 138. In the case in which local legislation shall define a higher age limit, this, too, shall be complied with. 2. Non-discrimination. The External Manufacturers and Workshops shall apply no type of discriminatory practice on grounds of sex, race,

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Appendix beliefs, age, nationality, sexual orientation, political views or physical or psychological disability. 3. Freedom of association. The External Manufacturers and Workshops shall respect the rights of their employees to associate, to organise themselves or to collectively bargain and shall be subject to no form of sanctions in respect thereof. 4. Harassment and abuse. The employees of the External Manufacturers and Workshops shall be treated with dignity and respect. Under no circumstance shall physical punishment, harassment or the abuse of power be permitted. 5. Health and safety. The External Manufacturers and Workshops shall provide their employees with a workplace which is healthy and safe in accordance with the requirements of the law, ensuring reasonable minimums of light, ventilation, hygienic conditions, fire prevention and access to drinking water. They shall also ensure that these minimum standards are met in all other premises intended for their employees. 6. Payment policy. The External Manufacturers and Workshops shall under all circumstances comply with the legislation in force as regards labour law. They shall pay their employees at least the minimum laid down in law for each occupational category. 7. Environment. The External Manufacturers and Workshops shall be required to comply with the provisions laid down in the legislation in force as regards the environment. 8. Subcontracting policy. The External Manufacturers and Workshops who subcontract work for Inditex shall take responsibility for ensuring that the subcontractors comply with this Code of Conduct. 9. Other applicable laws. The External Manufacturers and Workshops shall comply with all local, national and international law in force. 10. Supervision and compliance. The External Manufacturers and Workshops shall authorise Inditex to undertake, in their own person or by means of third parties, inspections which shall guarantee compliance with this Code, ensuring that the inspectors shall have access to the documentation and means necessary to perform this procedure. 11. Publication of the Code. The heads of the External Manufacturers and Workshops shall inform their employees of the contents of this Code. A copy thereof published in the local language shall be placed in a location accessible to all the employees.

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Table A2.1 Inditex group: Relevant data (first half 2007/08, million euros)* Sales Profit EBITDA† Gross profit Sales in Spain Sales outside Spain Sales elsewhere in Europe Shops (countries) Payroll

4,124 393 732 2.298 (55.7% s. sales) 38% 62% 41% 3.336 (66) 72,377 employees

+19% (1st half 2006) +33% +29% +20%

Notes: *On 31 July 2007. † Earnings before Interest, Taxes, Depreciation as Amortization.

Table A1.2 Comparative group data*

Sales  s. 2005 (%) EBITDA†  s. 2005 (%) Net profit  s. 2005 (%) Capitalisation Payroll  s. 2005 (%) No. shops

Inditex

Gap

H&M

8,196 +22 1,357 +24 1,008 +25 27,476 69,240 +19 3,185

11,989 −0.5 883 −33 585 −30 10,674 150,000 = 3,131

7,534 +12 1,685 +16 1,189 +17 34,905 40,368 +17 1,345

Notes: *Figures in million euros, except payroll (employees) and shops (operating businesses), at the close of the last complete financial year (2006/07) collected on the official website of each group. † See above

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Table A2.1 Forbes ranking (*) (estimates for 2007, in million dollars) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Bill Gates (Microsoft) Warren Buffett Carlos Slim (Telmex) Ingvar Kamprad (Ikea) Lakshmi Mittal (Mittal) Sheldon Adelson (Juego-Las Vegas) Bernard Arnault (Louis Vuitton) Amancio Ortega (Zara-Inditex) Li Ka-shing (Hutchison Whampoa) David Thomson (Thomson Co.)

56,000 52,000 49,000 33,000 32,000 26,500 26,000 24,000 23,000 22,000

Note: *The next Spaniard included on the list is Rafael del Pino (Ferrovial), at No. 79, with a fortune estimated at 8,600 million euros.

Market

Logistics

Shops

Commercial

Figure A5.1 Zara model

Design

Production

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Appendix Others 5***

Spain 12.5*

Portugal 12.5*

Asia 30**

Morocco 25* Turkey 15

Notes:

∗

proximity model mainly China, India and Bangladesh ∗∗∗ Latin America and Eastern Europe ∗∗

Figure A5.2 Production map (as % of total) Table A9.1 Most significant milestones in expansion in Spain Year

Important event

1975 1981 1983 1985 1988 1991 1998 1999 2001 2003 2007 2008

First Zara shop in A Coruña First Zara shop in Madrid First Zara shop in Barcelona First Zara shop in Valencia Opening of first Pull and Bear shop Takeover of Massimo Dutti Opening of first Bershka shop Buying Stradivarius Opening of first Oysho shop Opening of first Zara Home shop Start of internet sales (Zara Home) First Uterqüe shops in Madrid, Barcelona, Bilbao, Alicante and Zaragoza

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Table A10.1 International expansion timeline Year

Countries

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Portugal (Porto) USA (New York) France (Paris) – Mexico Greece Belgium, Switzerland Malta Cyprus Norway, Israel Japan, Turkey, UK, Argentina, Venezuela, Lebanon, United Arab Emirates and Kuwait Germany, Netherlands, Poland, Brazil, Chile, Uruguay, Saudi Arabia, Bahrain and Canada Austria, Qatar, Denmark and Andorra Ireland, Iceland, Luxembourg, Czech Republic, Puerto Rico, Jordan and Italy Finland, Switzerland, El Salvador, Dominican Republic and Singapore Slovenia, Russia, Slovakia and Malaysia Morocco, Hong Kong, Estonia, Latvia, Lithuania, Hungary, Romania and Panama Monaco, Costa Rica, Indonesia, Philippines and Thailand Serbia, Mainland China and Tunisia Colombia, Croatia, Guatemala, Oman…

1999 2000 2001 2002 2003 2004 2005 2006 2007

Table A12.1 Shareholder Amancio Ortega Gaona Rosalía Mera Goyenechea Primitiva Renedo Olivares* Josefa Ortega Gaona Note: *Jointly with Dolores Ortega Renedo.

% shares 79.255 15.68 4.23 0.835

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Table A12.2 Company

Shares (%)

Goasam (Zara España) Noite (Oysho España) Confecciones GOA Samlor Trisko Nikole Confecciones Fios Choolet

100 52 76.2 45.6 7.3 34 34.5 18.6

Table A12.3 Name

Position

Amancio Ortega J.Ma Castellano JC.R. Cebrián Rosalía Mera Josefa Ortega Carlos Espinosa Francisco Luzón J. Manuel Urgoiti Irene Millar H. Langhammer

President VP. CEO General manager Director Director Director Director Director Director Director

TOTAL

Options 1998

Options 2000

164,200 123,200

51,202 51,202

102,600

51,202 42,743 42,743 42,743 42,743 42,743

390,000

367,321

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Table A12.4 Shareholder

Shares (millions)* 73.2 + 10.9 37.9 + 5.6 6.1 + 0.9 10.7 + 1.6 4.8 + 0.7 2.6 + 0.4 5.3 + 0.8 0.2 + 0.03 0.2 + 0.03

Amancio Ortega Gaona Rosalía Mera Dolores Ortega Renedo Sandra Ortega Mera Primitiva Renedo Josefina Ortega Gaona Marta Ortega Pérez José María Castellano Juan Carlos R. Cebrián

Note: *Initial offer + over-allotment option [green shoe].

Table A12.5 Section Retailer Employees** Spain institutional International

Shares

Percentages/total

63,063,583 4,986,643 18,345,183 55,035,548

44.59 3.53 12.97 38.91

Note: **The offer to employees established a discount of 10% of the issue price and limited the issue to a minimum of 200,000 and a maximum of 5,000,000 pesetas. This is possibly the reason why there was so little take-up.

Table A12.6 Profits on sales (year 2000, as %) Company Inditex Gap H&M Cortefiel Adolfo Domínguez

Profit 9.9 9.7 7.1 7.5 6.8

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Table A12.7 Inditex dividends (Million pesetas) Year 1998 1999 2000

Sum 1,000 1,000 1,100

Table A13.1 Distribution of shares for the board of directors Name

Position

Amancio Ortega Pablo Isla Carlos Espinosa Flora Pérez** J. Manuel Urgoiti Francisco Luzón Irene Miller José Luís Vázquez Antonio Abril

President VP and CEO 2nd Vice-president Director Director Director Director Director Secretary

TOTAL

% Holding 59.294* 0.004 0.006 50.010** 0.004 0.005 0.012

Type Honorary-Exec. Executive Independent Honorary Independent Independent Independent Independent Executive

59.325***

Notes: *Through Partler, SL and Gartler, SL **On behalf of Gartler, SL ***The Gartler, SL holding (50.010%) has double votes on the board.

Table A13.2 Main shareholders not on the Group board Shareholder Chase Nominees Ltd. Rosp Corunna***

% Holding 5.974 6.993

Note: ***Rosalía Mera and Sons Investment Company

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Raw material

Woven yarn fibre

Design

Garment

Figure A15.1 Textile production chain

Shop

Customer

Notes Chapter 1 1 Similar results can be obtained from a search using Yahoo!, MSN, etc. 2 Classification by the consultant Interbrand. More information on www.interbrand.com 3 Elvira Lindoso, Los pioneros Gallegos. Bases del desarrollo empresarial 1820–1913 [The Galician Pioneers. The Bases of Business Development 1820–1913] (LID Editorial Empresarial, 2006). 4 Data from the Spanish Technical Secretary General of the Ministry of Industry, Trade and Tourism, compiled by Julio Segura and Arturo González Romero, in Papeles de Economía Española [Papers in Spanish Economy], No. 50 (1992). 5 González Romero y Carrasco, ‘El mercado interior de la EEC. Perspectivas para la industria española’ [The EEC internal market. Prospects for Spanish Industry], in Economía e Industria [Economy and Industry], No. 10 (Ministry of Industry, Trade and Tourism, 1990). 6 A wealth of literature exists on economic policy in Spain from the 1960s on. Among the most recent publications: Joaquín Estefanía, La larga marcha [The Long March] (Editorial Península, 2007); Enrique Fuentes Quintana (ed.), Economía y economistas españoles [Spanish Economy and Economists], vol. 8, (Galaxia Gutenberg, 2004); Gabriel Tortella, El desarrollo de la España contemporánea [The Development of Contemporary Spain], (Alianza, 1999).

Chapter 2 1 The complete Forbes classification on www.forbes.com/lists/2007/10/07billionaires_ The-Worlds-Billionaires_Rank.html 2 Astroc, a real estate company, crashed on the Stock Market just before the summer of 2007, starting off the first crisis in the Spanish property sector caused by the subprime mortgage fiasco in the USA. 3 The full text of the article can be read on the newspaper’s website: http://business. timesonline.co.uk/tol/business/article1160114.ece 4 The full text of the article, under the by-line of Paz Álvarez, head of the Directivos [Managers’] supplement of the financial information daily published by the Prisa group, available at: www.cincodias.com/articulo/Sentidos/hora/Amancio/Ortega/cdscdi/ 20070626cdscdicst_1/Tes/

Chapter 3 1 While haute couture did not disappear, it was sidelined to some extent by prêt à porter (ready to wear): garments began to be made in bulk and designer clothing, well made,

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Notes became available to other social strata. Many of the big names adopted this new trend in order to stay in business, and some even opened boutiques where they could market this line in parallel with their better known creations.

Chapter 5 1 Solchaga himself has referred to the ups and down of that process in El final de la edad dorada [The End of the Golden Age] (Taurus, 2002). They are also reflected in Stefan Houpt and José María Ortiz-Villajos, Astilleros Españoles 1872–1998 [Spanish Shipyards 1972–1998] (LID Editorial Empresarial, 2000).

Chapter 6 1 Although Televisión Española: Spanish TV (TVE), began transmission in October 1956, it was from only the end of the 1960s that it covered the greater part of the country and began to transmit continuously throughout most of the day. 2 Between 1951 and 1970, the number of tourists coming to Spain multiplied twenty-fold, reaching slightly over 24 million in the last of year of that period. 3 Julio Alcaide, in Papeles de Economía Española [Papers in Spanish Economy], no. 50 (1992). 4 Ryan Matthews and Fred Crawford, The myth of excellence: Why Great Companies Never Try to Be the Best at Everything (Random House, 2002). 5 This refers not only to those resulting from the application of the cash equivalent, but also to those relating to the level of income and the earning capacity of each country.

Chapter 7 1 Among others, Pat Fallon and Fred Senn, Exprime la idea [Express the idea] (LID Editorial Empresarial, 2007). 2 Marcas españolas con más valor 2006 [Highest value Spanish brands 2006], study by Interbrand. 3 In that year, Zara opened its first shop in A Coruña. 4 Some versions mention a shoe-shop, while others say that it was a coffee shop.

Chapter 9 1 More information: Pilar Toboso, Pepín Fernández 1891–1982 (LID Editorial Empresarial, 1995).

Notes 2 On compulsory purchase, read Enrique Díaz González, Rumasa (Planeta, 1983), and Ernesto Ekaizer, José María Ruiz Mateos. El último magnate [The last magnate] (Plaza & Janés, 1985). 3 In the middle months of 1977 inflation in Spain reached 40 per cent on a between-year basis.

Chapter 11 1 The most relevant data for the financial year 2006–07 for Inditex and the eight chains in the group are included in the Appendix. 2 In 2006 The Zara Architecture Study and the Inditex Communications Section privately published a collection of the main actions in this field in a book entitled Zara arquitectura 2005.

Chapter 12 1 By 31 December 2001, the portfolio of repurchased stock consisted of 1,446,600 shares. 2 Chapter II-75 of the complete information booklet, model RV, April 2001. 3 The IBEX 35 index of the Madrid Stock Exchange began to slide in March 2000 and there was no significant turnaround until October 2001. The inter-year variation for 2000 was negative by 21.75 per cent and 2001 also closed with a loss of 7.82 per cent. The average value of the index for this period moved within the 8000 point band. 4 Companies report in Memoria 2006 by Inditex, page 107, point 24. 5 The reference is included in the Appendix, on the section relating to company data for the end of the 2006–7 financial year. 6 Inditex shares reached 53.25 euros per share – a historical maximum – at the close of the session of 7 November 2007. 7 Acronym of price earnings rate, calculated by dividing the value of the share by the net profit per share, which in turn is obtained by dividing the net profit by the number of shares.

Chapter 13 1 Percentage of the capital which is negotiable on variable yield markets. The value estimated by Inditex was around 40.5 per cent on 31 December 2006. On the same date the portfolio of declared repurchased stock consisted of 2.38 million shares, with an average purchase price of 2.18 euros per share, representing 0.38 per cent of its capital. Data available at www.cnmv.es

Chapter 14 1 Emilio Botín III, only referred as such when he is cited in the same sentence as his father or grandfather. He is the CEO of Banco Santander.

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Notes 2 ACS is a construction group. Its CEO is Florentino Pérez, former Real Madrid president. 3 Created by Lawrence J. Peter: ‘In a hierarchy, every employee tends to rise until he reaches his point of incompetence’, in The Peter Principle (Plaza & Janés, 1985). 4 Fadesa ended up being sold to Martinsa in the final months of 2006, by means of a friendly IPO which valued the property company at 4100 million euros.

Chapter 15 1 Among others, Yossi Shefti, La empresa robusta [The Robust Company] (LID Editorial Empresarial, 2007). 2 Top Companies for Leaders 2007 in Europe (Hewitt Associates from RBL and Fortune). 3 An interesting view of the sports clothing business can be found in Bárbara Smith, Hermanos de Sangre [Blood Brothers] (LID Editorial Empresarial, 2007). Although this focuses on the story of Adidas and Puma, the work includes interesting data on the inception and development of Nike. 4 This can be consulted in the Appendix. 5 On 15 August 2007, an earthquake measuring 7.9 on the Richter scale left more than 500 dead and the complete devastation of the city of Pisco, to the south of Lima (Peru). 6 The Inditex advertising campaign came out on Sunday, 19 August, the day of the greatest circulation and highest number of inclusions in the national press. 7 As assessed by Francis Fukuyama in América en la encrucijada [America at the Crossroads] (Ediciones B, 2007).

Chapter 16 1 Figure for 2006. More information and a complete series are available at www.ine.es 2 In October 2007, Marta Ortega began to work in one of the shops which the group has opened in London. 3 The complete text of the article can be found on the newspaper’s website: www.elpais.com/articulo/ reportajes/aprendizaje/Marta/elpepusocdmg/20070520elpdmgrep_1/Tes 4 The complete text of the article, published on 26 November 2006, can be consulted at: http://www.elpais.com/articulo/economia/fortuna/Amancio/Ortega/supera/16600/ million/euros/elpepieco/20061126elpepieco_1/Tes 5 The actual newspaper El País did this in its edition of 21 October 2007. Full text at www.elpais.com.

Epilogue 1 Xabier R. Blanco and Jesús Salgado, Amancio Ortega, de cero a Zara [From nothing to Zara] (Esfera de los Libros, (2004); Fernando Fábrega, Zara, el modelo de negocio de Inditex [The Inditex Business Model] (Claves de Gestión 2004); and José Luis Nueno, Zara: Fast Fashion (lecture at Harvard Business School, n.d.).

Index Key: bold = extended discussion; b = box; f = figure; n = note; t = table. A Coruña (‘La Coruña’, ‘Corunna’) first Ortega shop (1972–9) 114–15, 118–19, 124, 146, 170 harbour 138 miscellaneous xiii, 4, 22, 24, 26, 32, 38, 43, 45, 47, 54, 71, 73, 77, 82, 130, 149–50, 152, 160, 200, 208, 210 shop location 113 Zara: first shop (1975) 271t, 278(n3) Zara: second shop (1975) 148 Zara: third shop (Real Street) 126 see also Arteixo; La Maja A Coruña: A Grela (La Moura trading estate) 79–80 A Coruña: Alvedro airport 1, 140 A Coruña: Finance Club 30, 253 A Coruña: Gallo de Oro restaurant 41 A Coruña: Juan Florez Street (first Zara shop, 1975–) 170 A Coruña: Larín (Casas Novas equestrian centre) 35, 42 A Coruña: Massimo Dutti shops 115 A Coruña: Narón (near Ferrol) 87, 169 A Coruña: Narón: Pull and Bear head office 176 A Coruña: Neira parish 94 A Coruña: Noia Street workshop 75, 77, 79 A Coruña: Pedro Barrié de la Maza Avenue 42 A Coruña: Playa Club 249 A Coruña: Riazor Stadium 30, 34 A Coruña: San Rosendo Street (garage-workshop) 31, 75, 93, 139 A Coruña: School of Business Studies 201 A Coruña: Torreiro Street (Ortega’s first shop, 1972–9) 114–15, 118–19, 146 A Coruña: University 203, 266 A Coruña: Zalaeta/‘Zaraeta’ 42 A Coruña: Zorba (shop) 125, 278(n4) Abril, A. 188, 275t accessories 90, 114, 155, 164, 169, 171, 177, 181, 259, 265 acknowledgements xiii–xiv, 257–8 ACS 201, 280(n2 to ch14) Adelson, S. 270t Adidas 280(n3 to ch15) Adolfo Domínguez 17, 152, 156, 274t advertising 2, 65, 119–20, 175, 239–40, 280(n6)

emotional component 120, 278(n1 to ch7) Aegon (insurance company): ‘Sistemas 3’ 201 Affinity Card 127, 136 Africa 3, 165 age 50, 62, 130, 145, 167, 171, 178, 206–7, 229, 259, 266, 267–268 agriculture 16, 17, 27 Aguirre, E. 135 Air France-KLM 140 air transport/airports 13, 23, 134, 137, 139–40, 240 Alazán 254–5 Alcaide, J. 278(n3 to ch6) Alcampo 76 Alicante 4, 90 Alierta, C. 210 Altadis 22, 210 Álvarez, I. 251 Álvarez, P. 277(n4 to ch2) Álvarez Corchado (company) 42 Amancio Ortega: de cero a Zara (Blanco and Salgado, 2004) 280(n1 to Epilogue) Amancio Ortega Foundation 4, 24–5, 78, 250–2 owns not a single share in Inditex 251 Amancio/Antonio Ortega Gaona (AOG) 11, 79, 105 see also GOA ‘America’ 3, 17 América en la encrucijada (Fukuyama, 2007) 280(n7) analysts 11, 49, 185, 187, 194–7, 242 Anceis (Cambre): Pazo O Drozo (building) 42 Andic, I. 153 Andic, N. 153 Andorra 118, 272t Antonio Pernas 17 Apple 2, 73, 89 Aragón 134, 146 Arango, P. 114 Areces (family) 142–3 Areces, R. 25, 250 Areces Foundation 250–1 Argentina 163, 172, 272t Armani 155, 156, 184 Arnau, J. (‘Pepe’) 188, 255 Arnault, B. 270t

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Index Arteixo 1–28, 277 distribution centre/s 131–2, 134–5, 207, 221 Inditex headquarters 4–5, 11, 79, 90, 194, 196–7, 212, 224, 226, 234, 244–5, 253; plate one miscellaneous 49, 88, 91, 93, 144, 157, 160, 167–8, 257, 266 Arteixo: Kiddy’s Class head office 178 Arteixo: Sabón Polygon 131, 133, 229 Cube (Inditex headquarters) 4–5, 11; plate one Arteixo: Sabón trading estate 1, 4, 11, 30, 45, 79–83, 140, 172, 198, 252, 255 Arthur Andersen 188 Asia 12, 99, 133, 140, 155, 176, 180, 236 southernmost regions 164 Inditex production 271f Asia-Pacific 3, 165 assumptions/presumptions xii, 29, 45, 48, 51–2, 54–5, 60, 72, 74, 84–5, 98, 101, 120–1, 125, 136, 149, 173, 185, 197, 236, 249, 257 Astano 95 Astilleros Españoles (Houpt and Ortiz-Villajos, 2000) 278(n1 to ch5) Astroc 38, 277(n2 to ch2) Asturias 31 auditors/auditing 231, 236 Aurrerá chain 114 Australia 164 Austria 272t AVE complex 134 Aznar, J. M. 210, 248 babies/infants 69 Baby Gaps 191 baby line (Kiddy’s Class) 178 Badía y Liberal, E. x, xi, 258 Bahrain 140, 272t Balearic Islands 19, 103 Balzac, H. de 45–6 Banana Republic 191 Banco de Bilbao 71, 78, 86 Banco Pastor 125, 207 Banco Popular 40, 210 Banco Santander 2, 40, 194, 200, 254–5, 279(n1 to ch14) Banco de Valencia 152 Banco Urquijo 143 Bangladesh 140, 238, 239 Bank of Spain 236 banks 81, 187 Bañuelos, E. 38 Barcelona 1, 4, 9, 20, 24, 36, 50, 80, 100, 133–4, 140, 146, 160, 174, 227, 253 Barcelona: first Zara shop (1983) 271t Barcelona: Kettering factory (1977–), 83

Barcelona: Martorell (head office of Massimo Dutti, until 2000) 175 Barcelona: Paseo de Gracia 153 Barcelona: Sallent de Llobregat (head office of Stradivarius) 177 Barcelona: Terrassa 70–1 Barcelona: Tordera (head offices) Bershka 4, 133, 137, 174 Massimo Dutti (2000–) 4, 133, 137, 175 Oysho 4, 133, 137, 179 Barclays Bank 207 Base Code 265 ‘basic’ range 171 Basque Country 31, 103 ‘bazaar’ concept 63, 114, 124, 170 Bazán 95 Beccaria, R. 248 Bedford (Massachusetts) 245 Belgium 79, 110, 136, 163, 272t; plate six Benetton 117, 130, 156 Berlin 162 Bernadó, J. 122 Bershka chain (1998–) 173–4 business concept 259 facts and figures 174 first shop (1998) 271t miscellaneous 3–4, 133, 145, 151, 165, 177, 183 number of shops 249 strategic turnaround 184 ‘Bershka in Second Life’ (virtual shop, 2007–) 174 best practice 106, 233, 265 Bilbao Vizcaya Argentaria Bank (BBVA) 127, 189–90, 194, 227, 254–5 Bimba & Lola concept 155 biography 32, 53 Blanco (women’s fashion group) 155 Blanco, X. R. 280(n1 to Epilogue) BMW 129 boatiné (ladies’ dressing-gowns) 69–70 Bombardier (aircraft) 36 Bono, J. 35 Boots 264 Borrell, J. 235 Boston (USA) 197 Botín I, E. 277(n1 to ch14) Botín II, E. 40, 277(n1 to ch14) Botín III, E. 34, 200, 279(n1 to ch14) boutiques 57, 61, 107, 170, 278(n1 to ch3) BPA 263 brands 2, 13–14, 17, 50, 57, 65, 76, 107, 119, 125–7, 145, 149, 156, 173, 179, 181, 191, 223, 230, 239, 259, 277(n2) Brazil 172, 272t Brenninkmeijer, C&A 154 Brezos 183 Brussels 154

Index Buffett, W. 270t Bulgaria 93, 99 Burotex 100 Busdongo de Arbas (León province) 31, 36 business schools 20, 50, 73, 214, 243 Business and Society Foundation 266 ‘by Zara’ 181–2 ‘bypassing’ 244 C&A (1841–) 154, 265 Caixa Galicia 81, 86 Caixanova 152 California 73, 191 Camper 2 Canada 191, 272t Canary Islands 19, 103 capital 68, 76, 79, 80–1, 83, 95, 106, 116, 186 capital cities 2, 147, 149–50, 153 capital gains 190–1, 209, 235, 254 capitalism 72, 242 Caramelo, J. A. 150, 152 Caramelo, J. C. 152–3 Caramelo Group (1969–) 17, 78, 152–3 Carolina Foundation 266 Carrefour 76 cars/automobiles 15, 17, 36, 43, 66–7, 104, 168 Casablanca 93, 98 Casiopea (stock control PDA device) 128 Caspian Sea 125 Castellano, Professor J. M. 200–13 miscellaneous 20, 41, 45–8, 86, 122, 185, 187–8, 190, 198, 252, 255, 277–8 shareholding in Inditex 205, 273–274t skills 206 visibility 202 Castile 31, 35, 92, 146 Castro Quintás family 31, 32, 69, 70, 78 casual wear 171 Catalan Government (Generalitat) 20, 46 Catalans (in Galicia) 16 catalogues 23, 79, 82, 91, 97, 100, 136, 151–2, 176, 179–81, 217–19 Catalonia 18, 19, 24, 38, 56, 58, 69–71, 73, 100, 103, 122, 176, 235 Catholic Church 21 CELEM 266 census (1930) 17 CEOs 134, 188, 202–5, 209–10, 212, 216, 221, 225, 252, 273t, 279(n1 to ch14) Champion chain (USA) 245 changing the world 33 charitable donations 239–40, 280(n6) Charlton 153 Chase Nominees Ltd 275t Chicago 161 Chicco 155 child labour x, 234, 238, 267

children 8, 26–7, 135, 152–3, 170–3, 177–8, 208, 260 Chile 272t China 51, 90, 93, 154, 165, 220, 245, 272t choice 61–2, 67, 72, 121, 173 Choolet 83, 273t Christmas 226 Cierva, B. de la 188, 205 Cinco Días 49–51, 191, 277(n4 to ch2) Cisneros, G. 143 cities 55, 103–4, 107, 113–14, 149, 151, 156, 161, 181–2 central business districts 2, 37, 102, 119–20, 126, 171 outskirts 102, 148 civil society 265 Civil War 27, 54 Cobi 110–11 Codes of Behaviour Governing In-House Activities and Those of External Manufacturers and Workshops in 2001 264 Código de Conducta de Talleres y Fabricantes Externos (2001) 264 coercion ix–x Cofir(4) 174 Cofra Group 154 collective bargaining 267 Colombia 272t colour 100–1, 117–18, 127, 220 Comisión Nacional del Mercado de Valores (CNMV) 188, 196–7, 205, 231, 254 commercial agents 59, 149–50 communication/s 23, 80, 130–2, 134–5, 139, 173 in-house circuits 186 Companies’ Registry 196–7 competition 59, 104–5, 108–9, 149, 171, 179–80, 217 ‘anti-competition practices’ 95 fiercest 156, 158, 159 internal 50, 96, 109–10, 223 proximity 150 Spanish market 158 Zara versus its customer-retailers 114 competitive advantage 15, 222, 230 ‘comparative advantage’ 74, 113 competitiveness 9, 14, 56, 76, 113, 130, 156 competitors Adolfo Domínguez 152 C&A 154 Caramelo Group 152–3 Cortefiel 151–2 H&M 150–1 Mango 153–4 miscellaneous xi, 7, 10, 15, 44, 78, 86, 117, 137, 144–5, 158, 177, 186, 191, 194, 197, 220, 230, 233–4, 238, 245

283

284

Index competitors – continued Sfera chain 153 various 154–5 computers 70, 87, 92; plate two Conditel (company) 100, 220 constant replacement criterion 155 consumer goods 65 consumer guidelines 167 Consumer Price Index (CPI) 105 consumer tastes/needs xii, 14, 23, 77, 105–6, 115, 167 discernment 8, 105–8 reaction speed 108 satisfying x, 217 consumerism 103 consumers direct contact/direct sale 56, 73, 77, 79, 84, 112, 148, 230 miscellaneous 23, 44, 57, 58, 66, 87–8, 149, 158, 161, 180–1, 226, 238 purchasing ability 63–4 purchasing power 104–5 see also customers consumption 105, 242 Continente 76 continuous hours model 23 conveyance tax 235 conveyor belts 12–13 coolhunters (trend scouts) 9 coordination 93, 166 Copado, D. 188 copying 9, 23, 107, 156 corporate social responsibility ix, 8, 93, 97, 99, 232–40, 249, 252 Inditex model 263 international initiatives 264–265 sexual equality 266 correctness 33 corruption 143 Cortefiel 19, 116, 151–2, 156, 274t Corunna see A Coruña cosmetics 90, 171–2, 179, 259 Costa Brava 19 Costa Rica 272t costs 118 reduction 225, 240–1 costs–benefits 217 Crawford, F. 278(n4) creative chaos 8 credibility 210, 216 credit 71, 78, 81, 99, 101, 125, 230 credit cards 136 creditors 85, 143 crime 45–6 critical mass 15 Croatia 125, 272t crockery 180 Cuba 142–3

Cuesta, J. 248 culture 98, 172 customer-service 14, 73, 113, 120, 127–8, 136, 229 customers 8–9, 11–12, 55, 61–2, 74, 179, 219 ‘basic focus’ 60 false (i.e. inspectors) 97–8, 123 Inditex code of conduct 267 intellectual property rights 66 ‘start and finish of everything’ 102–11, 278 see also consumers customs barriers 18 cutting machines 13, 83–4, 92 CVC (investment fund) 151 Cyprus 272t Czech Republic 272t Daimler 15, 209 Dalí shirts 18 data deficiencies 14, 30, 36, 56, 121, 186, 200–1, 256, 257 see also legends; Ortega mystery data-gathering (by Zara-Inditex) 100 Davis Polk & Wardwell 188 ‘dead street’ 149 deadlines 14, 96, 98–9, 131, 204, 219, 237 decentralisation 226 decision-making 222–3 centralisation 224 collective 231 miscellaneous 39–40, 50, 56, 66, 104, 158, 166, 169, 182, 207, 215–18, 220–1, 241, 243, 246, 253 demand 5, 56, 61, 66, 69–70, 82, 86, 100, 105, 138, 153, 163, 175, 195, 217–8, 242 potential 63–4 presumed 240 rapid response model 158 satisfaction 219 trends 220 uncertain 214 unmet 172 see also seasons democracy ix, 18 Democratic Centre Union (UCD) 159 denim 191 Denmark 136, 272t department stores 23, 55, 63, 65, 114, 124, 127, 142, 149, 152–4, 170, 250–1, 259 Deportivo La Coruña (‘Depor’) 30, 35 design xi, 4–6, 8, 13, 41, 45, 70, 77, 79, 90, 92, 99, 107–8, 122, 164, 169–71, 174, 177–9, 192, 202, 224, 245, 259, 270f sources of inspiration 9–10 design schools 9

Index designer labels 107 designers 25, 50, 58, 87–9, 105, 153, 218, 240 career trajectory 10 developing countries 158, 233–4 Development of Contemporary Spain (Tortella, 1999) 277(n6) Devil Wears Prada 13 Dexeus, C. 207–9 Día (foodstuffs) 155 Díaz González, E. 277(n2 to ch9) direct commission 91 disability 47, 187, 266, 268 discounts 106, 108, 113 discrimination 265, 267–268 distribution 50–1, 59–60, 65–6, 74, 76, 84, 90, 97, 99, 106, 108, 112, 116–17, 119, 127, 145, 148, 151, 154, 165, 168, 174, 178–80, 183, 194, 202, 217, 252, 265 married with production 129–40 see also logistics diversification 151, 153 dividends 40, 81–2, 84, 198, 275t docks 2, 13 Domínguez, A. 152, 155 Domínguez, M. 155 Domínguez, U. 155 Dominican Republic 272t Donguan (PRC) 245 dot-com bust (2001) 187, 208–9, 279(n3 to ch12) Dow Jones Sustainability Index 265 dress-makers/dress-making 17, 26, 61, 68, 94, 241 dressing-gowns 69, 75, 82, 99, 220 ‘dressing the home’ concept: failure 180 Dubai 140 duopoly 76 dyeing 100, 118, 220 ‘dying of success’ 7, 199, 242 earning capacity 278(n5) earnings before interest and taxes (EBIT) 263 earthquakes 238, 239–40, 280(n5 to ch15) East Germany 95 Economía y economistas españoles (Fuentes Quintana, 2004), 277(n6) economic cycle 241–2 economic growth 102–3, 105 economies of scale 75–6, 85, 106 economists 26, 277(n6) efficiency 23, 83, 110, 138, 217, 221, 225, 227, 231 Egypt 165 Ekaizer, E. 279(n2 to ch9) El Corte Inglés 19, 25, 63, 92, 115–16, 120, 142–4, 148, 152, 188, 250–1

El desarrollo de la Spain contemporáne 277(n6) El País 249–50, 255, 280(n3–5 to ch16) El Salvador 272t Elche (Alicante) 4, 87, 133, 137, 169, 181 elections 135 electrical appliances 65 electricity 17 electronic commerce 136–7, 154, 174, 180–1 electronic mail 218, 232 Elosúa, M. xiv emergency aid projects 266 emerging economies 8, 234 employees x, 6, 142, 212, 251 Inditex code of conduct 266–7, 268 Inditex PIB 274t status 25 see also staff employment 3, 17, 93, 94, 151, 187, 191, 267 dismissal 46, 218 ‘job collectivisation’ 89 local people 226 part-time 226 entrepreneurs 19, 25, 33, 73, 78 entrepreneurship x, 16, 20, 31–2, 59, 105, 113, 141, 146, 250–1 Anglo-Saxon 72 ‘positive-sum game’ xi success factors xii under-appreciated ix environment (natural) 264 Inditex code of conduct 267 see also socio-economic environment Equal Working Diversity project 266 equestrianism 30, 35, 42, 207, 249 Eroski 76 Espinosa de los Monteros, C. 205, 209–10, 256, 273t, 275t Estefanía, J. 277(n6) Estonia 272t Ethical Trading Initiative 264–5 euro (2002–) 103, 110, 189 Europe 12, 42, 50, 105, 117, 131, 133, 154–5, 172, 177, 194 Inditex shops 3 weighting in Zara-Inditex empire 242 Europe: central 139, 254 Europe: eastern 51, 99, 149, 165, 180, 254 European Economic Community (EEC) 18–19, 86, 95, 158–9, 277(n5) European Union 93, 104, 136, 165, 237 exchange-or-return 114 exclusivity principle 96 experience 220 exploitation 21, 236–7

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286

Index export activities 44–5 Exprime la idea (Fallon and Senn, 2007) 278(n1 to ch7) Fábrega, F. 280(n1 to Epilogue) fabric-cutting 13, 69, 70, 75, 83–4 fabrics 17, 71, 78, 91–2, 99, 101, 157, 174–5, 177, 179, 219–20, 245 application of patterns fabric 70 Facebook 10 factories 4–5, 45, 52, 58–9, 77–80, 82–7, 90, 95–7, 105, 108–10, 115–16, 119, 167, 170, 172–3, 212, 221, 234, 238–9, 266 factory design 83 Fadesa 205, 280(n4 to ch14) fairs 87, 175 Falcon 45 (aircraft) 36–7 Fallon, P. 278(n1 to ch7) family 8, 21, 94, 105, 157, 208 family businesses xi, xiii, 19, 42, 55–6, 80, 102, 116, 151–2, 206–7, 247–50 generational takeover 243 see also inheritance farm size 16, 17, 27 fashion collection failures 108 consumption 241 dictatorship versus consensus 61 ephemerality 64 ‘expensive for a number of reasons’ 64 imprint of personality 246 miscellaneous 2, 5–6, 9, 13–15, 17, 27, 33, 49, 55, 57, 60, 63, 66, 91, 102, 151–3, 155, 159–61, 168, 170, 177, 187, 195, 202, 214, 220, 233, 240, 252 in search of gaps 68–78 seasonal collections 61, 107–8, 117 see also garments Fernández, P. 142–3 Ferrol (Coruña) 5, 27, 95, 137 Ferrol: Jema factory (1979–) 83 Ferrovial 270n fiascos 183–4 Fibracolor (Tordera) 100 Filene, E. A. 106 Final de edad dorada (Solchaga, 2002) 278(n1 to ch5) Finland 272t Fios 2, 83 ‘Confecciones Fios’ 273t first-mover advantage 138 Fisher, A. 191 fish/fishing 16–17, 27 Flickr 10 Florentino 17 food 27, 115, 155 footwear 87, 155, 169, 172, 181, 183, 259, 265

Forbes list xii–xiii, 34, 41–2, 270t, 277(n1 to ch2) Ford 15, 83, 106 Fotolog 10 France 27, 57, 76, 79, 103, 110, 134, 136, 139, 192, 224, 272t franchises 3, 117, 118, 152, 163, 175–6, 178–9, 191, 262–3 Franco, F. 18 death (1975) 147–8 native of Galicia 27 Franco family 27, 143 Francoism 18, 19, 22, 26–7 Frankel, D. 13 Frankfurt 197 free float 194, 279(n1 to ch13) Free Issue Plan 190 freedom/liberty x–xi, 41 freedom of association Inditex code of conduct 268 Friday’s Project 183 FTSE4Good Index 265 Fuentes Quintana, E. 277(n6) Fukoa: Zara store plate seven Fukuyama, F. 280(n7) Gala (shirt-maker) 31, 47, 73–4, 170 Galerías Preciados 115, 116, 142–4 corporate culture 144 nationalised (1983) 143, 279(n2 to ch9) Galicia x climate 69, 153 foreign travel 103 industrial reconversion (1980s) 94–6 ‘marginalised territory’ 27 miscellaneous xii, 1, 19, 22, 30–1, 38, 45, 54, 57, 71, 78, 80, 92, 98, 122, 125, 139, 158, 168, 208, 224, 234–5, 239, 255 reality of situation (1960s) 26–7 ‘too small’ 141–55, 278–9 Unión Fenosa affair 200–1, 205 Zara-Inditex success factor 16–19 Galicia Industrial (1928) 17 Galician language 6, 9, 159 Gap 4, 7, 60, 184, 186, 238, 264–5 facts and figures 191–2, 269t market capitalisation 191 profits (2000) 274t Gapkids 191 garages 25, 31, 68–78, 101, 139, 220 start-up scenario 72–3 garments 12–13, 20–1, 23, 46, 51, 169, 217–19, 259 automatic folding and hanging plate three ‘back-of-wardrobe’ 220 ‘clothing’ x, 8, 14, 61, 105, 144, 168, 170, 202, 233

Index finishing machines plate two ‘hang’ 91 haute couture 57, 102, 277–8(n1) made-to-measure 61, 241 post-war era 55 prêt-à-porter 57, 102, 277–8(n1) process by which ∼ reach consumer 87 seasonal 144 tailored 175 turnaround rate 170 uniformity 56–7 variety sold 167 see also textiles Gartler, SL 251, 275n Gates III, W. H. (‘Bill’) 34, 73, 270t geography 29, 62, 107, 165 Germany 27, 79, 92, 136, 151, 154, 163, 192, 197, 220, 272t Gestal, L. 152 glassware 180 Global Reporting Initiative (GRI) 265 Apparel & Footwear Sector Supplement 264, 265 globalisation 18, 172 GOA 2, 11, 48, 81–3, 86, 94, 105, 118, 149–50, 160, 201, 212; plate one ‘Confecciones GOA’ (1971–) 79, 273t ‘industrial production of clothing’ (1963–) 170 GOA Invest 224 Goasam (Zara España) 82–3, 149, 273t Gómez, L. 249 Gómez, P. 248 González, F. 143 González Romero, A. 277(n4) Google search engine ‘Zara’ versus ‘Inditex’ 2 government ministers 35, 36, 248 governments 159, 210, 248 Grease 122 Greece 127, 136, 153, 155, 272t ‘greige’ 117 Griffin Manufacturing (USA) 245 Gruppo Percassi 263 Guatemala 272t Gucci 155 Guide, C. 105 guilty conscience 72

Habitat 155 hagiography 32 hairdressers/hair-dressing 170, 174 harassment 267, 268 hard discount concept 155 Havana 142 health and safety 267, 268

Hennes and Mauritz (H&M) Group 150–1 facts and figures 269t market capitalisation 191 miscellaneous 4, 7, 51, 129, 130, 186, 234, 265 profits (2000) 274t Hermanos de Sangre (Smith, 2007), 280(n3 to ch15) Hewlett-Packard 73 hierarchy 216, 244, 280(n3 to ch14) Hijos de J. Barreras 95 Hilados y Tejidos Vilasante (1907) 17 Hinojosa family 151 Hipercor 76 Hispanic people (USA) 159 historical moment 67 history, ‘supplied by social elites’ 72 holding companies 248, 255 holidays 123, 252 home delivery 136 home working 21, 96 homeware/household articles 135–6, 164, 168, 180–1 homewear (clothes) 151, 178 Honduras 245 Hong Kong 90, 140, 220, 272t Houpt, S. 278(n1 to ch5) housing 104 Hugo Boss 155 human resources 51, 226–9 in-house promotion 226 turnover rate 227 human rights 264, 267 Hungary 151, 272t Hutchison-Whampoa 270t hypermarkets 76, 79, 102, 107, 154, 170, 182 Ibercaja 134 Iberclear 196 Iberia [airline] 2, 120 Iceland 272t idealism 33 ideas x, 27, 29, 32, 53, 69–70, 78, 89, 115, 121 conversion into reality xii, 20, 55–6, 66, 68, 113, 216 gestation (chapter three) 54–67, 277–8 implementation problems 62 ‘successive steps’ 66 Ikea 270t Ikks 155 image/reputation 82, 91, 106, 118, 126–7, 144, 156–7, 168, 179, 233, 235, 238–9, 264, 266 Imaz, J. 183 immediacy 107 imports 158 income 63, 278(n5)

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288

Index India 93, 165, 220 Inditex see Zara-Inditex individualisation 26 individuals 29 Indonesia 272t industrial accidents 238 industrial reconversion (1980s) 94–5 Induyco plants 92 inertia 211 inflation 105, 148, 279(n3 to ch9) information 87–8, 106, 111, 214, 217–18, 220, 221, 241, 264 corporate maxim 232 information collectivisation 89 information technology (IT) 86, 92, 201, 221–2 infrastructure projects 91 inheritance xiii, 251 see also Ortega/succession issue Initial Public Offerings Cortefiel (2006) 151 Fadesa 280(n4 to ch14) Inditex (2001) 3, 186, 279(n1 to ch12) Inmaculada 134 innovation 15, 23, 56, 63, 65, 129, 135, 181, 240–1 inspectors 97–8, 123 insurance 131 intellectual property 23, 66 Interbrand 277(n2) interest rates 82, 125, 230 interior design 4, 171, 224 internal market (Europe) 86 International Labour Organisation (ILO) 264 internet 10, 72–3, 88–9, 136–7, 232, 271t internet service providers 208–9 interviews xiii–xiv Intimissimi 155 intranet 50 inventory 106, 128, 146, 154, 195 just-in-time system 124 see also shops/deliveries Inversiones Ibersuizas 207 investment 18, 50, 117, 198, 263 investment banks 194 investment funds 24, 151, 196, 208 investors 11, 49, 186, 197, 274t Investrónica 92 iPhone 2 Ireland 136, 272t ironing 13, 97; plate two Isla, P. 22, 204–5, 210–11, 212, 216, 221, 225, 231, 244, 252, 275t; plate nine Israel 272t Italy 117, 125, 136, 163, 220, 224, 263, 272t

Japan

9, 75, 83, 127, 163, 192, 272t; plate seven jeans 183–4 Jesuits 125, 249 Jiménez, M. 255 Jordan 272t José María Ruiz Mateos: El último magnate (Ekaizer, 1985), 279(n2 to ch9) Jové [Ortega], Josefa/Josefina (‘Pepita’; sister to Ortega) 26, 31, 40, 47, 79, 82, 190, 248 shareholding in Zara-Inditex 272–4t Jové, Manuel 205 Jové, María José (niece to Ortega) 248 Jové, Miguel (spouse of Josefa) 26, 248 Jové, Miguel (son of Miguel and Josefa) 248 JP Morgan 81, 207 Juan Carlos, King (1975–) 36, 148 Juego-Las Vegas 270t just-in-time production 108, 124, 138, 195 Kamprad, I. 270t Keblar (company) 254–5 Kiddy’s Class 3, 4, 135, 172, 177–8, 259 business concept 260 facts and figures 178 Spain and Portugal 178 knitwear 5, 87, 172 Koplowitz family 34 Kuwait 172, 244, 272t La larga marcha (Estefanía, 2007), 277(n6) La Maja (shop) 26, 31, 32, 47, 57, 68–71, 74, 78, 99, 101, 113, 122, 150 labour 46, 98, 148, 233, 236, 242, 265 ‘forced labour’ 234 see also child labour Langhammer, H. 273t language 136, 160, 181 Galician 6, 9, 159 Latin 181 Portuguese 159 Laos 239 Latin America 154, 164–5, 254 Latvia 272t law 8, 96, 98, 178, 188, 233, 236, 239, 264, 268 lawyers 22 leadership ‘more personal than functional’ 216 leasing 171, 236 leather 87, 133, 164, 169, 172, 181 Lebanon 79, 272t Lefties 182–3, 184 legal context 95–7 legend effect 21

Index legends 11, 12, 20–1, 29, 30, 36–7, 39, 41, 44, 46, 107, 113, 125, 143, 253, 257 see also Ortega mystery leisure wear 176 see also sportswear León 4, 57, 92, 135, 172, 183, 221 León province 30–1, 146 Levi Strauss 265 Li Ka-shing 270t LID iv, xiv Lidl 155 life expectancy 247 lifestyle 103, 106, 173 lingerie 151, 153, 178 liquidation 18, 172, 196 literature ix, 72, 243 ‘dying of success’ 199 economic policy 277(n6) entrepreneurial 141 Lithuania 79 litigation 80 livestock 16, 17, 27 Lleida 235 loans 81, 86, 96, 127, 205, 263 lobbying 188 Loewe 156 logistics 220–2 annual statistics (garments handled) 140 basic Zara pattern 130 garment location or rotation 89 immediacy 222 marrying production and distribution 129–40 miscellaneous 7, 22, 24, 66, 80–1, 91, 93, 97, 99, 110, 124, 146, 155, 169, 172, 174–5, 266, 270f shocks 222 specialisation by destination 133–4, 135 trans-Atlantic 162 see also distribution logistics centres/distribution centres 4, 5, 12–13, 137–8, 140, 176–7, 181, 221 ‘warehouses’ 11, 129, 212, 218, 252 London 162, 197, 207, 249, 280(n2 to ch16) López, Fr J. 94, 96 López Rodó, L. 26 lorry fleet/lorries 131, 137 Louis Vuitton 270t loyalty 88, 212 loyalty cards 127 Luen Thai Holding (company) 245 Lugo 181 Luxembourg 136, 272t luxury 160 Luxury Liberty 152 Luzón, F. 273t, 275t

Madrid

1, 9, 23, 36, 38, 41, 134, 140, 146, 188, 197, 208, 227 first Zara shop (1981) 271t Madrid: Barajas airport 135 Madrid: Ciudad Financiera 254 Madrid: Madrid: Meco distribution centre (2007–) 4, 12, 135–6, 172, 180, 221 internet sales 136–7 specialisation by product line 135 Madrid: Móstoles 155 Madrid: Preciados (street) 142 Madrid: Stock Exchange 152, 247, 255, 277(n2 to ch2) Ibex 35 index x, 194, 232, 250, 257, 279(n3 to ch12) Inditex flotation 185–92, 279; plate eight market expectations 194–5 ‘magic mirror’ 128 Málaga 151 Malaysia 272t Malta 272t management model 214–46, 280 management style 211 ‘3.14 (Pi)’ 212 management system 19 management theory 19–20 managers 6, 46, 123 see also top management Mango chain (1984–) 2, 7, 153–4 Mangoshop (e-commerce channel) 154 mannequins (in shop-window) 123 mantras/maxims ‘behind great fortune lies great crime’ (Balzac) 45–6 ‘information exists: share it’ 232 ‘la arruga es bella’ 152 ‘success in past does not guarantee success in future’ 231 see also Ortega/maxims manufacturers 74, 76, 90, 107–9, 113, 114, 177, 264–5 manufacturing 4, 13, 20, 38, 56, 58–9, 66, 69, 75, 77–8, 106, 112, 117–18, 125, 131–2, 146, 153, 169, 192, 202, 219, 221, 230, 239, 241, 265 ‘becomes industrial’ 79–101 for third parties 141, 150 manufacturing capacity 82 Marbella 43, 179 March family 34 market analysis 163 market niches/gaps 58, 68, 173 market opportunities 157, 162 market research 179 market response 56 market saturation 167 market share/position 15, 22, 63 market signals 66, 214, 220

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290

Index marketers 89, 90, 218 marketing 5, 6, 8, 10, 15, 41–2, 45, 47, 58, 65, 76, 79, 84, 89, 97, 99, 122, 138–9, 150, 169, 194, 221, 225, 237 ‘central hub’ of Zara-Inditex 217–19 ‘start and finish of everything’ 102–11, 278 markets 60, 230, 240, 259, 270f differentiated 118 new 217, 245 ‘nothing educates more than ∼’ 45 open 18 targeted 147, 218 Marks & Spencer 265 Martinsa 280(n4 to ch14) mass production 83, 102, 106, 241 Massimo Dutti (1981–) 174–6; plate six antithesis of Zara’s usual corporate philosophy 175 business concept 259 corporate philosophy 145, 175 facts and figures 175 miscellaneous 3–4, 119, 137, 151–2, 163, 177 staged takeover by Zara-Inditex (1991, 1995) 133, 144–5, 174, 271t Matthews, R. 278(n4) Meco see Madrid media 11, 30, 34, 41, 49, 73, 119–20, 188, 191, 194, 210, 232, 234–6, 238, 255, 280(n6) men/men’s wear 144, 151–3, 155, 170–1, 175–6, 178, 259 Menor, J. A. xiv Mera Goyenechea, Rosalía (first wife) ‘born in 1944’ 47 marriage to Ortega (1966) 47 miscellaneous 26, 31, 77, 84–6, 187 separation/divorce from Ortega (1986) 42, 46–7, 48, 84–6, 205, 206, 248 shareholding in Inditex 272–4t withdrawal from business (1973) 47–8 Mercedes Benz 129 Merkacalzado 155 Mexico 39, 114, 127, 153, 163, 172, 174, 272t Miami 161 Microsoft 73, 270t Middle East 3, 12, 118, 133, 140, 165, 172, 177 middle management 226 middlemen 14, 33, 45, 56, 58–60, 64, 112, 230 migration 16, 95, 142 internal and external 27 rural-urban, centre-coast 104 Milan 9, 159; plate six Milano 151–2 Millar, I. 273t, 275t Mittal, L. 270t

mobile telephone 89–90 model for management (chapter fifteen) 214–46, 280 modernisation 18, 96 Monaco 272t Moncloa Pacts (1977) 103 money 40 money-laundering 20, 235 Morocco 90, 92–3, 151, 177, 272t ‘north Africa’ 97 production processes 98 Zara-Inditex production 271f Moscow 149 motivation 60, 95, 113, 117, 121, 216, 225–9 Mountleigh 143 MSN 277(n1) multibrand businesses 126, 152–3, 182 multiconcept model 15, 151, 166, 168 Multi-Fibre Agreement 264, 265 multinational corporations 242, 264–5 music 122, 174, 177 Myrurgia 152 N&B 126 narcotics 20, 46, 125, 235 Narón (Ferrol) 4, 5, 133, 140 National Institute of Industry (INI) 95 National Statistical Institute (INE) 136–7, 247, 280(n1 to ch16) nationality 266, 268 Navarro Rubio, M. 26 Netherlands 136, 154, 181, 233–4, 272t Netjuice 208–9 New Jersey 159 New York 9, 62, 156, 159, 197, 272t New York: Manhattan 157, 159, 160–1, 181–2 New York: Tribeca 181–2 New York: Queen’s 159 New York: Zara store (1989–) 157, 159, 160–1; plate ten ‘Newton’ 89 NGOs 183, 237, 239, 265 ‘NIC 14’ 263 niche markets 145 nightwear 178 Nike 236, 265, 280(n3 to ch15) Nikole 273t Nikole factory (1982–) 83 Nîmes School 105 Nintendo 2 no-name brands 65–6 Noa 155 Noite (Oysho España) 83, 273t Nokia 227 ‘normal’ versus ‘strange’ 52–3 Norway 272t Nueno, J. L. 280(n1 to Epilogue)

291

Index observation 54 public meeting places 87–8 Often 183 oil 17, 147 Old Navy Store 191 Oman 272t Oporto (Portugal) 45, 140, 158–9, 272t first customers of Zara (1988), plate four Options Plan 190 Opus Dei 26, 125 Ortega [Gaona], Amancio (b 1936) character/personality anonymity/privacy 21, 30, 34, 35–6, 41–2, 51–2, 187–8, 202, 255 aversion to air travel 36–8 capacity to grow 40 charisma 45, 122, 244, 253 dedication 77 determination 159 dress 5, 43 freedom 187–8 frugality 41–2, 43 humility 43, 52, 198–9 ‘indecisiveness’ 186 lack of holidays 43 mentality 42 miscellaneous xiii, 32–3, 34, 36, 243–4, 246, 253 ‘modesty’ versus ‘guilt conscience’ 43 ‘not really interested in money’ 40 ‘rarely interviewed’ 49, 51 tenacity 68 will-power 77–8 business life CEO crisis 200–13, 279–8 challenges 39–40 concentration on profit margins 240 daily routine 30, 35, 252–3 ‘decisive circumstance’ 142 delegation 121–2 ‘direct relationship’ with customers 56, 73 dividend income 198 does not aim to ‘democratise fashion’ 49, 60–1 expectation of colleague-loyalty 198 fear of loss of control 187 ‘how and where to start’ 57 idea of opening his own shop 107 implementation of decisions 39 ‘inspiration’ 107 leadership 246, 253 ‘less hands-on’ involvement 253 management style 39, 44 manufacturing and selling (idea) 59 mortality 243 ‘never attends shareholder meetings’ 34, 41, 49

office 10–11 opportunity to buy Galerías 144 overseas expansion 156–66 perception of Zara-Inditex as family business 206–7 reaching the customer 59 reduced to minority-shareholder status within Zara (1984) 84–5 role of shop in strategic vision 62–3, 107, 118–19 secrets of success 91 share-ownership 86, 273–5t shortage of funds 71, 78, 86, 113 succession issue 25, 35, 186, 206–7, 243, 246, 247–56, 280 transformation from employee into entrepreneur 68 ‘walkabout’ habit 10, 34, 35, 45, 90 see also shops; Zara-Inditex family family background 30–2 family life 46–8 grandchild 248 marriage to Flora (2002) 48 marriages and children 24 maternal influence 35–6 separation/divorce from Rosalía (1986) 42, 46–7, 48, 84–6, 205, 206, 248 unpleasant situations 46–7 life background 29–53, 277 ‘Cholo’ nickname 30 early career 32, 51, 54–67 education 32 friendship 35, 43–4 health 209, 247, 250 lack of formal training 40, 60 origins 30–1, 35–6, 112 investments 188, 254–5 personal fortune 255; see also Forbes maxims ‘act before it happens’/‘stitch in time saves nine’ 229, 234 ‘everything can be improved’ 92 ‘factories must produce what customers want’ 105 ‘getting it right first’ 104 miscellaneous 39, 40, 50–1, 91, 105, 112, 137, 246 ‘must have shops outside Spain to compete’ 156 philosophy 49–51, 277(n4 to ch2) price and reliability 74 ‘spend the dollar, save the cent’ 40, 91 ‘yes, you can!’ 39, 160 miscellaneous x–xiii, 4, 6, 7, 12, 19–22, 24–6, 56–7, 68, 75, 79, 82, 106, 139, 146, 194, 197, 272t; plate eight

292

Index Ortega [Gaona], Antonio (brother; d 1987) 11, 24, 26, 31, 47, 56–7, 70–1, 73, 75, 77, 79, 82, 86, 99, 146, 160, 248 father-in-law of Rodríguez-Cebrián 203 Ortega [Renedo], Dolores 248, 272n, 274t Ortega [Pérez], Flora (second wife) 35, 42, 47, 201, 206–7, 248, 275t, 280(n2 to ch14) married (2002) 48 took up seat on board of directors (2004) 48, 205 Ortega [Gaona], Josefa (sister) see Jové [Ortega], J. Ortega [Pérez], Marta (daughter, b 1983) 249–50 education 249 miscellaneous 24, 30, 34–5, 42, 48, 173, 206–7, 247, 256, 280(n2 to ch16) shareholding in Zara-Inditex 274t Ortega [Mera], Marcos (son, b 1971) 47, 206 Ortega [Gaona], Pilar (sister, d 2000) 31–2, 248 Ortega [Renedo], Primitiva 26, 272t began as a dress-maker 93–4 shareholding in Zara-Inditex 248, 274t spouse of Antonio 68–9, 77 Ortega [Mera], R. see ‘Mera Goyenechea, Rosalía’ Ortega [Mera], Sandra (daughter, b 1968) 35, 47, 206, 248, 274t Ortega mystery 8–9, 21–2, 24, 28–30, 32, 36, 71, 121, 230 see also legends ortegology 36 Ortiz-Villajos, J. M. 278(n1 to ch5) Ourense [Orense] 42, 152 outlet sales business 134 outsourcing 66, 93–4, 98–9, 109–10, 129, 135, 158, 169–70, 174–5, 177–80, 192, 227, 235, 239, 242 overcoats 79 OXFAM 265 Oysho chain (2001–) 3, 4, 133, 137, 178–9, 259 business concept 260 choice of name 126 facts and figures 178 first shop (2001) 271t PAI (investment fund) 151 Paideia Foundation 47, 187 Palafolls (logistics platform) 137 Panama 272t Papeles de Economía Española (Alcaide, 1992) 278(n3 to ch6) Pardo Bazán, E. 27 Paris 9, 36, 62, 140, 156, 159, 249, 272t Paris: Champs Elysées 253

Paris: Opera House 157, 160 Paris: Zara store plate five Parmira (investment fund) 151 Partler, SL 251, 275n partners 83, 86, 114, 267 external 81, 84–5 passers-by 22, 23, 37, 38 payment policy Inditex code of conduct 268 Pazo de Meirás 27 Pazo O Drozo 203 Pedro del Hierro 152 Pepín Fernández 1891–1982 (Toboso, 1995) 278(n1 to ch9) perception 73, 106–7, 138, 175, 179, 208, 238, 251 Pérez, F. see Ortega, F. perfection/perfectionism 7, 12, 23, 40, 101, 138 perfume 90, 152, 171–2, 259 Pernas, A. 153 perpetual crisis principle 215 Persian Gulf 127, 153 personalisation 25, 51, 243 personalities 29–30 personality 203, 246 Peru 238, 280(n5 to ch15) peseta 103 Peter Principle 203, 280(n3 to ch14) philanthropy 73, 187 Philippines 272t physical principle of equilibrium (keep on pedalling) 85 piecework methods 21, 96 Pino, R. del 270n Pisco (Peru) 238, 280(n5 to ch15) Plataforma Logística de Zaragoza (PLAZA) 134 Plus (foodstuffs) 155 Poland 272t politics/politicians x, 33, 35, 41, 268 Polo, C. (wife to General Franco) 143 Ponte Gadea (portfolio company) 254 Pontegadea Inmobiliaria (portfolio company) 254 Porsche 43 Portugal 45, 92–3, 96, 98, 103, 134, 136, 153, 155, 160, 162, 175–6, 234, 271f, 272t post-war era (1945–) 54–5 poverty 16, 22 power (economic/political) ix, 72, 217, 218 power companies 194, 200–1 power ideas 29, 66 power stations 1 power struggle 21–2 Prada 156 Preferential Agreement (Spain-EEC, 1970) 103

Index Prenatal 155 price xi, 14, 51, 55–8, 60–1, 65, 75–7, 80, 84, 88, 96, 107, 116, 118, 124, 153–8, 161, 163–4, 170–1, 173, 175, 177, 180–1, 183, 237, 241, 259 affordable/competitive 62, 74 fixed 66 impact of introduction of euro 110 ‘market lever’ 64 working backwards to ‘production cost’ 69 price-earnings rate (PER) 192, 194, 279(n7) price-margin-cost chain 74 price-quality balance 66 price-setting variability in different national markets 110–11, 278(n5) working backwards 109–10 Primera Coruñesa (1872) 17 Prisa group 277(n4 to ch2) product strategy 145 product type 163 production flexibility 241 just-in-time model 83–4 married with distribution 129–40 miscellaneous 41, 45, 60, 68, 73, 92–3, 98–101, 107–8, 112, 122–4, 151, 174–8, 180, 202, 214, 240, 245, 270f proximity 158 sourced from third parties 169 production capacity 85, 86, 115 production chain 276f production costs 64–5, 69, 95, 109, 116, 219, 230 developing countries 158 reduction 109–10 variable 242 production plants 7, 12, 13, 133, 232–3 production process/methods 15, 21, 58, 70, 75, 87, 116, 131; plate three rationalisation 57 productivity 97 products 137, 217, 223, 236, 252 consumer-response 240 ‘personality’ 106 standardisation 119 useful ‘life’ 65 professionals 121, 224 profit margins 56, 69, 75, 84, 107, 223, 225, 237 middlemen 112–13 retail 62, 64 profitability 83, 109, 119, 144, 198, 223, 225, 231, 254 profits ix, 3, 7, 19, 47, 84, 185, 195, 198, 263, 279(n7) foregone 12, 108, 131 middlemen 116 re-investment 81, 84, 113

protectionism 72 proximity production 239 Pryca 76 PSOE [Partido Socialista Obrero Español] [95], 143 psychology 22, 47 Public Invitation to Bid (PIB) 274t public money 100 public relations 234 public sector 94–5 public services 17 publications 87 Puerto Rico 272t Puig group 90, 152, 172 Pujol, J. 20, 46 Pull and Bear chain (1991–) 3–4, 133, 165, 176, 183, 238, 259; plate six business concept 260 facts and figures 176 first shop (1988) 271t Puma 280(n3 to ch15) punctuality 74 Punto Roma 155 purchasing 58, 91, 106, 137, 145, 169, 218, 219–20, 237 purchasing power 76, 115, 168, 220, 236–7 pyjamas 82 Qatar 272t quality xi, 14, 55, 57, 62, 64, 66, 69, 73–4, 88, 91, 98, 107, 124, 154, 156–8, 161, 164, 170–1, 173, 175, 177, 180–1, 237, 259 quality control 13, 97, 219; plate three quilted cloth 69 quota system 265 race 267–8 railways 1, 30–1, 36, 131, 140, 160 high-speed train 134 raincoats 153 Ramón Cajal 188 ‘Raquel’ (PA to Ortega) 89–90, 244 raw materials x, 17, 24, 70–1, 75, 96, 99–101, 125, 137, 140, 146, 175–6, 219–20, 230, 265 real estate 4, 38, 143, 171, 205, 224, 236, 254, 277(n2 to ch2), 280(n4 to ch14) Real Madrid 2, 280(n2 to ch14) reality xii, 15, 20–2, 26–7, 32, 44, 51, 53, 55–6, 58, 60, 63, 66–8, 72, 87, 94, 100, 113, 143, 162, 165, 172, 182, 186, 193, 197, 206, 216, 223, 229, 236, 250, 253 Reduce 3 plan (2006–8) 225 reductionism 237 regional governments 20, 46, 96, 135

293

294

Index Regojo group 18 reliability 73, 74 religion 266 Renedo Olivares, P. see ‘Ortega [Renedo], Primitiva’ rent 39, 47 reputation see image responsibility 50, 217, 244 restructuring 18, 141 retailers/retailing 56, 59, 74, 86, 94, 107–9, 124, 240, 274t retirement 198 pensions 196 Return on Capital Employed (ROCE) 263 reward systems 227–8 risk xi, 29, 32–3, 56, 71, 84, 108, 111, 120, 146–8, 168, 171, 192, 199, 214, 218–19, 237–8, 240, 259 roads/motorways 1, 134–5, 139–40, 146 Roberto Verino 17 robots 70, 83, 84, 87 ironing machines 13, 97; plate 2(b) Rodríguez Braun, C. ix–xi Rodríguez Cebrián, J. C. 202–3 ‘all-terrain operator’ 206 departure (2005) 204 miscellaneous 22, 134, 190, 195, 208–9, 211–12, 248, 252 share options 273t shareholding in Zara-Inditex 274t Rodríguez Inciarte, M. 200 Rodríguez Zapatero, J. L. 35 Romania 93, 98–9, 183, 272t Rosalía Mera and Sons Investment Company 275n Rosp Corunna 275t Ruiz Mateos, J. M. 143 Rumasa (Díaz González, 1983) 279(n2 to ch9) Rumasa Group 143 rumour 46, 48, 52, 210, 233, 234–5 Russia 165, 272t Sada (A Coruña) 27 Saint Laurent, Y. 57, 102 salaries 84, 121, 228 Salem (Massachusetts) 106 sale-or-return system 118 sales direct 33, 77, 85 discounted stock clearance 74, 106, 111, 119, 134–5, 154, 172, 182–3 effect of season 138–9 internet 136–7, 271t lost 12, 74, 219 miscellaneous 12, 21, 23, 79, 86–7, 112, 151, 164, 168, 170, 174–9, 185, 195, 202, 217, 223, 233–4, 269t

potential (versus production capacity) 115 undeclared 236 sales commissions (payment scheme) 149–50 sales data processing 89 transmission to head office 88–9 sales staff 106, 229 Salgado, J. 280(n1 to Epilogue) Sallent 4, 133, 137 Samlor 79, 82, 273t San Ciprián (Lugo) 27 San Francisco 161, 197 Santander Central Hispano Bank 190 Santiago de Compostela La Bacolla Airport 36, 140 Road to Santiago 35, 252–3 Sanxenxo marina 35 Sardá, J. 26 Saudi Arabia 272t Savar (Bangladesh) 238 scandals 191 sea/international waters 16, 20, 46, 137 seasons 116, 131, 138–9, 144, 157, 163, 174–6, 194–5, 218, 220, 240, 242, 259 Seat 2 Sederías Carretas 142 Seen in Zara 173 Segura, J. 277(n4) self-service 76, 102 self-start production 13 Senn, F. 278(n1 to ch7) Sepu 115 Serbia 272t sewing 93, 96 sex 266, 267–8 sexual orientation 268 Sfera chain (El Corte Inglés group) 153 Shanghai 90, 249 Shanghai 36 share options 186, 189, 190–1, 197–8, 204, 213 share prices 185 shareholders 79, 81–2, 84, 143, 152, 172, 187, 189, 201, 235, 248 Shaw, G.B. ix, x Shearman & Sterling 188 sheets 168, 180 shift system 5 shipbuilding/shipping 16–17, 27, 46, 95 shirts 18, 75, 82, 174–5, 183 shoes 133 shop layout 124, 126–7, 151, 170, 180, 192 shop location 37–8, 148–9 iconic areas and buildings 149, 171, 254, 279(n2 to ch11) miscellaneous xi, 39, 41, 62–3, 117, 118–19, 126, 150, 171, 223, 253 privileges accorded to Zara 148

Index shop size 124, 170, 171, 174–9, 223 shop staff 225–6 shop assistants 127, 227 shop managers 88, 139, 218 shopping centres/malls 126, 148, 171, 254 shops/stores 112–28, 141–55, 156–66, 262, 278; plates 4–7, 10 A Coruña (1975) 62 ‘aerials detecting directions of market’ 88 basic to Ortega business model 118–19 ‘competitive ingredient of crucial importance’ 63 cultural variations (world-wide) 127 customer-visits per year (Zara) 128 deliveries (twice a week) 13, 138, 146, 162, 172, 179, 217–18, 221; see also stock delivery cycles 139, 158 delivery times 99, 140, 174–5, 177 display window 6, 25, 122–3, 126–7, 156–7, 161, 170, 177 ‘essential part’ of business model 112, 115 family-owned 104–5, 116 first opening by Zara (1975) 81 high season 131 initial attempt ‘did not go well’ 63 inspectors 97–8, 97–8, 123 installation costs 82–3 just-in-time inventory 131 lifelong 114 ‘listening post in the market’ 62 miscellaneous 4, 9, 14–15, 24, 45, 48, 52, 55–6, 58–9, 75–6, 78, 84, 94, 102, 108–10, 140, 167, 173, 183–4, 191, 202, 219, 230, 233, 252, 259, 270f, 279, 280(n2 to ch16) new 224–5, 227, 236 ‘nothing but pure advertising’ 120 number of employees 229 opening (decision-making powers) 222–3 opening hours xi, 127 ordering items out-of-stock 127–8 organisation 22–3 payment by instalments 114 perpetual renovation 123 product visibility 126 profit margins 116 property purchase 83 records of customer reactions 217 response needs 129 sales data 88–9 sales per visit 23 small 104–5, 127 stock visibility 124 supply of garments 98–9 testing 12 traditional 124 trial 126

visibility 120–1 visitor-purchaser ratio (10:3) 123–4 see also boutiques Simago 115 Simorra 155 Singapore 157, 172, 272t Skhuaban 3, 177–8 business concept 260 France, Italy, Greece 178 slavery 46, 236 Slim, C. 34, 270t Slovakia 272t Slovenia 272t Smith, B. 280(n3 to ch15) social class 46, 63, 72, 104, 113, 147, 165, 275–6(n1) social justice 239 Social Security 20–1, 95, 235–6, 239 socialism 61 society 9, 267 socio-economic environment xiii, 26, 29, 55, 95–6, 98, 102–3, 105, 107, 147–8, 167–8, 197 Catalonia 235 Solchaga, C. 95, 278(n1 to ch5) South Korea 95, 165 South-East Asia 165 Southern Cone 164 southern hemisphere failure by Zara effectively to penetrate 163–4 Space 10 Spain attitudes towards success 256 ‘contributes nearly 40% of Zara-Inditex sales’ 164 degree of self-sufficiency in textiles 93 domestic consumption 75–6 economic crisis (1975–9) 148, 279(n3 to ch9) economic development (1959–73) 75–6 economic growth 147 EEC membership (1986–) 18–19, 86, 95, 103, 158–9, 277(n5) emergence from isolation 103 market ‘far from saturation 164 miscellaneous x, 1–3, 8, 10, 17, 114, 117, 127, 136, 139, 141, 146–9, 152, 155, 171–2, 175–9, 181, 197, 224, 233, 237, 242, 247, 249–50 return of emigrants (1980s) 95 socialist government (1982–) 95 self-sufficient system (1939–59) 103 ‘too small’ 156–66 Zara-Inditex production 271f Spain: Air Force 36 Spain: Department of Traffic 131

295

296

Index Spain: Ministry of Industry, Trade, and Tourism 277(n4) Spain: Supreme Court 235 Spain: Treasury 210, 235, 236 Spanish Association for World Agreement 266 Spanish Empire 26 Spanish Levant 90 specialisation 164, 168, 172, 181, 224, 226 Spectrum company 238 sponsorship 252, 266 sportswear 75, 82, 153, 176, 236, 280(n3 to ch15) see also leisure wear Springfield 151 Sprint (Ortega’s first shop, 1972–9) 114–15, 118–19, 124, 146, 170 Stabilisation Plan (1959) 26, 57, 103, 277(n6) standards (professional) 51 Starbucks Coffee 2 stock [goods for sale] 90 management 175–6 non-accumulation 230 renewal cycles 138, 154, 176–7, 218–19 replacements 219 unsold 108, 116, 182–3, 217, 218, 219, 240, 242 see also ‘shops/deliveries’ stock markets 24, 38, 254 expectations 185 Stradivarius chain 3, 4, 119, 127, 151, 153, 163, 176–7, 259 business concept 260 corporate philosophy 145 facts and figures 177 purchased by Zara-Inditex (1999) 133, 145, 176, 271t street markets 154, 183 style 5, 57, 63, 176 Suárez, A. 18 sub-contracting 239, 268 sub-prime mortgages 255, 277(n2 to ch2) sub-Saharan Africa 237 sub-tropical areas 163 subsidiary companies 4, 87, 133, 162–3, 201, 220 see also Zara-Inditex chains subsidies 147 suburbs 104, 113 supermarkets 102, 114 supervision and compliance Inditex code of conduct 268 suppliers blacklists 237–8 categorisation 237 code of ethics 236–7, 263–4, 280(n4 to ch15) external 132 Inditex code of conduct 266–7

miscellaneous 6, 24, 56, 69–70, 75, 77, 84, 90–2, 101, 109, 115, 117–18, 125, 169, 174–7, 180–1, 183, 220, 233–4, 265 ‘regarded more like partners’ 88 treated as ‘partners’ by Zara-Inditex 74 supplies 106, 180, 225, 236, 239, 259 external 221 immediacy 219, 221 supply 61, 66, 70, 100, 104, 163, 214, 217 fine-tuning 167 speed 88 see also ‘shops/delivery times’ supply and demand 95, 106, 167, 240 sustainability indexes 265 Sweden 136, 150–1 swimwear 178, 260 Switzerland 27, 154, 249, 272t Tabacalera 210 tailors 61, 241 Taiwan 245 takeovers 141, 144, 174–5, 176–7 Tangier 92, 98 taxation 20, 51, 162–3, 191, 198, 235–6, 251, 263 technology 15, 65, 95, 181, 240–1 telecommunications 89, 218 Telefónica 120, 191, 194, 210 television 103 Televisión Española (TVE, 1956–) 278(n1 to ch6) Telmex 270t Tempe 87, 133, 169, 181 footwear and leather goods 90 Textil Rase (Cardedeu) 100 textiles 2, 4, 16–20, 27, 31, 45, 99, 105, 168, 240, 252, 259, 265 first-class 164 world production 93 see also fashion TGT (interactive touch screen) 232 Thailand 272t Thomson, D. 270t tills 12 Timberland 265 time xii, 7, 10, 13, 23, 27–8, 33, 35, 40, 52, 62, 66, 77, 82–3, 88, 93, 98, 118, 121, 122, 126, 129, 137–8, 149–51, 171, 174, 193, 199, 210–12, 243, 255 time-to-market 117 Times (London) 49, 277(n3 to ch2) Toboso, P. 278(n1 to ch9) Tokyo 9, 23, 88 Tokyo: Mitsukoshi commercial centre 128 Tokyo: Zara store plate seven Toledo 35 Toledo: Seseña 155

Index Tommy Harrods 153 top management 200–13 ‘bitterness and alienation’ 213 departures 211–13, 221–2 Massimo Dutti 174–5 miscellaneous 5–6, 11, 15, 42, 50, 120, 142, 151, 159, 178, 180, 185, 190, 197, 223–4, 226, 243–4, 248, 251, 256, 279–280 source of friction 232 Stradivarius 177 veterans 211, 212, 213 Topy Top factories 238 Tordera see Barcelona Tortella, G. 277(n6) tourism 19, 103, 278(n2 to ch6) towels 168, 180 Toyota 15, 83 trade unions 95–6, 237–8, 265, 267 trafaluc range 171 training 6, 206–7, 226–7, 251–2 transparency 11, 21, 89, 196, 222, 231, 258 travel/transportation 1, 127, 139 Tribeca 181–2, 271t Trisko 273t Trisko factory (1983–) 83 tropical areas 163 trousers 79 trust 24, 44, 50, 71, 74–5, 78, 115–16, 211, 244, 252 Tunisia 272t Turkey 90, 93, 98–9, 271f, 272t Ullastres, A. 26 UN Convention on Rights of Child 267 uncertainty xi, 68, 214, 243 post-Franco era (anticipated) 147–8 underground economy 20, 26, 96, 235–6 underwear 153, 178 unemployment 16, 21, 95, 148 Unicem (brand) 17 Unión Fenosa 1, 200–1 205 United Arab Emirates 272t United Kingdom 129, 136, 143, 192, 197, 272t United States of America 4, 27, 73, 76, 105–6, 136, 160, 191, 197, 237, 245, 254–5, 277(n2 to ch2) ‘American dream’ 72 ‘deep America’ 161 US dollar 7 ‘work in progress’ (for Zara-Inditex) 161 Zara-Inditex expansion into ∼ (1988) 272t see also ‘America’; Gap universities 50, 51, 73, 203, 266 Urgoiti, J. M. 273t, 275t Uría & Menéndez 188 Uruguay 272t Uterqüe 155, 164, 181–2, 271t

Valencia 145, 271t Valenciana de Negocios 152 Valentino 155 Valladolid 31, 57 Valls Taberner, L. 40 Valoria (Valladolid) 35–6 Valoria (yacht) 35, 42, 43, [253] value-creation x variable yield markets 48, 197–8, 279(n1 to ch13) VAT 235 Vázquez, J. L. 275t Vecino, J. M. 80 Venezuela 143, 272t Vermont 245 vertical integration 112–28, 152 Vicente Romeo 17 video-conferencing 232 Vigo (Pontevedra) 27, 48, 95 Villalonga, J. 191 VIPS 114

wages/wage-earners 32, 105, 148, 236, 238, 267 wealth ix, x–xi, 197–8, 213 weather 1, 138 ‘climate’ 153 impact on Inditex share price 194–5 unseasonal 242 websites 4, 10, 170 Bershka 174 CNMV 279(n1 to ch13) El País 280(n3–5 to ch16) Ethical Trading Initiative 264–5 Gap 269t GRI 265 H&M 269t Inditex 170, 266, 269t INE 280(n1 to ch16) Kiddy’s Class 178 Massimo Dutti 175 Multi-Fibre Agreement 265 Oysho 178 Pull and Bear 176 Stradivarius 177 sustainability indexes 265 Zara 4, 170 Zara Home 179 Wheatcroft, P. 49 wholesalers 59, 74–5, 77, 79, 94, 107–9, 116, 149, 153 Why Great Companies Never Try to Be Best at Everything (Matthews and Crawford, 2002) 278(n4) Wii 2 ‘woman’ range 171

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298

Index women equal opportunities 266 expectant mothers 171, 259 housewives 21, 70, 75, 93, 95, 104, 179 miscellaneous 10, 16, 25, 64, 69, 94, 102, 119, 127, 145, 152–3, 155, 157, 173, 175–8, 183, 193, 222; plate two ‘new type’ 103–4 perception 73 professional 171 taking their place in workforce 61 targeted by Zara 171 Women’s Secret 151 working backwards price-setting 109–10 see also copying working conditions 238–9, 264 workshops 20–1, 73–5, 92–3, 95–6, 98–9, 110, 220, 234–5, 239, 264 woven yarn fibre 276f X-Dye 184 Xunta de Galicia (regional government)

96

Yahoo! 277(n1) Yale 153 yarns and fibres 17 youth/young people 104, 122, 144–5, 151, 173–4, 176–7, 259, 260 Zamora 157 Zara (1975–) 170–3 advanced party 166 aspects of ‘no-name-brand’ concept 65–6 ‘being with’ versus ‘working for’ ∼ 228 business concept 58, 259 capital 20 central services act also for all the other Inditex chains 172 chain philosophy 82 clothing manufactured by third parties 87 ‘concept takes shape’ 79–101 cut-price image 82, 126 definitive concept 81 derogatory imputations 57 export markets 79 finance 125 financial data 170, 269t, 279(n1 to ch11) financial restructuring 85 first international customers (Oporto, 1988) plate four initial expansion outside A Coruña 37–8 integration of production and distribution 58 logo 2, 34, 38 low-price policy 158 meaning in Quechua language 125 mortgages on group assets 81, 82, 86

multiconcept model 150 number of shops (2007) 170 opening of first shop (1975) 81 origin of brand name 125 originality 60 ‘patterns drawn by hand’ 92 payment system (management of working capital) 125 ‘personal face’ 30 physical space 79–80 rapid response model 146, 158 Rubicon-crossing (1983–5) 81–6 sales (1974) 79 sales area 170 second shop in A Coruña (1975) 148 sells only company’s own manufactures 167 shops 112–28, 278; plates 4–5, 7, 10 sources of inspiration 23 success factors 62 trade mark problems (Italy) 125 treatment of suppliers 125 turnover (2006–7) 170 twenty-four shops by 1984 85 see also Zara-Inditex ‘Zara’ (‘Caspian Sea’) 125 Zara [Zadar] (Croatia) 125 Zara: El modelo de negocio de Inditex (Fábrega, 2004) 280(n1 to Epilogue) Zara: Fast Fashion (Nueno) 280(n1 to Epilogue) Zara arquitectura 2005 (Zara Architecture Study/Inditex Communications Section, 2006) 279(n2 to ch11) Zara brand 257 Zara Deutschland 263 Zara Home (2003–) 3, 4, 135, 164, 172, 179–81, 259 ‘dressing the home’ 168 facts and figures 179 first shop (2003) 271t first shop in Marbella (2003) 179 internet sales (2007–) 136, 271t market reaction 179–80 strategic U-turn 180 youngest chain 136 Zara Poland 263 Zara Reduce 182 Zara Russia 263 Zara Spain 266 Zara style 172–3 Zara-Inditex (Zara 1975–; Inditex 1985–) activity by segments (2005–6) 263 AGMs 24, 34, 41, 49, 186–7, 189, 196, 239 annual accounts 196–7 annual reports 94, 232, 257 ‘board of executors’ (idea) 256 business committees 223, 231 business concepts: classification 259–260

299

Index business trajectory 87 capital 189 car-sales branch 168 ceased manufacturing for other companies (1987) 82, 87 ‘central hub’ (marketing section) 217–19 CEO crisis 200–13, 279–280 challenges 39–40, 165, 168 clothing manufactured by third parties 87 commercial strategy 90 complexity 139 ‘concept takes shape’ 79–101 concepts 148 ‘constant re-invention’ 246 continuity 142 corporate culture/philosophy 6, 8, 12, 14, 16, 50–1, 65–6, 108, 120, 124, 129, 144, 166–9, 198–9, 208, 215, 216, 227, 246 corporate governance 231 corporate style 2 complexity 139 corporate memory 220 corporate philosophy 129, 166, 168, 169, 234 creation of Inditex (12 June 1985) 85, 201 CSR model 263–6 decision-making power 222–3 decisive moments 121 differentiation 58–9, 91, 122, 124 distribution model 165 diversification 168 dividends 40, 81–2, 84, 198, 275t DNA 25, 56, 63, 115, 139, 229–30 ‘does not advertise’ 119 ‘doubling in size every five years’ 141 early supporters 78 employees xiii, 5, 172 essential preconditions 81 essential principles 135 Europe’s No 1 logistics company 130 ‘exploitation’ allegations 20, 46, 97 facts and figures xiii, 3–4, 269t ‘family board’ idea 251 fiascos 183–4 financial statements 263 ‘first shop in new country bears Zara logo’ (rule) 172 first shop in A Coruña (1975) 62, 147, 278(n3) first shops 82, 109, 271t first shops outside Spain 156–66 flexibility 180, 214 floor space 3 fruit of shared work 43, 51–2 gestation 54–67, 277–8 group layout 189, 279(n4) growth imperative 50, 51, 76–7, 79, 81, 85, 108, 116, 126, 133–4, 139, 141–55, 156,

164–5, 167–84, 185, 194, 198–9, 221, 223, 225, 230, 260–2, 278–9 growth in own shops 262–3 ‘had to be there’ policy 162 head offices 1–2, 4–6, 30, 41, 45, 89, 139; plate one history/origins 14, 25–6, 71, 123 holding company in Netherlands (1991–) 162–3 improvement imperative 139 Inditex brand 13–14 instant response to customer-demand 229–30 internal communication channels 231–2 key moments (production process) 87 key to success 129 lack of information 256, 257 logistics (production and distribution) 129–40 market capitalisation 191, 193–4, 269t market-penetrations (complex) 163 milestones 271t ‘most convulsive stage’ 199, 200–13, 279–280 new markets, new countries 139, 162, 226, 230, 233, 253–4 ‘no share register’ 196 ‘not (so) vulnerable to economic cycle’ 241–2 number of shops 150, 170, 269t opportunity to buy Galerías 144 organic growth 141–2, 145–6 organisation chart 214–15, 216 overseas expansion 156–66 payment system 51, 230 payroll/number of employees 94, 212, 217, 228–9, 269t permanent testing 12 philosophy towards suppliers 88 pilot shops at HQ 6, 123 ‘planning’ versus ‘accident’ 60 possibility of bankruptcy 81–2, 125 problem-solving 229 production 82, 93 production map 271f production model 93, 172 production and sales policy 182 profits 269t, 274t profits: reinvestment 198 prospects 247–56, 280 public scrutiny 194; see also ‘Ortega/anonymity’ repurchased stock (shares) 186, 279(n1 to ch12, n1 to ch13) reliability 74 restructuring (post-Castellano) 255 rising profile 188 ‘room for improvement’ 138

300

Index Zara-Inditex (Zara 1975–; Inditex 1985–) – continued sales 21, 87, 269t scope for professional initiative 121–2 secrecy 142, 201, 204 secret keys 146 share capital 189 share options 273t share price 3, 194–6, 279(n6) shareholders 24–5, 30, 47–8, 196, 272–5t shareholdings (1992 rationalisation) 189 shop-opening rate 3, 139 staff cafeteria 25, 98, 118 staff turnover 98 stock-market flotation (2001–) 19, 40–1, 48, 81, 119, 122, 185–92, 208–9, 213, 247–8, 251–2, 254, 257, 279; plate eight stock-market flotation (effects) 34, 166, 185–6, 196–8, 215, 233 strategic correction 234 structural problems 225 supplier audits (in-house tensions) 237–8 systems renovation plan (2007) 222 takeovers 133, 142, 144–5, 174, 176, 271t ‘Ten Commandments’ 199 territorial diversification 241–2 thinking big (Galicia ‘too small’) 141–55, 278–9 thinking big (Spain ‘too small’) 156–66 trade mark names 125–6 trajectory 73 trial-and-error mechanism 115 turnover xiii, 269t vertical integration 112–28 veteran staff 229 visibility 202 vision 15, 27–8, 149, 230 see also GOA Zara-Inditex: Appointments and Remuneration Committee 190, 231 Zara-Inditex: Auditing Committee 231 Zara-Inditex: Board of Directors 24, 41, 48, 131, 169, 187, 190, 196, 199, 203–5, 222, 248, 256, 263–4, 273–5t executive committee 231 Massimo Dutti 145, 175 Zara-Inditex: Codes of Conduct 266–8 External Manufacturers and Workshops 267–8 In-house 266–7

Zara-Inditex: Communications Section 279(n2 to ch11) Zara-Inditex: management committee 231 Zara-Inditex chains 167–84 garments returned by customers 134 ‘have not dared (except Zara) to open in USA’ 161 head offices 12, 14, 71, 133, 217–18, 226 Kiddy’s Class/Skhuaban 177–8 Massimo Dutti 174–6 miscellaneous 2, 15, 37, 50, 87, 90–1, 119, 124, 128, 131–2, 166, 219–25, 244, 257, 279 Oysho 178–9 proximity principle (head office and distribution centre) 133 Pull and Bear 176 purchasing (three different systems) 99 Stradivarius 176–7 Uterqüe (‘new branch for accessories’) 137, 155, 164–5, 169, 181–2 Zara Home 179–81 Zara-Inditex IPO (2001) 3, 187–92, 272–5t, 279(n1 to ch12) market price 192, 193–9, 279 official leaflet 186 purpose 186 tranche set aside for group employees 191, 193, 274t see also ‘Zara-Inditex/stock-market flotation’ Zara-Inditex model 22–4, 131, 142, 161, 214–46, 270f, 280 basic aspects 12 differentiation from competitors 138 logistical ingredient 138 no successful attempts to replicate 14–16, 22, 241, 245–6 price 96–7 stock replacement 23–4 Zaragoza 4, 12, 134, 135, 137, 140, 172, 244 Zaragoza: logistics centre project (2004–5) 203–4 Zaragoza distribution centre 221 zero-sum game ix 168 Zug 154

(a)

(b)

Plate 1 (a) Inditex’s corporate headquarters moved from the old premises of GOA to its current location, (b) the cube in Polígono de Sabón. Inditex S.A.

(a)

(b)

Plate 2 (a) The women who ironed the clothes by hand have been replaced by (b) finishing machines. However, computers have been in charge of cutting the cloth since 1980. Inditex S.A.

(a)

(b)

(c)

Plate 3 The production process includes (a and b) automatic garment folding and (c) hanging to expedite the process of store distribution. Along the route travelled by the garments throughout production there are many checkpoints in order to maintain a scrupulous control of quality. This guarantees that the clothing will arrive from the production line to the shelves of stores in perfect condition. Inditex S.A.

Plate 4 Pictured are the first customers of Zara in Porto (1988), where the company began its international expansion. Inditex S.A.

Plate 5 One of Zara’s great challenges was entering the market of Paris, pictured here (1990) through the window of a store behind the city’s famous opera house. Inditex S.A.

(a)

(b)

Plate 6 The ’sisters’ of Zara have also managed to expand internationally: (a) Massimo Dutti in Milan (Italy); (b) Pull and Bear in Antwerp (Belgium). Inditex S.A.

(a)

(b)

Plate 7 The concept of a store is flexible. Japan uses both a futuristic approach, as seen in the Zara of Fukoa (a), and the method of adapting the store design to the pre-existing building, as seen in one of the establishments in Tokyo (b). Inditex S.A.

(a)

(b)

Plate 8 Amancio Ortega had many doubts about Inditex being traded publicly, worried among other things about how it would affect his privacy. Until the end of the 1990s nobody had published a photo of Ortega, and this one (a) is one of the few that are distributed officially by his company today. Also pictured (b) is the market of Madrid welcoming Inditex on 23 May 2001 without the presence of its president and founder. Inditex S.A.

Plate 9 Pablo Isla, CEO of Inditex since 2005, holds in his hands the further growth and development potential of the massive group. Inditex S.A.

Plate 10 The opening of the first Zara in New York in 1989 was a decisive step in making the group a truly global company. Its entrance into the competitive market of the United States has been relatively slow in comparison to the rest of the world, but Zara’s popularity with the American consumer has accelerated in the past few years. Inditex S.A.