How Inditex rules the weaves, and plans to carry on doing so

The Galicia-based firm behind the Zara brand has a complex global supply system It combines it with the sharp commercial instincts of a successful local business

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Inditex fabrics sewn in Pakistan.
Inditex fabrics sewn in Pakistan.BLOOMBERG

Like Hawaii, but tropical."

"And what about the Japanese flower?"

The four women are not talking about botany, but about fashion. On the table before them are fabrics, sketches and a sales inventory. Better to use large flowers, but not huge, either. In five weeks - two to make the fabric and three to sew the clothes - this cotton textile with a pattern suggesting daisies will show up on thousands of models at stores in 86 countries. This is Zara, the mother of "fast fashion," the heart of a giant called Inditex.

The center of that heart had been off limits to the press until now. It is the design department in Arteixo, the Galician town where the global group has its headquarters. It is an enormous building housing 300 workers - mostly young people, representing 30 nationalities. There are computers, coat hangers that separate the work areas, bolts of fabric and sewing machines used to make prototypes.

Teamwork is key and egos are not welcome: humility and discretion reign

The backbone of this place runs down the center of the room: a line of tables from where a close watch is kept on sales in its stores across five continents. Store managers have to provide detailed reports of each day's takings. This information is key in order to fulfill the company mantra: people buy what they like, so we need to make what they like in order to sell it to them (but without repeating what we already did before). This syllogism rules the empire of the third wealthiest man in the world according to Forbes and Bloomberg: Amancio Ortega, who created the largest global fashion chain in the world out of what was nothing more than a humble housecoat workshop half a century ago. His formula combines fast production, impeccable logistics and global tastes: the same jacket is sold in Toledo and in Shanghai.

Over in a corner of the room, the four workers agree on the print pattern. They feel the various cloths - silk, viscose, cotton - and they take a look at the half a dozen pieces of paper with pencil sketches on them. The items must go together well. It helps to have Tere around. She is the model, and she is walking around wearing a prototype silk outfit that will have to be okayed before heading to mass production. The question now is whether the pants would go better with a jacket or with a tunic. The pattern makers, María José and Socorro, always like to keep the wearer's comfort in mind.

"We all have an opinion. We are customers of our own business," says Loreto, the designer. "It's important to like the item, even if you would not always wear it yourself." None of the women would give out their surnames. This is all about teamwork, and egos are not welcome in a company that exudes discretion and humility.

"We always seek a consensus," adds María, the saleswoman, who is familiar with the sales figures of any item at any store.

A Zara factory in the 1990s.
A Zara factory in the 1990s.O. P.

In order to guess what the customer will like, creation builds on experience: sales, the items that people request at stores, and the failures when they happen. But intuition also plays a role, in order to create something new. The goal is to follow the trend, that fuzzy line separating what's 'in' from what's not. To do that, they keep tabs on the dominant tones at televised gala events, watch what people wear on the street, and search for clues on the internet.

"The world is contained in a computer," explains Loreto. "You make a salad out of everything and start seeing common denominators."

"Fast fashion is a reaction to what's happening on the street, to the Oscars awards ceremony or to the latest article in Vogue," explains José Luis Nueno, author of a study on the Zara model for Harvard University - Inditex is a case study at many business schools.

Loreto and María follow the trends, but they also help create them. For customers, fashion is mostly the new items they find at stores. And at its 6,009 outlets in 86 countries, Inditex offers 27,000 designs a year (18,000 at its flagship brand, Zara). Last year's figures showed there are 960 million garments from the Inditex galaxy in the world.

The world is contained in a computer; you make a salad of everything"

"When people like something, it triumphs everywhere," says María. And if they don't, there is enough flexibility to fix the problem. Production can be modulated and the color tone can be altered. These are the advantages of the vertical production system, which controls every step of the process.

"The clients today want what they saw yesterday. They want to wear what's in, at a good price. There is very little risk associated with the purchase, because the cost is not very high," analyzes Nueno. And Inditex has the garments in its store windows within three weeks, thanks to a complex and highly efficient production system. Speed is also key to the consumer: if the item looks nice, better to buy it now. New garments are coming in twice a week, and that's the best way to keep customers coming back to stores that are meticulously designed and maintained. Nothing is left to chance, not even the background music. The store windows for next fall, with a predominance of blacks and golds, are already at the testing stage.

This enormous army of sewing soldiers gets its weapons ready. The textile is analyzed at a lab to ensure it meets legal requirements. From design concept, it moves on to the pattern-makers. The 10 factories that Inditex operates at this industrial park cut the cloth into garment parts: sleeves, backs, collars and so on. The eight brands in the Inditex galaxy - Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Uterqüe, Zara Home and the flagship Zara, which includes Kiddy's Class and Lefties - work autonomously and rely on a network of 1,490 workshops in 60 countries. That is where the actual sewing takes place.

The trendiest items are manufactured "in proximity," which to Inditex means Spain, especially Galicia, plus Portugal, Morocco and Turkey. These countries represent around 51 percent of production, according to the company. The rest is made in more faraway locations, especially Asian nations where labor is cheaper, such as China, Cambodia, India and Bangladesh. There deadlines are longer.

The firm cannot stop subcontractors from violating the ethics code"

But right now, proximity means Arteixo itself, a town of 30,700 inhabitants near A Coruña and the birthplace of this textile empire. There, between the road and an orchard where chickens run around, Matilde Matas, a former Inditex employee, and Juan Campos, a former machinery salesman, have created one of the hundred or so Galician workshops that service the group. This morning, the task at hand is making checkered shirts for Pull & Bear, at the rate of 3,000 a day. This is pure Taylorism: dozens of women huddle over their sewing machines; one sews on the cuffs, another does the buttons, a third makes the buttonholes.

"This is the only way to be productive," explains Campos. Although the music helps, dressmaking "is hard work." Yet there is no shortage of candidates to join the production line, either in Spain or in the countries where the slower fashion gets made, such as t-shirts and many other wardrobe basics.

Whether near or far, all the workshops that supply Inditex need to follow a code of conduct that includes adequate work conditions and fair wages. But there is still the occasional outbreak of trouble, such as a fire that broke out at a Bangladesh factory last January, killing seven people. In Arteixo they say that a local provider subcontracted that workshop without the necessary permission from Inditex. The company now works with neither one. "We provided financial compensation to the wounded, to the families of the deceased and to the workers who lost their jobs," says Félix Poza, head of Corporate Social Responsibility (CSR).

In this business, any scandal can be as global as fashion itself. Inditex has reinforced its responsibility policy since 2007, subscribing to global agreements with the unions and increasing the amount of surprise inspections. When irregularities are found, a deadline is offered for correction, followed up by an evaluation. But oversight is the company's weakness, according to Spanish unions, who are otherwise satisfied with conditions at the factories - though not quite as much with conditions at the more than 1,900 retail stores in Spain, especially because of the emphasis on part-time jobs. "When a complaint is filed, they react well, but the prevention measures are not there," says Paula Alves of the labor union UGT.

In fast fashion, the business risks are transfered to the workers"

"The company is unable to prevent subcontractors from violating the ethics code," adds Carmen Expósito, of the textile industry sector of CCOO, Spain's other major union. The Galician CIG goes further: "The code of conduct is a way to save face without any practical effects," says Dores Martínez.

"Companies act following complaints, not through prevention. But at least Inditex is the kind of company that does something about it," says the activist Albert Sales, who is working on a campaign called Ropa Limpia (Clean Clothing) that is set to run in 14 countries, including Spain. This campaign is targeting job insecurity in the global textile industry, which is dominated by "difficulties in planning and the need to meet deadlines."

"Inditex is the world's leading company. It forces others to take a stand on corporate social responsibility and to make some commitments, but time has shown that they are inefficient," he holds. The "structural" problem is a result of a production model that entails "very strong pressure on producers. In fast fashion, the business risks are transferred to the workers, and become social risks for them," concludes Sales.

"We've moved from reactive to proactive," argues a spokesperson at the CSR department in Inditex.

Sales in 2012 were equivalent to more than 1.5 percent of Spanish GDP

"We are demanding, but we are not the oppressive type. We believe in the obligation to be decent," says an employee one rung up the corporate ladder. "Human and labor rights are inseparable."

External factories are a vital part of the process, but so is technology and logistics. New items arrive by land, sea and air, and they always end up inside a truck that takes them to enormous logistics platforms. Every item sold at Zara first stops at the Arteixo logistics centers before heading out to one of the 1,925 Zara stores in the world.

More elegant garments such as suit jackets pass by the Arteixo factory, which right now is filled with fuchsia tones (expect bright colors this summer). Each one gets pressed along a chain system; some workers press the sleeves, others the fronts. A dozen female employees press 4,000 jackets a day. Some of them, like Isabel Naya, takes this opportunity to choose what she will be purchasing herself.

"Before this, I used to call a friend who works at a store to tell her to warn me when the item got there, but with the internet I don't have to any more," she says, smiling.

Inditex advances like a Roman legion in which the troops are hooked together"

Indeed, online sales are the new jewel in the crown of Amancio Ortega's empire, although the company refuses to reveal any figures. It began rather late in the game, in 2010, but it is already operating in 23 countries, including China. Customers typically pick up the item at the nearest store, and often buy something else while they're there.

The fuchsia jackets advance on their rails towards the logistics platform. Computers control the system, which combines elements of luggage transport, mail sorting and bar codes. This is how the twice-weekly shipments to Zara are organized. "A couple of days go by from the moment a store in Japan places the order and the moment they receive it," says Inditex spokesman Jesús Echevarría.

That Japanese store is just like any other in the Zara chain: minimalist and glamorous, with a relaxed atmosphere. The store - a word that is pronounced with devotion in Arteixo - is the main display piece for a company that barely spends anything on advertising. This entails significant savings.

"Each customer should have her or his own image of Zara, and be its judge without any influence from advertising," defends Echevarría. And if the customer happens to be a celebrity who wears the brand - a fact that usually gets around - what better publicity can a company expect?

Yes, they may be homogenous, but there are also Zaras in unique locations, and increasingly in exclusive spots such as New York's Fifth Avenue. Between March 2011 and June 2012, Inditex earmarked 960 million euros for the purchase of three flagship stores in as many Golden Miles in New York, Milan and London. But the company insists that it is not veering towards the real estate business.

"That is not our business. Generally we rent, because the costs and the risks are lower," says a spokesperson. But they weren't about to overlook a good investment opportunity, and there was certainly enough money for it.

Inditex began the fiscal year with over four billion euros of disposable funds. Year after year, the retail giant beats records. From February 2012 to January 31, 2013, sales grew 16 percent to over 15.9 billion euros - two-thirds of which correspond to Zara sales. This is the equivalent of more than 1.5 percent of Spanish GDP. Net profit was 2.36 billion euros, a 22-percent increase. Inditex is the Spanish company with the highest share value on the stock market.

The business born out of the reclusive Ortega's intuition grows and grows as though there was no crisis: this year, Inditex is planning to open at least 440 stores, especially in Asia ("a key element of expansion"), the Americas and European countries such as Russia. None in Spain. The time is not right: turnover fell five percent last year, the sharpest drop in company history. Inditex justifies it through "a slight" decrease in sales and the fact that the company did not pass on Spain's drastic VAT hike to its customers.

Using the formula of giving customers what they want and doing it fast, the company has grown into an empire. Inditex has 120,000 employees, of whom around 80 percent are women. And all this is taking place 38 years after Amancio Ortega opened his first Zara store on the corner of A Coruña's Juan Flórez street - an establishment that looks like new despite already having two generations of regular shoppers to attend to. It is difficult to bring to mind a past filled with housecoats, when the present is filled with nearly one billion items a year, including women's, men's and children's wear, decorative goods, footwear, perfume and more.

"Inditex advances like a Roman legion in which the troops are hooked together and advance at the same pace. It has populated the city centers with its own competing brands that seek to attract consumers who pay medium prices, but which also offer premium products," says Josep Francesc Valls, a professor of marketing direction at the business school Esade, who considers Ortega "a pioneer of low cost."

Amancio Ortega, 77, has never granted a single interview in his whole life. He still drops by Arteixo, or so they say down at headquarters, a place where suits and ties are a rare sight. This is not the only sign of a man who is fabled for his humble attitude and who started working as a young boy in his native León.

In 2011, Ortega, who holds a 59.6-percent stake in the firm - netting him a tidy 813 million euros during the last fiscal year - took a step back, and appointed Pablo Isla chairman of the company. "Ortega plays an inspirational role, and he is always available for advice," they say. Meanwhile, Ortega's youngest daughter, Marta, is currently on maternity leave from her work as a store clerk. She will one day inherit the business, but ownership and management are two separate branches.

As for the future, "we have a huge way to go. We have enormous growth potential. Our presence is global, but in 90 percent of the markets we're just getting started," says a company spokesman.

"Inditex has an excellent business model and it can still grow a lot," says Professor Nueno. "Something terrible would have to happen for it to fail, some kind of Armageddon."

But if the Apocalypse does come, maybe it will be wearing Zara clothes.

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