inditex ingles.docx

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EMPRESAS: Inditex, The Fashionable

Company (in English)

1. WHO IS INDITEXInditex (Industria de Diseo Textil, S.A.) has become theworlds leader in the fashion industry. This company hasfascinated experts in business and finance, and now it is a casestudied in the main business schools all over the world.
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Its headquarters are in Arteixo - A Corua (Spain), and itsfounder is Mr.Amancio Ortega Gaona, currently one of theworlds richest men, a businessman who knew as nobody howto reply the demand of consumers of fashion.

The Galician firm has known how to change the operation of thetraditional fashion industry, being more flexible than othercompetitors, converting challenges into opportunities, and

supporting its processes over innovative technologies.
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As result of its strategy, Inditex hasnt stopped to open newshops all over the world (at the present it has over 5,000stores), and precisely this is one of the features that attracts theattention of experts in economics: its high growth rate since thecompany was born, or said it in another way: the incredible

success of its business model.

Its main shop chain, Zara, has become one of the mostpowerful brands in the worlds fashion industry, and each daymillion consumers go into one of its stores to buy or just towatch, because nowadays Zara means fashion, latest trends,what people dress now and what they will dress coming soon.

2. ITS HISTORY
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The beginnin g of Zara

In 1963 Amancio Ortega starts a little company

called GOA that produces and sells several kinds of clothes.The sales of the firm grow slowly, and it opens new productioncenters to get more capacity and versatility. The company soonstarts to export its clothes to the European market.

In the beginning the company didnt have own stores to sell itsclothes: it was only a clothes wholesaler. But in 1975 itscommercial strategy would change: GOA wanted to control theproduction, distribution and sale of its clothes, and the firm

decided to make a vertical integration with the opening of itsfirst store in a downtown street in A Corua (Spain).

This shop was a boutique that sold urban clothes for women,men and children at competitive prices. The name chosen forthis first shop was "Zara".

There is a legend that says the first name chosen by Amancio

Ortega to call his boutique was "Zorba". But when he went tothe brands office, this name was already registered, and Mr.
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Ortega, doing on the fly a letters play, decided to request amore simple word that wasnt registered yet: "Zara", a wordwithout meaning that is the random combination of four letters.

The first shop starts selling lots of clothes, being the youngclothes for students a real success, and the firm decided topromote this distribution channel for its products with theopening of more Zara shops.

The expans ion p lans

In 1976 it is constituted the company GOASAM as the owner ofthe Zara shops. In this way, the activities of the group were welldifferenciated: GOA was engaged to produce the clothes andmanage the wholesaler sales, and GOASAM was engaged tosell the clothes through the Zara shops (the retailer market).

The first expansion plan included opening Zara stores in themain cities of Galicia (A Corua, Vigo, Santiago, Ourense,Lugo...) and after this, in the rest of Spain (Madrid, Barcelona,

Valencia, Sevilla, Bilbao, Zaragoza...). The stores chain grewrapidly, and in 1985 it is created Inditex as the head of thegroup of companies.


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One of the main features that makes spectacular andsingular the Inditex case in the business world is the fastopening rate of its stores, and the growth of its sales. It seems

more than a success story, an amazing and miraculousbusiness: the hen that lays the golden eggs. Zara hashit exactly with the demands of the most public, attracting alarge number of buyers in each store. And by this, each point ofsale generates an important cash flow, that is reinvestedto open new stores. With this growing strategy, the companyhas been having an high opening rate over 50% duringlast years.
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Along 1986 and 1987, the group installs a new and modernlogistic system to be able to serve in time to all the new shops

that are being opened. With this system the company would getready to continue with its strong expansion plan. AmancioOrtegawas associated with people who knew the automobileindustry, and they innovated in the company processesapplying its technology in the business operations:manufacturing, logistic, distribution... In fact, Inditex has one ofthe most modern systems to classify and send the clothesautomatically to stores around the world, in a record time andmore efficiently. This allows the company to be more

competitive and flexible than most competitors. With its logisticsystem, Inditex is able to send clothes to its stores in Europe inless than 24 hours, and to the stores of the rest of the world inless than 48 hours.
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In 1988 Inditex opened its first shop abroad in Porto (Portugal).

After this the company installed its Zara boutiques in NewYork in 1989 and Paris in 1990.

In the begining of 90s, Zaras growth was unstoppable,entering into new markets of the halfway of the world asMexico, Greece, Belgium, Sweden, Malta and Cyprus.
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The new b rands o f Indi tex

In 1991 the new expansion plan includes the creation of a new

chain of stores, Pull & Bear, specialized in an urban and youngmale audience. Its logistic center was located in Narn-Ferrol(Spain), and several shops will be part of this chain soon.

Furthermore Inditex started the purchase of Massimo Dutti,another chain of stores specialized in an older and more

elegant male public. In 1991 the Galician company acquired
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65% of Massimo Dutti, getting 100% in 1995. Theheadquarters and the logistic center of this chain are inBarcelona.In the same year it also created another chain, Kiddys

Class, this time intended for the children segment.

In 1998 a new chain intended to a young female public isopened under the name ofBershka. And in1999 Inditex purchased Stradivarius, another chain thatmarkets clothes for young and modern girls. With thisacquisitions the total number of stores owned by the group grewexponentially.

In addition to the acquisitions of new clothes chains, thecompany opened new logistic platforms along Spain:

a) Arteixo and Narn in Galicia to distribute clothesof Zara and Pull&Bear.b) Tordera and Sallent de Llobregat in Catalonia to distribute
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clothes of Massimo Dutti, Bershka, Oysho and Stradivarius.c) Zaragoza for the woman clothes of Zara.d) Madrid for Zara Kids, Zara Home and Uterqe.e) Len for another clothes and brands.

f) And it was acquired in Elche (Alicante) a shoesfactory called Tempe that would be the supplier of all the shopsof Inditex group.

It is interesting to see in the previous graph the differences inprofitability between the stores of Inditex: the average sales of

a Zara store are 4,69 million euros a year. This
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shops are points of sale with a very high turnover, while storesas Oysho have sales about 700,000 euros of average.However, the chain that sells with a greater margin appears tobe Stradivarius, because this brand has the highest EBIT

margin, followed by Massimo Dutti and Zara. By themoment Uterqe provides a negative return.

As it is posible to see, Inditex was growing with a diversifyingpolitic: selling in new geographic markets, and creating oracquiring new fashion chains to get new public segments. Allthis strategy was sustained over the successful businessmodel of itsZara stores.

The conso l idat ion of i ts internat ional expansion

At the end of 90`s, many countries were included in the list ofthe target markets ofZara: Argentina, Japan, United Kingdom,

Venezuela, Lebanon, UAE (Emiratos rabes), Kuwait, Turkey,Holland, Germany, Poland, Saudi Arabia, Bahrein, Canada,Brazil, Chile and Uruguay.

In the 2000, Inditex opens its new headquarters building inthe industrial park of Sabn in Arteixo (A Corua). During thebeginnig of the new century, the company continues with itsinternational expand, coming into new countries as Andorra,Austria, Denmark, Qatar, Italy, Luxembourg, Switzerland andmany other. Thus the international sales have been growing
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against the Spanish sales, reaching a peak of 72% in 2010,when 5 years ago international sales didnt reach the 50%.

It is interesting to know deeper the international expansion

strategy of Inditex, due to the fact that there are many countriesin which its fashion markets are protected, and the entry offoreign companies is controlled and restricted. It is the case ofItaly for example. To save this situation, Inditex was associatedwith local fashion companies, creating a subsidiary with theparticipation of both companies.

2001 was a very important year for thetextile group: Inditex comes into the stock market offering the
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26,09% of its capital through a Public Sale Offer (OPV). Theobjective was to attract minority shareholders that can providecapital to finance the company expansion. The experience wasa success, and the demand exceeded supply by nearly 6

times. Inditex is a real success: it likes to customers andinvestors.

But not absolutely everything went well for the Ortegascompany: fortunately it seems that Inditex is also human,and there have been projects that didnt go quite right. This isthe case of "Often", a new chain of clothes launched in 2003,and targeted to a male young public between 25 and 40 yearsthat were looking for more "quiet" clothes thanthe Pull&Bear style. At the end, this chain was closed in2006. "Kiddys Class"also dissapeared as an independentchain, and was converted and repositioned in"Zara

Kids". And "Lefties" is an outlet project for Zaras clothes thatis being testing at present. It seems that many times, the correctstrategic decision is the result of learning by the methodology oftrial and error, even for large companies. But in the businessworld the important is dont be stopped, you have to try it andtake decisions: this is the most difficult.
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At the present Inditex is one of the largest groups of fashion

distribution in the world. It has more than 5,000 stores in 78countries, more than 100,000 workers, and had a turnover of12,527 million euros in 2010, a 13% more than last year.

3. THE BUSINESS MODEL OF THE COMPANY AND ITSSTORES

The company always says in its communications and reports

that the customer is the center of the business. All thecompany areas are around the customer in its stores with anonly one purpose: try to attend their demands in the better way,knowing their likes and adapting the collections to therequeriments of the people.
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In this way, all the functions are around the points of sale (theshops) supporting and collaborating them to get the satisfactionof the customers.
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Everyday the company makes a completely circuit throughseveral stages:

1st) CREATE THE COLLECTIONS. In the headquarters, morethan 200 designers create a collection each 3 days. The pattersare sended on-line to the production centers. The creations aredesigned with the information provided from the shops and thetrend scouts of the company.

2nd) PRODUCE THE COLLECTIONS. The production centersmanufacture each kind of clothes in one week. They produce

large lots of the same product to exploit economies of scale.The manufacturing plants are specialized by kind of clothing.
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There are 18 factories in the province of A Corua, anotherone in Badalona and another more in Elche. Furthermore thecompany subcontracts the hard works like sewing on buttonsand zippers to more than 400 workshops located along Galicia.

When the clothes are finished, they are returned to theheadquarters to get ready them for its distribution.

3rd) DISTRIBUTE THE CLOTHING. The clothes are distributedin boxes from the logistic center of Arteixo to the shops locatedall over the world. In this logistic center there are the latesttechnologies to classify and send the clothes. The company isable to send them to the european stores in less than 24 hours,and to the stores in the rest of the world in less than 48hours. Inditex has an own fleet of trucks to do the distribution,and also uses shipments by air to arrive to the farthestcountries.

4th) COMERCIALIZE THE CLOTHING IN THE STORES. Instores, the sellers have a PDA and a checkout connected withall the stores in the world and the headquarters, and with themthey can transmit to the central (to the designers) the designs

that people like and those that dont like. Each 3 days, newdesigns arrive to the stores, but they will not be there morethan 5 weeks, although they can be a success.The Inditexshops dont store clothes: each shop only hasthe clothes that are exposed, the shops dont have storedstock. Inditex has a zero inventory policy. The failed collectionsare sold in other shops (across the chain "Lefties" for example)with a discount of 30%.

5th) TRANSMIT INFORMATION TO THE CENTRAL. In thisway it is closed the circle. The information is analyzed in theheadquarters and the decisions are taken. And all start again.


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In relation to the organization, Inditex has grouped its

departments in 2 blocks:

(1) Product Areas, that includes the functions that affect theproduct (Production, Logistic, Coordination, Interior, WindowDressing, Location of Shops and Design). These activities canbe identified as those that add value to the business model, thekey of the good performance of the company, and the source ofcompetitive advantages: the heart of the business.

(2) Corporative Areas, in where it is included thesupport functions that back up the Product Areas to make thebusiness work well and grow (Human Resources, LogisticDirection, Expansion, Communication, Customer Care,Systems, Internation Management, Corporate SocialResponsability, Financial Management and Good Governance).

Below you can see the chart of Inditex: from the Board of

Directors (consejo de administracin) there is a GeneralSecretary of the Board, a President (Amancio Ortega), a Vice-
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president and a General Manager. Last January (2011)Amancio Ortega gave the Presidency to Pablo Isla, who was sofar this moment the Vice-president and Delegate CounselorCEO.
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4. ECONOMIC AND FINANCIAL INFORMATION

As we have said earlier, Inditex growth is spectacular. Belowyou can see graphs about the economic performance of thecompany.
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The Spanish company has an high profitability: it knows how toobtain a good margin in each article of clothing, and it is able toobtain an high rotation in each store. In 2010 the group net

result was 1,741 million euros.
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Furthermore, the financial situation of the company is verygood: year after year its balance is very good. Inditex is a littledebt company and it has a good level of working capital ashappens in the hypermarkets case. It is a very profitable andsolvent company.

5. THE KEYS OF ITS SUCCESS
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a) Produc t:

a.1) Fashionable and fast design:The company launches new collections constantly throughoutthe year. It has a constant renewal: they design a newcollection each 3 days in front of the 2 collections a year (Springand Autumn) that are designed by traditional

manufacturers. The real value of the Zara clothing is its designand developments (renewals): they are always fashionable.Technically it is medium quality clothes, but Zara has knownhow to take advantage of changes in consumer demand forclothing: years ago consumers were looking for durableclothing. But today the fashion is ephemeral. People demandclothes to wear during weeks, months, or one or two years atmost. After this time these clothes wont be fashionable, andpeople will need to buy another more. By this, at the present the

important feature is to be fashionable, while a few years ago it
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was to be of high quality. Thus Inditex invests to have a largeand great group of designers, to know better the requests oftheir customers in its stores, and to capture new trends all overthe world.

a.2) Relation with its customers: feedback across stores:The Zara shops sellers all around the world have direct contactwith the designers located in the central facilities in Arteixo.They tell the designers the demands of the customers across acomputer system: which designs have liked and whichthat havent liked. In this way Inditex can adapt its clothes tothe customers demand.

a.3) Capture trending:Inditex has trends sensors in the places where the fashiontrends are setted (New York, Tokyo, London, Paris, etc.) toinspire its collections and to know what is going to be wear. Thistrends sensors observe the clothing that wear the youngpeople, what they like to dress, the fashion parades... And theyalso go into competitors shops and first brands boutiques tolook its designs and inspire themselves. In fact, Inditex has

been accused to copy. But actually it is a full analysis aboutcustomers, competitors and market, a very good work since theMarketing point of view.

b) Produ ct ion , Log ist ic, Techn ologie and Purchasing:

b.1) Large-scale production but more versatile than competitors,and outsourcing (Production):Specialized plants produce the clothes by type. Each design is

produced in large lots to exploit the economies of scale.However, Inditex factories produce more varieties of clothingthan other plants of the competitors: they have more versatilityto produce several kinds on the same day, while other brandsmanufacture very few diferent kinds of clothes. In thisway, Inditex loses some margin or profiability in its productions(because they are a little smaller), but gain flexibility andcompetitiveness (because they are more variety), being able to

adapt better to the customers demand. Flexibilityin Design,Production and Distribution is a real key of its success. On the


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other hand, the company also outsources the most complicatedworks to nearby workshops.

b.2) Logistic activitites in a record time (Logistic):

The company is very fast doing the distribution of its clothesbecause it has an automated logistic system. With its designersteam, Inditex is able to launch a lot of desings very fast, andwith its logistic system it is able to distribuite them all over theworld in a few time with a low cost.

b.3) Location of the shops only in places with an high rotation(Location decisions for the stores):The shops have to generate rotation. So they are only locatedin the best areas of the cities.

b.4) Purchasing decisions:

c) Finance:

c.1) Zero stock policy in shops:

c.2) High profitability:d) Management:

d.1) Good and hard work during many yearsd.2) Growth policy through reinvestment of profits

d.3) Good managers and good decisions

6. THE PROTAGONISTS OF THE COMPANY EVOLUTION

There are several salient names related with the successof Inditex. They are the owners, businessmen andbusinesswomen, managers and workers of the company thatbecame it in a big empire.


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