Inditex: fast fashion for crisis-proof profits

With unemployment around the world high, cash tight and job prospects dim, you would think that buying a new wardrobe would be the last thing on consumers’ minds. But Inditex, the Spanish owner of clothing brands such as Zara, Massimo Dutti and Bershka, still managed to get consumers to open their wallets last year.

And open they did. The company, based in Galicia, Spain, reported a net profit of €1.73 billion for its full fiscal year ending January 31, a year-on-year increase of 32 percent. Sales rose 13 percent to €12.52 billion in the 12-month period.

The seemingly unstoppable growth of the almost 50-year-old company comes two years after Inditex overtook US chain Gap to become the world’s largest clothing retailer and five years after it surpassed H&M to take the top spot in Europe.

Loved by fans of fast-fashion, the key to Inditex’s success lies in its remarkable geographic diversification in recent years and a business model that has allowed it to put the latest fashions in its stores at breakneck speed.

“The success of the model lies in being able to adapt what you’re offering in the shortest time possible to what clients want,” says an Inditex spokesperson. “For Inditex, time is the principal factor to take into account, more so than the costs of production.”

Almost all the phases of developing and selling a new product are carried out in-house — from design and production to logistics and sales – and shop staff are encouraged, even expected, to keep Inditex designers in touch with any fashion trends as soon as they spot them.

Inditex has managed to get so far, so fast largely through the use of innovative management and logistics techniques, which have now become the subject of studies in business schools around the world.

For a company which spends very little on advertising, its shops have always been its principal marketing tool. Many are purpose-built to look like fashion boutiques, located on prime real estate in city centre high streets and malls around the world.

Global ambitions

Employing more than 100,000 people globally, Inditex currently operates 5,044 stores in 77 countries, after opening 437 stores last year. The group said it plans to open up to 500 more new stores this year, including its first outlets in South Africa and Australia.

Inditex generally follows what is known in the retail industry as an “oil stain” pattern when moving into new markets. It opens one insignia store, usually of its flagship Zara brand, aimed at building up its name in a new location, before setting up smaller shops of different brands in order to reach a certain density of outlets that allows it to create economies of scale and boost profit margins.

Inditex’s current position is a far cry from the company’s much more humble origins in the bedroom of Chairman Amancio Ortega, who began making bathrobes in the 1960s.

The first Zara store was opened in 1975 in A Coruña in Galicia. The 1980s saw rapid expansion across Spain, followed by the opening in 1988 of the first Zara store outside Spain, in Porto, Portugal. Other shops followed swiftly in New York in 1989 and Paris in 1990.

Today Ortega, who rarely appears in public and never gives interviews, is Spain’s wealthiest man and one of the 10 wealthiest in the world, with a fortune, from Inditex alone, in excess of €20 billion.