On an unremarkable corner of Calle Juan Florez, a block away from the main shopping street in the Galician city of La Coruña, Christmas party outfits are dramatically lit in windows glinting with gold and mirrors.
The small
Zara store, which winds around the doorway of an ageing office building that is also home to a firm of lawyers, was first opened in 1975 by Amancio Ortega, a local clothing manufacturer who had worked his way up from being a delivery boy at a shirtmakers.
This is the seed that blossomed into Inditex, an empire that has shrugged off
Spain's economic troubles to become the world's largest
fashion retailer, with more than 6,400 stores in 86 markets and a rapidly growing online business. More than 120,000 people work for the company, 4,400 of them at the HQ near its La Coruña birthplace. Ortega himself, 77 and still on the board, is now the third-richest person in the world, according to
Forbes, with a net worth of $57bn (£35bn).
Inditex is valued at €69bn (£58bn) on the stock market but is still growing so fast that it is about to double the size of its head office in Arteixo, Galicia, for the second time since it opened in 2000. The building is also the headquarters of Zara, Inditex's biggest chain. The company's seven other brands, including Massimo Dutti, Bershka, Stradivarius, Oysho, Pull & Bear and Uterqüe, have their own headquarters dotted around Spain, some near Barcelona and others further south.
In Arteixo, Inditex still manufactures and designs its own clothing to an almost unique system created to put the customer in charge. Ortega, who has a majority stake in the company, is highly protective of his personal privacy and hardly ever photographed. He does not speak to the press. However, he is well known at the company headquarters, going in nearly every day to discuss everything from property to fashion with Inditex staffers at all levels.
But the culture of secrecy means that only a handful of journalists have been allowed behind the wall of blue-mirrored windows which give the Arteixo offices the feel of a Bond villain-style lair, albeit one nestled between a fish factory and a power station.
The Observer is the first British newspaper to be allowed a close look at how this company has developed its global appeal despite hardly buying any advertising, and has kept profits and sales rolling during a tough autumn and winter for fashion stores. Its processes have allowed it to deal with unseasonably warm weather by turning its operations around to produce more dresses, and pull back some of the coats and jackets that usually sell well in November. At Zara's British online store there is no sign of the discounting loudly blasting from rivals' websites because it has not been lumbered with as much of the wrong kind of stock.
When the weather turns against them, most retailers must plough ahead with plans made more than six months in advance, the clothes made and sent out to stores via a centrally controlled system. Slight local changes might be possible, but large groups of stores get similar stock.
At Inditex, every store receives a tailored assortment, right down to the number of T-shirts, delivered twice a week. Just over half the stock will be designed and manufactured less than a month before it hits the shop floor. Even prices can vary considerably between countries. Shoppers in Spain, Portugal and Greece can buy the clothes as much as 30% cheaper than elsewhere in
Europe or overseas markets such as China or the US.
Jesús Echevarría, communications director, said: "The company is global, but we shape everything in a very exclusive way to individualise it and shape the store to the customer's needs."
Ortega and Inditex's current chairman and chief executive Pablo Isla may not be keen to speak to the media, but part of Inditex's secret is a heavy reliance on conversation and collaboration.
Each store's stock is developed in partnership between designers, country managers based at brands' HQs and local store and even department managers around the world, who feed back ideas about what customers want and don't want. "Decisions are being made from the bottom to the top, not just in the stores but in every step of the business," said Echevarría.
Just over half of Inditex's product is only ever produced in relatively small amounts; even if something is incredibly successful, it will never be reproduced exactly again. "A blue and white print dress became a surprise hit this year," said Loreto Garcia, a lead designer of womenswear for Zara. "When we get something like that we try a different silhouette in the same print or the same silhouette in a different print." She finds versatile fabrics that can easily work as well in a skirt as a jacket to help facilitate Inditex's flexible approach.
With hardly any advertising to draw in new shoppers, updating the look of stores is also important. A new look is developed every 18 months for every brand. It's one of the main areas of capital expenditure for Inditex, with 300 to 400 stores a year renovated at a cost of €1.4bn a year. Designs are developed at an indoor street of model shops within the Arteixo HQ, where there is also a large room devoted to fake store windows, where ideas are worked up before kits are sent out around the world.
In the vast white box at the centre of this decision-making process for the Zara brand in Arteixo, a central "spine" of managers, one or more for each country, is monitoring computer screens filled with sales data and talking to store managers or regional directors by phone.
They are aided by computer algorithms, developed in partnership with Massachusetts Institute of Technology, which help to get the right mix of sizes for stores. Managers are guided by these automatic suggestions, but can adjust everything manually, depending on local feedback and market knowledge.
The country managers control the flow of product to stores and liaise with designers and buyers who sit close by, nestled in divided areas for different product categories, such as coats or trousers, and for different in-house brands, which all flow off the central spine. At the end of the office is a pattern-cutting and sample-making section, where up to 50 ideas a week just for womenswear can be brought to life almost instantly.
These might be shown off in mini-catwalk sessions in front of the head office teams. Several times a year key store managers are invited to head office to share their street-level analysis of fashion moves.
Finished items at a Zara facility. Photograph: Rafael Palacio
Zara has long been seen as a brand reliant on catwalk trends. But Garcia said that ideas from the brand's own team, which includes 20 womenswear designers, and feedback from key fashion bloggers, as well as long-term fabric trends and the ideas of trend prediction agencies, were more influential.
Basic trends have almost global appeal, with Inditex's shoppers in Shanghai, New York and London happy to wear similar items, according to Garcia. More than 95% of Zara's collections are sold internationally. The concept of seasons is also disappearing, with trends almost the same in the northern hemisphere's winter and the southern summer. Right now, for example, checks and tartans are in Zara stores worldwide – just in a different weight of fabric where it's summer.
Garcia says there are still regional differences: "In Germany they are a bit sporty, in France more rock and roll. In Russia things have to be a little bit more sexy: they don't like mannish fashion and might wear a pencil skirt with high heels, whereas in the UK it would be worn with a brogue, but it's just a small difference. In China in the new year they want to wear red, for the north of Europe we have to develop warmer coats, while the boyfriend coat is not popular in Asia: it's too big."
But while stores around the world may sell similar fashions, there can be a surprisingly different array of items on show in Zara stores around the corner from each other or in neighbouring cities. It's all dictated by their shoppers. That's partly because staff at head office are able to make adjustments for product just three weeks in advance, using production in or close to Europe, with Turkey, Spain and Portugal major production centres.
In Arteixo there are 11 factories owned by Inditex producing goods for the Zara brand. But the company has moved on from when the vast majority of its clothing was made in-house. Inditex owns just 2%-3% of its manufacturing capacity. In Arteixo, hardly any of the sewing is done in-house. The company focuses on more expensive and skilled jobs, such as cutting out garment pieces as efficiently as possible from piles of fabric or putting on price and security tags, rather than stiching items together. More than 100 partner factories nearby turn neatly stacked piles of fabric pieces sent from the Inditex-owned factories into finished clothes.
This way of working has been labelled "fast fashion", but Echevarría insists: "It's not fast, it's more accurate. What's fast is the logistics, and the moment of creation must be close to what customers are saying. To be quick is easy. But that is not our model. Everything we do is trying to think inside the skin of the customer. It's more expensive, but you get more loyalty from the customers and more flexibility, more accuracy."
Another key to that accuracy is Inditex's distribution system. In Arteixo, all Inditex's factories are linked to its distribution centre by tunnels and a 200km network of ceiling rails on which 50,000 garments a week from each factory flow around on hangers. Fast-track fashions and basic items made in China or elsewhere in Asia are gathered in Spain, no matter where they will end up in the world, before being sorted for each store.
Virtual "boxes" of garments can be grouped and stored on the network, marked by a barcode, then called up by the system when needed. The system allots individual garments piece by piece depending on the needs of each store and garments seem to magically fly off the rail network into boxes lined up for individual stores, as if controlled by an unseen hand. A separate system does the same for individual T-shirts or knitwear. No store receives a box of 20 pink T-shirts just because it is easier to transport and sort. Within eight hours of a store placing an order it will have been organised for shipping with a bespoke set of sizes and styles.
It's an impressive system, envied by many fashion rivals, but it's under pressure. Inditex is constantly adding new stores, particularly in Asia, which recently overtook Spain as the biggest source of sales for the first time. Bringing all its products to Spain may seem efficient now, but Inditex's increasing strength in Shanghai and Beijing may yet mean the Arteixo model will need to be transferred to a small town in China.
Stellar success online
Inditex is already Spain's largest internet fashion retailer, controlling as much as a quarter of the market.
Zara did not launch its fashion online until 2010. Other Inditex brands joined in September 2011, as much as a decade after many clothing retailers. Yet figures published at the Spanish equivalent of Companies House, the Registro Mercantil, show Inditex's eight online Spanish stores registered sales of €82m last year, stellar growth from the previous seven months for which accounts are available when they achieved just €9.8m in sales. Profits rose to €3.1m from just €160,000.
That €82m is only equivalent to 2.5% of Inditex's total Spanish sales and many retailers expect to see at least 20% of their sales online. While that could affect performance in stores, Inditex continues to see like-for-like sales growth in its high-street stores of 2.5%-4% in the last three months, say analysts; many rival stores have seen sales fall back.
The original Zara store in La Coruña. Photograph: Dani Ca O
The group also continues to take online stores into new countries. It launched five brands in Russia this summer and will put Zara online in South Korea and Mexico next year. The web also provides a way for Zara and its fellow stores to tell shoppers about the latest items in store. Inditex's avoidance of advertising is partly driven by its manufacturing model, which relies on a constantly changing array of garments. That makes it almost impossible to book ads in magazines or on billboards weeks or months in advance – but the internet can change every day.
The Inditex model has been in place since Amancio Ortega first decided to open a store in 1975. Having left school at 14 to work for a shirtmaker, Ortega moved into clothing manufacture, opening his first factory in 1963. He was already providing clothes for retailers around the world when he decided he could do things better and opened the Zara store in La Coruña.
From the very start he insisted that the Zara store would tell the factories what it needed rather than the factory calling the shots. With control of his own manufacturing, Ortega was able to make a number of styles and see what sold best, then back the winners.
This new way of working was clearly a success, as by 1979 Ortega already had five stores in Galicia and by the 1980s he was moving across Spain with stores in Madrid before moving into Portugal in 1988. Right from the start he had international ambitions, opening his first store in New York's Lexington Avenue in 1989 and in Paris in 1990.
