Zara International, Inc

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Zara International, Inc.

Edificio Inditex, Avenida de la Diputacion
15142 Arteijo, La Coruña,
Spain
Telephone: ( + 34) 981 18 54 00
Fax: ( + 34) 981 18 54 54
Web site: http://www.zara.com

Subsidiary of Inditex-Industria de Diseno Textil S.A.
Incorporated: 1975
Employees: 26,000
Sales: EUR 4.44 billion ($6 billion) (2005)
NAIC: 448140 Family Clothing Stores

Zara International, Inc., is one of the world's fastest-growing leaders of the "fast fashion" retail movement, outpacing rival H&M, although remaining a distant second to The Gap. Zara operates a network of nearly 950 company owned and franchised stores and plans to open as many as 150 stores per year through the end of the 2000s. Zara stores are present in 64 countries worldwide, with an emphasis on Spain and the rest of Europe, Latin America, and a growing presence in the Far East. The company also operates 50 stores in North America, primarily in large urban centers in the United States. In contrast to most of its rivals, Zara has resisted turning to cheap Asian market labor, maintaining as much as 60 percent of its production, and especially its fashion forward production, near its headquarters in Arteijo, in the La Coruña province of northwestern Spain. Vertical integration, with operations including design, textile manufacturing, and dying, permits the company to respond extremely quickly to market conditions and fashion trends. With a staff of 200 designers, the company is able to bring a garment from initial design to the selling floor in as little as two weeks.

Zara also eschews the seasonal collection model, and instead produces some 12,000 new designs each year, all year round. Zara owns or controls some of its own production capacity, including a network of some 14 factories, most of which are connected by tunnels. The company nonetheless farms out a large proportion to some 400 local garment manufacturing cooperatives in the La Coruña region. Garments are typically produced in small batches, enabling the company to sell some 85 percent of its garments at full price. Smaller production runs also help the company reduce its exposure when a design does not catch on with consumers. The company outsources more permanent items, such as T-shirts, to producers in Turkey and the Far East. Avoiding advertising costs, Zara instead focuses on opening its stores in high-traffic, high-profile urban locations. The Zara store format, standardized throughout the chain, features sparse interiors reminiscent of luxury retailers. Yet all Zara stores are connected to the company's headquarters through a sophisticated IT network that allows the company to track purchases, and also to receive design feedback from store managers. In this way the company is able to react quickly to consumer demand and fashion trends. The founding flagship of publicly listed Industria de Diseno Textil S.A. (Inditex), Zara remains that company's largest brand, accounting for nearly two-thirds of its sales. In 2005, revenues from the Zara chain topped EUR 4.4 billion ($6 billion). Since the early 2000s, the Zara format has been expanded to include a second retail chain, Zara Home, featuring home furnishing and textiles. Inditex remains controlled by reclusive founder Amancio Ortega Gaona, said to be Spain's wealthiest person.

SPANISH FAST FASHION PIONEER
IN 1975

Born in 1936, Amancio Ortega Gaona began his career in the clothing industry at the age of 14 as an errand boy for a local La Coruña-based shirtmaker. There, Ortega recognized the difficulties, and high expense, of depending on third party suppliers for fabrics, materials, and other goods required for manufacturing clothing. By the early 1960s, Ortega had taken a position as a clerk at a La Coruña clothing retailer. Ortega's experience there played an important role in the development of his later career. In the meantime, in 1963, Ortega decided to launch his own clothing manufacturing company. With just 5,000 pesetas (equivalent to approximately $25 in the 2000s), Ortega set up a small workshop in his home in Arteijo, where he began producing bathrobes, nightgowns, pajamas, and other lingerie. Ortega named his company Confecciones Goa, reversing the initials of his name, and began his manufacturing career producing clothing for other brands.

Ortega also began laying plans to open his own retail format. Yet the Spanish clothing market of the 1960s and 1970s, which remained under tight dress-code regulations enforced by the Franco dictatorship, was not yet ripe for Ortega's ideas. At the same time, the relatively low levels of women in the workplace left this important consumer base with little discretionary income.

Ortega recognized that the death of Franco in 1975 offered new perspectives for the retail market. In that year, Ortega opened his first retail store in La Coruña. Called Zara, the store featured inexpensive yet fashionable clothing, and proved an immediate hit among the new generation of young Spanish women then entering the workplace by the thousands. An important feature of the Zara clothing line, and one of the keys to the retail chain's later success, was its ability not merely to anticipate its customers' fashion desires, but to react quickly to changing trends. While most other clothing retailers remained limited to a seasonal model, changing their collections only twice per year, Ortega's company instituted a policy of constantly turning over its collection.

This non-seasonal production model, which was based on small and limited production runs, presented a number of important advantages. For one, Zara customers soon learned to make purchases quickly because a particular design was not likely to remain in the store for long, and most likely would not be available again. In this way, Zara customers could be reassured that not everyone would be wearing the same clothing. At the same time, the system encouraged Zara customers to return frequently to the store, in order to discover the latest designs.

The short runs helped the company avoid costly design mistakes; when a particular design failed to sell, the company's financial exposure remained limited, and the design could be quickly replaced. At the same time, the company was able to sound out its customers for their own design interests, and Zara store managers and employees soon became an informal but important part of the company's design team. By responding quickly to customer feedback, as well as reacting to prevailing fashion industry trends, Zara was able to anticipate customer demand. This in turn helped boost the success rate of the company's designs.

The short production run model, and its ability to stimulate both customer purchases and frequency, in turn helped minimize storage expenses, limiting both the cost for warehouse space and the need to tie up capital in maintaining large stock quantities. At the same time, a large percentage of the company's designs sold out quickly. This meant that nearly all of the company's goods sold at full price, and full profit margins, avoiding the need for markdowns.

COMPANY PERSPECTIVES

At Zara, design is conceived as a process that is closely linked to the public. Information from our stores is constantly transmitted to a design team made up of over 200 professionals, informing them of our customers' needs and concerns.

Zara is in step with society, dressing the ideas, trends and tastes that society itself has developed. That is the key to its success among people, cultures and generations that, despite their differences, all share a special feeling for fashion.

An important factor in the company's success was also its decision to maintain tight control over its production processes, developing a degree of vertical integration unparalleled throughout most of the retail world. As such, the company developed a network of some 14 factories, as well as a contracted network of some 400 local garment cooperatives. In this way, the company controlled every stage of a clothing design's development, from the initial design idea to its twice-weekly distribution to the company's stores. By controlling its processes, Zara was able to produce a new clothing design and place it on store shelves in as little as two weeks, compared to many months for most of its competitors.

GLOBAL RETAIL CLOTHING
LEADER IN THE NEW CENTURY

Based on the success of the first store, Ortega soon laid plans to open new Zara stores elsewhere in Spain. In 1976, Ortega formed a new company, GOASAM, as a holding company to oversee the expansion of the Zara retail chain. By the mid-1980s, Zara had succeeded in rising to the top of the national clothing retail market, placing stores in all of the country's major cities. At the end of the decade, Zara already operated more than 85 stores in Spain.

By then, too, Ortega had begun to lay the foundations for the company's future expansion, both internationally and into new retail formats. As part of that effort, Ortega's retail and production operations were reorganized under a new holding company, Industria de Diseno Textil S.A., or Inditex.

The Zara chain, which had grown steadily yet quietly through the 1980s, made its first modest entry into the international market in 1988, with the opening of a store in Oporto, Portugal. The experience convinced the company of the exportability of its fashion and retail model, and in 1989 the company made headlines, opening a store in New York, boasting some 10,000 square feet of selling space. That store was soon followed by a store in Paris.

Zara maintained strong growth through the 1990s, adding stores in Mexico in 1992, Greece in 1993, Belgium and Sweden in 1994, Malta in 1995, Cyprus in 1996, and Norway and Israel in 1997. The company's growth during this period was impressive. In 1994, the company operated 165 stores, 47 of which were outside of Spain. By the end of 1997, there were 550 Zara stores in operation, including 250 franchised stores. The company maintained its interest in developing new markets, a partnership with Benetton in 1997 provided the springboard for the company's launch of the Zara format in Italy that year. The United Kingdom, Argentina, Lebanon, Venezuela, Japan, and Turkey were among the company's new markets the following year.

By the new century, Zara had become somewhat of a fashion steamroller, adding stores in the Netherlands, Germany, and Poland, but also in Chile, Brazil, and Saudi Arabia. By the mid-2000s, Zara operated nearly 950 stores, in some 64 countries. Many of the stores were part of the company's further expansion into the Far East, with units in Hong Kong, Thailand, and Indonesia, and, in 2006, mainland China.

Inditex itself went public in 2001, and continued to expand its range of store brands, a process begun in the early 1990s with the creation of the Pull & Bear retail chain. By the mid-2000s, Inditex oversaw a global retail empire of eight retail formats and nearly 3,000 stores. Zara remained Inditex's flagship, however, producing nearly 66 percent of the group's total revenues. The brand also provided the basis for Inditex's extension into home furnishings, with the launch of the Zara Home retail format in 2003.

KEY DATES

1963:: Amancio Ortega Gaona establishes Confecciones Goa in Arteijo, La Coruña, Spain in order to produce bathrobes, nightgowns, and related lingerie for other brands.
1975:: Ortega opens first Zara retail store in La Coruña.
1976:: GOASAM is founded to oversee development of new Zara store openings.
1985:: Inditex is formed as holding company for production and retail operations.
1988:: First international Zara store opens in Oporto, Portugal.
1989:: Zara enters U.S. market with store in New York.
1990:: Company opens first store in Paris.
1994:: Zara store chain tops 165 stores, including 47 outside of Spain.
1997:: Zara operates more than 550 stores; company reaches partnership with Benetton to open new stores in Italy.
2001:: Inditex goes public on Madrid exchange.
2003:: Zara Home retail format is launched.
2006:: Zara operates nearly 950 stores, including first store in mainland China.

Throughout this strong growth, Zara had remained true to its highly centralized production and distribution model. Because a majority of its clothing continued to be produced locally, the company was able to avoid much of the stigma associated with clothing production outsourcing in the mid-2000s. Yet questions had begun to arise over whether the group's insistence on maintaining such tight control of its production might hamper its ability to expand far from Spain. The U.S. market, for example, remained a difficult one for the company, in part because of the high costs involved with shipping clothing from its La Coruña headquarters. Nonetheless, few disputed the success of the Zara retail format. As it laid plans for its future growth, Zara had become recognized as an important role model not only for clothing retailers, but the global retail industry itself.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Zara Asia, Ltd. (Hong Kong); Zara España, S.A.; Zara Argentina, S.A.; Zara Belgique, S.A.; Zara Chile, S.A.; Zara USA Inc.; Zara France, S.A.R.L.; Zara UK, Ltd.; Zara Hellas, S.A.; Zara México, S.A. de C.V.; Zara Portugal Confecçoes Lda.; Zara Venezuela, S.A.; Grupo Zara Uruguay, S.A.; Zara Brasil, Lda.; Zara Nederland, B.V.; Zara Österreich Clothing, GmbH; Zara Danmark A/S; Zara Sverige, AB; Zara Norge, AS; Zara Canada, Inc.; Zara Suisse S.A.R.L.; Zara Luxembourg, S.A.; Za Giyim Ithalat Ihracat Ve Ticaret Ltd.; Zara Italia, S.R.L.; Zara Japan Corp.; Zara Ceská Republika, S.R.O.; Zara Puerto Rico, Inc.; Za Clothing Ireland, Ltd.; Zara Magyarorszag, KFT.; Zara Monaco, SAM; Zara Commercial (Shanghai), Co Ltd.

PRINCIPAL COMPETITORS

The Gap Inc.; H&M Hennes and Mauritz AB; NEXT PLC; Royal Vendex KBB N.V.; Redcats; Arcadia Group Ltd.; Esprit Holdings Ltd.; Vivarte; Benetton Group S.p.A.; Cortefiel S.A.