Photo: Wikimedia Commons
It may not be a favourite of those with wide waistlines, but Inditex, owner of the Zara fashion chain, now comes in extra large.This week the La Coruña-based fashion retailer overtook telecoms company Telefónica and a host of beleaguered banks to become Spain’s biggest listed company.
With a market capitalisation of €40.5bn (£32.36bn) at close of play on Friday, Inditex is now worth €300m more than Santander, the international bank, and €190m more than Telefónica. It’s another landmark for the Spanish clothing company’s founder, Amancio Ortega, the world’s fifth richest man, who still retains a 59% stake in the company.
Ortega, the son of a railway worker, left school at 14 to work as a delivery boy for a shirt maker. In 1963, aged 27, he used his savings of 5,000 pesetas to set up Confecciones Goa with his then wife Rosalia Mera, making dressing gowns and lingerie. He opened his first store, Zara, in La Coruña in 1975 and developed it into a global powerhouse.
The company saw sales rise 10% last year to €13.8bn and made net profits of €1.9bn, up 12% on the year before, despite the global downturn.
Inditex listed on the Spanish stock market in 2001 at a value of €9.1bn, and it has more than quadrupled in value since then. Now 76, the publicity-shy Ortega stepped down as head of Inditex last July and is worth about $37.5bn (£25bn), according to Forbes.
His empire extends to more than 5,500 stores in 82 countries and eight retail brands including Massimo Dutti, Bershka and Pull & Bear. It opened its first UK store, a Zara, on London’s Regent Street in 1998 and now has 95 shops across Britain.
Inditex’s global reach, broad appeal to shoppers at the top and bottom of the market and highly efficient business model have made its shares a safe haven for Spanish investors.
News that Inditex had topped Spain’s Ibex index came even as the country reported disastrous monthly retail figures, with April sales down 9.8% on the year before.
Although Inditex’s Spanish home market, which accounts for 25% of sales, is in trouble, most analysts and investors believe the retailer can hold steady there. With its Zara chain controlling just 6% of the market, it has the opportunity to steal share from rivals as wealthy shoppers trade down to its cheaper prices. That belief will be tested on 13 June when the company delivers its next set of quarterly results.
Paul Rossington, a retail analyst at HSBC, says: “There would have to be a substantial decline in the Spanish market before it materially impacted on Inditex. The current climate is only helping big chains like Zara.”
Inditex’s shares have fallen slightly in recent months amid concerns for its stores in the struggling economies of Italy and Greece. But confidence has held up because Inditex is expanding quickly in China and other fast-growing developing markets. It has also only just begun to sell online in developed markets such as Japan and the US where it has relatively few high street shops.
This year, Inditex is expected to open about 500 new stores, about half outside Europe’s troubled economies.
Lorna Hall, senior retail analyst at trend forecaster WGSN, says Zara’s aspirational fashions ensure it has a warm reception in new markets. “Its collections are very influenced by catwalk looks and that has a global appeal,” she says.
Inditex does not advertise. Its success relies on providing must-have fashion at relatively cheap prices.
Its unusual way of sourcing its merchandise is key to maintaining a steely focus on the latest trends. The company produces a third of its clothing in Spain, where it largely controls and owns factories, a third is produced in countries nearby such as Turkey and a third in the Far East. By sourcing closer to its shops and centralizing distribution in Spain, Inditex is able to take decisions on which clothing to produce and distribute much more quickly than rival stores, many of which source 70% or more of their clothing in the far-off Far East. Inditex can get a new item to the shop floor in just two weeks so that its stores are more likely to be in tune with the latest trends.
Buying more goods from Europe also protected the retailer from cost rises and capacity problems at Chinese manufacturers last year and is likely do so again as wages continue to rise outside Europe over the long term.
Inditex also works closely with its store managers, who feed back information about what is selling to help fine-tune the latest ranges.
They can dictate what goods are sent to them, to suit their shoppers, while deliveries arrive at least twice a week, keeping the look of the stores fresh and up-to-date.
That attention to detail has served Inditex well as it has spread around the world – insulating it against costly fashion mistakes in new markets.
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