Inditex.
It is
the largest fashion distributor on the planet and most successful company in the history
of Spain.
Its annual turnover exceeds $27 billion and, consequently, this company has managed to
make it into the top 60 largest companies in the world.
If you want to buy it… you better have a thick wallet.
You’ll need more than $125 billion dollars to make the acquisition.
The company name might be unfamiliar to some of you, but I am sure you will recognise many
of its fashion labels:
Look, inside this corporation you will find well-known brands such as Zara, Pull & Bear,
Bershka, Massimo Dutti, Stradivarius, Oysho, Zara Home or Uterqüe.
Also, although smaller, we can find Lefties, their low-cost brand.
But the flagship brand of this corporation is definitely Zara.
I am sure you know it.
Its stores are open in almost every country in the world.
And it is here, in Zara, where the corporation makes 60% of its total sales.
But the most striking thing here is not just the figures.
It’s the company's evolution.
In just a few years, Inditex has turned into the world´s largest textile group with stores
on the most expensive streets in the world.
All having started as a modest Spanish company.
This kind of thing might be less unusual in a country like the USA… but I can assure
you it is rare to find such a phenomenon in Spain.
That is why we are going to analyse Inditex today: from its humble beginnings, through
the keys to its success and, of course, its immense profits.
THE ORIGINS OF A GIANT
To know the origins of Inditex, we must go back to the 70s, when the Spanish businessman
Amancio Ortega opened the first Zara store.
You might be wondering...where did Ortega get the inspiration to set up such a profitable
money maker?
It is difficult to say, but we do know this man has been involved in the fashion industry
from a young age.
When he was only 14, he was already working as a delivery boy for a well-known shirt shop
in a small industrial city in the north of Spain.
Yes, times have changed.
Spain was very different back then, it was a much poorer country and it wasn't unusual
to find a 14-year-old in employment.
But let´s focus here… the thing is Ortega saw a clear business opportunity and he soon
decided to make his mark on the international market.
In 1988, he opened his first store outside Spanish borders, in Porto, Portugal.
Soon after he crossed the Atlantic and set foot in New York.
He has been unstoppable ever since…
the UK, Japan, Kuwait…
Right now, you can find an Inditex store in almost every large city and capital city in
the world.
“Inditex - brand owner of Zara and Bershka, plans to open stores in Vietnam, New Zealand,
Paraguay, Aruba and Nicaragua this year”.
The Voice of Vietnam.Today, Inditex has more than 7,300 stores across the globe.
Its main markets, where Inditex has more shops outside Spain are China and Russia.
As you can imagine...all this adventure, it’s certainly had a reward.
Ortega, that child who saw no other choice but to work to survive and who founded Inditex
when he was almost 40, is today one of the wealthiest people on Earth.
According to Forbes, Ortega´s fortune is more than $55 billion.
And, well, here is the billion-dollar question: How did he do it?
Well, let’s see...
THE KEYS TO SUCCESS
For those who say that innovation is limited to the realms of high-tech... you don't know
about Inditex.
Pay attention!
Because we are going to see how this company has turned the entire textile industry upside
down by competing in a very different way to their rival companies.
The whole “textile industry“ thing, may not sound very ground-breaking, but well,
this company has achieved immense growth.
Growth which can mainly be attributed to innovation, by daring to be different.
Now, let´s analyse in depth some of the keys to its business success...
Firstly, we need to pay attention to the company “brain”.
Yes, Inditex has some sort of brain, the Operation Room the company established in Arteixo, a
small town in Galicia.
You can be forgiven for mistaking this space as some sort of NASA control room.
But, at least for now, no rockets or satellites are managed from here…
In this room, they control and analyse everything that takes place across all the company's
stores, in real time.
You see, even though a large part of the clothing production takes place in countries like Morocco,
Turkey, Brazil, or Bangladesh, everything (or almost everything) goes through Spain
before it is sent to stores.
For instance, let´s think about a Zara store in Shanghai.
It would be logical for us to think that, since the clothes are made in Bangladesh…
they should be sent directly to China from there, right?
Well…
Not at all!
They are taken to Spain and then sent back to Asia.
This might seem counterintuitive, but it has an explanation…
Not all shops sell the same quantity of each type of clothing.
The purpose of this Operation Room is to control how much is sold and what kind of pieces are
sent to each of the group's shops: the model, the colour, the size etc.
So, considering this data, the stores receive pieces of clothing as appropriate for their
individual needs.
It is only logical…
For example, the Zara on 5th Avenue does not sell the same items that the Zaras of Miami
Beach or Ibiza do.
The second key to success is logistics, which is closely related to the first one.
Look, Inditex supplies its stores two or even three times a week, and they can deliver to
any of their stores in just 48 hours.
You can imagine what an effort this requires, but with this timing the company gets several
things in return:
Reducing stock in storage and reducing the storage space required in the shops.
Less stock in shops means less frozen money, and less storage space means more space for
sales.
And you know what?
All of that means more MONEY.
Furthermore, it helps to have an updated sales line.
And this, by the way, is the third key to Inditex’s success: no more lasting collections…
In this company, the clothes are often renewed, on average, every fortnight.
So, if a certain type of t-shirt is not selling: it´s out, it vanishes from the shelves.
Just like that.
However, if a piece of clothing is selling well, the customer knows he won´t find many
people wearing the same product because its production is limited to a short period of
time.
So, when something is popular, and it sells well, the company doesn't provide more of
these items, what the designers do is… sort of… recycle the model, the essence is kept,
but some modifications are made.
So, they follow the trend, but they don’t repeat it.
It all explains why every time we walk into one of these shops, most of what we see is
different to the products we saw the last time.
So, to sum up: with the Operation Room, daily analysis, logistics, new designs…
this company doesn't sound so traditional after all, does it?
But…
I am sure you want to know more about those huge figures.
So let’s jump into that now…
THE LARGE FIGURES
If there were three words to define this enormous player of the fashion industry, these are:
growth, growth and growth.
We have just discussed the main keys that have helped build this empire, so now, let´s
see what is currently going on within the company.
And to do so, we will take the period between the 2006 and 2016…
In ten years only, Inditex has been able to multiply their sales by three, they have doubled
the number of stores and they have expanded to 50 new countries.
Not so bad for just 10 years, right?
Well, in previous videos, like the one we did on Amazon, we said we liked to highlight
the real money a company generates.
That is, the difference between the money that comes in and that which goes out: the
"cash flow”.
Well, if we do it again for Inditex, we can see how the cash flow has multiplied by 3
in the last 10 years.
If we look at the numbers, we see how this real profit has gone from 1.4 Euors to more
than 4 billion Euros every year.
In other words: Mr. Ortega´s system sure works…
And his system doesn't work for the shareholders alone, Inditex has been, above all, an employment
machine.
This company has now more than 160,000 workers around the world.
But that is not the end of it, no way.
If we also bear in mind all the suppliers Inditex works with, that number could be in
excess of a million workers.
A million people that, in one way or another, have a job because of a company that was born
in the 70s, in a small city in the north of Spain, and founded by a humble man, a worker
with an ambition.
All very impressive.
That is why Amancio Ortega has become an idol for many young Spanish school students, who
aspire to be like him when they grow up.
“Spanish high school students want to be like Amancio Ortega in the future” El Confidencial.
Anyway, it is your turn.
Do you usually shop in Inditex stores?
What is your opinion on Amancio Ortega?
As always, leave your answer in the comments below.
Also, don’t forget to subscribe to our channel for brand new videos every Monday and Thursday.
Also, don’t forget to check out our friends at the Reconsider Media Podcast - they provided
the vocals in this episode that were not mine!
And as always, thanks for watching!