Fast Fashion

At 11:15 on a Wednesday morning in May, in an industrial park outside the port of La Coruna in northwestern Spain, a 65-year-old man in casual business attire shambled out of his office and into a room with a TV set. Fifteen minutes later the company he started as a young man began selling shares to the public for the first time. What he launched in 1975 as a local store called Zara was now the world's third largest clothing retailer, Inditex, with two dozen manufacturing plants in Spain and stores in 34 countries from the United States to Japan. The man watched on TV as Inditex shares shot up 26 percent in a matter of minutes, despite the dismal climate for IPOs everywhere. At 11:45 he left the room. His 60 percent share of the company was worth $6 billion, and he had just become the richest man in Spain. Later that afternoon Amancio Ortega Gaona had lunch in a company canteen, as usual.

His company may have gone public, but Ortega is determined not to. Never mind that the son of a railroad worker and a housemaid is now the second richest man in fashion (after Bernard Arnault of LVMH, the French fashion giant). Not a single remark of his has ever appeared in quotes in the press, and he has never given an interview. There were no known photographs of Ortega until very recently, and now there are only two. One appeared in the first Inditex annual report last year, offering an early hint that the company might go public. The second appeared in this year's report. This one shows the same heavily jowled man in the same clothes, and was taken at the same time and place by the same photographer. Only this time, Ortega is smiling.

And why not? Ortega took a lifetime of experience in the rag trade and turned it into a strategy that could stir a revolution in the world of manufacturing. From the time he worked as an errand boy for a La Coruna shirtmaker at the age of 13, he had been seeing costs pile up as a garment moved from design shop to clothing factory to store shelves. He realized that by controlling all these steps, he could cut costs and, even more important, make huge gains in speed and flexibility. His idea flowered almost naturally in La Coruna, located at the traditional heart of the Iberian textile industry. There, it was relatively easy for one man to control the process top to bottom--design, manufacturing, distribution and sales. Thus did Ortega create a force so powerful that the Spanish press would dub it "the Terminator." In a fashion world where trends are set by last weekend's blockbuster film, or Madonna's latest video, speed kills, and nobody does speed better than Zara.

Wall Street agrees. Analysts from London to New York have repeatedly judged Inditex best in class against its bigger rivals, America's Gap and Sweden's H&M, and its closest pursuer, Italy's Benetton. Still best-known for the original Zara chain, which accounts for 77 percent of Inditex sales, Ortega is moving a small, local operation into the big time. It takes less than two weeks for a skirt to get from Zara's design team in La Coruna to a Zara store in Qatar or Paris or Tokyo--as much as 12 times faster than the competition. With shorter lead times, Zara can ship fewer pieces, in a greater variety of styles, more often. That way, the company can quickly cancel lines that don't sell, avoiding the inventory backlogs and clearance sales that are a regular drain on the profit of rivals, particularly in seasons (like this one) of imminent recession. "Our structure," says Inditex CEO Jose Maria Castellano, "gives us tremendous advantages over our competition."

Ortega's fast-fashion model defies the supposedly inexorable force of globalization. In the years after World War II, manufacturers began scrambling to find low-wage plants in Latin America and Asia, setting off what anti-globalization activists now call "the race to the bottom." Manufacturers of everything from toys to clothes respond that they must search out the lowest-cost labor in locales like Cambodia and Sri Lanka, or they will be undercut by the competition. Now along comes Ortega, demonstrating that market flexibility and lean inventories may be more important than cheap labor, an insight that just might reverse the long exodus of manufacturing jobs from the West. His company is now a case study in the future of manufacturing at business schools from Harvard to Wharton and the IESE in Spain. Jose Luis Nueno of IESE says Zara's "anti-textile" model resists the old pattern of churning out so-called First World fashion in cheap-labor Third World factories. By bringing manufacturing and distribution closer together, says Nueno, Zara has moved "years ahead" of its competition.

The competition has sewn itself into a corner and will be hard pressed to follow Zara. By focusing almost obsessively on finding the lowest costs and cheapest workers, most clothing manufacturers have ended up working with a complex global network just to make simple shirts. They may buy fabric in one country, dye it in another, embroider in a third and sew the fabric into a shirt in a fourth, using subcontractors every step of the way. The result is that it takes up to eight months for an idea to go from the design stage to the store. "Everybody's gotten out of manufacturing, whether you're the Gap, The Limited or Nike," says John Thorbeck, CEO of SupplyChainge, an Oregon consulting firm. "Zara has proven that speed and flexibility matter more than pure price. They've turned the old way of doing business on its head."

Inditex's bottom line speaks for itself. The company spends 15 percent more to produce garments in Spain and Portugal than rivals spend in China, mainly due to labor costs. But it more than compensates by not advertising, cutting inventory costs and adjusting to fashion trends quickly. Its profit margins are consistently the best in the business (graphic). And by relying on local manufacturing in his native corner of the Iberian Peninsula, Ortega not only shortens his supply route to rich Western markets. He also dodges the wrath of activists. "Nike, Levi's and others have faced recriminations from [activists] for exploiting low-cost labor in emerging economies," says John Quelch, professor of marketing at the Harvard Business School. "Zara is less subject to this criticism."

The Zara model is potentially bad news for traditional export manufacturing centers, particularly in Asia. Zara is the flagship of five chains (the others are Pull & Bear, Massimo Dutti, Bershka and Stradivarius) owned by Inditex. With $2.6 billion a year in total sales, Inditex is a bit player in the manufacturing world, but the growing influence of its business model could shape the future geography of jobs. Zara's success in northern Spain and Portugal, where wages are higher than in Asia but lower than average in the West, could inspire other manufacturers to seek out similar bases: relatively low-wage regions on the fringe of wealthy markets. Eastern Europe is already a growing base for labor-intensive exports to the European Union. Mexico is exporting more and more clothes to the United States under the 1993 North American Free Trade Agreement, and stands to gain even more if the Zara model catches on.

The growing importance of speedy production and delivery implies that geography matters, even in this global age. Joseph Martha of Mercer Management Consulting says "retailers will be giving a lot of thought to" shifting production out of East Asia in particular. The exodus could go beyond the garment industry, and includes the power-tool and small-appliance manufacturer Black & Decker, he says. As for the big clothing retailers, they won't comment directly on Zara, but appear to be sticking to old ways for now. "We have over 900 suppliers and we see a lot of advantages in working that way, such as flexibility, larger-volume capability, etc.," says an H&M spokeswoman. "This system has worked for us for a long time."

But it is Zara, not the industry leaders, that has become the darling of fashionistas. The chain does virtually no advertising, believing that the spreading buzz about its sense of style and reasonable prices are promotion enough. The London Times in August ranked Ortega and Castellano at the very top of its list of the 25 "most dynamic forces shaping Planet Fashion." Susie Forbes, the deputy editor of British Vogue, calls herself a "disciple." She was waiting outside as workmen took down hoardings to unveil the Zara store on Regent Street in London three years ago. "The reason I still love [Zara] best is that for the thirtysomething woman it's the best High Street option," she says. Daniel Piette, a member of the LVMH executive committee, has called Zara "possibly the most innovative and devastating retailer in the world."

We can't know whether Amancio Ortega thinks of himself as a revolutionary, since he won't talk. But it seems unlikely. According to people who know him, he started working on what would become the Zara model decades ago. As far back as the early 1960s, he would gather his first wife and other family members in his older brother's living room, and there they would try to figure out how to make cheaper, better housecoats. In 1975, when he opened the first Zara store, Ortega "could not have imagined that his company would one day become a gigantic conglomerate," says an Inditex executive.

His ambition became evident in a few whirlwind months starting in late 1989. Zara opened its first store outside Spain (in Oporto, Portugal), its first store outside Iberia (Paris) and its first store outside Europe (New York). "That was as clear a sign as any that he did not intend for his company to stay small," says the executive. Today Inditex is still closely identified with Europe, where 80 percent of its 1,160 stores are located. There are 70 stores in Latin America and 65 in Turkey, Cyprus and the Middle East. So far Zara has just four stores in Canada, six in the United States (all in the New York City area) and 15 in Asia (all in Japan), but that's changing. Company executives told NEWSWEEK that Zara plans to open two stores in Miami in the coming months, and has its eye on space in several California malls.

The growth spree that Ortega set in motion is far from over. The company has deliberately left enormous room for expansion. Zara is currently using only half of its cavernous space (5.4 million square feet) at the parent company's high-tech distribution center outside La Coruna. The huge 16-factory complex surrounding this centro logistico is itself surrounded by vacant lots owned by Inditex, which are ready for new factories. There's more factory land-in-waiting at other Inditex properties north of La Coruna and outside Spain's design capital, Barcelona.

Zara figures all this production muscle will soon be pumping out its trademark fashion on the fly. Zara reps attend the ready-to-wear shows in Paris, New York, London and Milan, and do quick sketches as models come down the runway. Or they snap digital photos and zap them back to La Coruna, where designers are in constant contact with Zara stores around the world for additional tips on what's hot. (Customers are "our accomplices," says Zara chief Jose Toledo.) Designers churn out drawings, patterns are made and material cut--all on site. The sewing is contracted out to 400 workshops around La Coruna or nearby in Portugal. The finished clothes are shipped out of Zara's distribution center--by truck for Europe, by air for the rest of the world. The center sends a shipment to each store twice a week (compared with once every 12 weeks for some competitors) and sends only small batches. That makes it possible for Zara stores to operate with small stockrooms, or none at all, and dramatically lowers inventory costs. It also gives every Zara style the cachet of a limited edition and keeps loyal customers coming back to see what's new. Style is as important as speed. Though it is much larger, H&M employs 60 designers, 140 fewer than Zara, according to Deutsche Bank European Equity Research.

Ortega's vision of fast fashion reaches its frenetic extreme not at Zara, a stylish anti-Gap that combines trendiness and moderate prices, but at its sister chain, Bershka. Aimed at girls 12 and older, Bershka clothing is cheap, ultratrendy and shamelessly ephemeral. The stores throb with techno music. Wall-mounted screens appear almost to explode with funky videos. There's a salon where you can get a hairdo, a tan or a (removable) tattoo. At the "Meeting Point," there are CD listening posts, a soda machine and kids text-messaging one another on mobile phones. Above the din of the Bershka at La Vaguada, a Madrid shopping center, 18-year-old Ana Santiago admits to spending about $130 a month on clothes, most of it at Bershka. "I buy here because the clothes are very trendy, especially for going out," says Santiago, a law student.

The next big target for Zara is pretty basic: underwear. In Spain and Portugal last week, Inditex began rolling out the first stores in a new chain, Oysho, which it plans to expand globally at the rate of about 40 stores a year. Oysho will do for undergarments what Zara has done for the rest of the wardrobe, says Castellano, adding, "We think lingerie in Europe is 20 years behind other ready-to-wear."

No one in La Coruna knows much about the man who launched this empire. Longtime employees say he hasn't changed much from the unschooled but brilliant young man who founded the original Zara store, where he'd come around with Spanish omelets for the staff at lunchtime on Saturday. Today he's got a company jet (which he lends out for medical emergencies), 25,000 employees and a lovely pazo, or country house, in the mist-shrouded hills outside La Coruna.

Now the founder is preparing his succession. According to Castellano, Ortega did not take Inditex public because it needed cash to boost its image or pay off debt (it has virtually none). Rather, he went public because as he neared retirement, Ortega knew he needed gradually to relinquish control. "Amancio Ortega is the guiding light and a very strong presence, but he is not involved 100 percent in the day-to-day running of the company," says Castellano. The IPO, he says, was "about the future of the company," about preparing Inditex for life after Ortega.

At the time of the IPO, the local newspaper, La Voz de Galicia, scrambled to learn what it could of Ortega, and came up empty-handed. "Of Amancio Ortega, we know very little," it said. "We must be content with what we can learn from his empire sewn of such fine cloth." It's an epitaph Ortega would be proud of. His senior executives say he always wanted to be known for the company he built. With Inditex at the top of its league and the Zara model making waves in the fashion business, he's already left a bigger legacy than he hoped for.

With Anna Kuchment in New York, Mar Roman in Madrid, Leila Moseley in London and Dana Thomas In Paris