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Zara is Europe's answer to Gap: It's democratizing chic European style just as Gap popularized American casual. More important, Castellano and Zara are revolutionizing the slow fashion world. Instead of four collections a year, Zara changes styles in a mere two weeks. In his spacious, shining office in the just-finished Inditex headquarters outside of La Coruna, Castellano explained his company's high-speed fashion company to Business Week's William Echikson. Q: How do you compare Zara to Gap? A: Gap is more casual. We are more fashion-oriented. Gap also has the advantage of the huge American domestic market. We had to go abroad faster. The two companies are complementary. We don't fight with Gap in the marketplace, because our customer target is different and the clothing is different. But Gap is important because it is a peer -- another retailer trying to create a global brand. Q: Your logistics are legendary. How do you produce everything in Spain? A: From the very beginning, we wanted to manufacture ourselves, to control our own destiny. We soon saw that we could manufacture ourselves and be competitive in costs -- while delivering goods faster. We deliver goods in a maximum of 21 days. Gap is much slower. That's because we control our own process. We actually produce about 60% of our clothes right here in La Coruna. About 90% comes from Europe and only 5% percent from Asia. We are a vertically integrated retailer. It's also important for us to control our store network. We don't believe in franchises. We control the majority of our shops. Q: Why is it so important to change fashion so quickly? A: It keeps the company fresh and close to the customers and limits the risks of making a mistake with a fashion. By delivering twice a week, we can see what is working in a short period of time and adjust. This company is flexible in other ways, too. We can go into a market fast. Most importantly, it reduces stock. This has been a big problem for Gap. We don't need to order 1,000 suits from China months in advance. We can order a few, see how they sell, and then order more. In fashion, stock is like food. It goes bad quick. So the key is to minimize your inventory, and our system does it better than anybody else's. Q: But how can you compete in manufacturing in expensive Spain against low-cost China? A: It's true, you can manufacture in China much cheaper. But to order garments from China, you need a long lead time. Gap can do that because it sells a lot of basic products. But Zara is a fashion retailer. We want fashion now, and we deliver fashion now. And coming from here, we have other advantages. Our transport costs are not large. We have a well-trained workforce and a tradition of sewing and manufacturing garments. Remember, too, we don't do everything ourselves. We only cut the raw material ourselves and deliver it to workshops in Galicia that do the final sewing and assembly. Q: But as you grow bigger and bigger, will you be able to stick to the same strategy? A: Until now, logistics have not been a problem. But in the future, say when we reach 1,000 shops, it could become a problem. We will have to see. Q: Are you similar to Benetton, which also does lean manufacturing? A: No. Benetton focuses on knitwear. They don't have their own shops. They franchise. We once did a joint venture with them to find stores in Italy, and it didn't work. That's a pity, but we were too different. Q: Are the shop managers important to the system? A: Yes, essential. The shop managers are always in contact with the design department. If they see a garment is selling or that a different garment or different color or style is needed, they can send messages to both the commercial and design departments. This keeps us close to customers. Q: How did Zara start? A: For us, the beginning was just to work here in La Coruna and Galicia. Spain was our global market. Our first workshop was in the main shopping district of the town. When I arrived, we had three factories and were opening shops in neighboring towns. Then we went to Madrid. The success continued, so we went abroad pretty quickly afterwards, first to Portugal and then to New York. We never imagined the company could become this big. From the very beginning, our idea was to speed up fashion. This increased turnover of the stock and created a virtuous circle. Q: The founder of Zara, Armando Ortega, is secretive, rarely appearing in public and never giving interviews. Why? A: It is very easy to understand. We are a big company in a small city. Everybody knows Mr. Ortega, and he prefers to stay as anonymous as possible. He is not secretive or eccentric. Perhaps if we were located in Paris, it would be different. Q: How important are computers and the Internet to your company? A: We have a computer network connecting all 1,000 shops to the headquarters. We have logistics control and our own software. Our plans are to be on the Internet. In the U.S., it is impossible to live without the Internet. I believe it is less important in Europe, particularly here in Southern Europe. Our business department is working on Internet plans. In the future, e-commerce will be part of our core business. But I have no timetable for you. Q: How do you plan to sell clothes online? A: We have advantages. We manufacture our own products, and we can do a powerful combination between clicks and mortar in our stores. But we must remember that shopping is a social activity for Europeans. Fashion still is not such a big thing on the Net. People want to touch clothes, to see the colors and styles. Q: What is your advertising strategy? A: We don't advertise. We don't spend money on publicity, and we are not going to change. We spend money on location and our stores. Our best advertising is in our display windows. This is our television. From the beginning, this strategy has been central to the company. Q: Is fashion retailing changing and becoming more international? A: Yes. Italian companies went abroad before us. Now Spanish companies are following them. There's not just Zara. There's also Mango and others. Fashion is becoming a Europe-wide concept. Does a German dress differently from a Spaniard? In the past, definitely. But no longer. For us the problem in the U.S. is that only about 10% of the population is aware of European fashion. The rest of the population is more casual. None of this is to say that Europe is more homogenous than the U.S. There is no Pan-European pricing, no Pan-European taxation, no Pan-European real estate market. Salaries are different in Spain and the U.K., and our prices must reflect this difference. That's why we keep our prices different in each national market. We won't have the same prices in Spain as in England. Customers accept this. Q: Are you finding it more and more difficult to find good store locations? A: Yes, real estate is important. We are growing about 150 shops a year, and that is about the maximum we can do. We just don't have the human resources to do more. We also have to renovate our shops. We spend more than $380 million a year on shops. The customer expects new layouts. He doesn't want to be bored. Q: What is your brand strategy? A: We are like Gap. We have different brand names and styles for different customer targets. Gap has three different brands. We have five [aside from Zara]. We have Stradevarius and Massimo Dutti for upscale mature customers, and Pull and Bear and Berschka for teenagers and young adults. In this way, we can get customers young and hold them throughout their lives. But Zara accounts for 82% of our sales. It is our only brand in the U.S., and it will stay that way for the foreseeable future. Q: What are your American ambitions? A: We opened our first store in New York back in September, 1988. It was like opening in London, Milan, Paris, and Tokyo -- another window onto the fashion world. We stayed with one store for a while in New York. But recently we have started building up there and have six stores. Our plan is to grow in Boston, Chicago, Miami, and other main cities. We will have 50 shops in 10 years. If we do more, we would have to open a factory in Mexico, and we're not ready for that. Europe remains our priority. The logistics are easier for us in Europe. The exchange rate is much more volatile across the Atlantic. The new euro gives us a single currency in 11 countries. And the American market is so big and complicated, with such strong competition. The customers are different from Europe. Q: Where in Europe will you concentrate? A: England and Germany are the big opportunities. We still only have two shops in Germany. We could have 100 within a few years. In Italy, we hoped Benetton would help open the market for us. But we didn't find the right store locations there. So we have no plans to open in Italy. Q: What about taking the company public? A: All the investment bankers are talking to us. We have no need to go public from a financial point of view. But we want to go public next year, from the point of view of the future of the company. Mr. Ortega doesn't have an heir. He has three children, and none are in the company. His youngest daughter is 16, so she could become interested later. But he owns 74% of the company, and the rest belongs to his family. In the future, we think, the market will be the best way of judging how the company is performing. |
