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Success without sweatshops
  Zara does things differently
  Founder makes a mint
 

Zara, a Spanish success story

LONDON, England (CNN) -- In an era when clothing retailers outsource much of their manufacturing to developing countries, one Spanish company is having enormous success doing things differently.

While retailers concentrate their money and efforts on building a brand image through advertising campaigns, their lack of control over sub-contractors has left many open to accusations of using sweatshop labour when unacceptable practices are uncovered at factories producing their merchandise.

Many campaigners against sweatshop labour question the economics of outsourcing production and point to the likes of Spanish fashion chain Zara as an example of how things could be done.

Possibly the most innovative and devastating retailer in the world
LVMH fashion director Daniel Piette on Zara

"Control over production facilities was given up by major American firms coincident with the shift of most shoe and apparel production to authoritarian countries. Most consumers are now aware of the untoward results of this major change," Jeffrey Ballinger, a Harvard researcher and director of pressure group Press for Change told CNN.

"Zara, on the other hand, has turned control over garment factories into a competitive advantage," said Ballinger.

The Spanish firm not only sells clothes but also designs and makes them. It has never run an advertising campaign, yet has more than 1,000 shops worldwide.

As it makes the clothes itself, it can react quickly to changing market trends. While others, including rivals Gap and H&M, take up to nine months to get new lines into their shops, Zara takes just two to three weeks.

Its success has led to it being described as "possibly the most innovative and devastating retailer in the world," by LVMH fashion director Daniel Piette.

"It's really quite exciting to see a new model like this -- one that actually breaks all the rules of the apparel industry as it has developed over the last two decades: contract out all production and spend obscene amounts to advertise your brand," added Ballinger.

So what is Zara's secret?

The company's success lies in it having total control of every part of the business. It designs, produces and distributes itself.

Everything is co-ordinated from its headquarters on an industrial estate in Sabon-Arteixo, outside La Coruna in Spain.

By controlling the entire process from factory to shop floor, Zara can react quickly to changing fashion trends and customers' tastes, providing a "newness" that has taken Europe by storm.

Sales in 2000

 • Inditex $2.43 billion
 • H&M $3.2 billion
 • Gap $13.6 billion

It designs, picks and cuts the cloth before sending it to workshops and co-operatives in northern Portugal and the surrounding area of Galicia for sewing.

The clothes are finished off at La Coruna before being shipped out twice a week to all its shops.

"Investment banks used to say that this model did not work, but we have shown that it gives us more flexibility in production, sales and stock management," said Inditex chief executive Jose Maria Castellano.

Shoppers addicted to the Zara brand know exactly when the deliveries will be arriving at their local shop and some even turn up before opening time on delivery days to be the first to pick up the latest lines.

With its range of clothes constantly being updated, one or two unpopular items are unlikely to hurt its profits and customers are more likely to visit its shops regularly to see new stock.

Increase in sales in 2000

 • Inditex 28%
 • H&M 9.2%
 • Gap 17.5%

Zara shop managers report back every day to designers in La CoruŮa on what has and has not sold. The information is used to decide which product lines and colours are kept or altered and whether new lines are created. All this happens in the space of just a few days.

The efficiency of the system means the company can keep costs down by keeping stocks low. Its design team produce an incredible 11,000 different designs a year.

Customers also have direct input into what the shops sell as their feedback is sent back to the designers too.

Castellano has called this the "democratisation of fashion."

No advertising

The other trend-bucking aspect of the company's business model is its approach to advertising.

Fashion retailers spend on average 3.5% of revenue on advertising their products, while Zara's parent company Inditex spends just 0.3%.

Have you ever seen a Zara commercial on a billboard or on TV?

The company's founder, Amancio Ortega, believes advertising is a pointless distraction. Once when a famous Spanish actress asked to do a photo shoot in one of his shops, Ortega said no and scolded the newly appointed executive who suggested it would be good for the firm. "You haven't got the idea yet have you," he said.

The company believes that its shop windows, the contents of which are also decided in La CoruŮa, are all the advertising it needs.

The philosophy seems to have worked. As of late last year, Zara had 350 shops in Europe, 18 in the Middle East, 52 in the Americas and five in Asia. With roughly 40% of Inditex shops, Zara brings in about 80% of the group's revenue. There are now about 1,100 Inditex stores in the world, and a new one opens every other day.

The company's success is proof that it is still possible to build a massive brand by doing no more than meeting a market need.

It has achieved this without any advertising or promotion and without outsourcing its manufacturing to countries where labour is cheap.



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• Inditex
• Press for change

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