Stepping Into The Low-Key Fashion Giant Zara, What's Next?

Pablo Isla will no longer be chief executive, but he has not given up control.

In early July, in a well lit room at Zara headquarters in La Coruna, Spain's fast fashion giant, Isla, executive director of Inditex SA, one of the most influential companies in the fashion circle, was sitting on an artistic white linen casual sand produced by Zara Home. The CEO, who served as CEO before July 16th, clearly stated that at least for now, he still represents the company's public image.

In addition to the company's quarterly financial report, Isla also held a briefing session. Inditex admits that he likes to keep a low profile, but he does not recognize the accusations made by the outside world. Others have different views on this.

"This business is basically a small house," said Simon Irwin, an analyst at Credit Suisse, Switzerland. Isla I rarely interview. Strictly speaking, he is not currently interviewed - the company later attributed the restriction to the wrong timing. He came here just to meet and greet: a low profile president with cautious words and words introduced Zara's sustainable development plan under the spotlight, which is also the purpose of this briefing. But he can't help interrupting every once in a while, clarifying a problem here, and making a point there.

In the first ten minutes, Isla gave a further account of the opening remarks of Zara Miguel Diaz, chief financial officer. He said "Miguel explained very clearly" and introduced the company's coordinated and flexible purchasing mode in more detail. Then he said "sorry" to return the opportunity of presentation to the Zara executive team waiting for him.

The announcement coincided with a dramatic change in the Spanish retail giant. In July 16th, the Inditex board confirmed that chief executive officer Carlos Crespo would become the new CEO of the company, which means that the dual title of Isla, CEO and CEO, has been split since 2011.

Inditex has downplayed this great change. Although Crespo is hardly known outside the company, he is actually a senior employee of Inditex. He will continue to report to Isla, and Isla will continue to be CEO. The appointment of Crespo is intended to emphasize the company's commitment to sustainable development and digital transformation (Crespo is expected to focus on those areas) without any significant strategic change.

Despite the slow start of e-commerce, Inditex has great ambitions to adapt to the new digital reality of the fashion industry. Its goal is to sell all its brands online worldwide before next year, and successfully enter the world's first truly global apparel retailers.

Inditex global headquarters data center: Source: Branding

In addition to the appointment of Crespo, Inditex has announced a series of new initiatives aimed at emphasizing its commitment to sustainable development. The company is setting up a commission on sustainable development to supervise the work of the board, and for the first time linked the long-term bonuses of executives to achieving sustainable development goals. At the same time, the company has set new environmental goals.

Isla said to investors at the annual general meeting on Tuesday: "we are eager to fulfill our commitments."

These measures came as a sharp change in the industry brought tremendous pressure to change and adapt to retailers. Including Boohoo Group PLC and other e-commerce start-ups and Amazon.com Inc. and other old giants, including the rapid rise of digital competitors, promoting the growth of online consumption of fashion industry, forcing Inditex and other companies to rapidly update the physical retail mode to adapt to the digital age.

At the same time, the rise of the Internet has improved the transparency of the fashion industry through digitalization to a new level. In addition, the public generally recognized the negative impact of fashion on the environment and society, and promoted the demand of consumers and activists to further open fashion enterprises.

Throughout the industry, brands are increasingly promoting their efforts to improve environmental standards, coping with changes in consumer values and looking forward to stricter regulations as soon as possible.

The success of Inditex is largely attributable to its ability to respond quickly to the ups and downs of consumer demand. The company is starting from its largest brand, Zara, to increase the intensity of sustainable development initiatives.

Earlier this month, Isla told a special correspondent at Zara headquarters: "we want to share this with you honestly."

On the basis of the work that has already been done, the fast fashion giant is putting forward a series of new sustainable development goals, and reiterates its existing goals repeatedly, many of which will get the fastest Realization on its flagship brand.

By the end of this year, all Zara stores will meet the company's eco efficiency standards, reduce energy consumption by 20% and reduce water consumption by 40%. By next year, all brands under the Inditex empire will meet this standard.

Inditex is also increasing its production of Join Life series garments. Labelling with Join Life indicates that this garment is produced in a factory that meets the highest environmental and social standards of Inditex, and the materials or processes used are more friendly to the environment. This year, 20% of Zara's total output is eligible to join Join Life, up from 10% last year. It is estimated that this proportion will continue to increase. By 2020, the total output of the group will exceed 25%.

Inditex is striving to achieve its 2020 goal - "detoxification" for the fashion industry, which is an initiative advocated by Greenpeace. In other areas, the company is working to reduce waste and emissions generated during transportation and packaging. By 2023, the company plans to stop using disposable plastic products when packing for customers. This will require Zara to adopt more sustainable green packaging standards in the entire supply chain packaging. Prior to 2025, the company's goal was to use recycled polyester and ensure that all viscose, linen and cotton production was more sustainable.

The company acknowledges that much remains to be done, and says that more solutions are being explored.

"All work related to sustainable development is in progress," Isla said. Our idea is to build a highly sustainable company step by step.

To some extent, reducing the waste mentality is the Zara's tradition. Founded in 1975, the founder was a small tailor named Armancio Ortega (now he is already in high price and joined the world's richest list). He is confident that he can do better than the retailers who buy his clothes. From the very beginning, he has strictly controlled the supply chain, made centralized decisions on design and distribution, closely followed consumer feedback on products, and responded quickly to signs of fashion trends and changes in consumer preferences.

This smooth and efficient business model helped Zara and its parent company Inditex achieve great success. Today, Inditex has become the world's largest fast fashion retailer. Its net sales in 2018 amounted to 26 billion 200 million euros (equivalent to 202 billion 500 million yuan).

In addition to Zara, Inditex also has Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterq u and other brands. Although Inditex has been unable to avoid the impact of the destructive force of the retail industry, it has experienced the weakest growth in profit in five years in 2018. But in the face of the fierce impact of digital competition, it has performed more brighter than many competitors.

Zara is still the flagship brand of Inditex. Last year, Zara contributed about 70% of total sales of Inditex with Zara Home. Zara's business model still follows the basic principles of the company, continues to pursue speed and efficiency, and keeps a zero waste mentality.

Zara Miguel Diaz, chief financial officer, said: "we follow this demand driven approach in purchasing and use flexible supply chains to minimize the waste of capital and inventory resources." He stressed that in many ways, the company's business team is promoting sustainable development initiatives. "Our ideas, business models and sustainable development goals can and will coexist successfully, and to some extent, they complement each other."

This mentality is also commonplace in the well built headquarters of Zara in La Coruna. In the white and spacious and deep space, the management team monitors the Zara business in the world. The whole system is centralized, so if someone lights up all night in a store in Beijing, the operation manager in La Coruna will find and turn off the lights in Spain.

In one of the rooms, a whole wall projection shows the data analysis of the company's online platform, and divides the consumers who are landing on Zara.com according to the country, and identifies common search terms. In other rooms, product managers sit in front of a row of desktop computers to monitor the sales of Zara's clothing, shoes and accessories worldwide, interpret the data, and feed the information back to the design team. There is also a full-size model of Zara store and a studio specially designed for window display.

In a nearby production workshop, a group of women sat in a glass box and assembled a set of patterns on the computer to find the least expensive spelling. In the distribution center next door, cardboard boxes run efficiently through the complex conveyor belt system.

Andreas Inderst, an analyst at Macquarie Capital, said: "as far as listing speed is concerned, no enterprise can achieve Inditex level."

However, although Inditex has done a good job of reducing waste, the scale of its products is doubtful: what is the sustainability of an amazing enterprise? Inditex believes that its business model does not contradict the goals of sustainable development. The company also said that the huge scale will enable it to make changes, improve efficiency, and push manufacturers to adjust operations to meet the company's sustainable development standards.

Walking along a corridor, there are rows of offices on each side, forming a studio (a total of 31 Studios), and a group of photographers filming the long legged beauty models in the latest fashion of Zara. In one corner, a model dressed in elegant purple pants was sitting idly in a chair. Walking further, there was a model posing in a Peach Satin suit. The costumes will now be sold in a week, and the online sale will be even shorter. These new designs may have been finalized only a few weeks ago.

On average, Zara releases 500 new products every week and 20 thousand models a year. But Isla insists: "we don't think we are producing clothing on a large scale."