Report: Inditex's all-powerful machine still running like clockwork
Hardly a building was left standing in that summer of 1943. Following the arrest of Mussolini, Milan became the principal target for allied air raids in Italy. A few metres away from the Piazza del Duomo, one of the scarce survivors of that summer still stands tall to this day: the Astra cinema, which had been built to resist military attacks only two years before the bombs started falling. Today, the auditorium, which is situated at 11 Corso Vittorio Emanuele and was previously managed by media giant Metro Goldwyn Mayer, is an enormous 3,500-square-metre Zara store which pays hommage to its cinematic past. From Fellini to Visconti and Rossellini, the objective of Italy's neorealist directors was to reflect the socioeconomic reality of the present, just like the snapshot that changes everything in Antonioni's Blow Up, which premiered in the Astra cinema. In many ways, Spanish retail giant Inditex, whose sales rose 3% to 12.025 billion euros in the first half, still shares the obsession of these Italian directors: for this company, it's all about responding to the needs of our time. And in Amancio Ortega's book, time is money.
Pablo Isla, the quiet man behind the Inditex powerhouse
Milan, 5th September: on the Corso Vittorio Emanuele, the high street which connects the majestic Duomo with the Piazza San Babila, an imposing facade spells out "Cinema Zara" in Hollywood lights. A few metres away, an outdoor cinema open to the public shows classic Italian films. There are only 24 hours until the relaunch of the iconic Milan Zara store, first opened in 2002 through a partnership with Italian company Percassi. 16 years on, the joint venture with a local partner that controlled 49% of the business is ancient history: Inditex now operates 392 stores in Italy, 100 of which are Zara locations, the company's flagship brand.
Impervious to the cinematic glamour which seems to surround the company's renovated location in Milan's Quadrilatero della Moda, Inditex's CEO is making a speech to a handpicked crowd of 80 or so in the adjoining Zara Man store. According to the Harvard Business Review's 2017 rankings, he is the best CEO in the world. But Pablo Isla is, above all, a discreet man. This event in Milan – currently putting the finishing touches to its red carpet next door – is an exception in his diary. Despite having opened more than a store a day since his arrival at the company (over 4,000 in just under a decade), he never attends openings, preferring to visit the stores further down the line in order to get a real idea of how things are coming along. Wearing plastic-framed glasses, a blue suit and a white shirt, but no tie, the man that has been piloting Amancio Ortega's multinational business since 2011 is giving a calm and unhurried speech, choosing just the right words to celebrate the flagship's reopening and outline the company's main growth targets for 2020, a key year for Inditex.
Apparently unperturbed by the ratings of Morgan Stanley analysts who have been questioning his business model over the last few days, leading to a 5% fall in the company's stock value, the CEO speaks about sustainability and Inditex's RFID project. And then, just when the audience thinks there's nothing new for him to say, Isla drops a bombshell that will shake the company's competitors to their core over the next few days: "All of Inditex's brands will be available for purchase online from anywhere around the world in 2020, regardless of whether we have brick-and-mortar stores in the market." Pablo Isla steps down from the podium and courteously responds to questions from the assembled media. He does not, however, stray from the official line. At his side, Jesús Echeverría, the company's chief communication officer, regulates the flow of information. "There are no further details for now," he says. The journalists already have their headline and Inditex keeps on top of its timings – and the media agenda.
Inditex's worldwide ambition
A Murano glass spider lamp hangs in a lobby crowned with an imperial staircase which gives access to the different womenswear and kids sections, decorated with Italian marble in shades of "Breccia Aurora" and "Rosso Verona". This is the new Zara Vittorio Emanuele, designed by Elsa Urquijo Architects. It's a majestic building which highlights Inditex's ability to incorporate its stores into classic architectural spaces, while respecting, as far as possible, their history and tradition. But these luxurious surroundings hide the real ace that Zara has up its sleeve as it takes on its upcoming projects: the integration of its brick-and-mortar network with its online platform. It's what they're calling the shopping experience of the future.
At least that's what the employees of Estonian technology and logistics company Cleveron said as they proudly presented the automated collection points they had developed for Zara. "You just have to select the option when you make your online purchase, then go to the collection point and scan the QR code or enter the PIN sent to you by e-mail to receive your order in seconds," they explained. An audience member played the part of a customer for the demonstration and once the process was completed, the terminal's screen opened as if by magic and delivered a cardboard package just like a vending machine. The audience was thus given a sneak peak of the workings of the intelligent system, which can manage up to 900 orders at the same time and until now was only installed in Zara locations in Stratford (London) and Marineda (A Coruña). The demonstration took place on the morning of Thursday, 6th September, when the managers of Zara's different departments led guided tours of the new flagship before its grand opening.
"It's a unique store," Isla had pointed out the day before. "A benchmark for our distinctive model of integrating physical and online retail." Accordingly, e-commerce also plays a leading role in the store through the new "online" section, located on the Milanese flagship's second floor. Here customers can access a selection of the brand's latest products and purchase them through its e-commerce platform. The initiative aims to enhance the shopping experience by streamlining the purchasing process, while also allowing customers to see and touch pieces in situ. The online section also allows Zara to work with integrated stock, thereby reducing the volume of left-over merchandise subject to markdowns and transforming the store into a small-scale logistics platform, with orders managed and fulfilled by the point of sale itself. Currently, this model has already been implemented in 25 out of the 48 markets in which Inditex operates brick-and-mortar stores, with 12% of the company's total revenue coming from e-commerce and around 30% of online orders being picked up in store. In the second half of 2018, the group upped its store closures to end with a total number of points of sale of 7,422. The strategy was to readjust the distribution network in accordance with the group's commitment to its omnichannel focus. The result? Reduced waiting times and customers who can access the products they want, when they want them.
"We control all of our products, our sales volume, our returns... in real time," stated with satisfaction one of the company's product managers, who works at Inditex's HQ in Arteixo. From there, all of the data can be monitored, as well as the e-commerce reports. An enormous wall in the online team's workspace displays figures from Google Analytics in real time, figures which hit a record of 249,000 orders processed in one hour on Black Friday 2017. "We've analysed all of the data in order to be able react as quickly as possible," added the product manager. In order to get to this point, Inditex invested 1.5 billion euros in the readjustment of its distribution network and the development of technology last year. The company is reaping the benefits of this investment through the development of RFID (radio-frequency identification), which allows Inditex to know where any given product is at all times, as well as the number of units per store, information which will be fundamental for the successful implementation of an integrated stock system in all of the company's stores by 2020.
In the competitive and frenetic market of fast fashion, Inditex keeps up by presenting new products twice a week and aims to create (or reinterpret) new trends in less than a month. For the company, analysing the behaviour of consumers, both in store and online, is fundamental, as is working with local suppliers. Currently, most of Inditex's basics are produced in China, while fashion collections are manufactured in neighbouring countries such as Portugal, thereby reducing waiting times and distances. Under these circumstances, the company's creative freedom and capacity for renovation is practically unlimited, even allowing for the creation of capsule collections designed for a store or a special occasion.
Speaking of which, the new employees of the renovated Zara Vittorio Emanuele were kind enough to point out a transparent vinyl bag decorated with the store's address and a fuchsia fake-fur coat, pieces that had been designed by the Italian team specifically for the Italian consumer and which sold out in a matter of days thanks to their unique character. In terms of media impact, Inditex knows what it's about. If they're looking to make money, influencers need not apply: "we might invite them to an event or give them a piece, but our policy is not to pay influencers," states the company. And it's simply because Inditex doesn't seem to need to do so for coverage of its products to flood social media, quickly transforming them into hot picks for millennial consumers.
Above all, it's the impressive level of technological integration that characterises Zara's Milanese megastore, which has interactive mirrors in each of its 61 fitting rooms. These mirrors are also RFID enabled, permitting them to identify the items that customers are interested in and display different suggestions or complementary pieces as selected by the design team. What's more, all of the information about Zara's collections is constantly updated on in-store screens, one of which is 9 metres high, another 21, rising through all of the store's floors. However, technological innovation is not the only thing that's new for Zara in Italy. The brand has also incorporated a 150-square-metre showroom on the top floor of the store, where it will make presentations. When asked if the initiative would be expanded to other markets, Inditex managers responded with a terse smile: "all in good time..."
Marketing and eco-efficiency
"At Inditex we monitor everything, from the air conditioning in our stores to their lights," explained a manager from the company's environmental department, iPad in hand. "With this I can find out the temperature of a store in NY and change it, if necessary, as it should always be between 20 and 25 degrees." This could sound like a simple case of technological bragging but it's also one of the cornerstones of Inditex's sustainability strategy which allows the company to work towards reaching its environmental goals with greater precision.
A decade ago, the group presented its internal eco-efficiency manual which contains a list of rules that must be respected in all Inditex stores wherever they may be in the world. "We always use LED lights, with automatic lighting programmes which adapt to the store's operations, reducing the light by 66%, for example, during cleaning times," explained the Galician-born Inditex employee. "The plastic that we protect our merchandise with when it's being transported is very high quality and company policy is to reuse it," added his companion.
In the new Zara Vittorio Emanuele, some of the features are truly cutting edge, following the guidelines laid out by Pablo Isla: "Inditex will be a fully integrated, fully eco-efficient and fully digital company". Numerous measures should help the flagship achieve a 40% reduction in water consumption compared to a traditional store, as well as a 20% reduction in electricity usage. To achieve its objectives for 2020, the company is prioritising recycled and locally sourced materials, as well as pushing forward with its Join Life label, which also incorporates recycled materials into its merchandise. In a way, Inditex has condemned itself to live in something of a permanent state of contradiction. But as it tries to maintain the difficult balancing act between a model that has been perfectly designed to cater to the needs of fierce consumerism and the desire to implement it in accordance with its environmental responsibilities, Inditex is moving forward, one step at a time. Whether it wants to or not, at this point it doesn't really have a choice.
On Wednesday night the Astra cinema – now Zara – opened its doors once more. Guests descended the entrance's staircase to the strains of an orchestra, while static models showcased the brand's star products. The guests promptly threw themselves upon the carefully laid out merchandise, before crowding into the fitting rooms and finally making their way to the checkout with their purchases. They want it all, they want it now. Amancio Ortega's perfect machine is still running like clockwork.
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