Inditex, the owner of well-known brands such as Zara and Bershka, is one of the largest fashion retailers in the world. Pablo Isla, ex CEO is the key reason behind its success story. Pablo was honored with another recognition recently – he became the chairman of Inditex.
Pablo Isla was named as the best CEO by HBR in 2017 and 2018
Although not particularly well known, Inditex is one of the largest fashion groups in the world by market capitalization. Its brands (Zara, Bershka, Massimo Dutti and others) are valuable and well-recognized. The company is selling its products online to more than 200 countries and has more than 7,490+ physical stores in 96 different markets.
Well-experienced Pablo Isla in front of a great challenge
Pablo Isla joined Inditex in 2005 after already had a formidable business reputation. His previous roles included being co-executive chairman at Altadis and two spells at Banco Popular, one of the largest financial institutions in Spain at the time. His decision to join Inditex was not an easy one. He knew that only few can be successful in this business and that fashion retail sector is under great pressure.
Pablo Isla proves that being humble in business is not really a disadvantage.
Inditex with 26.1 bn EUR in net sales in 2018 reached record high figure. EBITDA 5.4 bn EUR in the same year is increasing at a CAGR 2013-2018 rate of 7%. Net financial debt on equity ratio in 2018 amounts to -46%, attributing to 24% ROE. While Isla deserves a huge deal of credit for these numbers, he has also benefited from the work previously done by company founder Amancio Ortega.
The business empire of Inditex goes back to year 1963, when Amancio Ortega has a modest clothing workshop called Confecciones Goa. Within 10 years, he was employing 500 members of staff and, by 1975, had launched the first Zara store. Ortega recognize the urge to reflect the fast changing industry needs and already in 1984 he invested in a state-of-the-art logistics center and later established a pioneering distribution system.
From humble beginnings, Ortega managed to build a global empire and become Spain’s richest man. He personally chose Pablo Isla to become the CEO and, six years later, selected him to be his successor as company chairman. In 2019 Pablo Isla became Inditex’s chairman. The decision to hand the reins over to Pablo Isla speaks to how highly respected he is.
Although Inditex is now a growing multinational company, the company headquarters are still in the same small town – A Coruña, in the north of Spain – where Ortega launched the very first Zara store.
Pablo Isla’s recipe for business success – “people first”
Pablo Isla stood out as a CEO in many ways with his management style. Despite 30+ years of business experience, including high-level positions at some of Spain’s biggest companies, that would not really be immediately obvious to anyone who has seen him stroll around Inditex’s head office. Pablo Isla encourages an inclusive company culture. He aims to be personable, rather than constantly locked away in meeting rooms. His management style has evolved over time to become less about numbers on a balance sheet and more about building relationships.
Pablo Isla strongly believes that employees are the lifeblood of every company. He also understands that noone is really bigger than the brand itself. He has gained a reputation for being publicity-shy, but he believes this is more a reflection of his beliefs. “I’m gradually learning to be less rational and more emotional. Motivating people and generating a sense of spirit inside a company are essential parts. We need to appeal to our employees’ emotions to help create an environment where they can innovate.”
Inditex’s ex CEO was also known for rewarding the good performance in the company. Only in 2017, more than 25,000 Inditex employees received some form of internal promotion. By encouraging personal development, staff turnover is reduced and company productivity is improved.
Business model that works – “super fast fashion”
Inditex has outpaced its rivals by adopting a unique approach to its clothing lines. The company’s designers are constantly on the lookout for the next big hit, scouring social media and fashion magazines for inspiration. The designs are sent to manufacturers immediately, with the majority of items produced locally to speed up the process. While this means manufacturing costs are higher, it also means new pieces can be in shops in little over a fortnight. In other words, Inditex bets on their trend setting approach.
Inditex targets Milliennials, since this demographic group grew up in a world of online streaming, ride-hailing apps and next-day deliveries and appreciates their innovative approach to the market most. Inditex has been able to achieve such remarkable figures because it allows shoppers to buy the same shoes they saw their favorite celebrity wearing almost straight away, instead of in six months’ time. Due to its size and economies of scale, Inditex’s profits are the envy of many of its competitors. The company operating margins are above H&M’s, Uniqlo’s or even British online retailer ASOS.
Dealing with conscientious consumers
Today, fashion industry is the second most polluting in the world after the oil sector. And the society is not ignoring the damaging impact that the industry is having on the environment. Many are well aware of this and demand higher ethical standards than ever from their favorite brands.
Inditex under Pablo Isla was a champion of sustainability. The retail group worked alongside the Better Cotton Initiative and supported agricultural projects in China and India to help with the development of organic farming. He is also the one behind the idea of garment collection scheme allowing the customers to drop off used clothing at stores so they can be repaired, resold or recycled.
Inditex’s Right to Wear campaign prioritizes traceability, transparency and sustainability. “Right to Wear is how we do business at every stage – operating in a way that is right for our customers, right for workers, right for communities and right for the environment.”
Social programmes have constituted a major part of Isla’s time as CEO. During the past year, Inditex’s investments have directly benefited 1.5 million people through community initiatives and non-profit organisations support. Inditex also has a LBG Framework to measure the impact of its community investments.
Are we about to see a new approach to business expansion?
In 2017, Zara opened its first store in India, a 51,300sq ft retail space in South Mumbai. The Asian retail and luxury markets are set to grow significantly in the coming years and Inditex is well placed to benefit from this fact.
“Despite the fact that Inditex is based in Spain its CEO should always looks to the future with the big picture in mind.” Currently, about 16% of revenue comes from Spain, 45% from the rest of Europe, 16% percent from the Americas and 23% from other markets around the world.
Investments are not focused on new locations only. A stress is given to maintenance investments as well. “Over the past six years we have updated and adapted some 80% of our floor space, further accommodating new technology.”
As well as opening new stores, growth at Inditex has also been built on a forward-thinking approach to online sales. The revenue generated online rose by 41% on year on year basis. It now accounts for 10%+ of total earnings. It seams that Pablo Isla becoming a chairman in 2019 may also be a sign of a new era for Inditex. An era where we will be seeing the investments being focused around the online sales generation.