The Benetton Of The '90s?

On a recent Saturday in Paris, the Benetton store on the Champs Elysees is nearly empty. The young, trendy women the Italian chain courts are busy shopping two blocks away, at a new boutique called Zara. They're snapping up smart double-breasted jackets and skintight, white summer dresses that are both fashionable and cheap. Such clothes are making Spanish-owned Zara one of Europe's hottest retail chains.

Consumers in Europe and the U.S. will be hearing a lot more from Zara. The chain, which started in La Corua on Spain's northwest coast in 1975, generates almost $1 billion in revenues from 158 locations in seven countries, including the U.S., Mexico, and Belgium. Yet almost all are in Spain. Now, Managing Director Jose Mara Castellano wants to enter the arena of big-time international retailers by opening 75 stores outside Spain through 1997. By the end of the century, Zara intends to be a familiar destination in France, Italy, Germany, Britain, and America.

It's a gutsy plan that's tough to execute. Although retailing looks simple compared with more high-tech industries, successfully expanding a chain internationally calls for savvy marketing, sophisticated manufacturing, and precise inventory control. And Spain, long a protected market, has not bred many managers adept at aggressively exporting and marketing a product.

Yet Zara has a shot at succeeding, thanks to a Spanish management team that draws freely on the best practices of world-class companies. Castellano, for example, is a native Spaniard with plenty of experience working for multinationals. He put in stints first with Dutch insurer Aegon in Spain, then as general manager for Conagra Inc.'s Spanish operations. Hired by Zara founder Amancio Ortega, Castellano went on to graft the rich textile tradition of the La Corua region to the fast manufacturing techniques that have worked for Gap Inc. and others.

Castellano's specialty is updating styles constantly and rushing them to stores. At La Corua, where Zara factories and subcontractors make 60% of the retailer's products, a new item, such as a pair of women's shorts with polka dots, can go from design pad to shipping dock in 10 days. New products flood stores every week, sometimes changing inventory by up to 30%. Zara keeps customers coming back for new twists in style. "We're competing against time," says Castellano.

Zara's expansion will depend heavily on a time-saving distribution and warehousing system recently acquired from a textile affiliate of Toyota Motor Corp. A 60-kilometer conveyor belt snakes through the huge La Corua complex, speeding apparel already on hangers into waiting trucks. Air shipments depart twice a week to locations as far away as Mexico City.

"WORKSHOP" CULTURE. Rivals are impressed by Zara's aggressiveness. "They've built a nice brand," admits a Benetton official. "They respond rapidly to local demand with quality products." But she doubts that Zara's "workshop" culture of frequent style changes can succeed against Benetton's empire in 120 countries. In the U.S., shipping logistics and different American tastes could limit growth, predicts Kurt Barnard, publisher of Barnard's Retail Marketing Report.

Castellano thinks the Toyota system will solve logistical problems by cutting back on packing and assembly costs. He also saves money with Zara's policy of no advertising. Instead, the company relies on prime store sites such as the Champs Elysees to lure shoppers. Its New York store is opposite that shopper's mecca, Bloomingdale's. Yet at that location, Zara is still in the red after five years, partly because of high rents, says Castellano. Three suburban New York outlets, he adds, are profitable. Zara runs all its own stores.

Zara accounts for 90% of revenues for its parent, privately held Inditex, which earned $75 million last year on sales of $915 million, according to the company. Zara's growth should propel Inditex sales to $2 billion by 1997, Castellano says. "It's a state-of-the-art company," says equity analyst Julio Mas of Madrid brokerage FG. "They've got strong growth potential."

Zara's founder and major owner is the publicity-shy Ortega. Insiders say he wanders the company's stark, wood-paneled offices that overlook the Atlantic, advising designers on their sketches. His advice must be good, because shoppers from Brussels to Mexico City are snapping up Zara's clothes, making this retailer one of Spain's few international success stories.