The Mark Of Zara

The chain's prices--and two-week leap from runway to stores--are winning fans as it expands in the U.S.

It's early Thursday evening, and almost all 250,000 residents of La Corua, Spain, seem to be out on Calle Real, either downing glasses of the pungent local white wine in bars or eyeing fashion boutiques. One shop attracts a crowd--Zara. Twice a week, the store receives a delivery of clothes, and today is Z-day. "I come every week to see what's new," says Pilar Alonso Risteos, a 23-year-old tax collector standing in line to purchase a snazzy frilled dress.

Can Z-day cross the ocean? In the two decades since its founding in this rainy northwestern port city, Zara's parent, Inditex, has used a powerful combination of sophisticated fashion, budget pricing, fast logistics, and unconventional marketing--that is, almost none--to build a chain of 937 stores in 31 countries. The company rings up some $2 billion a year in sales, almost exclusively in Europe.

Now, Zara, with its legions of European fans--mostly twentysomething women--is hoping to make a similar splash in the U.S. It plans to build up its current four U.S. stores to 40 within three years. And some analysts predict that that number could grow tenfold. Inditex CEO Jose Mara Castellano is also thinking big, comparing Zara to some of the biggest fish in the retail sea. "Even though Gap is more casual, both of us share the goal of becoming global retailers," he says.

TIGHT CONTROL. Zara, which competes side by side with Gap in many European malls, has a long way to go before catching up with its much larger rival. It offers "disposable fashion," with prices ranging from $33 for a red tank top to a black blazer for $145. But European retailers have often found the U.S. market notoriously tough, says retail consultant Howard Davidowitz. "Galeries Lafayette? A disaster. Benetton? Closed three-quarters of its U.S. stores," he notes. "The U.S. is not an easy game."

Believers insist that Zara will be a contender. One reason is its accelerated fashion schedule. Employing an army of 200-plus designers, Zara produces 12,000 different items a year. The fabric is cut in Zara's factory, then subcontracted out to local workshops for stitching. The company offsets the higher costs of European labor by avoiding markdowns, keeping inventory to a minimum, and spending little on marketing. "If anything, Zara is nimbler and faster to the market than Gap," says retail analyst Keith Willis of Goldman, Sachs & Co. in London. "That will be important as fashion trends globalize."

Tight control over design and production allows Zara to take a trend from catwalk to store shelf in as little as two weeks. Rival Gap Inc. takes about a year, albeit on a much larger scale, and the company is trying hard to get that process down to six months. "Gap is quite aware of Zara and knows that it must focus on reducing its time to market," says Marcia Aaron, a retail analyst at Deutsche Bank. Gap officials declined to comment.

The chain's most potent advantage may be its salespeople, who act as grass-roots market researchers. Each carries a Casio wireless organizer that is used to punch in trends, customer comments, and orders to headquarters. If an item does not sell, it can be off shelves in weeks. If it is successful, Zara designers know immediately and can churn out new versions in myriad colors. This year, Zara sold a pink men's dress shirt. Customers suggested they would prefer purple. Zara's in-house manufacturing sped into action. "We were able to get the new shirt into the stores within two weeks," says Jose Toledo, director of Zara Homme.

Zara has already tapped its sales-staff research to adapt to the U.S. As a result of the trend toward casual attire, new products such as T-shirts and khakis, which compete with Gap's basic look, joined Zara's European look. The mix works: 1999 results showed a 25.5% rise in sales and a 33.7% rise in net income, to about $200 million.

Still, Zara isn't tinkering much with its basic model. It plans to continue its no-advertising policy, for instance. Zara depends mainly on its stores' elegant front windows to sell its merchandise. In New York, Zara has four outlets, including one on Fifth Avenue and one in SoHo. At the store on 34th Street, the company tore out the entire interior, added marble-like floors and high-tech lights to create a stunning 10,000-square-foot emporium. The crowd, mostly in their 20s, also includes more mature businesswomen. "You feel like you're in a classy European boutique," says Dyann Klein, owner of a theater- props company, as she eyes a $33 pair of black stretch pants. "This would cost $350 at Prada," she says.

Overseeing all these details is Zara's secretive 64-year-old founder, Armancio Ortega, who, with the rest of his family, owns 100% of Inditex' stock. One reason Zara may shun advertising is that Ortega, who began his career almost 40 years ago as a lingerie maker, doesn't much go for it himself. For example, he never gives interviews. "We are a big company in a small city, and Mr. Ortega prefers to stay anonymous and live an ordinary life," says CEO Castellano.

Ortega and his executives do worry about how to maintain lean logistics as the company grows. Zara supplies its American stores by air from Spain. Castellano says he plans to add stores primarily in major U.S. cities. "If we had a bigger American network, we would have to open a factory in Mexico," he says.

So far, Zara is a niche player in the U.S. "Not a heavyweight--more like a wannabe," says Kurt Barnard of Barnard's Retail Consulting Group. But shoppers are finding Zara's mix of fast fashion appealing. Barbara Marreo, a shopper in a New York Zara, came in wearing a Gap T-shirt. "I like Gap for casual clothes, but this is much sexier, " she says. And that may be how Zara makes its mark.

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