European Planning Studies, Vol. 10, No. 4, 2002

RESEARCH BRIEFING

The Fashion Industry in Galicia: Understanding the ‘Zara’ Phenomenon
ARTURO REVILLA BONNIN

ABSTRACT Galicia is traditionally one of the weaker regional economies in Spain. However it is home to one of the most successful global marketing phenomena of the age. Zara, the mid-market fashion arm of the Galician INDITEX Group, is amongst the ‘culprits’ that have been blamed for the demise from high street hegemony of such European retail notables as C&A, Littlewoods and Marks & Spencer. In this paper an analysis is provided of the mechanisms by which this peripheral region has succeeded in producing, from virtually nothing, a globally outstanding retail fashion industry in one of the world’s most cutthroat competitive industries. It is shown that regional, national and supra-national factors have had important parts to play, but that the Galician approach is nevertheless unique, compared to that of other fashion clothing regions. Among the special features at play are high levels of tacit and codi ed knowledge exploitation, integrated design, production and retailing and advanced retail feedback technology that enables anticipation of customer preference. 1. Introduction The fashion industry in Galicia presents different characteristics from that in the rest of Spain. Until the end of the 1970s, the Spanish textile industry was highly protected, oriented mainly towards domestic markets and with a very restricted exporting capacity, in spite of State aids and the competitiveness of its products due to low wages. These factors favoured the growth of a sector that, in spite of this, showed low productivity and high excess of installed productive capacity. The crisis at the end of the 1970s and change in economic policies were the trigger for a strong crisis in the sector and its later transformation. First came a renewal policy, strongly supported by the public sector by means of different restructuring plans. The result of these plans gave rise to an important adjustment in productive capacity and staf ng, and it also made possible the injection of nancial resources to the companies that managed to access industrial aid packages. This, together with the persistence of important import restrictions explains why the Spanish fashion industry kept on showing a positive export balance during the rst half of the 1980s. The entrance of Spain into the European Union (EU) meant an important change because an important tariff deregulation took place and the
Arturo Revilla Bonnin, Sociedade para o Desenvolvemento Comarcal de Galicia (Department of Development Studies), Estr. Santiago-Noia, km 3 (A Barcia) 15896, Santiago de Compostela, Spain. E-mail: arevilla@cetadec. net ISSN 0965-4313 print/ISSN 1469-5944 online/02/040519– 09 DOI: 10.1080/0965431022013021 1 Ó 2002 Taylor & Francis Ltd

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policy for export promotion was eliminated. At the same time, a restrictive monetary policy was implemented. The main consequences of this policy were high interest rates, which negatively affected business costs, and the peseta revaluation, which meant a negative impact in the foreign sector. However, the disappearance of protectionism favoured the introduction of cheap products coming from developing countries, which occasioned a loss of market share in the domestic sector. The Spanish fashion industry reaction was swift in giving strong support to quality, design and foreign markets. Compared to the rest of the European continent the case of Galicia is interesting because the textile industry and, particularly, dressmaking are something very recent and without the tradition found in other Spanish regions like Catalonia or Valencia, which have strong craft and industrial capabilities. In less than 20 years, this industry has become one of the main assets of the Galician economy, one of the most dynamic sectors, with prestige and positive future prospects, companies quoted on of cial stock markets. Moreover, companies have a high degree of production internationalization in addition to their great capability in penetrating national and international markets. In the 1980s, a technologically advanced industry developed supported by a joint promotion under the Galician slogan ‘Galician fashion’. It was from this point that the sector was given recognition of its high priority within the national economy and, in particular, in the Autonomous Community of Galicia. At present the development of this activity has turned into an established, consolidated and innovating sector constituted by those companies that have known and shown how to mix in a succesful way factors such as productive capacity, design, quality and marketing control. 2. The Structure of the Galician Fashion Sector Analysing the structure of this sector in Galicia, we can essentially distinguish companies dedicated to marketing and companies dedicated to manufacturing. Within the subsector of marketing companies, another distinction can be drawn between those dedicated to dressmaking and those focused upon knitwear. The manufacturing companies developed their production capabilities by means of cooperatives, non-cooperative workshops or by contracting to domestic producers. Accordingly, these also constituted a fundamental pillar for the development of the marketing rms. Most of the employment is accounted for by manufacturing and dressmaking subsectors, whereas the greater volume of sales takes place in the subsector of dressmaking, followed at a great distance by the knitting sector. These subsectors base their offer on ready to wear products and markets, with a high added value and a strong component of design-fashion. Statistically, the main emphasis of the Galician textile sector is thus towards dressmaking, which represents more than 75% of the output by value developed by the sector. The second activity is the knitting sector (16% ). The remaining 8% is dedicated to a variety of diverse activities related to dressmaking. The main areas where the textile sector is located are: Arteixo, A Coruna, Vigo, Ferrol, ˜ San Cibrao das Vinas, Ourense, Lal´n, Redondela and Santiago de Compostela. This is more ˜ õ or less de ned by the north-east to south-west highway axis from A Coruna and its eastern ˜ and western neighbours, Ferrol and Arteixo, to Santiago and on to Vigo, with outliers to the east at Ourense and Lal´n (see Figure 1 ). The dynamics of the fashion industry are sustained õ by two distinctive production system models. On the one hand, we nd INDITEX, a business holding which is leader in Spain and in three continents. On the other hand, there is evidence for the evolution of a new system based on an increasing number of small companies. These companies, which began as craft workshops in the 1960s and 1970s, were able to position themselves in a specialized segment of the market, namely dressmaking, by giving priority to quality and design.

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Figure 1. Galicia and north of Portugal: location of the main textile districts. Source: Instituto Galego de Estatistica and Instituto Nacional de Estatistica (Portugal).

The scale of the Galician textile industry has now grown to more than 750 companies that produce 4000 different trademarks and employ almost 30,000 people. The recent strong growth of this industry in Galicia is revealed by the fact that the textile sector created 25% of new industrial employment during the phases of economic expansion. In addition, the turnover of Galician companies has increased to an annual rate superior to 25%, to the point

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Table 1. Textile sector evolution in Galicia
1991 Turnover (mil de Euro) Export (mil de Euro) National share (%) Employment 45 32 7 19,000 1993 1004 69 987 23,500 1996 2164 203 1297 28,000 1998 2454 403 14 29,000

Source: Conseller´a de Industria e Comercio. Xunta de Galicia. õ

of getting to 90% during the last 4 years. The total amount of business conducted in 1999 was 2885 million euros, which represents 15% of the total this sector accounted for in Spain. Textiles in Galicia are one of the best examples of the delayed—although productive— process of industrial development in Europe. The remarkable evolution of the importance of the Galician textile sector in Spain during the last years is of interest to less favoured regions more generally, and particularly to their responsible policy-makers. As can be seen in Table 1, the share of this sector in the national total has doubled its importance from 1991. Another indicator that shows the expansive character of textile sector is the turnover, which increased more than 500% in the period shown. Another aspect, which has developed in accordance with the evolution of the sector, has been employment, which accounts for 17% of industrial employment in Galicia. The fact that betting on foreign markets takes place explains to a great extent the growth that Galician textile activity has experienced. This fact has broken the traditional suspicions about exporting that other sectors have had till now. Thus, in the year 2000, foreign turnover reached 205 million euros, with an increase of 34% compared to the preceding year. Nowadays, if we have a look at the activity of Galician textile factories, we can nd their clients in the EU, US, Japan, South America, Eastern Europe, Arab Countries, Mexico and numerous other countries where Galician fashion enjoys great success and prestige. Although the beginning of this development goes back to the 1980s, when a series of companies decided to promote themselves in a joint action disseminating the ‘Galician fashion’ concept, causing what was called the ‘boom of Galician textile sector’, this is not the whole explanation. Of greater importance has been the manner in which full establishment of the industry occurred owing to the improvement of the nancial situation of the companies, their foreign marketing activities, managed cooperatively with serious planning and through joint action. But what, uniquely, has to be taken into account as well has been the rise to prominence of a numerous group of designers in national and international markets. In this sector the greater part of the rms are small and medium-sized businesses pro ting from their greater knowledge and production exibility to follow the evolution of the market. However, there is also a remarkable presence of large companies, such as Grupo INDITEX, Adolfo Dom´nguez, Caramelo, Mafecco, Lonia Textile, Florentino, Knitting Goods Montoto. õ It is these companies which, through their buying strategies and links to global value chains, also encourage and dynamize this sector. Here we see the bene cial co-existence of large rms in touch with national and global markets and small rms operating in localized production systems involving local value chains. The integration of local and global value chains seems to be the most important feature explaining rapid growth. This is also of importance to policy-makers whose understanding of these processes needs to be exible like the response of rms to market shifts. The success of the Galician textile industry has even more relevance if we consider the overall weakening of this sector in the European context due to the strong competition of Far

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Eastern countries. However, the Galician textile industry, as noted, shows a substantial difference even compared only with that of the rest of Spain. This difference involves the traditional connection between design and industrial production that takes place from the beginning in Galician companies. In this way, in most of the Galician industry a creative front-line design is combined with a production process that incorporates the most advanced technology. In the rest of Spain, on the contrary, it is frequently the case that celebrated international ‘fame’ designers lack the necessary productive structure to move coherently through an internal value chain to market their projects. 3. Firm Organization and System Interactions among Fashion Firms Innovation by rms is the main reason for this advantage, but apart from the initiative of the companies, the Public Regional Administration of Galicia has taken a role in supporting this industry, improving the industrial network and setting up a modern commercial policy based on market studies. Nevertheless, apart from these factors, it is necessary to add the appearance in Galicia of one of the more outstanding business phenomena in Spain during the last decades: the above mentioned INDITEX Group which initiated its activity in 1963. It has moved from being a small textile company and has consolidated during the last years to become one of the main industrial and commercial complexes in this activity in the European market, not forgetting its branches extend even to the American continent and Japan. The vertical structure of the INDITEX Group, which goes from basic transformation of raw materials to the sale in its own shops—differentiated by commercial segments—has given advantage to a commercial giant able to compete with the biggest enterprise corporations in the world. 4. The Pioneers of the Textile Industry in Galicia 4.1 Grupo Regojo At the beginning of twentieth century, when no-one could foretell the high levels the fashion industry would reach in Galicia, Jose Regojo was the predecessor of the modern ‘Galician textile miracle’. In the 1920s he became established in Lisbon as a fabrics dealer. Soon after, he saw that the market demanded manufactured textile products, so he created a small dressmaking company with great success. He moved to Spain in 1936 and, when the Spanish Civil War broke out, he became supplier of all kinds of manufactured articles for the army. When the war nished the isolation Spain suffered and the prevailing autarchy forced Jose Regojo to produce a great variety of articles and materials with market demand. Thus, he created industries of spinning products, fabrics, dressmaking and, when it was impossible to import the necessary machinery, he built it. In this way, in the middle of the twentieth century he was able to agglomerate in Galicia one of the main textile industries of Spain. From the 1950s onwards, Grupo Regojo modernized and adapted its production according to market demand. He also included an innovating aspect in his early adoption of modern marketing in the commercialization of his production. In the 1960s the group started a policy of productive diversi cation and renewal of its old-fashioned commercial organization, but the high in ation of the country forced the government to reduce the tariffs of many consumer products. Thus, the Regojo Group, which was already the third textile industrial group of Spain and had 1500 employees, had to face the foreign opening of the market without being prepared for it, just like many other companies. For example, unlike Italy, they could not compete with the Far Eastern countries whose wages were inferior to those of 90% of Spaniards by quickly becoming more

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technologically innovative and design-intensive. Without public support the Regojo industries closed in 1981.

4.2 Adolfo Dom´nguez õ The trademark Adolfo Dom´nguez was born in the 1970s in a family rm in the inland setting õ of the province of Ourense. The origin of this industry lay in a small tailor’s that turned into a limited company in 1976. From that moment on, the designer who gave his name to the company, moved upmarket from classical dressmaking and began to innovate in design, production and marketing. Knowing and anticipating international market trends Adolfo Dom´nguez introduced new lines of products in 1979, and simultaneously promoted an õ impressive advertising campaign. Accordingly, Adolfo Dom´nguez took the lead position in õ the renewal of the clothing sector in Spain. In particular, he was responsible for impelling an urban, made-to wear or ‘pret-a-porter’ trend in the high-middle segment of the market. ˆ Nowadays this trademark has its own network of 143 stores in Europe, Japan and south-east Asia. Also it quotes in the stock market, where it carried out one of the most spectacular openings ever seen, due to the demand for shares (112 times over the supply) as well as because of its valuation.

4.3 INDITEX-Zara The rst activities of this group are found in the city of A Coruna at the beginning of the ˜ 1960s, in a modest textile company, Confecciones Goa, that Amancio Ortega created. The business line of this holding is nowadays a textbook focus for study at business schools as an example of the possibilities vertical integration presents. That is, the rm embodies all necessary processes for the nal consumer to wear a fashionable product since these are carried out inside INDITEX. Thus, from the basic processing of raw material and its later conversion into textile products to their arrival at the Zara stores and other, different commercial branches INDITEX is in control. In this way, INDITEX maintains a total competence over the activities that underpin its presence in the market, with a philosophy that has been able to succeed in a thoroughgoing manner in Spain and in each country where it has been implanted. Twelve years after Confecciones Goa rst entered production, Amancio Ortega decided to open his rst commercial establishment in the centre of A Coruna, he called it Zara. The ˜ holding INDITEX Spain was born in 1979 disclosing the rst evidence of what was to become a major future national expansion of this company through the chain of Zara stores which immediatly appealed to Spanish consumers. Zara represented in Spain a radical departure from the previous concept of fashion, since from these stores clothes accessible to most pockets and with innovative design were available for the public. Until that moment, design-intensive textile products different from those emanating from mass industrial production were affordable only to customers with high buying power. Thus one reason why the arrival of Zara in the market constituted a real ‘event’ was that it could be, and was, de ned by the INDITEX Group as a ‘democratization of fashion’. This concept goes together with another which explains in a decisive way this business phenomenon: this concerns the interactive character of INDITEX creations, since each point of sale becomes a place for analysing consumer tastes for later transmission to the design area of the group, where the obtained results are interpreted and translated into new articles which are later sent to the markets. This eagerness to satisfy a full range of consumer tastes is re ected in the commercial scope of the Group, since once a Zara chain has been fully established INDITEX creates

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other chains dedicated to meeting demand from each of the remaining segments of the fashion market. Thus, whereas Zara includes fashion in a generalist way, Pull & Bear is a chain destined for a young masculine public. However, Massimo Dutti establishments are oriented towards the consumers with highest quality demand, and the Kiddy’s Class chain has been directed towards children following a quality concept. Finally, Brettos is a chain of stores for young women with urban and modern characteristics. The structure of INDITEX reveals the division of the holding into two large groups, one operating in Spain and the other abroad, with its central of ces in the Netherlands. The Spanish branch is responsible for 22 manufacturing and six distribution companies. Besides these, we can also nd, in this productive network, a Chinese company established in Beijing whose mission is the supply of raw materials—silk and cotton—among Far Eastern countries. The foreign holding involves the companies that manage INDITEX in each of the different countries in which it operates. Currently, the Group is present in Italy, Belgium, Luxembourg, Portugal, France, the US, Greece, Mexico, UK, Germany, Israel and Japan. The operation of this cluster of companies is complex because INDITEX sought the disruption of traditional business organization to achieve an innovative and successful management approach. In this way, rigid structures were rejected in favour of a continuous adaptation to market demands. This was perceived to be the only way to coordinate the work of more than 8000 people engaged in a multitude of different activities in many different countries, but whose tasks must interrelate coherently to achieve the key corporate objectives of global market expansion and customer satisfaction. We must also take into account that INDITEX seeks to reduce its production stock to the minimum, a course of action that has required the establishment of a global just-in-time manufacturing system. This requires the establishment of a complete, integrated system of communication between the points of sale and the central of ces with the purpose of de ning demand at each establishment and translating it into the production schedules of the factories. The process begins with the reception of raw material and processing this Group has in the industrial park of Sabon, in the municipality of Arteixo (A Coruna). From here the cut ´ ˜ pieces of fabric are subcontracted to supplier companies where they are sewn for their return to the factory, where they receive the nal nishing and are put through quality control. These subcontract supplier companies are spread throughout the locations mentioned in Galicia and in the north of Portugal (Figure 1 ). However, in Sabon there is an enormous distribution ´ centre where the orders of each store are received and the shipments for all the countries of destination are prepared. Understanding of the success obtained by the INDITEX Group does not lie in a unique explanation but there are different reasons for its spectacular growth. In the rst place, its growth depended on a suitable analysis of the trends of the market, based on near-perfect knowledge of customer demand preferences. INDITEX operates a dual strategy to follow and control the evolution of market tendencies. On the one hand, this involves a mobile team of designers who travel periodically to the capitals of fashion, keeping a close eye on design innovation. In particular this allows acquisition of tacit knowledge concerning the design preferences of the main international designers. On the other hand, and this is an innovation, the information provided by the customers in the stores is processed and produces codi ed knowledge which is used for fashion forecasting. Armed with this mix of structured information the design department establishes the colours, fabrics and forms of the new articles. As a result the customer demand is anticipated and the customer can buy exactly what they want to. In 1999, the group had a turnover of 1615 million euros, with pro ts of 153 million euros, and a total employment of 15,576 workers. Between 1999 and 2000, the group doubled its staff, the amount of business increased by 60%, net pro t by 109%, and the group has opened 200 new stores world-wide.

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4.4 The Future Future perspectives for this sector are excellent. If its rate of growth continues, most countries will soon have stores with clothes manufactured in Galicia. Not least, this is because Galician designers are focusing their efforts on international expansion. Notwithstanding this, and mimicking the strategies of bigger companies, the smallest ones are also initiating expansion processes, creating their own trademarks and selling their products all over the national territory of Spain, either opening their own stores, or taking advantage of the system of retail franchises. Perhaps the main worry of Galician business leaders is the lack of highly quali ed textile sector experts in the region. In order to solve this problem, in 2000 the Institute of Technology and Textile Design was established in Allariz (Ourense), a private organization set up thanks to the support and initiative of the main business leaders of the sector, conscious of the de ciency of professionals, and the necessity to develop a more highly skilled labour force. In this centre, special courses will enable students to learn about design, modelling and industrial management, all of these researched and considered to be occupations with a great future. 5. Conclusions In general, it is possible to conclude that the Galician textile sector demonstrates exceptional competitiveness, with as testimony the presence of globally recognized and highly designquali ed companies like Dom´nguez and Zara. The industry is blessed with prestigious õ designers and optimal distribution networks of widely recognized brands and products that retail in international markets with an image of quality and design. However, it is necessary to emphasize that the growth of companies in this sector in Galicia has been asymmetric, that is to say, those companies of recognized size and position, such as INDITEX, Unicen, ´ Antonio Pernas, Roberto Verino, Florentino, Pili Carrera, Kina Fernandez, Caramel, Jealfer, Toyoes, Montoto, Adolfo Dom´nguez, Selmark and Mafecco have clearly come to promiõ nence in the sector, increasing their productivity. As a consequence some small and mediumsized companies have even seen a displacement or reduction of their position. Finally, for the Galician fashion sector the 1990s have been a consolidation period. This is because the regional fashion industry bene ted from the continued excellent evolution of the Spanish domestic market derived from an increasing popular demand and consumption, the appearance of a widespread ‘fashion culture’ and the foreign expansion of companies with their own distribution networks. As Roberto Verino says: “Galician fashion has over owed the limits of the catwalk to enter completely the political and economic meetings of the highest level of the country”. As strong points of this sector can be mentioned the following ones: · Good image of the sector. · Existence of companies with world-wide projection and with experience in promotion. · High degree of sensitivity towards design. · Good technological level and powerful structure of subcontracting. · Companies with high level of adaptation. The case of the Galician fashion clothing industry is remarkable since it grew from virtually nothing in one of Spain’s least-favoured regions to a position in which it is a serious challenger in global markets. Some aspects of policy intervention and planning have helped. For instance investment stimulated by EU Structural Funds in the completion of the EI Euroroute from A Coruna to Vigo has helped rms, especially suppliers spread through Galicia but also ˜ increasingly concentrated at points on or near this international highway in northern Portugal

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also, to operate as local elements in the global value chain for fashion textiles. Moreover it was noted that the Xunta de Galicia, the Public Regional Administration of Galicia supported the fashion clothing industry, by enterprise support policies for improving the industrial network and nancing market studies as a prelude to the implementation by rms of a modern commercial policy. However, it would be mistaken to overlook the role of national and supra-national scal policies in setting the scene for the growth that occurred in the 1990s. Removal of tariff barriers forced producers upmarket or out of it owing to unbeatable price competition from less-favoured countries. Supported with restructuring plans and industry aid packages from the Spanish State, the Galician industry responded in unique ways, different from Catalonia and Valencia. Three key things denote this distinctive ‘switching’ process away from declining markets. First a swift move upmarket by designers already in the market but conscious of a new ‘world’ of fashion conscious consumers emerging as mass-production approaches began to lose competitive advantage. Second, the quick elaboration of global value chains and integration into them of local value chains through networks of local suppliers well-served by improving infrastructure and logistics inside Galicia and in neighbouring northern Portugal. Finally, the intra- rm integration of design, production and retailing by leading brands like Zara, operating on a global scale but with premium knowledge ow, both tacit and codi ed that enables customer demand to be accurately anticipated and competitive edge retained. Each of these elements continues to contribute to the competitiveness of one of Europe’s most peripheral regions in one of the most globally challenging of contemporary industries.