The European companies are joined by more than 1 million consumers who have signed petitions urging companies such as Gap Inc. to support the program. Some institutional investors also are beginning to express concern about the safety issue, including the Illinois State Board of Investment, which owns shares of Wal-Mart Stores Inc.

The cost of doing nothing could be severe for retailers, said Steve Hoch, a marketing professor at the University of Pennsylvania’s Wharton School.

“Most brands are smart enough to embrace the issue at hand and signal to the consumers they’re doing something about it,” he said in a May 9 phone interview. “If it does tarnish the brand, it’s going to really cost them in the long run.”

At least seven companies have agreed to sign the pact before the May 15 deadline set by the retailers for a decision. Some companies involved in the discussions that have balked are citing concerns about how much the cost would be to individual retailers and how legal issues would be addressed. A Gap spokeswoman, Debbie Mesloh, said yesterday in a statement that the company is “ready to sign on” pending a change to the provision regarding binding arbitration.

The collapse of the Rana Plaza factory two weeks ago, the worst industrial accident in the country’s history, killed at least 1,127 and came after a series of deadly fires in Bangladesh that already had prompted activists to call for Western retailers to take more responsibility for work conditions there.

Retailers including Wal-Mart and J.C. Penney Co. began discussing a contractually enforceable document for Bangladesh working conditions in April 2011. As outlined, the proposal would require companies to pay suppliers more so factory owners could afford to make safety upgrades.

The accord would run five years and would be funded by the participants, according to PVH Corp., owner of the Tommy Hilfiger brand, which said yesterday that it would join the effort and pledged $2.5 million. The plan calls for a review of existing building regulations and enforcement, the development of a worker complaint process and a mechanism for employees to report risks, the company said.

Several institutional investors said they’re concerned that big retailers aren’t doing more to address worker safety in Bangladesh. William Atwood, executive director of the Illinois State Board of Investment, pointed to the world’s largest retailer, Wal-Mart, in which the fund holds 98,211 shares. He said the company’s auditing standards “failed miserably in Bangladesh,” adding that his board is working with other institutional investors and probably will formally express concerns.

“There needs to be a real concerted effort. No one wants to profit, certainly not the state Board of Investment, for putting workers at some crazy risk,” Atwood said. “I would hope Wal-Mart will look real seriously at rethinking their approach to these procedures.”

While Wal-Mart garments were being made without its permission at the Tazreen factory in Bangladesh where more than 100 people died in a fire, the U.S. company’s clothing was not found in the Rana Plaza collapse.

Joe DeAnda, information officer of the California Public Employees’ Retirement System, wrote in an e-mail that the fund engages with companies directly on several issues, including “fair labor practices in supply chains.” Calpers owned 4.9 million shares of Wal-Mart as of March 31. New York City’s comptroller, John C. Liu, who oversees city pension funds that own more than 5 million Wal-Mart shares, raised concerns about safety in Bangladesh after the Tazreen fire.

Wal-Mart is working with other stakeholders and the lobbying the Bangladeshi government to improve worker safety standards across the industry, Kevin Gardner, a spokesman for the Bentonville, Arkansas-based company, wrote in an e-mail. Wal-Mart says its investigations, which continue, have confirmed no authorized production took place in the Rana Plaza complex.

Since the collapse of the factory building two weeks ago, the government of Bangladesh has taken a more forceful stance on workers’ rights. Prime Minister Sheikh Hasina’s government has shut factories as the European Union’s Trade Commissioner Karel De Gucht considers steps including trade sanctions against Bangladesh.

The deadly accident helped spur the Bangladesh cabinet yesterday to approve an amendment to labor law that gives workers greater freedom to form trade unions. After a series of worker protests, the government has agreed to raise the minimum wage.

Factory inspections have been stepped up as well. Government inspectors have found 700 garment factories “faulty in terms of workplace safety” in the 2,400 units examined since Feb. 7, Commerce Minister G.M. Quader told reporters in Dhaka yesterday.

Activist groups hope the addition of some big names like H&M to the retailers’ accord and the changes in the government’s approach will encourage U.S. companies to get off the sidelines.

“This is a game changer, and now the pressure is on all the other global brands and retailers to engage,” Judy Gearhart, executive director of International Labor Rights Forum, said in a telephone interview. “There’s really not a lot of reason for the U.S. brands not to follow suit.”

The U.K.’s Ethical Trade Initiative has given a “clear signal” to its member retailers to take the proposal seriously, said Peter McAllister, the ETI’s director. The group’s members include Primark, Wal-Mart’s Asda chain and Tesco Plc, which said yester it would sign on to the pact.

H&M is an important addition because it is one of the biggest buyers of clothing from the Asian nation. A petition calling for H&M, Gap and several other brands to sign the pact has amassed more than 1 million signatures, Liana Foxvog, organizing director at International Labor Rights Forum, said in an e-mail.

Primark, the U.K. budget fashion chain owned by Associated British Foods Plc, also said it is committed to signing the accord and was one of the companies whose products were made at Rana Plaza.

At least five retailers have said their suppliers made garments at the collapsed factory complex, including Loblaw Cos.’ brand Joe Fresh, U.K. budget retailer Matalan Ltd., plus- size womenswear seller Bonmarche Ltd. and Spanish department store El Corte Ingles.

A final version of the pact has been circulating among retailers, said Jyrki Raina, general secretary of Industriall Global Union, which is helping facilitate the agreement. Other additions are German retailer Tchibo GmbH and clothing maker C&A Mode GmbH.

Though it met with retailers in Frankfurt about the agreement last month, J.C. Penney is considering a different trade association proposal as well as the one signed by H&M, Daphne Avila a spokeswoman for the company, wrote in an e-mail. The Plano, Texas-based retailer is waiting for clarity on what contributions will be required from brands, she wrote. Sears Holdings Co. is also asking for more details on the accord before it decides, Howard Riefs, a spokesman for the Hoffman Estates, Illinois-based company, wrote in an e-mail.

The global garment industry would have to spend about $3 billion over five years to bring safety standards at Bangladesh apparel factories up to Western standards, according to an analysis by the Worker Rights Consortium. Upgrading the country’s approximately 4,500 factories would cost the garment industry about 10 cents per garment, the Washington-based labor monitoring group said.

The annual cost would be $600 million, or about 3 percent of the $19 billion that the Bangladesh Manufacturers & Exporters Association says Western companies spend annually on manufacturing in Bangladesh.

–By: Sarah Shannon in London, with assistance from Julie Cruz in Frankfurt and Katarina Gustafsson in Stockholm. Editors: Celeste Perri, Paul Jarvis, Winnie O’Kelley, Stephen West

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As it seeks to make up ground lost to rival Inditex SA and win a bigger share of the $111 billion market for shoes and accessories in western Europe, H&M is opening seven outlets of the chain across the crisis-ravaged region this spring.

Better known for dresses and ballet flats cheap enough to be almost disposable, H&M promises curated style at & Other Stories. The stores feature a selection of more expensive clothing jockeying for space with wardrobe add-ons such as jewelry, lingerie, and shoes in four basic styles ranging from “Industrial” to “Glamorous.”

“H&M is getting a lot of pressure from low-price retailers on the one hand and from retailers like Inditex, which reacts faster to demand in the fashion world, on the other,” said Soeren Loentoft Hansen, an analyst at Sydbank A/S. With & Other Stories, H&M can “build some bridges to a higher price segment.”

H&M needs a hit. Europe’s second-largest clothing retailer has been lagging behind Inditex, owner of the Zara brand. The Spanish company’s sales growth has outpaced H&M’s for seven of the last eight quarters. Inditex has set the industry standard for quickly getting product from design table to shop, defining the style of the moment while H&M shoppers are left waiting. That helped Inditex, which opened its own fashion and accessories chain called Uterque in 2008, overtake H&M by market value. Its price to earnings ratio has surged to 26.7, versus H&M’s 23.

Building Bridges

“& Other Stories’ is a totally different concept, a totally different brand with its own creative team and creative expression,” said Pernilla Wohlfahrt, head of new business at H&M. “So it was natural and essential for us to put it in a different store.”

H&M might accelerate the expansion of the chain after sales “far exceeded” expectations, Chief Executive Officer Karl- Johan Persson said March 21 during the company’s earnings conference at its Stockholm headquarters. Wohlfahrt said H&M may add more stores this autumn.

“We have to evaluate how the openings are going and take it step by step, but we believe the concept can work in all H&M’s markets,” she said by phone from the opening of the & Other Stories shop in Stockholm.

Perfect Pout

To sell & Other Stories — a name meant to evoke the creation of personal identities — H&M promises styles from its own ateliers in Paris and Stockholm. The first of the chain’s stores, a two-story shop on London’s Regent Street a few doors down from an H&M, opened last month. It sells accessories such as 145-pound ($221) Clare Vivier totes, 10-pound brass rings, beauty lipsticks promising the perfect pout and Nike shoes.

Accessories offer “a very immediate way of buying into a fashion trend without having to commit to a full fashion look,” said Jane Francis, head of the accessory course at the London College of Fashion.

In addition to its shops in major European cities, & Other Stories will ship online orders to 10 countries in the region. The brand’s website boasts pictures of a garter-belted model pulling on her stockings, and “stories” — sequences of photographs showing how items can be worn.

The buzz generated by & Other Stories caught the eye of Ebba Koerlof Sundberg, a 23-year-old student in Stockholm.

“It’s fun,” the loyal H&M shopper said as she stepped out of the Biblioteksgatan store in the city center. “There’s thought behind it and there’s something for everybody.”

Gucci’s Footsteps

With the new chain, H&M is following Inditex’s strategy. The Spanish company has expanded with Massimo Dutti, oriented toward urban professionals, and seven other brands. Zara made up 66 percent of sales and 29 percent of stores for Inditex, based in Arteixo, Spain.

H&M has added about 150 outlets of its upscale COS and three other non-flagship brand stores since 2007, but those, plus the new & Other Stories shops, account for less than 6 percent of H&M’s 2,818 outlets globally.

H&M’s new brand also puts it in the footsteps of luxury titans like Gucci, which gets about two-thirds of revenue from leather goods and shoes. Gucci’s margin last year was more than 31 percent while H&M’s dropped to 18 percent from 18.5 percent last year.

Sanitized Fashion

The apparel market has been suffering amid the economic crisis as austerity measures weigh on spending in the euro area. Sales of bags and costume jewelry are forecast to grow more than 13 percent through 2017 to $18.7 billion, twice as fast as clothing, according to Euromonitor. Footwear will expand slightly faster than apparel in the period, the researcher predicts.

“They are trying to move away a bit from the too sanitized, fast-fashion, mass-market feel of H&M, and move a bit more towards an almost independent, more entrepreneurial feel,” said Daniel Lucht, an analyst at ResearchFarm, a retail and consumer-goods forecaster in London.

Given the limited rollout, it will be at least five years before the new brand will have much impact on H&M’s profitability and growth, Societe Generale predicts. And it will face competition from Inditex’s Uterque, which has expanded to 92 stores and posted 9 percent sales growth last year.

Still, & Other Stories will help the company win customers who might otherwise shop at Zara, and who wouldn’t likely spend much at H&M, said Suzanne Stahlie, managing director at retail consultancy FutureBrand in Paris.

“H&M is very smart to create fashion legitimacy by combining their own brands with others,” Stahlie said, “and creating something that isn’t similar to any other brand.”

By Julie Cruz, with assistance from Sarah Shannon in London, Katarina Gustafsson in Stockholm, Manuel Baigorri in Madrid , Celeste Perri in Amsterdam and Andrew Roberts in Paris. Editors: Celeste Perri, David Rocks.

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Was this the scene of a storied fashion label’s return, perhaps Schiaparelli’s re-launch? No. When the models emerged, the trendy, monochrome ensembles they displayed were from Swedish fast fashion retailer H&M.

The pomp and grandiosity of H&M’s recent Paris catwalk show may have been over the top, especially when compared to their last runway show, a Central Park affair featuring musical performances by Kanye West and more celebrities than fashion editors. But it’s certainly not the first time the high street retailer has adopted high-end communications tactics. Indeed, ever since 2004, when Karl Lagerfeld designed a one-off capsule collection for the company, H&M has taken a leaf from the high fashion playbook, churning out glossy campaigns fronted by top models like Daria Werbowy and shot by imagemakers like Inez van Lamsweerde and Vinoodh Matadin.

And that’s not all. Designer gown-spotting has become a spectator sport at Hollywood awards shows, where young starlets make a bid for “Best Dressed” titles in their Chanels, Valentinos and Diors. So imagine the surprise when earlier this year, Oscar-nominated actress Helen Hunt revealed that her midnight blue silk satin strapless number was custom-made by none other than H&M. Actress Michelle Williams also wore a custom H&M cream and black satin crepe gown to the 2012 BAFTAs.

But interestingly, neither Helen Hunt’s nor Michelle Williams’ red carpet dresses were available for purchase. “We wanted to design something unique for Helen Hunt for her special occasion, and it was an exciting way for us to show we can do so many more things than what we have in our stores,” explained Ann-Sofie Johansson, H&M’s head of design, in a statement.

What’s more, the clothing seen on H&M’s Paris runway in February won’t be available in stores until September. “The clothing will be available in stores in September since it was our Autumn collection on the runway,” Margareta van den Bosch, a creative advisor to H&M, confirmed in a statement.

For a retailer that has built its brand around accessibility and immediacy, it’s a curious move and one that stands in stark contrast to the sell-out success of the 2011 Versace for H&M launch, which perfectly synchronised communications and retail, making clothes available for sale immediately after the runway show to debut the line.

Indeed, flashy marketing tactics like catwalk shows and Oscar dressing generate huge amounts of excitement amongst end consumers. But when associated product isn’t available for immediate purchase — one of the major problems with the traditional high fashion cycle — it can often dampen this excitement, limiting the commercial value a brand can ultimately capture. After H&M’s recent Paris show, one commenter on lifestyle blog Refinery29 wrote: “The thought of having to wait until September to get my hands on the collection KILLS me,” a sentiment echoed by many who attended the show.

This begs a broader question. There’s no doubt that H&M’s elaborate marketing tactics generate significant consumer buzz and are often extensively covered by the news media. But, at the end of the day, do they pay off?

The H&M communications strategy is in sharp contrast to that of Inditex-owned Zara, the world’s largest clothing retailer (ahead of second largest H&M), which almost never goes in for big campaigns or splashy events. Instead, the company focuses on product, delivering fast fashion copies with incredible speed and responsiveness, and invests heavily in glossy flagship stores. “For Zara, I believe that we have found a model that works very well for us, and this does not include heavy investments in advertising. Advertising is about building up expectations, and telling customers what they can expect and what we can deliver. At Zara, we want expectations to come from the in-store experience,” said Jesus Echevarría, communications director of Inditex, back in 2011.

For publicly traded companies like H&M and Inditex, financial metrics are the ultimate measure of success. Inditex increased net profit by 22.2 percent in 2012 to over €2.3 billion, whereas H&M’s net profit grew by only 6.6 percent over the same period. Indeed, selling expenses, along with investments in new stores and currency translations, eroded H&M’s operating margins to 18.0 percent, down 0.5 percent from the year before, and lagging behind Zara’s 19.5 percent for the same year. What’s more, last month, H&M reported that its operating margins in the first quarter of this year eroded significantly over last year, from 12.7 percent to 11.0 percent. This was attributed to lower than expected sales, markdowns, and “large long-term investments.”

Perhaps the high-end tactics are not having their desired results after all. Still, given H&M’s plans to add 350 more stores in 2013, including a significant push into the US with an online shop and 47 additional stores, the company may yet see longer-term returns from their recent marketing investments.

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Today, Mango has ditched the glitz in favor of more casual attire like that from Spanish rival Inditex SA, the world’s biggest seller of apparel and owner of the Zara brand. The change has helped Mango outpace Inditex in Spain’s 16.2 billion-euro ($21 billion) clothing market.

“We had gone way too far with our focus on clothes for parties and events,” said Enric Casi, general manager of the Barcelona-based retailer. “Not even our employees wore Mango.”

The casual push wasn’t the only lesson Mango took from Arteixo, Spain-based Inditex as it sought to address a decline in profit of almost 60 percent in the two years through 2011. That year, Isak Andic, the founder, chairman, and owner of almost 100 percent of the company, stepped back into a stronger day-to-day management role to help reformulate strategy.

Since then, Mango says, the chain has cut prices by about 20 percent across the board, bringing them closer to Zara’s. And the company has stepped up expansion outside of crisis-weary Spain and placed more emphasis on the fast-fashion model that has helped Inditex prosper.

“Mango is emulating Zara as much as it can,” said Luis Benguerel, an equity trader at Interbrokers in Barcelona. “It needs to follow a successful business in order to fix its mounting problems and achieve the type of growth Inditex has seen.”

Fourth-Richest

Two years ago, about 70 percent of Mango’s revenue came from party and event clothing and 30 percent from casual wear. Now, it’s the other way round, Casi, 57, said in an interview.

Mango’s changes are bearing fruit just as the growth that made Inditex founder Amancio Ortega the world’s fourth-richest man shows signs of faltering. Inditex’s profit rose 12 percent in the three months through January, the slowest pace in five quarters and below analyst estimates.

Inditex shares closed at 101.05 euros in Madrid trading on Friday, down 6.8 percent since it announced annual earnings on March 13. Hennes & Mauritz AB, Europe’s No. 2 fashion chain, slid 0.9 percent in that time period, and have gained 2.4 percent since it released its first-quarter results on March 21. Mango isn’t publicly traded and doesn’t plan to sell shares in the short term, according to Casi.

While Inditex faces a “difficult situation” in its domestic market, according to Chief Executive Officer Pablo Isla, Mango is gaining traction in Spain even as retail sales plunge amid record 26 percent unemployment. Profit almost doubled last year after falling in 2011 to the lowest in almost a decade, Casi said.

Inditex IPO

Spanish sales for Inditex, a fifth of the company’s total, fell 5 percent last year. Mango’s home-country revenue gained about 20 percent, Casi said. H&M sales in Spain, including value-added tax, were flat in 2012. First-quarter revenue in the country fell 6 percent, the Stockholm-based company said last week.

Globally, Mango remains far behind Inditex, where revenue has gained every year for the past decade to 15.95 billion euros last fiscal year, making it the best performer in the Stoxx 50 since its May 2001 initial public offering. With a market capitalization of 63 billion euros, Inditex is Spain’s biggest company.

Mango’s revenue hit 1.41 billion euros in 2011. Last year, group sales grew about 22 percent, according to Casi –outpacing Inditex’s 16 percent growth. Still, that’s short of the 30 percent growth Mango forecast in its 2011 annual sustainability report. Mango predicts revenue will almost double from 2011 to 2015, to 2.75 billion euros. Inditex sales may rise 57 percent to 21.7 billion euros in the same period, according to the average estimate of 18 analysts compiled by Bloomberg.

H&M’s total revenue in 2012, excluding value-added tax, climbed 9.8 percent 120.8 billion kronor ($18.6 billion).

Sleeveless T’s

The Mango store on Calle de la Princesa in Madrid sells jeans for 29.99 euros, about the same as a similar pair at Zara next door. Mango’s 9.99-euro sleeveless cotton T-shirts, though, are double the price of Zara’s.

“Even if Zara still offers less-expensive garments, Mango has cut prices by a lot,” said Iratxe Lindosa, a 37-year-old social worker from Madrid shopping at the Mango in Calle de la Princesa. “A dress I liked but couldn’t afford in the past, I now buy it right away.”

Mango is cutting the time it takes for clothing to reach stores, keeping apparel fresh and appealing to younger customers, Casi said. That helps the company avoid constant discounting and restrict markdowns, he said.

Global Ambitions

Inditex’s gross margin, a measure of profitability, widened to 59.8 percent last year as H&M’s narrowed to 59.5 percent. Mango’s gross margin has shrunk for each of the last five years to 57.2 percent in 2011.

Mango now has more than 2,600 outlets in 109 countries. Inditex, which owns eight brands including Zara, Massimo Dutti and Bershka, has just over 6,000 in 86 countries. H&M says it has about 2,800 stores in 48 countries.

Mango is targeting 300 net store openings this year, or about the same as 2012. That compares with Inditex’s goal of about 450 new stores, a slower pace than the 482 net openings in the past fiscal year. H&M plans to add 350 new stores, up from the 325 previously planned.

Mango’s expansion in Spain will be “very limited,” Casi said. Inditex doesn’t plan to increase its Spanish store count this year, according to CEO Isla.

Teen Line

In another nod to Inditex’s strategy, Mango has diversified by opening brands for men and accessories, and it plans to introduce brands for kids, sports and underwear later this year. Next year, it’s planning new lines for teenagers and plus sizes.

Undertaking so much change so quickly will tax Mango’s management, said Jose Luis Nueno, a professor at IESE Business School and co-author of a Harvard Business School case study on Zara. In the process, profit margins may suffer as the company lowers prices and moves manufacturing from Asia to higher cost countries closer to Europe to make it easier to supply stores with the latest designs.

“We’ll still have to see results,” Nueno said. “Turning around the company in one year is too optimistic.”

At least, Casi says, employees are wearing Mango’s clothing again.

By: Manuel Baigorri; with assistance from Julie Cruz in Frankfurt; editors: Paul Jarvis, David Rocks

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Inditex, which has seen its shares triple in value in the past five years and outperform European peers by more than a third over the last 12 months, said on Wednesday it would propose hiking its dividend by 22 percent to 2.2 euros per share. Sales rose 16 percent to 15.9 billion euros.

By Sarah Morris; Editing by Paul Day and Mark Potter; Copyright (2013) Thomson Reuters. Click for restrictions

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The company, headquartered in the Galician city of Arteixo, became a global e-commerce force with the opening of Zara’s online store in 2011.

According to Credit Suisse, in the year 2012 (from February 1, 2012 to January 31, 2013) Inditex’s online business will amount to 343 million euros, close to 2.5 percent of the company’s overall turnover, estimated at 13.793 million euros for 2012.

Meanwhile, Uniqlo, owned by Tokyo-based Fast Retailing, which launched an e-commerce site in the US, last October, building on its existing online presence in Britain, China and Japan, aims to generate a full 20 percent of its American sales via e-commerce. At the time, Shin Odake, CEO of Uniqlo’s US division, told WWD: “Judging from the market, I felt that 20 percent is a reasonable target.” At the moment however, Uniqlo operates e-commerce sites in only six countries, while Zara’s customers can shop online in over 20 countries.

Stockholm-based H&M lags its rivals, currently operating e-commerce sites in only a handful of European countries, including Germany and the UK. The retailer has invested heavily in a US site, but its launch has been postponed until this summer, significantly behind its initial deadline of early 2012.

Editor’s Note: This article was revised on 8 March, 2013. An earlier version of this article misstated that online revenues were close to 25 percent of Inditex’ overall turnover for 2012 . They were, in fact, close to 2.5 percent.

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Customers know they have to buy the clothes quickly if they want them because they will not be available for long. The now-global strategy also encourages shoppers to return frequently to see new ranges and trends. In a country with sky-high unemployment and businesses going to the wall, Spain’s richest man is a rare self-made mogul amid a corporate culture dominated by family dynasties.

Ortega overtook U.S. investor Warren Buffett and luxury group chief Bernard Arnault of France to become the third richest person on Forbes’ 2013 annual ranking of billionaires on Monday. Ahead of Ortega are Mexican telecoms boss Carlos Slim at No.1, followed by Microsoft co-founder Bill Gates.

The aggressively managed Inditex has more than 6,000 stores in some 90 countries and includes such brands as Ortega’s flagship Zara, Zara Home, Massimo Dutti and others. It is the world’s biggest fashion retailer ahead of Gap and Hennes & Mauritz, making 840 million garments a year.

Inditex says it does not advertise, and with celebrities such as Kate Middleton – wife to Britain’s Prince William – wearing Zara clothes, it may not have to.

Ortega’s empire is a cash-rich business with a market capitalization of 65 billion euros ($84 billion) that is thriving amid the deep economic gloom that is engulfing its home country. The shares rose 67 percent last year, bucking a slump in consumer spending in Spain.

Ortega, a stocky 76-year-old who favors blue blazers, open-necked white shirts and casual trousers, took home 666 million euros in gross dividends thanks to his 59 percent stake in Inditex, which is worth 38 billion euros at current prices.

He has also largely defied the gloom in Spain’s property sector through clever purchases and management of real estate. His Zara stores are often positioned in premium locations near other more luxurious brands as part of his marketing strategy.

PRIVACY GUARDED

Yet surprisingly little is known about Ortega, despite the best efforts of Spain’s intrusive celebrity press. He has guarded his privacy so jealously that the company has only released one photograph of him, when the company listed in 2001. The nation’s most successful entrepreneur routinely turns down interviews.

“To Amancio Ortega: he didn’t open any doors, nor did he close any windows,” wrote one biographer in a dedication. According to the Spanish press, Ortega lives in a comfortable but not lavish apartment with his second wife, Flora. His daughter Marta is widely expected to take over the fashion empire one day and has undergone training at Inditex, including working in a store, although the firm won’t confirm she will be the successor.

Ortega became Spain’s richest man when Inditex listed on the stock exchange but he did not attend the inaugural ringing of the bell at the bourse and never goes to shareholder meetings.

“Reclusive”, “secretive” or “reserved” are the usual descriptions for Ortega, a man occasionally seen at equestrian competitions with his family, who manages to maintain his privacy partly thanks to living in the rainy city of A Coruna in northwest Spain, 300 miles from the capital.

Biographers who say they have had access to him tell a rags-to-riches story: Ortega left school when he was 12 to work as a shirt-maker’s delivery boy, to help support his poor family. He learnt fast and began making gowns and lingerie in his living room along with his first wife, Rosalia Mera.

He realized customers wanted affordable versions of catwalk trends and opened his first Zara shop in A Coruna in 1975. Over the years, he has added more labels to the business, from teen brand Bershka to the more upmarket Massimo Dutti.

Experts credit Zara with transforming the business through “fast fashion”. Affordable imitations of catwalk designs can move from drawing-board to stores within two weeks — and poor sellers are pulled off the shop floor even quicker.

ACTIVE ROLE

Ortega handed over chairmanship of the company to Pablo Isla in 2011 but is thought to retain an active role in the business, where security is tight at its headquarters. Visitors are picked up from A Coruna in chauffeur-driven cars and taken to the company’s campus a 20-minute drive away, at Arteixo in the middle of the countryside. The complex sprawls across an area equivalent to 11 soccer pitches.

Reuters was attentively shown around by members of the company’s communications team, but it is the firm’s policy to talk more about the company than its founder, and there are scant biographical details in the few books about him.

Ortega does, however, talk to the workers when he visits the A Coruna headquarters. There are bright, modern, open-plan floors where designers sit close to teams who talk directly to representatives in the firm’s stores, feeding back customers’ reactions to the clothes. The slickest part of the operation is found at the logistics depot, where computer-controlled overhead conveyer belts drop clothes stitched by suppliers into boxes to be sent out to shops around the globe.

The highlight of the visit, though, is to “Fashion Street”, a mall within the complex that includes a Zara store and another from the furnishings brand Zara Home. Here every window dressing and table layout is meticulously trialed and photographed, so that stores can replicate the most eye-catching displays from Madrid to Tokyo, from London to Sao Paulo, an example of the tight control practiced by the company.

“The till works but you can’t buy anything here,” explained an Inditex spokesman in the Zara Home store, showing Reuters around its tables of artfully arranged scented candles, folded napkins, towels and racks of bed linen.

Beyond retail, Ortega has investments in two main funds: Pontegadea Inversiones, in which he is the majority owner with 97.2 percent and his daughter Marta has 2.8 percent; and Pontegadea Inmobiliaria. ($1 = 0.7702 euros)

(Additional reporting by Tracy Rucinski, Jose Elias Rodriguez and Tomas Cobos; Editing by Giles Elgood)

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Leading fast fashion firms such as Inditex (parent company of Zara) and Uniqlo, owned by Fast Retailing, split their sales between core, price-driven items that are made in China and other long lead-time countries and quick selling fashion items that have a heavy design investment and are produced close to its key retail markets. But as wages in China continue to rise, this sourcing matrix is becoming less competitive. Staying ahead of the curve means better forecasting demand to maximise low-cost capacity, without sacrificing quick turnaround times on fashion items.

Stephen Denning, supply chain expert and author of the book Radical Management, says: “Firms like Zara have solved the problem of how to get disciplined execution with continuous innovation. The way they lay out their factories, the design team is right in the middle of the factory, so that the whole process of learning from the manufacturers and vice versa is horizontal.”

Zara makes about half their goods in Spain, in factories the company owns itself. And it keeps those factories about 50 percent unbooked, so they can respond to quick trends. Because the factories are so close to their retail markets, they can completely refresh store inventories every two weeks. “It’s hard to copy, because Inditex is vertically integrated and others are not,” says Nelson Fraiman, professor of decision, risk and operations at Columbia Business School.

This means management has to be agile. Zara has two completely different sourcing teams: one for core items, and one for fast fashion, along with a big design staff watching the runways for new styles. “Zara has 250 designers, but they’re mostly copiers,” says Fraiman.

When margins get squeezed, as happened in 2010 when cotton costs spiked, vertically integrated retailers like Zara can rely on sales of higher margin fast fashion items to give them the breathing room they need to cut their losses on core items and avoid passing rising costs onto customers.

However, for American retailers like Sears or J.C. Penney, it’s a different story. These companies don’t have factories close to their target markets and they don’t have large design teams. They take another retailer’s designs, modify them slightly and send them to the same low-cost Asian factories that a firm like Zara uses to make its basic apparel.

In essence, they make the same fast fashion goods, poorly, on a time line that misses the demand peak. It has worked so far because they can offer the apparel at lower cost. But consumers are quickly losing interest.

“Keeping costs down in very important, but it’s also crucial to give at least similar attention to adding value. Time turns out to be a huge factor in delighting customers,” says Denning.

These companies are getting squeezed on two sides: by rising costs and by consumers who have more options and are becoming more choosy. These trends will only accelerate as the sourcing mix shifts and e-commerce booms. Denning says: “There’s been a massive shift in power in the marketplace from the seller to the buyer. Organisations operating in the old model are dying faster and faster.”

The market is bearing this out: retailers from Abercrombie to Kmart are closing stores, while firms such as Gap are seeing profit increases as they re-orient around the needs of their customers.

Price pressure is already driving some companies to turn a blind eye when subcontractors choose unsafe factories, putting reputations on the line and risking the lives of workers. Now, that’s an unsustainable model. It’s bad for business — and it’s bad for humanity.

Patrick Lamson-Hall is managing editor of Sourcing Journal Online, a resource for textile and soft goods executives working on the supply chain side of the business.

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Sir Philip Green by Ben Gurr | Source: The Times

Topshop’s Sir Philip Green: How he became king of the High Street (BBC News)
“The moment Sir Philip Green finally ‘arrived’ was in the year 2000, when he bought the dowdy British Home Stores chain for £200m and rebranded it BHS. According to Stuart Lansley, his restless mind had spotted a beguiling new way to make money from the High Street…”

Spain’s Inditex posts 27 pct rise in nine-month profit (Reuters)
“Spain’s Zara owner Inditex shrugged off sluggish spending in austerity-wracked Europe on Wednesday, posting a 27 percent rise in nine-month net profit to 1.65 billion euros, driven by a nimble production model and expansion into fast-growing markets.”

PPR Puts $13M Into Lamoda And Dafiti’s Holding Company (TechCrunch)
“Another new chapter is opening up for Rocket Internet, the incubator started and run by the Samwer Brothers in Germany. The company is today announcing that PPR, luxury and sport & lifestyle group, is taking a €10 million investment in Bigfoot I…”

Chinese Shoppers Overtake U.S. as Top Luxury Buyers (Bloomberg)
“Chinese consumers have overtaken U.S. shoppers this year to become the world’s biggest buyers of luxury goods, accounting for 25 percent of global sales through purchases at home and overseas, consultancy firm Bain & Co. said.”

Carolina Herrera: ‘I can get ready in 10 minutes’ (Telegraph)
“Like Valentino, who recently shared his dismay over the sartorial disarray in which Brits arrive at the theatre nowadays, Caroline Herrera is not unreservedly won over by modern dress codes. Growing up in Caracas in the Fifties and Sixties had its challenges, but Kim Kardashian’s fashion sense wasn’t one of them”

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Week in Review November 12-16

Op-Ed | Making The Case Against Fast Fashion Collaborations (Opinion)
“These underlying commercial motives are often obscured, however, by a ubiquitous but pernicious phrase: ‘the democratisation of fashion.’ Whoever coined the term is surely the marketing genius of the 21st century. On the face of it, who can argue that ‘the democratisation of fashion’ isn’t a good thing?”

Joseph Mimran’s Fresh Approach (Intelligence)
“Joe Fresh is Loblaw’s most well-known proposition and has since expanded from adult apparel into additional product categories like childrenswear and beauty, both of which are top performers. And although, Loblaw (which generated over $30 billion in 2011 sales revenue) does not break out financials for Joe Fresh, analysts say the brand is close to doing $1 billion in annual sales. But how has Joe Fresh, which began life as a private-label supermarket brand, been able to achieve such striking success?”

Bubble and Speak | Leutton Postle (Emerging Designers)
“In their grand tradition of picking up the work of young fashion graduates right from the beginning, iconic London boutique Browns made a beeline for Jenny Postle’s patchwork mayhem. Then, after graduation, Postle joined up with fellow Saint Martins classmate Sam Leutton to form Leutton Postle…”

How Zara Grew Into the World’s Largest Fashion Retailer (NY Times)
“Inditex is a pioneer among ‘fast fashion’ companies, which essentially imitate the latest fashions and speed their cheaper versions into stores. Every one of Inditex’s brands — Zara, Zara Home, Bershka, Massimo Dutti, Oysho, Stradivarius, Pull & Bear and Uterqüe — follow the Zara template…”

Fashion Weighs a Deeper Investment in Africa (IHT)
“Designers from Vivienne Westwood to Jean Paul Gaultier have long drawn on the vibrancy of African culture in their clothing lines. But now the industry is taking a tentative look at whether it makes sense to put down larger stakes as the African economy begins to take its place alongside the world’s other promising emerging markets.”

Tory Burch’s Ex Factor (Vanity Fair)
“In a brief eight years, Tory Burch has become one of fashion’s biggest names, the golden girl with the golden brand. Is it thanks to, or in spite of, her former husband Chris Burch, who has launched his own, Tory-esque line of shops, C. Wonder, while still sitting on her company’s board?”

Victoria’s Secret Channels Mad Men Into Hottest Limited (BusinessWeek)
“Limited Brands Inc. Victoria’s Secret is thriving using a marketing strategy that seems more Mad Men-era than from the age of Twitter. While other big brand retailers try to hone their social- media skills, the intimate-apparel chain is creating excitement with a network TV holiday fashion show featuring young women wearing Swarovski crystal-decorated lingerie strutting down a runway in six-inch heels.”

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