The Zara outlet in Sliema, expanded to impressive 4,400m2 metres of shop floor in 2017, is regularly visited by the females of our household. I understand why. The garments on display are refreshingly fashionable. Combined with far more expensive high-end fashion items by the likes of Prada or Dior, Zara garments blend in well and often look equally impressive, despite having cost a fraction of the luxury item. Zara clothes are well-manufactured too. Priced like disposables, they last for many years.
What makes a shop visit irresistible is the timeliness of its wares. This is what my ladies see in fashion magazines at the hairdresser’s right now. And the offers change every week. If you like an item, better buy it immediately because soon it will not be stocked anymore. The shop is also palpably Maltese. The choice and blend of wares on display differs markedly from other shops in other European cities.
Zara, and sister brands like Massimo Dutti, Pull&Bear or Zara Home, are owned by Inditex (Industria de Diseno Textil SA). The Spanish company was set up by Amancio Ortega Gaona, a shirtmaker from the village of Coruna in 1963. Together with his wife and later with the pivotal help of Jose Maria Castellano, a local IT professor, he set up what Wikipedia calls “the biggest fast-fashion group in the world”.
What turbo-charged Inditex growth from the 1980s onwards was its capability to shorten production times. While traditional fashion houses operate on a year-on-year basis, Inditex has production cycles of two months. Many items arrive in the shops within 15 days after they have been conceived on the drawing table. Newness comes at top speed. Equally fast was Zara’s global expansion. It operates 7,200 shops in 93 countries and on five continents. With a few exceptions, it owns its shops outright (the Malta franchise is co-owned and managed by John Zarb’s PG Group).
Inditex is indeed a behemoth. It sold garments worth $32.6 billion in 2022, earning a net income of $4.12 billion. In Q3/22, it had revenues of $9.24 billion according to statements posted by Bloomberg, creating profits of 1.345 billion. This means healthy profit margins of 14.56 per cent. Inditex, with a share price of €34.48 at the time of writing, has a market capitalisation of €106.8 billion. Its stock gained 47 per cent year on year. With a P/E of 22, it is not cheap but neither is it unreasonably expensive. Luxury fashion house Hermes has a P/E of 49.61. Zara and its sister brands employ 165,000 people worldwide. It makes founder Amancio Ortega the 15th richest person on earth, with an estimated wealth of $87 billion. After his retirement, his daughter and heir-apparent Marta became chairperson.
Yet to call it the “biggest fast fashion house” is tricky. It certainly has a bigger market capitalisation than its immediate competitors: PVH (Tommy Hilfiger, Calvin Klein) has a company value of $5 billion, similar to GAP. American Eagle Outfitters is worth $ 3.7 billion, the Japanese UNIQLO owner Fast Retailing $75 billion. Yet the fast-growing Chinese fashion-app Temu and the still-private social media fashion purveyor Shein are new kids on the block and are gaining ground quickly. Temu’s owner, PDD Holdings, also owner of online retailer Pinduoduo, is bigger than Inditex, with a market cap of $137 billion. Shares have gained 67.3 per cent in a year.
Zara’s Inditex is a good investment. Its wares are a good buy and its shares unproblematic to own- Andreas Weitzer
Shein has sold merchandise worth 22 billion last year, Temu 12 billion. They differ in many ways from Inditex. They have no shop presence. They are third-party, online market places whereby Chinese manufacturers ship directly to buyers. As items typically cost not more than a few dollars, they are under the VAT radar when posted from China. There’s not much of consumer protection, as misled buyers will not complain about an item of lesser quality which has cost so little. Who’s to complain about the bad fit of a swimsuit for two dollars? Temu’s App is accused of embedding malware, misusing data for sinister purposes and causing intentional security risks.
What fast fashion is accused of more generally is its wastefulness. Producing cheap garments means cutting corners. Whether cotton is sourced from sustainable farming or through ruinous misuse of land and water resources is hard to differentiate. Soviet cotton farming in central Asia has caused desertification of epic proportions. The Aral Sea, once a mighty water, has totally disappeared.
Chinese cotton has the stigma of forced labour, as it could have originated in the labour camps of Xinjiang. The collapse of the Rana Plaza building in Bangladesh in 2013, killing 1,135 garment workers who were labouring away on miserable salaries for Benetton, Walmart, Primark and others, was another reminder how cost-cutting had precedence before labour well-being. Cheap fashion puts local seamsters and manufacturers out of work and precipitates the loss of traditional craftsmanship.
Cheap garments are not mended and not passed on to the next generation. Sometimes they are too cheap to be taken to a dry-cleaner. They end up in landfills, often out of view in poor countries which are willing to take them off our hands. Zara, which uses cargo aircraft to ship its dresses more quickly, is operating 1,600 cargo long-haul flights per year – the equivalent of a fifth of Malta’s total CO2 emissions. The impact of Zara’s cargo flights is of course unfairly easy to calculate. Much easier than billions of small parcels sent from China per post to the rest of the world.
I think it is easy to accuse fast fashion for all the above and more misdemeanour. In truth, it is our own shopping habits which should be questioned. Do we still mend torn garments, do we repair socks? How often do we buy second hand? How long do we keep stuff in use? Do we give clothes to charity, or to someone else in the family, or do we just throw things away? In defence of the Weitzer girls, I can proudly state that all four borrow from each other and wear what they buy for many years.
In this respect, Zara’s Inditex is a good investment. Its wares are a good buy and its shares unproblematic to own. This is not investment advice though. As we have seen with Hennes & Mauritz, the fast-fashion star performer of the 1990s, fashion fortunes come and go, and only very few firms can ingratiate themselves with consumers for long. But even more crucial: with a recession in Europe on the cards, is it a clever idea to bet on a digressionary consumer company these days?