#372: Amancio Ortega: The Genius Behind the Inditex Group

23:56He's the Henry Ford of fashion. I'm telling you, it's very obvious to me. Henry Ford says, I refuse to recognize that there are impossibilities. least. I cannot discover that anyone knows enough about anything on this earth definitively to say what is and what is not possible. That line jumped out at me because it says this phenomenon, this idea, this entirely new model that Ortega invented has broken. It says they were talking about compare them to other people in the fashion industry, right? It has broken schemes and has shown that there are no mature sectors where everything is already discovered, but rather companies are managers with closed minds who resist innovation.

24:32So to do all this, they need to do basically three things really well. They need to find out what customers want. They need to design and make the clothes quickly. And then the third thing is they need to distribute the clothes to their stores very fast. And so to find out what customers want, they hire a ton of young people. And then these young people go around and they actually look at what people are wearing. So they have people dispersed in New York nightclubs and shopping areas of Paris and trendy bars and hotspots in Spain. And what they are doing is they're tracking the trend. They don't want to know what you're going to wear two years from now.

25:02They want to know what you wear right now. So you have people all over the world that work for Inditex. They're actually on the street seeing what people wear, right? They also, the author has given this tour at the headquarters in Spain, and they show this huge room with these drafting tables and tons of designers. And they're surrounded by thousands of international magazines, mostly fashion and lifestyle magazines. And everybody working in that department, what their job is, they have to spot the dominant trends. So once they identify what the customers want, they design them, and then they start manufacturing and making them.

25:33And when the book starts describing not only the manufacturing process, but also the logistics process, what you realize is that Zara or Inditex is a manufacturing logistics company that uses technology as an advantage. And so here's one description as they're touring the plant. We toured the different warehouses where the complex task of preparing the garments before they left for different destinations was carried out. large rails crisscrossed the ceiling and the factory -made clothes, rotating unceasingly in an orderly and repeated manner, went to the labeling, ironing, bagging areas, and finally to the point where the rails forked according to the store that would be their final destination.

26:08In this last section, sophisticated and effective machines folded the jackets, blouses, or pants and placed them in huge cardboard bins. If the garment wasn't folded because it had to travel upright, it slid onto hangers that were automatically inserted into special containers. The address of the store was printed on each of the boxes. This is going to blow your mind. Modern machines with hardly any trace of humans operating them. Our mouths literally opened in front of the futuristic panorama that we had before us. I didn't completely understand the complexity of what they were showing us, but I did sense that a significant portion of the secrets of a company destined to be at the head of the global textile industry were being kept and designed there.

26:56And so then it gets even crazier. So they're at the ultra modern plants. So I guess I should point out to you the fact that Zara are into techs. It's not headquartered in a big city. Instead, it's headquartered in a rural corner of northern Spain. and I've seen this reoccur as a benefit in not only the books, but some of the world -class entrepreneurs I get to meet as a result of the podcast, is they set their company up away from everything. And so for Inditex, this ultra -modern logistics facility that the author is taking a tour of, she says that it's an ultra -modern plant in Galicia, Spain, is connected by more than 200 kilometers of underground access to a fully automated logistics center located in Artexio, another town in rural Spain.

27:44From where trucks loaded with products depart for European stores or for planes in the case of the rest of the world. This process combines real -time information and in -house production with an efficient distribution system. Now do you see why I keep saying that Inditex is just a manufacturing and logistics company that uses technology as an advantage? That continues. What has helped us succeed in sales the most is that we receive daily information about what's happening in all of our stores worldwide. And they're able to do that today because Ortega invested heavily in technology from the beginning.

28:21And they know that's a massive advantage. Logistics is a fundamental part of the circle that completes Inditex's vertical integration process. inventory control in all locations around the world is as important as getting the design right and producing it quickly. That is why Inditex has invested time, effort, and a lot of money in establishing logistics centers with the latest technology. And you go back to this idea of Ortega saying, hey, I don't care for the argument that nobody else in our industry does it. I don't care. I'm going to do it. And so what happens is most apparel companies have become overly reliant on factories in Vietnam, China, Bangladesh, right?

28:58So Zara also produces in those countries, but more than half of Zara's production comes from what they call proximity. And so what they mean by proximity is literally manufacturing facilities closer to headquarters. So in places like Spain, Portugal, Turkey, and Morocco. And the reason they do that is because the closer they manufacture, the more rapid the distribution in the stores, the more rapid distribution in stores, the more they can turn over their inventory, the more they turn over their inventory, the more money they make. And this is why it was so important that over 50 years ago, he's like, I need to be closer to the customer.

29:28I'm not just going to sell to stores. I'm going to control everything. Because if you control everything, you control the speed your company moves at. Ortega came to administer a holding company of 99 companies. It's got to be bigger than this now. Of 99 companies that guarantee complete vertical integration, covering not only the textile and clothing sections, but also logistics, marketing, construction, real estate, finance, and energy generation. Okay. So I think you got the idea of how it's structured and why he did something. I need to bring out something else. So I think Zara's understanding of human psychology is extremely advanced.

30:01And I don't know if Ortega knew this from the very beginning, or this was just a positive by -product of this rapid distribution system. You know, from idea, this is great. Think about how crazy it is. The system that he built from idea to on the hangar in a major city in the world in 15 days. But one of the things that Zara taps into that is very deep in human psychology is this human desire for novelty. Ortega is the inventor of fast fashion. So fast fashion, it's buying the latest clothes to use and discard without guilt the following year. In some cases, you might wear something you buy from Zara once, twice, five times.

30:38This idea entailed something very serious. It was a real revolution in fashion And it wasn't something that people in fashion before didn't understand. They were just incapable of doing. And so there is a fashion designer named Paul Poirier, most likely mispronouncing his French last name. And he says he has this quote in 1890 where he's like, clothing is an industry whose main purpose is novelty. Ortega spotted that exact same idea more than a century after, more than a century later. And what he did is he actually dedicated his company to making novelty, to have his company have the ability to distribute novelty at the speed of sound.

31:18So this is really important. Because they can ship so fast, because they turn over their inventory so long. Let's say you want to get Coco Chanel, like a little black dress. You could have bought a little black dress 50 years ago. You can buy it today. It will probably be there 50 years from now. That is not the case at Zara. They have trained their customers that if you see something and you even have the inkling that you might like it, if you don't buy it now, it will not be here seven days from now. Let me read this. This is fascinating. Traditionally, the seller ensures high margins at the beginning of each season, but endures several months of discounts to get rid of their stock.

31:56The customer knows, therefore, that in the long run they will get the same items at lower prices. Ortega's company renews its clothes in stores around the world every week, and twice weekly in Europe. The buyer knows that they will always find new items, but probably won't be able to get what they tried on seven days ago. In this way, customers understand that if they see something they like, they have to buy it immediately because in a few days, it will no longer be in the store. They have created an atmosphere of scarcity and opportunity. Okay, one more thing about his unique approach to the way he built his company and how he runs his company compared to everybody else in his industry.

32:34And then I want to get into like who he is as a person. Kind of did this in reverse than I normally do. But I found this very, very fascinating. I'm so glad I read this book. So he viewed real estate as a form of marketing and advertising. So they spend like less than 1 % of its estimate, less than 1 % of their revenue on marketing and advertising. And instead, they spend their money on prime, prime retail locations. Very, very, very expensive. And this is also interesting. So, you know, I mentioned earlier, he's got, you know, this massive commercial real estate portfolio. And at the beginning, he was like buying.

33:07It says over time with the growth of Inditex, he actually changed his formula. Instead of buying the locations for Zara, he now rents them. And that surprised me for a second until I thought more about it. I said, well, yeah, because he wants the very best store locations. And what if he doesn't own that store location? He doesn't want to sacrifice on not having the best just because he owns the store. So he rents them. And then now, because they've become such a large tenant, developers will now tell him in advance or give him advance notice when they're opening what they think is going to be a prime retail location.

33:35And so the way I thought about this is, OK, well, you're spending money on prime retail locations instead of advertising. Prime retail location is advertising, because if you are, again, just where the people are, where they're walking by, your stores become a demo. And as you and I know, because we've talked about and done episodes and read books about the greatest advertiser, agency founders, and greatest copywriters throughout history, a demo is always better than an ad. And so I would argue it's just a matter of accounting. They're spending a lot more on advertising and marketing, but they're doing so in the form of prime retail locations.

34:09So I want to talk about how he learned to do this. And he talks about the fact that, you know, I did not have time to study. I had to work 20, he says, 24 hours a day when he was younger. There was just no possible chance for him to attend college. He didn't even attend high school, for God's sake. He's not going to go to college. And he said two very fascinating things that he makes up for his lack of formal education by listening a lot to those around me and learning from them, and by treating his profession as his university. He says, my profession had to be my university. And he was so successful.

34:40This is one of my favorite lines in the entire book. It says, Ortega has created a business model that is studied in universities to which he could not access. He says a few times that he thinks people overcomplicate things. And so for his life, he just wanted to focus on work. In fact, he was very extreme about privacy. Some people call him a recluse. I don't think he's a recluse, but he does want to protect his privacy. So Ortega was never photographed. Only his friends, families, and coworkers knew what he looked like. This is before Inditex goes public. The author of the book has known Ortega for over 20 years.

35:12She had been trying to write a book about him over and over again. And he kept saying, Ortega kept saying, I don't want a book written about me. He resisted for many years. This is very similar to if you listen to my episode on the founder of IKEA a few weeks ago. For a few decades, people kept trying to approach him to write books. And he said no over and over again. Eventually, he agreed just like Ortega does. And in fact, there's a conversation in the book about the book. So it's a conversation between the author and Ortega. And he is worried. One of the main objections he has to having a book written about him was that he values his privacy and he wanted to keep his life simple he literally just says i just want to work and here's what he said to her you don't realize something very important i am nobody i consider myself a worker who is immensely fortunate to have done what he wanted in life and to continue doing it and when he finally agrees to have the book written he just asked for two things number one do not only tell good things about me something he repeats over and over again is that all humans all of us have good and bad parts to us so don't just say the good things about me and number two do not say that I created this company.

36:15There have been more than 80 ,000 people that have helped me build it. He says Inditex is the story of many thousands of people who have given their lives to the company. And the impending IPO is the first time that he actually consented and allowed himself to be photographed. But he would explain why this is important to him, why privacy was so important to him. He says, I only want my family and my friends and the people who work with me to recognize me on the street. I aim to live quietly, to be one among the many, to be able to go anywhere, to have a coffee, to take a walk with my wife without anyone knowing who I am.

36:47And so then finally I organized my notes. And this section I think might be the most fascinating. It's because it's how Ortega manages, spends his time, and thinks about his company. And a lot of this is in his own words. So he says, I spend my days moving from one part of the factory to another to see how everything is going. If I'm not in the warehouse, I'm in design. I'm interested in the entire process. He insists, another way, another managerial technique. Like, he will not, he does not allow people to call him Mr. Ortega. He insists that everybody just call him Ortega. He has something in common with Rockefeller.

37:18He talks about the fact that he never raises his voice. He says, I never raise my voice because I don't like others to suffer. So he's not one of these bosses that yell and scream. And part of the way he explains that, he says, he's always, ever since he was a kid, he was just very sensitive to scorn. There's other, I guess, I should probably tell you some of these stories because it would, it makes sense, like why he has this complete and total dedication to work. Obviously, we know the story when he was 12 years old and the fact that they were buying groceries on credit and the credit was turned off.

37:46But there's a lot of these examples where, you know, because of his low class, the fact that he was poor, he was just constantly felt that he wasn't good enough. He was embarrassed at the thought that he was not good enough. So one day a mom comes in to the store he's working in, you know, when he's a kid, and he wanted to date this, the daughter of this mother. And she finds out that this little kid working in the store is not the son of the store owner. It's just some poor kid. And she wouldn't let him date her daughter because he was just a simple sales assistant and he wasn't good enough. And so by now it's probably obvious.

38:24He starts working at 13, still working at 88. And look at what he's accomplished over those multiple decades. Like his dedication to work is complete in total. So here's an example. The author is asking Ortega, hey, what are you doing to celebrate New Year's Day? And he says he just went to work and she's having another conversation with him a few years later. What are you doing at Inditex today instead of quietly celebrating your birthday at home? And she says, I received the same answer that I've heard on other occasions. Why should I stop coming in today? I do what I want to do. I do what I always do.

38:54Work. Ortega believes in management by walking around. I don't have an office. I've never had one. My work is not among the papers, but in the whole factory. And as you walk around with him, you notice he knows the name of each worker that he sees. He had a kind word for everyone. Goes back to not raising his voice, wanting every single person in the company to feel that they are a valuable part of the team. Another trait of his is he always wants to know what he could be doing better. I used the opportunity to make a series of comments about what I admired about his company. And he interrupted me and said, I'm going to ask you for a favor.

39:24Why don't you explain to me the things about Zara that you don't like? I highly value your opinion and I would like you to critique what could be done better. That reminds me of one of my favorite quotes from Nick Saban. I've mentioned a bunch of times. Nick Saban says average players want to be left alone. Good players want to be coached and great players want to be told the truth. Ortega understood that people admire him now, especially that now he's one of the wealthiest people in the world. They're only going to say nice things to him, but that is not the truth. And great players want to be told the truth.

39:55Ortega knows it's his responsibility to mean the essence of the company. He remains a man who knows every detail. Ortega says the store is the heart of the company, that it's the protagonist in this company. In fact, Ortega has a great quote on this. And this quote, I really, it's what Ortega really thinks this company is. He says, we are a chain of stores with a company attached. We live so that the store is focused on selling. All the rest of us are at your service. when he hired a new director of human resources. This is what Ortega said. He only gave him one piece of advice, and it was in one sentence.

40:30Love the people. Ortega says that Inditex is the most beautiful company in the world. He said he wanted a company with a soul. About 15 years after opening his first Zara store, he opens the first Zara store in New York. There were so many people waiting outside that it made him cry. He literally went inside the store, locked himself in the bathroom, and cried his eyes out and thought about his parents. He thought about how proud they would be of their son. And then the next year, he opens his first store in Paris. And again, there were people waiting in line to get in. And this time, he cried in the front door like a child, he says.

41:06He said, I couldn't even hide it. I couldn't even make it into the store. I just started crying. He was so happy. He insisted that the author ask people that were working for him what his faults were. These are some of the faults they attribute to him. They say he has an excessive amount of ambition, that he insists on placing his company at all costs on the highest step of the podium. They say he's very stubborn and that he has a habit of fostering competitiveness among his teams. He believes that there should always be a desire for improvement and a consistent capacity for criticism. He says, I've always thought that to succeed, we had to turn the organization upside down every day.

41:41He has an aversion to the term exclusivity. In fact, there's a bunch of other fashion brands throughout the book that approach him to buy their company. And he always declines because he doesn't like luxury or the exclusivity that it implies. This isn't a fault. This is a huge asset. It's the fact that he stayed focused on his one great objective, which was to enable the entire world to dress well. This is a little bit about how stubborn and headstrong, as you can imagine, you don't accidentally build a $160 billion company, I think, without those traits. It says Ortega always likes to have his own way.

42:12If experts advise against the opening of Zara in Venezuela, for example, and he is convinced that they need to be there. He will purchase the most expensive building in the company's history up until that time. Ortega really aims not to settle halfway to excellence. And he loves the satisfaction of a job well done. I really think about that as excellence for excellence sake. If you think about James Shea Hill, Ingvar Kamprad, Ortega, the last few weeks, all of them, what they share in common, they wanted to build and design the best business in their category, not just make the most money. And I think all three of those cases, they might have made the most money, but their main goal is like they want to build and design the best business in their industry.

42:50Let's go back to this idea that Ortega is never complacent. He believes that complacency is the worst if you want to achieve something significant. He said in this company, we have never been complacent, not in those years when we were taking our first steps and not nor now that we have stores all over the world. He says growth is a mechanism of survival. Another insight into Ortega from a person that works for him that knows him well. He says he's a man with a lot of personal charm because he's not false. He does not have ulterior motives. He can be very tough, impulsive, very sure of himself, but he's very truthful.

43:28He is open to suggestions from those who know more than him, and he listens to everyone and absorbs everything like a sponge. In fact, there's a great example of this where the founder of the company and the CEO of the company, so Jose and Ortega, okay, they almost bought Sephora before LVMH buys it. This is very fascinating. So the way I would describe this, he's stubborn, but he's willing to listen and be persuaded to go in another direction. So the CEO of Inditex, Jose at the time, is describing him and Ortega wanting to buy Sephora. I recall a moment when the owner of the company Sephora wanted to sell it to us.

44:04This was before it winds up with LVMH. Ortega and I were in total agreement that it was important to buy it. But the rest of the company did not see it that way. We thought it could be effective to combine clothing and something else. But most people believed that it was a distraction and that we should continue to invest in Zara, that cosmetics and perfume were a business that we didn't know and we didn't control. And the final result was that we didn't buy it. This is what I call a form of intelligent flexibility in leading a major growing business. And so I think the fact that he's stubborn, but he's willing to listen and be persuaded to go in another direction and combine that with also the fact that he is listening, he's absorbing everything with a sponge.

44:44I think it fuels one of his superpowers, which people believe that one of his superpowers is that he has the ability to synthesize the most complex ideas as if they were simple and that he has used that ability throughout his entire life. Another example of him allowing himself to be persuaded, he was not very fond of going public. made him doubtful. He did not like the dependence of this external opinion, but he was finally persuaded because he decided that going public was a way to impose a certain discipline on the company. They had to run it tighter. And he thought it safeguarded the company, the company's future for when he's no longer around.

45:17And so it was during the section of the book where they're talking about the IPO, talking about, should we do it? Should we not do it? How they got ready for it. I got, I found one of the most interesting ideas. This is the most unique, interesting idea that I've learned in the past week from anything. And it's the idea that commissioning case studies in business schools before going public as a way to make your brand or company more familiar. So the author is interviewing Jose, again, the CEO, and she says, I was intrigued to know how the situations that have come because case studies in business schools came about.

45:50Just keep in mind, this translated from Spanish, so it kind of reads a little funny, but Jose says the explanation is evident. I thought because of the policy that had been followed up until that point that they were very secretive. They kind of kept to themselves. Okay, that's what he's talking about. That when we went public, we would be great unknowns. Case studies were the way for potential investors to know who we were. And so there was a Harvard case study written about Inditex before they went public that 2 million people read. And so he says this helped us make ourselves known in the business world.

46:23So then back to Ortega. He eats in the same cafeteria as his employees. He continues to walk through the halls of the headquarters to lend a hand. He does not like to lead sitting in a chair. He doesn't raise his voice. He says, you always have to speak in plural when referring to our work. Never say I did this. He has never liked praise. More than once, I've told him what a beautiful collection, how happy the customers are. And he always interrupts me and asks me, now tell me what's wrong. When he was asked for advice for future generations of entrepreneurs, he said, the first thing is that you like what you are doing, that you are passionate about your work.

46:59I insist on this idea because it is very important. It has to be something that you would almost pay to do. You get the sense that he would pay to do what he's doing. That's why he's working for decades after he needed the money. That's why he's working on birthdays. And that's where he's working on holidays. He just loves it. He says, more advice for future generations of entrepreneurs. You also have to aim to achieve something different, something creative. It is a satisfaction to dedicate yourself to what you really believe you should do. So keep in mind, you know, people might read that and like, oh yeah, but he copies his product.

47:31He sees what high end fashion does and then creates a version like a cheaper, less expensive version. The product may be copied, but his company is not. He definitely achieved something creative, something different, something nobody else could do. He has a love of simplicity. He says there's a lack of common sense in managing life. He says multiple times that he He thinks people overcomplicate things, that the simple things in life are the great things in life. In fact, there's a line in the book that says simplicity is the heritage of geniuses. This part is excellent. I ask him if he's bothered by other people's opinions.

48:05This is what he says. I don't think it's important to know how other people see me. I never cared. Also, there are thousands of entrepreneurs who have done the same as me. If I'm somewhat different, since I don't go to parties or I don't accept awards, it's because all of my life I've tried to do what I liked the most. I would almost say I've been selfish in that sense because I didn't just do what I had to do, but what I wanted to do. I turned 72 last March and I feel that my growth can't stop. What keeps me going after all these years is to learn and to grow. I continue observing what happens in the world and I listen.

48:40Work is what I enjoy most. And then the author gives us a great summary of Ortega's career. He is a person who will die with his boots on. His life is the company. and that is where I'll leave it for the full story. Highly recommend reading the book. I guess the only way you could read the book, this book, is if you read Spanish. So if you buy the book using the link in your podcast player or available at founderspodcast .com, you'll be supporting the podcast at the same time. Make sure you join my personal email list, and if you do that, I email you my top 10 highlights for every book that I read.

49:08You can get that link down below and also available at davidcentra .com. But that is 372 books down, 1 ,000 to go, and I'll talk to you again soon.