AIB Featured Business Leader – Amancio Ortega

AIB Featured Business Leader – Amancio Ortega

According to Forbes, Amancio Ortega is the second richest man in the world, but the chances are good that you’ve never heard of him. With a net worth of over $US70B, his retail empire spans the globe, with fast-fashion Zara leading the charge. Now 80 years old, the reclusive billionaire lives in his native Spain with real estate investments all over the world, but his origins are more humble.

Ortega was born in a tiny hamlet of 60 people in Northern Spain in 1936, at the end of the Spanish Civil War. The youngest of four children, he was born into poverty, with a father who worked on the railroads and a mother who scraped a living as a housemaid. When he was still young, the family moved to La Coruna, a city whose population today is still less than 250,000 and where the reclusive billionaire still lives. Life continued to be hard for the family, so much so that one of Ortega’s strongest memories is hearing his mother ask for credit at a local store when he was 13 years old. The storekeeper refused, and Ortega determined that he would help raise the family fortunes so as never to suffer the same humiliation again.

The same year, he found a job of his own, working for a local shirt maker as a shop hand. The experience gave him a grounding in clothing retail, but it also gave him ambitions. By 16, he could see the limitations of a model which provides the same offerings year in and year out, and hoping people would buy it. He wanted to control the supply chain and tailor the stock to customer demands.

Luckily for Ortega, the conditions were on his side. Galicia, where La Coruna sits, was an impoverished part of Spain. With few job opportunities on land, many men went to sea while their wives and mothers remained at home eking out a living from any tasks that could be done at home. Ortega organised thousands of them into sewing collectives, an arrangement which allowed them to ply a skill they already had into an income, at a low cost to him. Ortega formed his first company, GOA, which produced a range of quilted bathrobes. He also involved his older siblings to run the commercial and bookkeeping side of the business while he took care of design. They sourced textiles straight from the manufacturer to cut out the usual middlemen and business thrived.

In 1975, Ortega made the next leap along with his wife Rosalia, and opened his first storefront, two blocks from the clothing store where he’d worked as a boy. He intended to call the company Zorba, and had the letters cut accordingly, before discovering that a bar nearby already bore that name. Ortega rearranged the letters, added an A, and Zara was born. From the beginning, speed was of the essence, with Ortega imposing two rules: stock was refreshed twice a week, and orders would be received within 48 hours. In the early years, that meant that Zara stores needed to be opened near La Coruna, where the company had supply arrangements with Barcelona’s textile factories. The stores expanded as the production did, with the next country being Portugal. By the mid-1990s, the holding company Inditex was formed, and Zara was proliferating throughout Europe and the US, while the headquarters remained in La Coruna.

Today, Inditex owns a number of retailers, including Massimo Dutti and Pull&Bear, but it’s Ortega’s first store, Zara, which best illustrates Ortega’s innovative approach. The retailer is considered a disrupter within a crowded industry for its strategy of only stocking a few of each item, and updating its collection frequently. Unlike other retailers who produce enough of each item to get though the season and then update their stock, Zara updates almost weekly. This creates a reason for customers to come back to the shop frequently in the sure knowledge that there’ll be new clothes, and an urgency for those customers to buy items that they’re considering, for fear that they’ll lose the chance. Sales staff are also trained to elicit feedback from shoppers on what they like and don’t like, so a casual remark about the gorgeous new palette or a complaint about the zipper on a shirt will be relayed back to headquarters and collated as data for future designs. It’s this approach that Zara’s communication manager says is to thank for Zara’s smooth ride through the recent real estate and debt crises that Spain has been struggling under: the customer determines production, and the company responds.

Zara also invests heavily in its stores, renting space that puts them cheek by cheek with luxury brands and making sure that their layout speaks of luxury and class even though their clothes carry mid-market price tags. And whether it’s the proximity to Zara that’s doing it, or simply that their model cannot be ignored, many of the luxury brands have changed their own model of production to respond. From a bi-annual cycle of production, brands like Prada and Louis Vuitton have moved to new collections four to six times a year. Even luxury is becoming an impulse buy, and it’s thanks to the young Ortega, who saw the flaws in the old system in the 1970s.

Since stepping down from the day-to-day operations of his retail empire in 2011, Ortega has parlayed his wealth into real estate investments. He owns a luxury hotel complex in Miami, the tallest skyscraper in Spain and property from New York to London – a portfolio that adds up to over $8 billion. He runs a philanthropic organisation, the Amancio Ortega Foundation, which provides resources to develop the knowledge, scientific curiosity and welfare of disadvantaged youth. While he indulges in some of the luxuries that come with immense wealth – amongst his possessions is the luxury jet Global Express, costing some $45 million – he prefers to live a quiet life. He is also famously reclusive. Until 1999, no photograph of Ortega had ever been published and he does not grant interviews. The second richest man in the world may boast flagship stores across the globe, but he himself is happiest in his apartment overlooking the Spanish coastline, or riding horses with his family, mere miles from where it all began.

This article was written by Tanya Ashworth-Keppel on behalf of the Australian Institute of Business. All opinions are that of the writer and do not necessarily reflect the opinion of AIB. The following sources were used to compile this article: New York Times, Fortune, Business Insider, Forbes and the Amancio Ortega Foundation.

Image Credit: fashionunited

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