* Inditex has drawn know-how, professionals to region
* Smaller labels getting noticed despite downturn
* Tapping niche markets
By Sarah Morris
SANTIAGO DE COMPOSTELA, Spain, Oct 31 The green,
rainy region of Galicia in northwest Spain is best-known as the
destination for pilgrims hiking the Camino de Santiago to pay
tribute at the remains of apostle Saint James.
But a different kind of pilgrim also makes the journey here
-- retail sector analysts visiting the headquarters of Spain's
most successful modern export, Zara clothes, which has made the
founder of Inditex one of the richest men in the world.
Amancio Ortega, 75, has helped turn the once-poor region's
traditional textile business into an industry bellwether whose
smaller new and fast-growing brands are getting noticed even as
Spain's retailers suffer an unprecedented slump.
Ortega shuns photographers and interviews with the media, as
do most of Inditex's directors and managers. That secrecy hasn't
prevented know-how from the firm flowing into nearby businesses
over the last three decades, however.
"A ton of opportunities have sprung up, a load of new ideas
have come from Galicia," said Mikel Bilbao, partner of Spanish
investment bank GBS Finanzas. "Some of that's because there's a
cluster of technical, design and retail knowledge there."
Galician labels have the potential to attract private equity
looking to invest in the middle market, companies with turnover
ranging from 20 million to 300 million euros, and acquisitive
multinational retailers could follow, Bilbao said.
Even as Zara expanded across the world, Ortega kept his
centre of operations in a sprawling complex on an industrial
estate a 20-minute drive from the city of A Coruna.
With eight brands and more than 5,200 shops in more than 70
countries, Inditex employs about 100,000 people, with more than
6,000 of them in Galicia.
Highly skilled fashion and business professionals have
flocked to the region and local workshops of seamstresses, a
traditional business in the area, have had to become more modern
and professional to meet the demands of the firm.
Jose Luis Nueno, marketing professor at IESE business school
in Barcelona, estimates that Inditex probably subcontracts out
about 500 million euros' worth of business in Galicia.
"(Rival retail) companies are able to recruit workers
easily, whether they need sales people or pattern-cutters," he
SURVIVING AND THRIVING
Retailers have been battered during the global downturn by
sluggish consumption in Europe and the United States, high
cotton prices and rising labour costs in developing countries.
Yet despite a severe recession in Spain leaving one in five
workers jobless, a few canny Galician fashion labels are
Children's brands Nanos and Pili Carrera have targeted
high-spending Spaniards in a country where parents dress up
their children for restaurants and even the park.
While many retailers have their clothes produced in emerging
markets like India and China, Pili Carrera makes all its clothes
in Spain at its Galicia site in Mos, Pontevedra.
"People sometimes say: 'It's a bit expensive', but we are
paying for Spanish labour. Our profits might be less but we can
produce clothes that are different and control the final garment
better," said Natalia Brea Martinez, who supervises franchise
At a Pili Carrera store in Santiago de Compostela -- the
brand has stores from Mexico to Japan -- jumpsuits for babies
cost about 50 euros and skirts for four-year-olds 75.
"There is a crisis now, but people don't cry over what they
spend on their children. They want them to look nice," said
In Spain, the daughters of Crown Prince Felipe, the heir to
the Spanish throne, wear the brand. Actress Gwyneth Paltrow also
showcased the clothes on her blog www.goop.com.
"The United States is our priority market at the moment (for
expansion)," said managing director Salome Carrera in an e-mail
Another fast-growing label GBS Finanzas' Bilbao thinks could
interest private equity is Bimba y Lola, which produces upmarket
accessories and some women's wear.
Despite launching in 2006, ahead of the downturn, the
privately owned brand has increased sales steadily and expanded
to countries including France and Egypt.
With about 110 shops, roughly half of them franchises, it
was forecasting sales last year of about 60 million euros,
according to Galician newspaper La Voz de Galicia.
Run by the nieces of Adolfo Dominguez , the Galician
designer whose eponymous fashion label listed on Spain's stock
exchange in 1997, the young label has positioned itself well
even within its difficult home market. Spanish retail sales fell
for the 15th month in a row in September.
Ironically, as Maria and Uxia Dominguez's business has
prospered, their uncle's has suffered and is now focused on
expansion abroad to offset the slowdown at home.
Dominguez is known in Spain for heading a marketing push in
the '80s and '90s that helped sell "Galician fashion" to the
rest of Spain, a branding push that analysts say has little
traction nowadays. Some consumers in Asia even think Zara is
Italian, a misconception that doesn't affect sales.
IN BETWEEN LUXURY AND THE HIGH STREET
Several of the Galician players stand out for the way they
are successfully tapping a niche somewhere between the Louis
Vuitton and Dolce & Gabbanas of the fashion world, and
High-Street leaders H&M (HMb.ST) and Zara.
A well-established company is Sociedad Textil Lonia, based
in Ourense, which makes the collections of the semi-luxury
brands Purificacion Garcia and Carolina Herrera. It said last
year was the best year of its history with sales growing 10
percent to 235 million euros.
"Zara is good if you are a size 36, but if you are older,
have greater spending power and don't want to look like everyone
else, you are looking for something else," said Alberto Rocha
Guisande, a consultant and general secretary of the Galician
Confederation of Textile Industries COINTEGA.
"There are increasingly women looking for alternative brands
and are prepared to pay a little more. The bet here is on that
Guisande says Galicia's retailers are able to piggyback on
the presence of Inditex by enjoying access to suppliers who
provide the state-of-the-art machinery and distribution and
logistics systems that helped make the retail giant world-famous
for its innovation and efficiency.
In addition, added Rocha: "People who have worked for
Inditex may want to move on and have all that know-how."
In her biography of Ortega, Covadonga O'Shea says the
entrepreneur, who left school at 12, once told her it had been
difficult bringing good professionals to the region, which is a
trek from the financial centres of Madrid and Barcelona.
Ortega is extremely proud that his team today, particularly
in the design department, is like a mini-United Nations in the
wide variety of nationalities represented.
"Galicia can be the Silicon Valley of the fashion industry,"
(Editing by Fiona Ortiz and Sonya Hepinstall)