INDITEX: a Closer View of the Company

Zara, Bershka, Pull & Bear, are worldwide known fashion brands. All these brands plus five more( Massimo Dutti, Oysho, Uterque, Stradivarious and Zara Home) belong to an enterprise called INDITEX (Industria de Diseño Textil Sociedad Anónima). On this blog entry we will make an analysis of how this enterprise manages its corporate social responsibility program.

Almost 40 years ago, in 1975 Amancio Ortega,  Inditex founder and owner, opened the first Zara store in  La Coruña, Spain. Since the beginning it was a successful company because it sold mid quality fashion garments for a low price. In 1988, the group achieved international expansion by opening a store in Oporto, Portugal.  This diversification was possible due to the company’s approach to fashion, quality, and ability to adjust to the market changing demands.

Today, Inditex Group has 8 store formats in 78 countries with 5402 stores, with 12 527 million euros annual sales and its business model is based on 5 main keys which are: customers, store, product/design, logistics and team. The group is continuing its strategy of multi-format global world.

Nowadays, the group is considered as one of the leaders of fashion industry. It has taken a new approach to the industry and is gaining strength through the changes because of the markets demand. Last year, they started their new market strategy of “Sustainable Inditex” for the 2011 to 2015 period. The strategy consists on energy saving in their stores, production chain and with the raw materials for the production its garments as well.

“The results that Inditex achieved during the 2010 financial year showed that the Group is continuing its strategy of multi-format global growth and, what is more important, this is a reflection of the strength of its business model” ( Grupo Inditex, Annual Report 2010).

The economic world crisis, was not a barrier for Inditex planned growth and international diversification. Despite of this world wide issue that broke big and successful companies, Inditex continued with its regular sales and opening of stores around the world. During this period they launched a new brand Unique and their stocks remain trading in the stock market.

Stakeholders

Inditex has five main stakeholders: more than 67.000 shareholders, over 1170 suppliers, stores in societies of more than 78 countries, clients all-over the world  and about 95.000 employees.


Corporate Social Responsability

Reputational Risks

INDITEX, as a company focused in garments, faces reputational risks regarding social, environmental and economical issues.

From the perspective of clients as stakeholders, the most important value regarding social responsibility might be the working conditions of the employees, especially when it comes to supplier’s factories in developing countries such as India, Bangladesh, China or Vietnam. Responsible customers are aware that child labour and gender discrimination do happen in those countries and that factories are not always safe production places. NGOs working in fields related to human rights and fair trade will report any kind of abuse that might take place under Inditex manufacturing or suppliers factories, which could mean high losses of reputation and credibility for the company.

Nowadays Inditex out sources 40% of his manufacturing to cheaper labour markets, while the bulk of its production still remains in Spain, which contributes to reinforce the brand CSR policies.

Regarding environmental policies, Inditex might face reputational risks related to the sustainability of its activities and the ones of its business partners. Responsible customers demand organic or renewable raw materials for their products and are aware of the carbon footprint that links each piece of clothe to the country where it has been produced and the way its has been transported.

On the other hand the company has to make sure that shops -5.042 all over the world- and headquarters’ offices are environment-friendly and energy-efficient and that the group is collaborating in the compensation of the CO2 emissions it cause. As climate change and global warming are getting such an importance nowadays the company must ensure its green policies in order to maintain its image and reputation.

Lastly, Inditex must ensure clean and transparent accounts in order to avoid reputational risks. Fair salaries and payment of taxes are issues that matter to a society tired of corruption cases. Social investment is also important as it might contribute to improve the company’s image.

Scandals

On April 11, 2005, an ill-constructed factory in Bangladesh that produced clothing for Inditex brands and other foreign labels collapsed, killing sixty workers and injuring scores of others. To Inditex credit, the company proposed a compensation fund to indemnify the injured and the families of the victims, working closely with local and international garment workers unions and non-profit organizations to calculate the appropriate level of compensation and to convince other clients of the foreign subcontractor to support the effort.

The main English newspaper in the country -The Daily Star- gathered information regarding the accident as well as testimonies of the victims in the following article published in their weekend magazine:

http://www.thedailystar.net/magazine/2005/05/01/cover.htm

Since the Bangladesh factory disaster, Inditex has worked more closely with international workers organizations, but the unresolved issue of shared guilt between international brands and their sweatshop subcontractors continues to haunt the company that wish to combine global expansion with fair trade ethics, as well as to promote corporate social responsibility policies.

More recently, in August 2011, Inditex was implicated in a slave labour scandal in Brazil, where 15 employees had to be rescued from a supplier company where they were working in degrading conditions. According to the press, Inditex denied any responsibility, placing the blame within the supplier company, which wasn’t following their ethical code, but agreed to arrange compensations for the affected workers and committed to use workshops that operate in accordance with the law. Further information can be found at:

http://www.lavanguardia.com/20110818/54201597972/brasil-expedienta-a-zara-por-un-escandalo-de-esclavitud-en-sao-paulo.html

Although the mayor scandals Inditex has been involved in are related to employees working conditions, there has been other minor news related to environmental issues. For example, in October 2009 the company was responsible of a fuel spill into the Galician river Arteixo.

http://www.laopinioncoruna.es/gran-coruna/2009/10/25/averia-inditex-provoca-vertido-gasoleo-rio-arteixo/329349.html

Scandals Effect on Reputation

Analyzing the INDITEX gross income from 2006 to 2010, we can see that it has continuously grown from the previous years. The net profit grew from 1,002 to 1,732 million euros. The EBITDA also grew from 1,790 to 2,966 million euros. The Sales enjoyed the highest growth, increasing from 8,196 to 12,527 million euros. The increasing trend in all aspects of the company’s economics shows that the incidents mentioned above have no impact on their reputation or sales of the products.

Despite the good news within the past four years, it has to be noted that many consumers are becoming aware about the products they are buying. In addition, there is a trend amongst consumers to hold the review and feedback of other shoppers in regards to the products they are buying, as more valuable than the information given by the company itself. A CSR study that focused on the sources of information that delivered fair treatment information of supermarket suppliers showed that clients trusted the sources in the following order: “consumer organizations, independent organizations, labeling verification and lastly, the supermarkets themselves.” (CI) Although focused on supermarkets, the study depicts the general trend of decreasing trust the public has towards companies and governments.

The importance of this information is the fact that more shoppers are moving from shopping in the store to relying more heavily on online retail.  A 2010 Consumer Trend Awareness report published some latest findings. It mentioned that “2010 has seen the upward trend in online purchases.” Women’s clothing ranked as the third most popular online shopping category, seeing a 33% trend growth from the previous year. This is because these products are  low weight and low value. The online retail trend is heavily influenced by the social media: “53% of consumers used an online forum, review or chat room to inform a purchase in 2010, up from 45% in 2009.” This is a steep increase and shows the importance of a positive image the fashion corporation must maintain online, in addition to its official communication channels.

Keeping this information in mind, and how quickly it is to find information on any company with the use of Google search, negative articles that can damage the corporation’s image, must be avoided at all costs. Since INDITEX is a global organization that values its ability to expand and open more stores abroad, such as new stores in India and Russia, it should be aware of the type of information that is being circulated about it on the web.

By minimizing its accidents and labor mishaps abroad, it can guarantee future success. This is especially important if the company wants to operate in new markets, and see a continued increase of its capital. With a more aware clientele, which experiences a lowered trust towards the company, keeping a positive image is key.

CSR Strategy

INDITEX, has many shareholders and the CSR strategy that is being implemented aims at satisfying all their needs. The 2010 CSR report states: “our intention to take a further step in strengthening our production chain, in dialogue with our main stakeholders, in the care for our products, of our customers and, in general, in the commitment that we have with the society in which we work.”

To address the issues that made negative headlines for the company in the previous years, INDITEX wrote: “these challenges have led us [to] accepting a commitment to the fulfillment of human, employment and Social Rights, linked to the firm desire to offer the best quality and service in the wide range of products that inditex markets.”

In addition, to give a platform and the ability for its employees abroad to have a louder voice, the company made several alliances with trade unions, employer’s associations, and non-governmental organizations. The report mentioned that it will use the following platforms to create dialogue between itself and its suppliers: Ethical Trading Initiative, Spanish Group of Textile Safety Standardization, Better Work Program of the ILO, The Global Compact of the United Nations, and American Apparel & Footwear Association.

Despite the following new initiatives, no further details were given as to how this information sharing and feedback platform would function in reality. Nonetheless, it is definitely a start and a sign of the importance the company puts in maintaining its positive image.

Final Comment

We think the company has being successful  since its beginning,  because of its awareness in the market needs and  its ability to adjust to the market changing demands.

INDITEX has been growing despite its accidents and other negative employee policies abroad such as bad factory settings, lack of safety standards, etc. However, for the future it is important to increase and rise  the client awareness.

Due to this, and the availability of all type of information online, the company should continue to focus in its image and behavior.Through its new channels of communication, and platform for the workers to communicate we can say that Inditex realizes the importance of it for the company and is trying to strengthen its positive image.

References:

– “Inditex Corporate Responsibility”, accessed from: http://www.inditex.es/en/corporate_responsibility/sustainability

– “Zara, Inditex and Amancio Ortega – the Responsibility of International Success”, accessed from: http://www.triplepundit.com/2006/08/zara-inditex-and-amancio-ortega-–-the-responsibility-of-international-success/

– “Left in the lurch” – Cover Story of the Star Magazine, May 6, 2005. Accessed from: http://www.thedailystar.net/magazine/2005/05/01/cover.htm

– “Brasil expedienta a Zara por un escándalo de esclavitud en Sao Paulo” – La Vanguardia, August 18, 2011. Accesed from: http://www.lavanguardia.com/20110818/54201597972/brasil-expedienta-a-zara-por-un-escandalo-de-esclavitud-en-sao-paulo.html

– Consumer International. (2010). “Hora de pasar por caja. Estan los supermercados europeos a la altura de su responsabilidad respecto de las condiciones laborales de los paises en vias de desarrollo?” Consumer International. Accessed on January 16, 2012 from: www.un.org/esa/dsd/…/CheckedOut-spanish.pdf

– Inditex. (2010). “Annual Report.” INDITEX. Accessed on January 24, 2012 from: http://www.inditex.es/en/corporate_responsibility/sustainability.

– Royal Mail. (2010). “Consumer Trend Awareness: All you need to know about changes in multi-channel retailing.” Royal Mail. Accessed on January 26, 2012 from: www.royalmail.com/sites/default/files/docs/…/Delivery_Matters.pdf

– Dossier de Prensa accessed from:
http://www.inditex.es/es/descargas/ITX_Dossier_p11_es.pdf

By: Group 1 -Natalia Díaz, Cristina García-Ochoa, Hokuma Karimova, Ricardo Garro


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