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Textile analysis

5 March 2013 By Quentin Webb

Where style magazines have “what’s hot and what’s not” columns, finance has rich lists. Straddling the two worlds is Zara founder Amancio Ortega, now the world’s third-richest man, according to Forbes. He has amassed $57 billion by flouting many of the rules of fashion retail.

Shopkeepers get less press than tech visionaries. Yet the annual tally of billionaires shows that retail is a money machine. Aside from Ortega, who owns 59 percent of Zara’s parent company, Inditex, huge fortunes have been made selling clothing, groceries and furniture by the people behind H&M, Uniqlo, Wal-Mart, Aldi, IKEA, and others.

Most retailers are recession-resistant and have huge potential customer bases. And they rarely need much capital to get started. Shops can usually be rented rather than bought, and suppliers can be paid after goods are sold. For successful formats, it’s a story of high margins, fast growth and self-made billionaires.

Inditex’s special trick is its agility. New designs appear constantly. Suppliers are mostly in nearby Iberia, Morocco and Turkey, rather than the Far East, so new clothes arrive faster. Short production runs mean fewer discounted leftovers. Zara and its seven sister brands also eschew advertising. They bring in customers by putting the stores in glitzy popular locations.

Flabbier rivals such as Gap and H&M have been left far behind. But Inditex is not yet done. Nomura reckons it has just 1 percent of the world’s $1.8 trillion apparel market. It could do much more online, too.

For investors, the catch is that this is the worst-kept secret in retail. At roughly 27 times expected 2013 earnings, and up 50 percent in a year, Inditex’s shares are already painfully expensive.

That hardly discounts the risk that Inditex will become less nimble as it expands or that it will lose out in the digital retail revolution. But even if margins stay at current levels while sales double from today’s 16 billion euros, Credit Suisse reckons the group is worth no more than 98 euros a share – versus today’s 106 euros. In fashion, it often pays to ignore today’s trend and seek out the next big thing.


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