Zara Hipsters Transform Its Hometown Into a Spanish Powerhouse

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(Bloomberg) -- The hipsters of Inditex gave Miguel Lamas a helping hand when he opened his barbershop in A Coruna, on the northwestern tip of Spain, at the height of the financial crisis in 2012.

Inditex, the world’s biggest clothing retailer—best known for its Zara brand—lured hundreds of high-end workers from around the globe to the port city in the province of Galicia, transforming the area into a hub for the arbiters of street trends and helping it through the recession. With the one-time sleepy, rain-swept region turning into a fashion powerhouse, people like Lamas are flourishing.

“Our customers are usually medium-to-upper class, who invest in their beards and follow the latest trends, and Inditex people set those trends,” said Lamas, whose Hermin’s Beauty Salon & Barber Shop sits on a cobbled street in the town center.

Inditex was founded by Amancio Ortega—now the world’s fifth-richest person—who moved to A Coruna with his family as a teenager. The company, which started making and selling clothes—opening the first Zara store in the city in 1975—now has annual revenue of more than 20 billion euros ($25 billion).

Inditex’s market value has soared to 78 billion euros from about 9.3 billion euros at its 2001 initial public offering. It has given Ortega, 81, a personal fortune of 68 billion euros. And while concern that the company will signal cooling sales when it reports results on March 14 pulled shares down to a three-year low recently, Inditex is bolstering its online business to beat rivals and meet the rising pressure of Amazon.com Inc.

Big Spenders

For the region around A Coruna, Inditex’s continued success is crucial. About 4,600 of its 162,400 employees worldwide are at its headquarters in Arteixo, about 13 kilometers (8 miles) from A Coruna. Thanks to the apparel giant, the region no longer needs to do what it has traditionally done: export its sons and daughters to the Americas in times of economic hardship.

It has helped that Inditex employees are big spenders, with a lifestyle that has spawned a secondary economy of its own.

“Inditex staff have high salaries,” said Felix Blazquez, head of the University of Coruna’s business studies department. “They look for high-standard leisure and services and the city has changed to offer what they demand.”
 

Inditex workers with money to spend helped persuade Cesar Perez and Luis Jarque in 2012 to open La Urbana, a modern bar with a no-frills design, undeterred by the financial crisis.

“It soon became known as the Inditex bar—many of their employees came to have a drink here,” said Perez. “The crisis in A Coruna didn’t hit as hard as elsewhere, and that’s because of Inditex.”

The company’s growth was a bright spot as Spain grappled with a real estate crash and financial crisis that caused the economy to shrink by almost 10 percent between 2009 and 2013. At the height of the crisis in 2012, while the Galician economy tanked 3.2 percent, Inditex shares soared 67 percent as global revenue jumped 10 percent.

A significant amount of Inditex’s production takes place in Galicia. The retailer also has one of its main distribution centers in the city, which means clothes are sent there from factories in different countries and then redistributed to stores globally.

A Coruna, with a population of 244,000, ranks 18th in size among Spanish cities. Still, the city and its province exported goods worth 10.1 billion euros in the first 10 months of 2017, or about 4 percent of Spain’s total, according to Economy Ministry data.

Export Machine

That was more than any other Spanish region with the exception of Madrid, Barcelona and Valencia, the country’s three biggest cities. A Coruna’s trade surplus of 3.8 billion euros is the highest of any Spanish province.

“They export 24 hours, 365 days of the year—it’s unbelievable,” said Gonzalo Ortiz, general director of A Coruna’s chamber of commerce, whose job includes the signing of documents certifying the origin of goods from the city’s companies.

The influence the company wields means that much of the city’s economic activity revolves around the wealth generated in Arteixo. That may not be entirely healthy, said Blazquez.

“The problem now is that many of them rely exclusively on Inditex, and they would be in trouble if that collaboration were to end,” he said.

The Zara Wave

For now, moving away doesn’t seem to be part of Ortega’s plans, Xulio Ferreiro, the city’s mayor, said in an interview. In the last 15 years, the foundation named after the Inditex founder has donated about 80 million euros for charitable projects in Galicia, including the construction of the headquarters of a charity caring for homeless people and the elderly.

And while the changes in the retail landscape may change Inditex’s fortunes in the longer term, for now people like Lamas are riding the Zara wave.

His barbershop in downtown A Coruna charges 30 euros for a haircut, a price made possible by demand for the latest styles from the Inditex crowd. Beer is served to customers from a bar adjoining the salon.

“This business wouldn’t be possible without Inditex,” said Lamas.

©2018 Bloomberg L.P.

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