Online reputation: Inditex case study

Source: (Franquiciaplus, 2010)

When in 1972, sir Amancio Ortega founded the company GOA Confections dedicated to the manufacture of clothing was difficult to anticipate that later he becomes one of the richest men in Spain.

In 1975, he opened the first store under the name Zara in a central street in A. During the next ten years, the company expands rapidly throughout Spain to create, in 1985, Inditex (Industrias de Diseño Textil SA).

After the expansion through Spain, the company focus all its manufacturing facilities on Zara’s brand. In the following years, company expands abroad of Spain opening stores in Porto (1988), New York (1989) and Paris (1990).

Since May 2001, Inditex is listed on the stock market. Today (April 15, 2012), it has nine fashion brands (Zara, Kiddy’s Class, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterque) with 5,527 stores in 82 countries around the world (Inditex, 2012).

Along its history, Inditex has faced different problems of reputation that could have severely affected its sales. However, thanks to the quick reaction of the company, the innovation and flexibility in its business, it has allowed not only to maintain its sales but to grow dramatically (although in Spain, the sales have decreased by 1.6% in the last three years).

This report will address two of the major reputation crisis to which Inditex has faced along its history.

Slave labor in Brazil

On August 18, 2011, the Brazilian Ministry of Labour was made public that after a control operation, it discovered that three sewing workshop in the State of Sao Paulo, used slave labor obliging employees, to work from dawn to dusk in making garments to sell them in Inditex stores later on.

The Inditex reaction was quick and effective. Inditex drew a note explaining the case. From the beginning, Inditex cooperated with the Brazilian prosecution in order to solve the problem not opposing any resistance in their information requirements. In this note, Inditex denied any direct responsibility in the case, although it was assumed that one of the 50 Brazilian suppliers (AHA Industria e Comercio Ltda of Roupas) would have incurred in violation of its Code of Conduct for External Manufacturers. Also  it reported that “it had required to the supplier responsible for the fraudulent contract to remedy this situation.” Inditex also reported that it was working with the Ministry of Brazilian Labour “to strengthen the review of the production system, both the supplier and the rest of its businesses in Brazil.”

In November, Brazil asked for € 8.2 million to repair damage occasioned but it was not until 20 December, when Zara made the commitment with the Brazilian government to invest a fortune to remove “the poor working conditions of business providers “and invest $ 1.8 million (1.4 million) in social actions. The document also established the creation by the Spanish textile group of an emergency fund to resolve any cases of insecurity among the employees employed by its subsidiaries (elpais, 2012a). From my point of view, Inditex response was appropriate

Slave labor in Brazil

On August 18, 2011, the Brazilian Ministry of Labour was made public that after a control operation, it discovered that three sewing workshop in the State of Sao Paulo, used slave labor obliging employees, to work from dawn to dusk in making garments to sell them in Inditex stores later on.

The Inditex reaction was quick and effective. Inditex drew a note explaining the case. From the beginning, Inditex cooperated with the Brazilian prosecution in order to solve the problem not opposing any resistance in their information requirements. In this note, Inditex denied any direct responsibility in the case, although it was assumed that one of the 50 Brazilian suppliers (AHA Industria e Comercio Ltda of Roupas) would have incurred in violation of its Code of Conduct for External Manufacturers. Also  it reported that “it had required to the supplier responsible for the fraudulent contract to remedy this situation.” Inditex also reported that it was working with the Ministry of Brazilian Labour “to strengthen the review of the production system, both the supplier and the rest of its businesses in Brazil.”

In November, Brazil asked for € 8.2 million to repair damage occasioned but it was not until 20 December, when Zara made the commitment with the Brazilian government to invest a fortune to remove “the poor working conditions of business providers “and invest $ 1.8 million (1.4 million) in social actions. The document also established the creation by the Spanish textile group of an emergency fund to resolve any cases of insecurity among the employees employed by its subsidiaries (elpais, 2012a). From my point of view, Inditex response was appropriate while avoiding any responsibility. It is true that it seems difficult to control all suppliers, and it may be that Inditex did not have knowledge of such practices. However, it is equally true that a huge company as Inditex, should implement more stringent controls in order to avoid such situations. However, taking into account that Zara never admitted  the knowledge of the facts, I think they acted in a smart way, investing on social projects and control of its suppliers. If the company was presented an opposition to the government, without collaboration, the consequences on its reputation would have unpredictable considering the high investment that the company maintains on the country, with over 30 stores in operation (elpais, 2012a).

Image theft

Source: (elpais, 2011)

Another crisis of reputation to which Inditex had to face was the February 16, 2011. Stradivarius, owned by Inditex, was embroiled in a scandal of plaggirims. Inditex used pictures included in two blogs without the consent of the bloggers. Copying affected, at least two young, the Swiss student of 19 years old Michèle Krusi (editor Bewareof my heels) and 22 French Louise Ebel, author of one of the most popular fashion blogs in Internet, Miss Pandora.

Both have on their blogs, pictures with its own outfits, which were used with little modifications as the basis for illustrations of the shirts.

Another scandals related to the bloggers and photographers, were the appearance without the consent of the French Betty Autier, on Zara clothing in 2010, using photographs of another blogger named Gerard Estadella or the use of a snapshot of the photographer Andy YvanRodic in Lefties clothes.

Inditex’s response in these cases, in my view, was also effective and fast. Inditex decided  immediately to remove these shirts and apologize to the bloggers for the damages caused. Moreover, in the case of Gerard Estadella, Inditex decided to hire his services to enhance the work of bloggers.

Likewise the company, besides of apologizing, said the shirts were designed by an external supplier, and therefore, it unawares if its partner has the rights necessary for printing the bloggers images on its shirts.

Conclusion:

In both cases, Inditex, in my view acts properly, fast in order to reduce the reputation risk. However, even taking into account the large amounts of external suppliers that the company has, it is difficult to understand that a company of such caliber and so exposed to the public, does not have more extensive checks of its designers and manufacturers. Scandals like this, for a company like Inditex, could cause a serious risk in lack of credibility and ethics still it is not directly responsible.

On the other hand, it is important to note the commitment that Inditex has to enter in social media. Currently, it has an official Facebook page, helping page, twitter profiles in the U.S., Japan and South Africa and a video channel on youtube. However, according to the study of “engagement” (L2 Think Tank 2011), Inditex (Zara particulary) gets one of the worst results. It does not interact with the community as a mark or moderate the content of it, does not give added value, does not respond to complaints and claims and it has not a Twitter for Spain. So it seems that it has much to do in order to become important in the social media. In contrast, Inditex has launched a marketing innovator in the sector. It is a form of marketing called “street style” that aims to promote blogging as a means of communication. In 2010, Inditex created Zara People.  It allows customers to upload, after registration, their photos wearing Zara’s clothes. The selected users on the platform will be rewarded with 300 euros (modaes, 2012).

Therefore, although Zara has faced (and will face) to different reputation crisis (online and offline),  it is true that his wingspan, its sources, and its ability to innovate and cooperate has allowed it to grow dramatically without significant loss of credibility. However, it was convenient, in my view, to put more resources in the prevention of such reputational risks from its suppliers because some of these errors can trigger not only economic losses but also great confidence crisis in its customers, suppliers, investors and so on.

References:

(comunidadetnor, 2012). Retrieved 16/04/2012 from: http://comunidadetnor.ning.com/profiles/blogs/una-crisis-de-reputaci-n-para-inditex-el-caso-de-brasil.

(elpais, 2011). Retrieved 16/04/2012 from: http://blogs.elpais.com/trending-topics/2011/02/inditex-retira-camisetas-pide-perdon-bloggers.html

(elpais, 2012a). Retrieved 16/04/2012 from: http://economia.elpais.com/economia/2011/12/20/actualidad/1324369973_850215.html

(elpais, 2011b). Retrieved 16/04/2012 from: http://sociedad.elpais.com/sociedad/2011/08/18/actualidad/1313618409_850215.html

(Franquiciaplus, 2010). Retrieved 16/04/2012 from: http://www.franquiciasplus.com/noticia/2010-08-26/inditex-supera-a-gap-y-recupera-el-liderato-mundial-del-sector-textil/1053

(Inditex, 2012). Retrieved 16/04/2012 from: http://www.inditex.es/

(L2 Think tank 2011). Retrieved 16/04/2012 from: Digital IQ Index® of European specialty retailers 2011. L2 Think Tankhttp://www.l2thinktank.com/research/european-specialty-retail-2011/

(modaes, 2012). Retrieved 16/04/2012 from: http://www.modaes.es/back-stage/220211/zara-le-da-otra-vuelta-a-su-publicidad-pagara-a-la.html

(reputacionmarca, 2011c). Retrieved 16/04/2012 from: http://www.reputaciondemarca.com/2011/12/una-crisis-de-reputacion-para-inditex-el-caso-de-brasil.html

Comments Off on Online reputation: Inditex case study / 04 May 2012 por Carlos Cerdan Infantes
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