Zara may end up bound by family ties

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Carol Ryan

LONDON, April 7 (Reuters Breakingviews) - Zara's owner Inditex may find that family ties can bind. Amancio Ortega, the octogenarian founder of Spain's hit fashion chain, has placed his stake in a holding company, ensuring it stays intact even after his assets are parceled out after death. Other investors can shrug it off; they have already made handsome returns. The problem comes if future retail changes call for a break with tradition.

Family ownership, when it works, does so because it brings a longer-term focus, and because the family name is on the line if performance slips. In the case of Inditex, it has been a positive. Investors received an average total return of 16 percent a year for the past decade compared with 4 percent at arch-rival H&M. And while Ortega's holding company, which now contains just over 50 percent of the firm, solidifies the family's grip for the foreseeable future, he's not as hands-on as, say, eyewear maker Luxottica's founder Leonardo Del Vecchio, who goes through chief executives faster than his customers can lose their sunglasses.

Where strong families become problematic is when they run a business badly and damage shareholder value. Take Prada , majority-owned by its eponymous founding family, and led by designer Miuccia Prada with her spouse and chief executive, Patrizio Bertelli. Since the business was floated on the Hong Kong stock exchange in 2011, its basically-powerless shareholders have made annual total returns of minus 1 percent. Inditex, by contrast, has had an external chief executive since 2005 and none of the founding family members currently hold an executive board role.

A decade from now, Inditex might need radical new thinking. Changing shopping patterns, a shift online or as-yet-unknown rivals are all threats. In that case, Inditex's future chief executive may be on a tighter leash than in a business without a founding family in the background. Realistically, though, the only investors likely to be thinking that far ahead are the family themselves.

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CONTEXT NEWS

- Founder of Spanish clothing retailer Inditex Amancio Ortega has placed a majority stake of the group into a holding company to ensure the family retains control. Filings show the 81-year-old put a shareholding of just over 50 percent into a vehicle called Pontegadea Investments in December 2015 and over 6 billion euros in real estate.

- His heirs will now inherit stakes in Pontegadea rather than Inditex shares which could be sold on.

- For previous columns by the author, Reuters customers can click on

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(Editing by John Foley and Liam Proud)


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