How to Create a Social Franchise

Inditex Group’s work integration social enterprise shows how companies can do much more than “feel good” projects, launching social ventures with real impact

How to Create a Social Franchise

For leading fashion chains, the iconic real estate locations they occupy in major cities around the world are the equivalent of haute couture runways. They all want to have the best shop window so that the aura of exclusivity of their physical stores spills over to their online shops.

In this business, brands’ intangible attributes are hugely important - not only as trendsetters, but also as benchmarks for ethical business conduct with a positive social impact. Therefore, the reputational stakes they face are substantial: a questionable practice in the supply chain of any of the global fashion giants will immediately be reflected in their bottom line - as demonstrated by Nike’s traumatic experience at the end of the 90s. In the era of social media, this risk has only worsened: accusations targeted at global brands usually become a trending topic in a matter of hours.

In order to react instantly to the changing preferences of a demanding public in a highly competitive industry, the fashion giants have woven a complex logistics structure that depends on a globalized supply chain. Managing it called for the implementation of a complex verification system for appropriate social, environmental, industrial safety and product practices across the entire chain, and its constant monitoring. The greatest challenge of this task lies in the fact that textile manufacturing is a highly fragmented industry, in which outsourcing is practiced extensively.

Another outlet for past-season garments

It is important to understand that these chains do not sell clothes –what they actually sell is fashion. Fashion is an asset that depreciates very quickly: yesterday’s fashion has very little value. The top brands’ flagship stores are usually found in exclusive locations with limited space. The space taken up by past-season garments prevents the latest fashions from being displayed. Therefore, these chains need to get rid of their past-season stock to recover capital and reinvest it in new inventory.

Historically, the typical practice in fashion chains was to sell left overs items from previous seasons to “apparel jobbers”  --resellers who purchase large volumes of clothing by weight, to sell it at extremely low prices in emerging markets--, or to sell them through outlets, after the usual two or three rounds of sales.

Why not find a social purpose for surplus items, without spending more money? This was the question that intrigued the intra-entrepreneurs who led the case study “For&From: Inditex Group’s Social Franchise”, coauthored with Dr. Alfred Vernis, a professor at ESADE Business School, and that was awarded a prize in the Case Writing Competition 2018 - EFMD in the category “Inclusive Business Models”.

The case tells the story of For&From, a work integration social enterprise implemented by the Inditex Group, comprised of clothing brands such as Zara, Massimo Dutti and Bershka, with over seven thousand stores spread across 88 countries.

For&From is Inditex’s first chain of stores with a social mission. In partnership with non-profit organizations, it sells, through the franchise model, the stock left overs of some of the group’s brands and contributes to the reintegration into the workforce of people with severe mental disabilities such as schizophrenia, and personality disorders, including bipolar disorder.

The leadership of social intrapreneurs

When the first For&From store was opened in Palafolls (Barcelona, Spain) in 2002, some company executives had their doubts. The model, as devised, had no precedent –only a few nonprofits in the USA and UK had attempted something similar, but on a smaller scale and without directly involving global brands. Clothing chain managers were concerned about jeopardizing their brand image, either because these new stores would not live up to their customers’ expectations –Inditex has been a pioneer in offering a premium buying experience to massive audiences– or because something would not go as planned. In the era of social media, any trivial incident in one of the group’s stores that hints at an unpleasant experience for a customer can become viral on a planetary scale. 

By definition, intra-entrepreneurship initiatives are not usually 100% clear at first, something that is tension with the corporate culture of a multinational company

used to meticulous planning and uncomfortable with improvisation. Risk aversion increases when companies’ key commercial assets –brands, products, stores— are at stake. A hypothetical literacy campaign that disappoints as part of a philanthropical program in an emerging country could be a problem; but a failed experience in a store involving brands was simply an unacceptable risk.

This type of initiatives are normally led by people who forge interpersonal ties with other individuals who share the same passion, both inside and outside the company. In the case of Inditex, For&From started largely as a result of several forces that came together: on the one hand, two leaders who are passionate about mental health, a government official (Valentí Agustí, a physician and mayor of Palafolls), and a social leader (Miquel Isanta, who directed the foundation Molí d’en Puigvert) and, on the other, two corporate intra-entrepreneurs, a Corporate Social Responsibility (CSR) executive seeking to innovate and experiment, and a brand manager (Jorge Pérez, CEO of Massimo Dutti), who wanted to involve his team in a sustainable social project closely linked to his core business.

Moving beyond philanthropy and enhancing social impact

Until then, Inditex’s CSR interventions had been conceived and managed exclusively at the corporate level, and centered upstream –most of them focused on managing risks in the supply chain and on philanthropical projects with a focus on the countries that supplied the group with merchandise. This entrepreneurial alliance paved the way for taking CSR downstream, towards that highly influential space: the brand stores and their interaction with consumers. This implied collaborating with experienced social organizations to create a franchise model that was replicated with diverse NGOs in other stores across Spain.

What sets apart For&From from the group’s other social initiatives is the fact that it is a social business: it has a market logic, and leverages the group’s core assets and capabilities (brands, logistics, products, stores). However, unlike its other commercial businesses, this one does not seek to maximize its profitability, but to maximize its social impact while minimizing the destruction of shareholder value (no loss venture). For&From stores are highly profitable for the NGOs that manage them, which allows them to cross-subsidize their other activities, while providing a platform to help mentally-challenged individuals people to successfully access the labor market.

For the group, the For&From chain does not generate any financial burden, since it sells its clothes to the nonprofits at the same price the “jobbers” would have received. With left overs management, the Inditex brands are not seeking to increase their profits, but rather to minimize losses. By offering the items at liquidation prices to the franchised stores, the For&From initiative not only helps to release capital and neutralize risks (sales by jobbers below cost in Africa can ruin the local textile industry), but also generates social value and strengthens brands through an aura of social commitment.

To date, For&From has opened 13 stores in Spain, a market in which it hopes to remain, while exploring the possibility of replicating the model in other countries where the group has significant operations. Apart from generating training and income for its beneficiaries, For&From’s most important achievement has been helping these people to find a new path and to reconcile with life. The testimonials obtained during our research leave no doubt on this: “For&From has given me my life back: before, my day consisted of moving from my bed to the sofa and then from the sofa to my bed.”

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