RETAIL DISTRIBUTION

Adapt or die: Spanish retail giant El Corte Inglés struggles with pandemic’s impact

The iconic brand is facing numerous challenges such as the rise of online sales and the difficulty of connecting with customers under 30

A sign advertising sales at the department store El Corte Inglés in the Madrid neighborhood of Nuevos Ministerios.
A sign advertising sales at the department store El Corte Inglés in the Madrid neighborhood of Nuevos Ministerios.Pablo Monge

Corporate graveyards are full of former industry leaders who were unable to adapt to the new times. Finnish telecommunications company Nokia failed to develop an operating system able to compete with Google and Apple, and was ultimately bought out by Microsoft. Kodak lost the digital photography train and is now languishing after filing for Chapter 11 bankruptcy protection in 2012.

El Corte Inglés, the largest department store group in Spain (and Europe), is still far from such a scenario. It remains one of the country’s biggest employers, and its brand name still packs a punch. But the bad news is piling up.

Revenues had already plateaued even before the coronavirus pandemic hit. Now, the retail giant that started as a small tailor’s shop in the late 19th century and was established as a private limited company in 1940 has launched the first collective layoff plan (known as ERE in Spain) in its entire history. The company is planning to let go around 3,000 employees, and talks began on Monday between worker representatives and management, which said it wants to keep vulnerable workers such as those over 50 outside the dismissal plan.

Not all the figures are bad: the 2019 annual report showed that El Corte Inglés turned a consolidated net profit of €310 million, the highest figure since 2010

But how did one of Spain’s most iconic retail distribution brands get to this point? Experts and union leaders offer a variety of reasons. One is the rise of online sales, which the pandemic has helped accelerate. Companies that are digital natives have a natural lead over the owners of large physical stores, and El Corte Inglés has had recurring problems with the distribution of online purchases.

Meanwhile, customers have been flooded with special online offers that take away from traditional sales campaigns that once attracted considerable interest, such as the “Ocho días de oro” (Eight days of gold). The company is also having trouble connecting with the under-30s. Furthermore, it has only expanded internationally into neighboring Portugal, leaving it more exposed to the ups and downs of the national economy. And finally, the death of longtime president Isidoro Álvarez in 2014 opened up a family dispute between his nephew Dimas Gimeno, who succeeded Álvarez in the post for four years, and Marta and Cristina Álvarez Guill, the daughters of the deceased executive.

Although the case of El Corte Inglés has its own peculiarities, some of its problems are typical of distribution companies. The concept of “retail apocalypse” was coined in the United States years ago to describe the large-scale closing of brick-and-mortar stores, including the giants Sears and Toys “R” Us, due to the surge in online shopping. Meanwhile, the internet retail giant Amazon continues to beat its own sales records year after year.

The Spanish fashion giant Inditex, owner of popular brands such as Zara, has also become a serious rival in terms of clothing sales. As a result, El Corte Inglés is now focusing on reducing its excess personnel and surface area – or as the company itself puts it, to “adapt resources to current needs.”

With expansion plans underway, the construction crisis hit and eliminated millions of jobs. It had a great impact on citizens’ purchasing power, and its effect was felt
Miguel Venegas, secretary general of Fasga, the majority union at the company

El Corte Inglés’ highly successful business model first hit a wall with the 2008 financial crisis and the prolonged recession that followed. The coronavirus pandemic dug the hole a little deeper.

“With expansion plans underway, the construction crisis hit and eliminated millions of jobs. It had a great impact on citizens’ purchasing power, and its effect was felt,” explains Miguel Venegas, secretary general of Fasga, the majority union at the company.

Since then, the company has reduced its personnel by around 20,000 from 2007 levels, and now employs around 88,000 people. But Venegas feels that coronavirus restrictions have not played a major role in the closure of centers. “I would say that 2% was caused by the pandemic and 98% by the business model,” he notes.

The current president, Marta Álvarez, said that the pandemic has put the company’s survival ability to the test. But not all the figures are bad. A 2019 management report showed that in the last year before the pandemic, El Corte Inglés had a consolidated net profit of €310 million, the highest figure since 2010. And long-term debt was down to €2.8 billion, the second-lowest level since 2008. And despite the distribution problems, online sales have grown.

With physical sales down, the company is now looking to reinvent itself through new lines of business. The latest step was the announcement of an alliance with the mobile phone company MásMóvil to launch Sweno, an online mobile and fiber operator that is also set to be an electricity supplier. And in November of last year, El Corte Inglés made a deal to make inroads into home alarm systems. Just a month before that, the company created El Corte Inglés Real State to focus on property renovations, and in December it said it would offer logistics services to third parties. The company is also in talks for a merger of its travel division with Logitravel and Soltour.

English version by Susana Urra.

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