El Corte Inglés shelves one of the most challenging years of its history. Caught in the middle of an internal battle, the group has refinanced a debt of 3.65 billion, has carried out its first issuance of bonds and has let foreign investors take a stake in the company.
El Corte Inglés has gone through a year of transition. In the middle of an internal battle to take the group’s wheel involving Dimas Gimeno, the former president of the company as appointed by his predecessor, Isidoro Álvarez, and his cousins, Marta and Cristina Álvarez, the group has faced a determining year to guarantee its continuity. The company has had to refinance a debt which ascends up to 3.65 billion euros; letting the Qatar Sheikh Hamad Bin Jassim Bin Jaber Al Thani take a stake in the company, the first shareholder that comes from outside the familiar nucleus, and finally putting value in a business model that has been questioned all the way from the United States and the United Kingdom after the blow of Retail Apocalypse.
After two years of conflict, the tension between Dimas Gimeno, whom Isidoro Álvarez appointed to control El Corte Inglés after himself, and the adopted daughters of the former president, the Álvarez sisters, has started to escalate during the first half of the year as this sort of chess board experience a checkmate.
The company’s board of directors set date on the calendar at the end of May to question Gimeno’s position. In that meeting, Marta and Cristina Álvarez asked for the destitution of the executive during the round of pleas and requirements. The back then president of the group left this battle unharmed, but fell down in the next, and transferred this conflict to the courts.
In the extraordinary meeting of the board of directors celebrated in June, the new president of the group was appointed unanimously: Jesús Nuño de la Rosa, a confidant of the Álvarez sisters who in recent years had ascended to the company’s executive front after being part of the board and being appointed as co-CEO. At that point, a period of negotiations to pressure the departure of Gimeno from the company began.
The intensity of the battle was again made clear when the annual shareholders’ meeting took place, in which the destitution of the already former president as member of the board had to be approved. Hours before the meeting, Gimeno announced his departure and committed to drop the lawsuits he had previously filed in the court.
However, the familiar conflict is far from being solved. In September, a month after Gimeno’s step down, a lawsuit against the adoption of Marta and Cristina Álvarez issued by María Antonia Álvarez, Isidoro’s sister and mother of Dimas Gimeno, was admitted. The sisters own 15% of El Corte Inglés shares through the Iasa society, as part of the inheritance of their father. This society gathers 22.18% of the department stores group’s capital and is its second biggest shareholder right after the Ramón Areces Foundation. Marta and Cristina Álvarez share Iasa’s capital with Dimas Gimeno and his uncles César and María Antonio Álvarez. The first two, however, won 69% of the society.
A 3.65 billion euros debt
At the beginning of the year, El Corte Inglés closed a partnership with about ten banks to refinance a debt that until then went up to 3.65 billion euros. Through the agreement, the group managed to get some fresh air regrading its financial situation. Notwithstanding, part of the agreement implied a bridge loan of 1.2 billion euros to twelve months. That period characterised the fiscal year, as it set off a countdown to execute it. The group started, on one hand, a disinvestment policy of about 2 billion euros which has entailed the sale of several facilities, as well as its computer business, which ultimately did not close down. On the other hand, the company carried out its first public issuance of bonds.
The operation done for an import of 600 million euros and they chose the Dublin Stock Exchange for it. The issuance of bonds has also entailed for the first time in the history of El Corte Inglés a public exposition. Rating firms like Standard&Poor’s or Moody’s have showcased the Spanish giant’s strongholds and weak parts, putting value in its privileged position among the Spanish market but accusing its high debt and lack of internationalisation.
The department store model is being questioned in USA and the UK due to massive closures
A questioned model
Department stores, a business led by El Corte Inglés in Europe (the fourth force in the global ranking), are a model that everyone questions. New habits of consumption have made purchasers displace to other sort of selling spaces, whether they are digital or physical. In the United States, Macy’s, Sears, Kohl’s or Nordstrom have become the main exponents of the so-called Retail Apocalypse, that is, the massive closure of physical stores which started last year. Scoring a decrease of trafficreasing in its points of sales, El Corte Inglés is not escaping either this international threat.
In fact, following the theory of the Japanese retail guru Tsutomu Okuda that says that there should only be one department store for each one million consumers, El Corte Inglés should reduce its size in half.
Differently to its international equivalents, the Spanish group keeps on growing and improving profitability, although it is still quite far from the pre-crisis levels. The contraction of consumption entailed by the world’s economic crisis gave a full blow to El Corte Inglés. Although it has had three years of continuous recovery, the turnover of 15.93 billion euros with which it ended 2017 are not yet at the same level as the 16.41 billion euros it scored in 2010. In 2017, the group registered a net profit of 202 million euros, which is again distanced from the figure of seven years ago which stood at 319 million.
Capital and board reordering
Nuño de la Rosa, as the group’s new president, had to face in no time the entrance of the Qatar investor Al Thani into the shareholding. The former prime minister of Qatar and shareholder of companies such as Deutsche Bank or KBL Luxembourg Bank, Al Thank took a stake in El Corte Inglés in 2015 through a loan of one billion euros convertible into shares throughout three years. In July, the loan expired.
Following the agreement signed three years ago, Al Thani acquired the loan’s interests, which ascended up to 225 million euros. Through this operation, the investor from Qatar became the first person from outside the family and the direct environment of El Corte Inglés to enter its shareholding, with a participation of 10%. Nowadays, he is the third biggest shareholder of the group.
On the other hand, after Gimeno’s step down, the board was joined by the Economy professor Fernando Becker, who came into the board to improve his professionalization and practice a good corporative government.
Víctor del Pozo and Jesús Nuño de la Rosa, new CEO and president of El Corte Inglés
New sales policy to scratch profitability
El Corte Inglés started to make a move with its hosts in 2018. The company has set a fixed canon for which the brands who operate inside its facilities must pay if they do not accomplish their objectives for sales.
This measure for the renting of its spaces is making El Corte Inglés improve its margins per square metre, as claimed by the rating firm Moody’s in a report. The group operates with two models of business: wholesale, in which El Corte Inglés purchases goods and sells it with its own employees; and shop-in-shops, with brands who assume all risks with their own merchandise, employees and furniture.
With this new model, the group charges brands with a variable fee according to their net sales. With the new method, the company intends to motivate brands to have an improved offer for their business. The rating firm assured that this new measure is not going to make El Corte Inglés lose clients because the company continues to have among its strong points being a fashion showroom, great locations and having an important traffic.
El Corte Inglés has started to implant a cannon for brands; they must pay a fee if they don’t reach to the expected objectives
Notwithstanding, the sector does not agree with the measure, as currently it is e-commerce the one stealing the affluence of audience from the offline channel. On the other hand, El Corte Inglés has jumped ahead in internationalisation and digitalisation matters after sealing a deal with the Chinese e-commerce giant Alibaba. By the end of the year, the group signed an agreement with the Jack Ma company in order to introduce the group’s directly-operated brands as well as those that it sells in its Tmall and Aliexpress facilities. For its part, Aliexpress will be able to develop shop-in-shops and other physical spaces inside the facilities of El Corte Inglés.
Both companies have also proposed to work tightly in the reciprocal use of infrastructures and logistics channels. In that way, Aliexpress will be able to use the network of centres of El Corte Inglés for the gathering of online orders.
Furthermore, the agreement has a technologic development trait. In that sense, Alibaba gives El Corte Inglés an access to an integral package of cloud computing solutions, which include big data analysis to help entrepreneurial decision making processes at real time as well as artificial intelligence tools to personalise the offer.