What if El Corte Inglés goes public? Winds of change in Europe’s biggest department store

November 2011. Apple’s guru Ron Johnson took the reins of JC Penney with the aim of making a radical turn to the longstanding US department store. The project was ambitious and the stock market applauded his appointment, but it wasn’t so patient with his transformation plan. It consisted on leaving the company’s traditional clientele to attract new ones, sacrificing sales along the way. Only half a year after joining JC Penney, Johnson left the group. It took years for the company to recover on the stock market.

Seven years later, El Corte Inglés is now discussing a possible IPO. But as the group continues immersed in a major transformation, one question remains: is it the right time to go public as retail apocalypse threatens to hit Europe?

Like many other department stores, El Corte Inglés is in the middle of the biggest transformation in its history. Besides, the company is holding an internal war that could finish with the exit of the group’s chairman Dimas Gimeno.

El Corte Inglés is in the middle of a transformation process for which going public could be harmful

Amazon’s irruption, its oversized store network (with nearly one hundred centres in Spain) and consumer behaviour changes are forcing the Spanish behemoth to reinvent itself at full speed by testing new retail concepts and technological tools. But the stock market doesn’t stand a trial and error approach.

“Department stores are criticized around the world: it’s a fully inappropriate time to go public”, explained Gerhard Van der Vorst, Gordon Brothers’ managing director in Spain.

“El Corte Inglés doesn’t have a clear vision of the future, it doesn’t earn money and has at least a forty-store surplus”, say sources close to the matter.

In the United States, the birthplace of apocalypse retail, many department store chains are listed, but some are willing to change that. Nordstrom has been looking to go private to gain flexibility to test new retail concepts without any pressure from external investors.

The Spanish department store chain is swimming against the tide, as the family behind Nordstrom made recently an offer to take the company private again

Nordstrom’s founding family tried to delist the company, but the committee didn’t approve the measure because it felt the offer made was too low. But if the Nordstroms bid higher, it would have meant raising the group’s debt and facing the company’s reorganisation with less cash.

Cecilia de la Hoz, partner within EY’s transaction advisory services, believes that belonging to a rapidly changing industry isn’t a problem itself, although it’s essential to define a clear path. “The stock market has become accustomed to fashion, which is a sector in full transformation, but when going public it’s important to explain your story well, where you want to go and how you’re going to do it”, de la Hoz explains.

The difficulty of changing at the speed level that the stock market demands and the necessity to have a well-thought plan before going public are two issues that add to the necessary inner cleansing. De la Hoz believes that the first step for a family-owned business to go public is “to put your own house in order”. “The main barrier for a family-run company is that they usually have a very private management style and, suddenly, they put themselves in the spotlight and have to face analysts and press every fiscal quarter”.

Dimas Gimeno already stated last year his intention to “start operating as a listed group” and measures were taken to improve governance practises, such as the creation of a remuneration-, an audit- and an executive committee.

But even though El Corte Inglés estructure imitates that of listed companies, the Spanish group still has a long way to go. “They have to clean up the company, make difficult decisions and choose who they want to be, because if El Corte Inglés aims to follow the same store model as in Paseo de la Castellana or Plaza Cataluña, there’s no room for ninety centres in the country”, sources say.