El Corte Ingles wants to become Europe's Amazon
July 8, 2019
For shoppers from Latin America, the green logo of El Corte Ingles is the equivalent to England's Harrods: It's an institution. Though the department stores are only in Spain and Portugal, online sales are an important part of the business.
The store's goods, including many of its own labels, are now being sent all over the world, to shoppers' homes or other department stores working in partnership. The company not only includes its famous delicatessen, beauty salons, restaurants and its own fashion brands, whose products are now also on the shelf at Germany's Galeria Karstadt Kaufhof stores, but also travel agencies, bookstores and financial service providers.
When Mexicans travel to Madrid, Barcelona, Seville or Malaga, visiting the largest European department store is usually just as much a part of the agenda as Antoni Gaudi's Barcelona church, the Prado or a bullfight in Seville. "Anyone invited to dinner who wants to make a good impression will bring a gift in a plastic bag from El Corte Ingles," said Luis Castro, a shopper from Mexico.
The stores create a sense of home through music, smells and smiling employees.
Where did German department stores go wrong?
How was El Corte Ingles able to survive the crisis in 2008 while Galeria Karstadt Kaufhof in Germany is struggling? For German investor Matthias Meindel, who commutes between the two countries, it is clear. "El Corte Ingles stands for 'de luxe' and that is exactly what German department stores lack," he said. The 97 El Corte Ingles department stores in Spain and Portugal are visited annually by 700 million customers, of which more and more are tourists like Meindel.
Not only Germans, but also Asian and rich Arab shoppers love the stores, where the brands and wealth are able to be on display. While in many other European countries department stores have served their time, the Spaniards recognized early on that their main competitor is Amazon. Physical expansion makes no sense. Instead of expanding, they are offloading.
The 55-year-old Marta Alvarez (pictured above) is the first woman to run the retail group. She is the adopted daughter of Isidoro Alvarez, part of the founding family. In the coming months, she will not only have to go up against the family clan, which still holds the majority in the company, but above all, cut costs.
Although El Corte Ingles is the department store with the Europe's biggest turnover, it has been bogged down in the past by its numerous acquisitions and startups. In 2008, sales were down and with around 100,000 employees the whole business was headed in the wrong direction. Now however, the group is valued at an estimated €4 billion ($4.49 billion) and despite all its internal disputes is in a favorable place compared with the industry as a whole.
A recently completed commercial and technical partnership with the Chinese online platform Alibaba is about to bring the Spanish company to more Asian customers who already have a high opinion of the company. El Corte Ingles has also signed a cooperation agreement with AliPay to allow Chinese shoppers to conveniently shop at its stores in Spain in their own currency using their mobile phone.
Hard times are coming
Although the net profit in the 2018/2019 financial year increased by 28% to €258.2 million, with a turnover of €15.8 billion the margins are much lower than the department store was used to in precrisis times.
The fact that it became a large consumer financier, helped by Banco Santander, helped it through the hard times. The company now holds 51% of the financial subsidiary. Additionally, the department store's green customer loyalty card is like a credit card and is now considered a sign of creditworthiness.
That a woman now has the say in the conservative company has surely caused a stir in the family. But two generations of bosses without children — the company founder, Ramon Areces, who died in 1989, and his nephew, Isidoro Alvarez — led to the current succession.
Areces founded El Corte Ingles one year after the end of the Spanish Civil War in 1940. His model was Harrods whose logo lettering is also green. "I was always fascinated by English elegance," he once admitted.
El Corte Ingles served as a role model for others like entrepreneur Amancio Ortega, the founder of Inditex, which owns Zara and Massimo Dutti. Now in a roll reversal, Marta Alvarez is looking to Inditex's profitability, which had worldwide sales of €26 billion in 2018, earning a profit of €3.44 billion — numbers El Corte Ingles can only dream of.
Above all, money is made online
When Isidoro Alvarez died in 2014, El Corte Ingles faced the worst crisis in its history. There seemed to be only one way out: harnessing the power of the mobile phone, the device that Spaniards use for shopping and payments.
That's why El Corte Ingles launched Click & Express, an instant order service that delivers products in two hours. Not even Amazon can do that. El Corte Ingles is able to deliver so fast because its stores — including its supermarket and fashion chains — are increasingly functioning as warehouses.
But Marta Alvarez is now in a fight against time. She must show customers that a trip to the shop is still worth it despite Amazon and other competitors. Online and in-person sales must be connected to make the business more modern.
For Rene Benko, the new owner of Galeria Karstadt Kaufhof, El Corte Ingles could be the new benchmark.