El Corte Inglés business model criticized as profits fall




Sales and earnings have declined at Spanish retailer El Corte Inglés, which was hit hard by Spain's economic crisis,

the

Financial Times

reported.

Isidoro Álvarez, who had been chairman for a quarter of a century, died two years ago.


The economic crisis “exposed series flaws in the way El Corte Inglés was set up and managed — from a board dominated by septuagenarians to an ageing customer bases and the group's near-exclusive reliance on its domestic market,” the


FT


article said.


El Corte Inglés is Europe's largest department store chain by sales and the fourth-largest in the world. The company, founded in 1940, has more than 90,000 employees and operates 89 department stores as well as hypermarkets, opticians, convenience stores, travel agents and DIY centers; it also sells insurance and provides consumer credit. Its property portfolio is estimated to be worth €16 billion.


The majority of the shares are held by descendants of founder Ramón Areces and a foundation that bears the founder's name. Álvarez was Areces' nephew; his successor, 40-year-old Dimas Gimeno, is Álvarez's nephew.

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The company releases results only once a year, and company executives never give interviews. “Outside pressure to become more transparent is minimal,” the


FT


article said.


A decade ago, just before the economic crisis began, El Corte Inglés undertook “what — with hindsight — was a reckless expansion” into the suburbs, including regions with unemployment rates above 30%, the


FT


article said. “That expansion drive has saddled El Corte Inglés with billions of euros worth of debt, which it has been battling tor reduce.”


The company has issued bonds, sold a majority stake in its consumer finance business and is now selling part of its property portfolio, which is worth an estimated €16 billion, the


FT


reported.


Last year, a Qatari investor bought a 10% stake in the group for €1 billion, the article said. The deal was criticized by a minority shareholder, who was kicked off the board by other family members, the


FT


article said.


Between 2010 and 2014, profits fell by 63%. The group has remained profitable primarily because it pays no tax; it received tax refunds of €103 million in 2015 and €126 million in 2014, according to the report.


“The sheer number of measures it has taken recently to reduce debt makes clear that El Corte Inglés was woken up to the urgency of the problem,” the


FT


article said. (Source:


Financial Times


, May 17, 2016.)

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