Spain’s Retailers Led by El Corte Ingles Discounting 20%
Last Christmas, Juan Carlos Samano gave his wife a 50-euro ($64) bottle of Calvin Klein perfume from a tony department store. This year, he’s planning to spend no more than 10 euros on a set of beauty products from discounter Carrefour SA. (CA)
“We used to buy whatever we wished without thinking much about the money,” said Samano, 37, who last month lost his job as a heavy equipment operator in the northern Spanish city of Santander. “We now look for bargains.”
As Spain approaches its sixth year of economic crisis, Spaniards like Samano are reining in spending on Christmas and Three Kings Day -- Jan. 6 -- when they also lavish gifts on friends and family.
The average Spanish family last year spent 500 euros to 600 euros on gifts and special meals during the holidays, versus 950 euros in 2007, according to research by Esade business school in Barcelona. About 80 percent of annual sales of perfume, three- quarters of toys and 20 percent of clothing happen over the holidays, Esade marketing professor Gerard Costa estimates.
With the jobless rate now above 25 percent, Costa said, he expects families to further scale back spending as they skip “that expensive restaurant or last-minute trip, but stay home for a more intimate celebration instead.”
That trend has retailers scrambling to find ways to keep customers coming through the door and buying. As Spaniards have cut backing on spending, El Corte Ingles SA, Cortefiel SA, and other retailers have reacted by lowering prices and emphasizing the value of their products in advertising.
While that may help boost traffic in stores, it threatens profits, said Javier Hombria, a specialist in equity sales at Ahorro Corp. Financiera in Madrid. Spanish retailers “are very aggresive on prices but the actual increase in sales doesn’t make up for the loss in margins,” Hombria said. “That’s a very risky game.”
A leading strategy for keeping prices in check has been a broader range of private-label goods rather than branded products. House brands accounted for 42.6 percent of grocery and drugstore sales in the first nine months this year, up from 40.7 percent for all of last year, according to data tracker SymphonyIRI.
Discounter DIA has boosted its private-label offerings to about 7,400 products from 2,000 two years ago, and it’s giving seasonal store-brand products such as panettone Christmas bread more prominent placement than brand-name rivals. Despite the crisis, DIA (DIA) shares have gained more than 50 percent in the last 12 months as net income continues to grow more than what the market expects.
Closely held El Corte Ingles, Spain’s largest department store chain, known for sumptuous outlets staffed by legions of salespeople, has cut prices on 5,000 products by 20 percent and is trumpeting the change in its advertising.
Clothing retailer Cortefiel, which makes about a quarter of its annual sales around the holidays, has changed its ad strategy to stress value. And it’s offering Christmas merchandise earlier this year and expects to introduce markdowns in November.
“We’ve had to start offering steeper discounts because customers are more price sensitive,” said Ignacio Sierra, the company’s chief corporate officer.
Meritxell Viladrich expects to spend some 20 percent less this Christmas after her husband lost his job at a computer company. And she plans to ask relatives for practical presents for her 18-month-old daughter such as diapers and wet wipes instead of clothes.
“Adults will not receive anything from the three kings,” said the 33-year-old Barcelona resident. “The crisis has accelerated the importance of savings. We can’t splurge.”
That will hurt toy stores such as Juguettos. The retailer, with 224 outlets across Spain, makes more than half its annual sales during the holidays. The company has boosted its offerings of no-name toys such as cars and teddy bears, though that strategy means the average customer spends some 20 percent less per visit than in 2008.
Despite adding 40 stores in the past three years, “our sales are mostly flat, which is really good, wonderful I’d say, given the current economic environment,” said General Manager Jose Maria Ruiz.
Marti, a company that assembles baskets of food and wine that businesses give to employees and customers over the holidays, has taken steps that just a few years ago would have been “unthinkable,” said Carmen Lancho, who oversees the company’s Madrid office.
As sales have declined 20 percent in the last three years, Marti has cut the price of its cheapest basket in half, to 10 euros. That includes bottles of red, white and sparkling wine, two bars of nougat, dates and cookies; compared with the lowest- cost option three years ago, the packages are smaller and there’s no whiskey.
“Companies have reduced the budget for Christmas gifts,” Lancho said. “We have adjusted to that.”
Bargain-hunting consumers are shopping online more often, and those in pricey districts in cities are more often heading to outlet malls on the periphery looking for savings, said Antonio Diaz, director of Nebrija Business School in Madrid.
“We’ve gone from Christmas in which we first thought about what we wanted to buy,” Diaz said, “to Christmas in which we first think about what we actually can spend.”
To contact the reporter on this story: Manuel Baigorri in Madrid at firstname.lastname@example.org