Inditex vs El Corte Ingles: The Strange And Very Different Stories Of Spain’s Two Fashion Giants

InditexNew Zara's shop at Madrid
Both the Spanish and foreign press have written about the opening of the biggest Zara store in world – 6.000 m2 – on April 7 as a sort of challenge to El Corte Inglés. The Galician fashion retailer Inditex, which owns the Zara chain, has opened its new flagship store right in front of its ‘rival’, bang in the middle of the Paseo Castellana complex. It’s a show of power which will only serve to further dampen the spirits of the department stores’ chain, which have been fairly downcast of late.
We don’t know what El Corte Inglés executives think of their rival Zara – and of Inditex in general. But what is true is that the department stores’ chain lived splendidly before Amancio Ortega, Zara’s founder, began his rapid journey through the world of fashion retailing both at home and abroad.
In the 1970s and up to the end of the 1980s, El Corte Inglés dominated the fashion market in Spain, which ended up generating over half of the chain’s revenues. At that time, buying clothes almost inevitably meant a trip to any of the stores. Inditex’s low prices, in all its chains from Zara to Pull&Bear or Mássimo Dutti, showed up the very high ones at El Corte Inglés. The fact that Zara stores always ended up being located near El Corte Inglés, almost bang in front, in Calle Princesa, Calle Goya or Calle Preciados (in Madrid) only served to demonstrate the big difference between the two establishments.
Forty years after the opening of the first Zara store, there is no doubt that Inditex has won the battle. El Corte Inglés is selling increasingly less clothes. In its last fiscal year, for example, sales of women’s clothing fell 1.1%, while those of men’s clothing dropped 0.7%.  The problem is that its own brands lack appeal, and the firm has had no other option but to fill its boutique and corner spaces with luxury brands – Hugo Boss, Calvin Klein, Adolfo Domínguez – to ensure a certain amount of clients still head for its fashion floors.
How the two companies have performed over these past years could not have been more dissimilar. Inditex continues to skyrocket, including in the mature Spanish market: and El Corte Inglés is stagnating, paralysed. The Galician group has not stopped opening new stores. Amancio Ortega, the owner of Inditex, has not stopped making multimillion acquisitions of buildings, in the best streets in the world, which he later leases to Zara or other chains in the group. This was the case, for example, with the Paseo Castellana building, which was leased to Fnac up to fairly recently. Between 2010 and 2016, the group increased its network of stores by 40% to 7,013 from 5,044.
Meanwhile, El Corte Inglés has had to ‘sell’ or hand over some of their huge department stores to their creditor banks. Many date back to the days of Isidoro Álvarez, now deceased, who opened these stores at the height of the crisis and against expert advice. It’s said that about a quarter of El Corte Inglés comercial centres are currently in the red.
So drastic measures are being implemented, such as closing down or turning some of the stores into outlets, like those in Leganés, Jaén, Oviedo, Elche, Guadalajara, Talavera, Albacete and even those in Cádiz, Castellón, Córdoba or Arroyomolinos. These store openings implied an investment effort of over 3.5 billion euros, which pushed debt up to 5 billion. Closing these stores would be a disaster: it would mean getting rid of thousands of employees in a labour environment which is already tense in El Corte Inglés.
Despite the fact its prices are lower than its rival’s, the surprising thing is that Inditex obtains a much higher final net return. Last year, it registered record profits of 3.157 billion euros. El Corte Inglés, on the other hand, made just about 158 million euros.
Of course Inditex’s sales don’t stop growing. The Galician textile firm obtained record revenues of 23.311 billion euros last year, up 84% from the 12.627 billion euros of 2010. And its workforce has tripled: from 58,000 to 162,000 employees between 2005 and 2016. Meanwhile, and despite the fact that new El Corte Inglés and Hipercor stores are constantly being opened, the group headed up by Dimas Gimeno has been stranded with the same revenues for the last six or seven years. Or even less. In 2010, it had revenues of 16.423 billion euros, while last year these totalled just 15.220 billion. And the situation is not improving, as sales rose barely 4.3% in this last year.
This company, considered as a winner amongst department stores – a format which is on the decline across the globe – has not been able to open a single store outside Spain, apart from Portugal. Its attempts at exporting its model to Italy, for example, ended up being abandoned. The same thing happened in Latin America, where it was daunted by the power of groups like El Palacio de Hierro in Mexico or Falabella in Chile.
Quite the contrary in Inditex’s case, which generates 83% of revenues from outside Spain and has 7,292 stores in 93 markets across five continents. The Galician company, which has just inaugurated another flagship store in Paris, with 4,000 square metres, plans to invest 1.5 billion euros this year, especially in stores. It wil open between 450 and 500 new establishments. Another record!
Of course the idea of listing El Corte Inglés, an option which was tabled a few years ago, was quickly abandoned. The company’s stagnation and lack of growth perspectives advised against getting involved in an adventure which could possibly end up in failure. But Inditex’s stock market debut was triumphal. It tripled in value, from 34.925 billion euros to 98.766 billion euros. It is considered as one of the most solid stocks in the Ibex-35 index, one which has grown strongly and will continue to do so, without any doubt, over the coming years.
Its capacity for future growth, in its main markets, is so strong that Inditex could very well double or treble in size in 15 or 20 years.
Everything points to part of its success being down to the good decisions on management made by the group.  The arrival of Pablo Isla at Inditex, who was signed up by a head hunter, was providential for the company. He was previously chairman of Tabacalera. Isla has showed himself to be a top level administrator and someone with great vision as far as his relations with the stock market are concerned. He is the president, and will continue to be, without any family or succession complications: he holds the power. And all this has given the company institutional stability.
In this area, things are also different in El Corte Inglés. Dimas Gimeno, the new chairman, doesn’t have the same power and authority as his predecessor, his uncle, Isidoro Álvarez. Basically because in his role as non-executive chairman, his hands are tied. And as things are not going well, the tensions between Gimeno and some of the members of the executive committee are going from bad to worse. At the same time, Álvarez’s daughters, alarmed by a situation which is not improving, only make a very deteriorated atmosphere worse with their constant meddling.

About the Author

Fernando Barciela
Fernando Barciela has been a regular collaborator for Spain's leading daily El Pais' business section since 1994. He is also a regular collaborator on foreign policy. For Grupo Consejeros he interviews the top executives of Spain's listed companies. He was a correspondent with Diario de Noticias, Portugal's leading daily newspaper, in 1987-2004. He has a degree in Business Science and Journalism from the Complutense University.