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El Corte IngléS Group Business Information, Profile, and History

areces company stores pta

Calle Hermosilla, 112
28009 Madrid
Spain

History of El Corte Inglés Group

El Corte Inglés, S.A. is a private company that forms the core of the El Corte Inglés Group and was incorporated on January 2, 1952, from the limited liability company El Corte Inglés S.L., itself incorporated on June 28, 1940. The company runs Spain's largest chain of department stores, with about 55 stores under the Corte Inglés name, and the Hipercor hypermarket chain, through a subsidiary operation. It also operates, through additional subsidiaries, a wide range of services, including travel agencies, insurance, computer services, and the publication of university texts. El Corte Inglés is by far the largest privately held company in Spain, is the third largest company overall in that country (behind Telefónia and Repsol), and is the nation's largest retailer.

Entrepreneurial Origins

El Corte Inglés has become a model for the Spanish business world, owing to the efforts of its founder, Ramón Areces Rodriguez, and the firm's directors. The history of El Corte Inglés is closely linked with the life of Areces. Born in 1905 in Asturias, he emigrated to Cuba in 1919 aboard the ship Alfonso XII, following his brother, who had emigrated a few years earlier. With help from his uncle, César Rodriguez, Areces was able to find work in the department store El Encanto, owned by a Spanish family. At El Encanto he worked alongside José (Pepín) Fernández Rodriguez, his uncle's cousin, who would later become Areces's business rival in Spain.

El Encanto employed some of the retail management techniques that had been developed in the United States, based in particular on diversification and aggressiveness. Wishing to improve his understanding of business administration, Areces left Cuba in 1924 to go to New York and Montreal with César Rodriquez. For a year and a half he worked in a New York export firm, learning about international trade.

In 1928 at the age of 23, Areces returned to work in Cuba for six years before deciding to return to Spain to set up his own business. Spain was on the verge of civil war, but Areces launched directly into business nonetheless. He established himself in Madrid and invested his Cuban savings in the acquisition of a tailor's shop. This shop was strategically located in the center of Madrid, and had exits onto three streets, Preciados, Rompelanzas, and Carmen. Areces paid Pta 150,000 for the tailor's shop and changed everything except the store's name, El Corte Inglés.

The business started out with seven employees and was an immediate success, causing the company to expand quickly. In 1940, shortly after the end of the Spanish civil war, the business was moved to a location on Preciados Street, where Areces bought the department store El Aguila. The store would be converted, after several extensions, into the firm's first commercial shopping center. Areces's cousin, José Fernández, bought the original shop on Rompelanzas Street from him; it became the first store of the Galer&iacute Preciados department store chain after it had been expanded several times.

On June 28, 1940, Ramón Areces Rodriguez formed El Corte Inglés, S.L., a limited liability company with a capital of Pta 1 million, with his younger brothers Luis and Celestino. In July 1949 the company formed Industrias y Confecciones, S.A. (Induyco) as an independent company. It became a joint stock company in December 1955. Induyco was established to make clothes, as part of the founder's clear vision of vertical expansion and integration for El Corte Inglés. The aim of the new company was to ensure the supply of manufactured clothes to meet the demand at the shop in Preciados Street. This decision was made because during the civil war the Spanish clothing industry found itself facing great difficulties owing to the shortage of raw materials and capital to buy machinery and other basic items.

To ensure the company's continued development, it was changed into a joint-stock venture, being incorporated as El Corte Inglés, S.A. on January 2, 1952. At first Induyco manufactured clothes exclusively for El Corte Inglés, but later it began trading with clients outside the group. Induyco is not part of the El Corte Inglés Group, although El Corte Inglés S.A.'s president is also president of Induyco.

Ramón Areces Rodriguez did not have any children. He brought his 18-year-old nephew, Isidoro Alvarez, onto the staff of El Corte Inglés in 1953. Alvarez continued to study economics and business at the Complutense University, and in 1957 graduated with special distinction. Areces dedicated his time to training Alvarez. Alvarez was made a member of the board of directors of El Corte Inglés in 1959, having started in the company's warehouse and then worked in many of the firm's departments.

Ramón Areces Rodriguez's rival, Pepín Fernández, managing Galer&iacute Preciados, had taken a great lead over him, with Galer&iacute Preciados having a merchandise turnover 20 times greater than El Corte Inglés in 1960. Ramón Areces Rodriguez had to develop a strategy that would distinguish him from his competitor. He decided to change his shop's image to that of a store offering luxury goods. If Galer&iacute Preciados worked on the principle of making huge sales of a wide range of products at cheap prices, El Corte Inglés would concentrate on offering personalized service and specialized articles. Areces's business strategy and his decision to start up business in Barcelona in 1962 were prompted by an external factor, a managerial crisis at Galer&iacute Preciados, which affected that company's image and permitted Areces to achieve supremacy in the large department store sector.

Expansion and Diversification, 1965-89

The time from 1965 to 1975 was a boom period for El Corte Inglés. The opening of the El Corte Inglés department store in Barcelona was the first step in a policy of expansion that led to the opening of 20 shopping centers that were still open into the 1990s. This evolution was the result not only of the particular activities El Corte Inglés had developed in its department stores, but also of its strategy of vertical expansion and integration and its development of diversified services and activities.

In May 1966 El Corte Inglés shareholders formed the company Móstoles Industrial S.A. This company, with a capitalization of Pta 4 million, arose from the consolidation of the group's divisions dealing with window displays and wooden kitchen furniture. (Móstoles Industrial is not included in the El Corte Inglés Group.) In November 1969 the travel agency company Viajes El Corte Inglés, S.A. was formed as a fully owned subsidiary of El Corte Inglés. With initial capital of Pta 5 million, it grew out of the company department that had previously organized staff vacations. At the beginning of the 1990s it was the second-largest of El Corte Inglés's subsidiaries by turnover, having established itself as the largest travel agency in Spain. Its turnover for the fiscal year 1990 was Pta 41.11 billion.

To help ensure the growth of the group, Induyco was strengthened by the creation of two additional companies, Confecciónes Teruel, S.A., incorporated in May 1975, and Industrias del Vestido, S.A., incorporated in June 1976. Both were set up as fully owned subsidiaries of El Corte Inglés. A further fully owned subsidiary, Construcción, Promociones e Instalaciones, S.A., was formed in May 1976 to meet the construction needs of the firms within the group.

The Ramón Areces Foundation was formed in 1976. Its purpose, apart from arranging a secure future for the company in the case of Ramón Areces Rodriguez's death, was to encourage scientific research, award grants, and support training programs, publications, and cultural activities in general. Its projects included the computerization of the Archivo de Indias in Seville, in collaboration with IBM and the Ministry of Culture, assisting with grants for overseas studies, and the support of organizations such as the Centro de Biología Molecular and the University of Navarra.

Hipercor, S.A., another of El Corte Inglés's fully owned subsidiaries, was founded in 1979 with a capital of Pta 1 million, which increased to Pta 1 billion the following year. Hipercor, operating in the hypermarket sector, based its strategy on combining the traditional hypermarket concept of low prices with the range of products and the customer care of a large department store. Hypermarkets typically combined grocery stores, nonfood retailing, and service businesses. The Hipercor centers covered a large surface area like a hypermarket. Within Tiendas Cortty, little shops gave the impression of independent franchise operations and sold products exclusive to El Corte Inglés under the Cortty trademark. Hipercor grew spectacularly during the 1980s. Its sales figure rose to Pta 121.77 billion in 1990, making it the group's largest subsidiary.

Induyco created two important new companies in the 1980s. Investrónica S.A. was incorporated in 1980 and was involved in the electronics and computer sector, in particular in the manufacture of microcomputers and hi-fi equipment and the design of software. The second, Invesgen S.A., was incorporated in 1985 and was geared toward the use of advanced technologies in biochemistry and genetics.

El Corte Inglés also created two new subsidiaries in the early 1980s. In 1982 it created Centro de Seguros, Correduría de Seguros, S.A., an insurance broker and assessor also offering family policies. In 1984, it created Videcor S.A., dedicated to the development of video clubs in El Corte Inglés's and Hipercor's shopping centers. Centro de Seguros developed successfully, collecting Pta 7.09 billion in premiums in 1990. Videcor ceased to exist as a public limited company in August 1988 and its activities were transferred to El Corte Inglés.

In 1983, branching out onto the international market, El Corte Inglés bought The Harris Company in the United States, which ran a chain of medium-sized stores in California and also owned various shopping centers.

In February 1988 Informática El Corte Inglés was formed to sell computer products and services to large firms and public institutions using computer centers and data processing. The subsidiary's turnover for the fiscal year 1990 was Pta 12.40 billion.

The year 1988 also saw the foundation of the publishing company Editorial Centro de Estudios Ramón Areces, S.A. Its aim was to become a publisher of texts for universities, and in particular of works needed for courses at the Ramón Areces Center for University Studies. In 1990 sales totaled Pta 295 million.

In December 1989 El Corte Inglés formed two insurance companies. The first, Seguros El Corte Inglés, Vida, Pensiones y Reaseguros S.A., covered life assurance and underwriting. The second, Seguros El Corte Inglés, Ramos Generales y Reaseguros S.A., covered accident, health, and travel insurance, as well as damages. El Corte Inglés had a 99.9 percent holding in these two companies; their accounts were separate from El Corte Inglés since their activities differed from those of other firms in the group.

El Corte Inglés also developed into a major competitor of the Spanish banks. It offered consumer credit in the manner of a bank or savings society. It held accounts for its employees, where they could cash or deposit their paychecks and take care of the expenses and purchases that they made within the company. El Corte Inglés introduced personal credit cards for its stores in 1967, and in 1991 it was the largest issuer of personal credit cards in Spain, with around 1.8 million in issue.

1989 Leadership Change

Ramón Areces Rodriguez died on July 30, 1989, leaving all his capital inheritance to the Ramón Areces Foundation. As a result, the foundation received Pta 36.5 billion. This effectively meant that the Ramón Areces Foundation controlled the business group, holding practically all the shares in the group's companies except for the insignificant number owned by the administrative board.

After Ramón Areces Rodriguez's death, the administrative board agreed unanimously to appoint Isidoro Alvarez as the new president of El Corte Inglés on August 1, 1989. Thus Alvarez took the position of patron and president for life of the Ramón Areces Foundation board of patrons.

Alvarez inherited a paternalistic style of management from Areces and rigorously followed the latter's stated principles of prudent investment, careful reinvestment of profits, and the avoidance of incurring unnecessary debts with banks. His initial aims were to compete successfully with the great retail multinationals, to increase the group's international ventures, and to raise profit margins. From his numerous trips and connections abroad he had an excellent knowledge of retailing outside of Spain. He was also intimately involved with Areces in El Corte Inglés's expansion, including the development of the Hipercor network and its expansion into new areas of business. In the fiscal year 1990, El Corte Inglés, S.A.'s sales rose to Pta 646.54 billion, representing an increase of 16.7 percent over the previous year.

Acquired Galer&iacute in 1995

The most significant event of the 1990s for El Corte Inglés was its June 1995 acquisition of its great rival, Galer&iacute Preciados. Galer&iacute had fallen on hard times, having run up huge debts in the 1970s, then being taken over by its main creditor in 1977. Over the next 17 years, it had six different owners before applying for bankruptcy protection at the end of 1994. El Corte Inglés won the bidding for Galer&iacute with an offer of Pta 30 billion (US$245 million), thereby adding the chain's 30 large department stores to its own 33. The purchase added an additional 13 cities to the company's market penetration, as well as giving it a total of 12 stores in Madrid and five in Barcelona. Acquiring Galer&iacute also solidified El Corte Inglés's position as the top retailer in Spain and also propelled it to the number three position overall among all Spanish companies, trailing only telecommunications giant Telefónia and petrochemical concern Repsol.

El Corte Inglés spent another Pta 50 billion (US$410 million) to transform most of the Galer&iacute units into Corte Inglés stores, reopening them in time for the Christmas buying season of 1995. Several of the acquired stores that were close to existing Corte Inglés stores were not converted, but were slated to be used in experimenting with new formats. Of particular interest were the development of "category killer" formats, the large specialty stores that were the hot retailing concept of the 1990s in the United States. As usual, El Corte Inglés was well aware of this trend and in August 1995 opened three new large format stores in Madrid: one selling records, videos, audio equipment, televisions, and musical instruments; one selling books; and one selling toys and video games.

In June 1997 El Corte Inglés entered into a 50-50 joint venture with Repsol to develop a chain of supermarket-style service stations. The stores were operated under the Supercor name and sold food, produce, and other supermarket products at service stations.

El Corte Inglés's 1983 expansion into the United States ran into difficulty in the 1990s when the Harris chain consistently lost money because of declining sales. In July 1998 Fresno, California-based Gottschalks Inc. reached an agreement with El Corte Inglés to acquire the assets of Harris. In return, El Corte Inglés gained a 20 percent stake in privately held Gottschalks, operator of 37 Gottschalks department stores and 22 Village East specialty stores in California, Nevada, Oregon, and Washington.

Principal Subsidiaries: Hipercor, S.A.; Viajes El Corte Inglés, S.A.; Informática El Corte Inglés, S.A.; Construcción, Promociones e Instalaciones, S.A.; Centro de Seguros, Correduría de Seguros, S.A.; Editorial Centro de Estudios Ramón Areces, S.A.

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