The strategic success of El Corte Inglés in buying Sánchez Romero and the surprising speed of execution

We come from a pandemic that has wreaked havoc on people's lives and on the economy. Retail, commerce has been particularly affected. With the exception of food distribution. Between public stimuli, solidarity and social works, the pandemic is being resolved with a positive balance for "Retail Food". But we also know that the population has bought fewer clothes, that consumption in general has been restricted and Spaniards have multiplied their savings by five, in a year and a half (Bank of Spain, May 2021). There are segments of the technology sector -where there is also distribution: MediaMarkt, Worten, FNAC, El Corte Inglés, etc- that have grown 25% in 2021: the sale of computers and laptops, for example, due to the well-known remote work or teleworking .

Interestingly, in this crisis and as far as distribution and food are concerned, the great beneficiaries have been the opposite poles: both the most expensive high-end and the cheapest distribution channel. In the second case, discount chains such as Aldi and Lidl do not stop growing, for example. And, if we go to the luxury sector, we see that Hermès, Chanel and Dior have increased sales and profits. The richest have increased their purchasing power and the least wealthy have access to the goods that cover their needs. Many economists have shown that those who are suffering the most in this crisis are those belonging to the middle class who, in popular expression, "are going down."

For decades, El Corte Inglés has been considered synonymous with luxury department stores, well decorated, with the widest range, excellence in customer service, quality of products and services, etc. And the nature of the products and services does not matter, because El Corte Inglés sells everything: furniture, insurance, travel, computers and food.

The pandemic, with the closures and confinements, have done a lot of damage to the physical store. In the United States, Macy's, Saks and Nordstrom have suffered unspeakably and have also failed to react. Electronic commerce has skyrocketed, benefiting everyone, although - to paraphrase George Orwell - "not equally to one and the other". Despite what the defenders of digitization and digital transformation say (and I am one of them), the reality is that hundreds of thousands of SMEs have closed down in Spain and digital transformation has not saved them.

The sellers of digitization fill their mouths with common places and hackneyed expressions that, perhaps to give an inspirational talk in a primary school, are useful for something. But, in Spain, where the unemployment rate is three times higher than in the US and twice as high as in the European Union, these behaviors are, at best, ignorant. And, in the worst of the scenarios, they are outrageous lies: digitizing Spain from top to bottom, when we have no industry, is foolish (Industry accounts for 12% of Spanish GDP, versus the 20% that the European Union asked of us years ago); preaching digital transformation in rural areas, when all the toll roads are bankrupt, is immoral.

It is better not to talk about tourism, because by taking us for fools, they insult us: "tourism must be digitized". Yes, yes, but the hotels are still closed and a million people in this sector are still unemployed, as are half a million employees in the Horeca sector. In Spain. Hey, there's a shortage of chips and semiconductors, so the automobile sector is stopping production. And the problems in the supply chain (worldwide and in many sectors) are causing a price increase of such magnitude, that it seems that we are living in the 70s of the last century, on the way to hyperinflation.

Learned how to set SMART goals on week two of the boot camp. #DigifyPro #DigifyproNg #DigifyAfrica #Facebook #DigitalTransformation

— Gheemoore Wed Jun 23 11:01:00 +0000 2021

In this context, El Corte Inglés has acted with unusual speed and agility to remedy the situation that affects it and reinvent itself. And this is not easy, after 80 years of history being the reference distributor in Spain. But, the process of digital transformation of El Corte Inglés that began in 2014 was necessary, it was convenient and it was done. In internal processes, in logistics, in sales channels. And, in its last fiscal year, sales through digital channels increased 134%.

"Water flows where there is more pressure," goes the saying. And, as we saw at the beginning, after health services, food has been the most demanded component of the shopping basket by Spaniards. In such a way that the accounts of El Corte Inglés in Food have been positive (with Hipercor and Supercor, too). Looking to the future, with the threat of digital marketplaces that destroy everything and everyone, El Corte Inglés has made a far-reaching strategic decision, among others more executed: the purchase of the Sánchez Romero Supermarkets: which are the high-end, premium , the Four Seasons, Six Senses or Oberoi of Food.

The decision of El Corte Inglés has been strategically correct both for the sector chosen, and for the category in which it is located. Regarding the first, Food Distribution is a necessity. Primum vivere deinde philosophare. "Eat, you have to eat." There is nothing better than selling a good that the population needs and therefore wants to buy. The problem is with those who offer products and services that, although they are excellent, are not interesting. Food does matter.

Second, El Corte Inglés has not gone easy: why not buy a discount food chain that is cheap and has hundreds or thousands of points of sale? They exist and they are affordable. But that option would have meant opting for the cheap that, in the long run, "is more expensive." When there is a recovery and the purchasing power of the Spanish increases, the discount chains will fall: people want to improve; It is the law of life. Looking at the long term, Sánchez Romero offers El Corte Inglés a premium complement to its high-end offer and doubly attracts an audience that has a lot of money to spend. The Brand Equity of El Corte Inglés will increase. Margins will skyrocket. And its position as a high-end store will attract wealthy clients, both Spanish and foreign.

The purchase of Sánchez Romero by El Corte Inglés has been a strategic success in the short term and in the long term.