Current Affairs: Spanish monarchy faces jumbo crisis

Spanish monarchy faces jumbo crisis



By The Financial Times

Public disenchantment with Spain’s rulers deepened at the weekend when it emerged that King Juan Carlos was hunting elephants in Botswana weeks after saying he could not sleep because of youth unemployment in an increasingly grave economic crisis.

Support for Mariano Rajoy, the embattled Popular party prime minister, has meanwhile fallen sharply since his government took power in December, according to an opinion poll published on Sunday.

Amid a barrage of predictions from economists and analysts that Spain might soon need a financial bailout from the European Union, especially for its banks, 56 per cent of those surveyed in the Metroscopia poll published in El País said the centre-right government did not know what to do about the economy. Only 33 per cent thought it did know, and 11 per cent were undecided or did not reply.

The king’s expensive elephant safari had been kept secret and came to light only because he broke his hip in an early morning fall on the way to the toilet and was flown home by private jet from southern Africa for an operation.

Reaction in Spain, which has endured more than three years of financial and economic crisis since the collapse of Lehman Brothers in 2008, was almost uniformly critical of King Juan Carlos, even among rightwingers.

“As far as we can tell, it was an irresponsible journey undertaken at the most inopportune moment,” the conservative newspaper El Mundo said in a blistering editorial. “The spectacle of the monarch hunting elephants in Africa sets a bad example when the economic crisis in our country is causing so many problems for Spaniards, including some dramatic situations for families. It transmits an image of indifference and frivolity that a head of state ought never to give.”

King Juan Carlos is still admired for having helped engineer Spain’s transition from dictatorship to democracy after the death of Franco in 1975. But the royal family’s standing has been damaged recently by scandals and accidents. Iñaki Urdangarin, the king’s son-in-law, has been charged with misuse of public funds in a corruption case. while Felipe Juan Froilán, his 13-year-old grandson, injured his foot in a shotgun accident a week ago.

Cayo Lara of the Communist-led United Left (IU) party – which has become increasingly popular among voters at the expense of the governing PP and the Socialist party – accused the king of “a lack of ethics and respect for many people in this country who are suffering a lot”.

The Metroscopia poll showed support for the PP among Spaniards had fallen by more than eight percentage points in the past month from 46.3 to 38.1 per cent. Backing for the Socialists also fell slightly from 24.4 to 23 per cent, while the IU saw its share of support climb from 9.1 to 11.6 per cent.

Mr Rajoy on Saturday summoned PP leaders, including those who control 11 of the country’s 17 autonomous regions, to ensure their support for a nationwide austerity programme.

Nervous bond market investors and some European officials believe Spain may require a bailout like those for Greece, Ireland and Portugal because of the need to recapitalise weak banks and the failure by successive central governments to control regional and municipal budgets.

Finance&Economics: Inditex - Fashion Forward

Fashion forward

Zara, Spain’s most successful brand, is trying to go global



The Economist

FLOGGING fashion is like selling fish, as Amancio Ortega, the founder of Inditex, likes to say. Fresh fish, like a freshly cut jacket in the latest colour, sells quickly and at a high price. Yesterday’s catch must be discounted and may not sell at all.

This simple insight has made Inditex one of the world’s two biggest clothes makers. (The other, H&M Hennes & Mauritz of Sweden, is about the same size.) From its base near the Spanish fishing port of La Coruña, Inditex’s main brand, Zara, has conquered Europe.

The Inditex model, celebrated in many a case study, goes like this. Other fashion firms have their clothes made in China. This is cheap, but managing a long supply chain is hard. By the time a boat has sailed halfway round the world, hemlines may have risen an inch and its cargo will be as popular as geriatric haddock.

Inditex, by contrast, sources just over half of its products from Spain, Portugal and Morocco. This costs more. But because its supply chain is short, Inditex can react quickly to new trends. Instead of betting on tomorrow’s hot look, Zara can wait to see what customers are actually buying—and make that. While others are stuck with unwanted stock, Inditex sells at full prices.

Sales have quadrupled to €13.8 billion ($19.1 billion) since the firm’s initial public offering in 2001. Inditex’s operating profits are high and have been more stable over time than its peers. The firm now faces two challenges. Can it go global? And will its “fast-fashion” model be copied, or bettered, by others?

For now, Inditex is dependent on Europe: 70% of its sales in 2011 were there. Sales in Spain, which accounted for 25% of revenue, have stalled. Europe is stagnant and ageing. Inditex needs new markets.

Pablo Isla, who took over as chairman from Mr Ortega last summer, has big plans. “Going into China is like beginning again in Europe for us,” he says. Announcing its annual results on March 21st, Inditex said it opened 179 new stores in Asia in 2011, 156 of them in China.

A global brand needs a prominent shop window. On March 15th Inditex opened a huge outlet on Fifth Avenue in Manhattan, having bought the store for $324m last year. (Even after adjusting for inflation, that is more than the Louisiana Purchase of 1803, in which America bought all or part of 15 states.) The aim is not merely to sell to New Yorkers, but to convince shoppers everywhere that Zara is hip.

Inditex’s formula has not worked everywhere. Zara has struggled in America, for instance. It sells trendy cuts and slim fits. Outside the biggest cities, Americans have long preferred classic, roomier clothes (though this may be changing). Chinese office ladies like Zara’s slim fits more, says Fraser Ramzan of Nomura bank. Iria Campos, a Zara designer, says Chinese women choose pastels to flatter their pale skin rather than the stronger colours Europeans prefer; but otherwise they have surprisingly similar tastes.

Still, China will not be easy. Zara’s clothes are far pricier than local rivals’, whereas in Europe they are relatively cheap. And because of the distance from La Coruña, Zara must charge more in absolute terms as well. So it has to convince Chinese shoppers that it is luxurious enough to justify the price tag. Its Chinese stores are packed, but its success is more fragile in China than in Europe, says Luca Solca of CA Cheuvreux Research in Paris. It must watch the quality of its products.

And expect hurdles. Last year China’s consumer watchdog attacked Zara for poor quality. The firm denies that it was singled out for political reasons. But the Chinese government typically targets foreign firms first. Last week McDonald’s and Carrefour were pilloried for minor lapses.

At some point, Inditex may have to adapt its business model for Asia. As its Chinese sales grow, it will make sense to have both logistics and design in China, says Mr Solca. Last year rumours flew that Inditex might buy Giordano, a Hong Kong-based version of Gap, an American clothes chain. Both companies denied it.

Inditex currently has a dozen or so designers in Shanghai and around 250 at home in La Coruña. That will surely change. Creatively, Europe is “rather dead”, says José Luis Pavia Cervera, a former executive at Inditex who now works for C&A, a mid-market retailer. In the future, China will set the trends, he reckons.

Several of Inditex’s rivals are struggling. In February the Benetton family moved to de-list their fashion group to revamp its business model. Benetton went international in the 1980s but overexpanded and lost direction. Its shocking ads (the Pope kissing an imam, etc) no longer thrill. America’s Gap, another retailer with global ambitions, is ailing. Both brands have lost market share to Inditex and H&M.

The genius of Mr Ortega’s model, says a former Inditex executive, is that it picks up on every season’s trends and is never associated with any one style, which could fall out of fashion. Alone among its peers, it does not advertise. Instead, it relies on chic locations and shop-window displays. Rivals, however, argue that Zara is in fact associated with something: a gilded age of throwaway fashion. Now that tight belts are in, women may hesitate to buy a top and wear it only twice.

Inditex is trying to develop new brands. Bershka, the most successful, was launched in 1998 and has sales of €1.3 billion. But the firm remains dependent on Zara, which generated 65% of sales in 2011.

Kings of La Coruña

The change at the top appears to have gone smoothly. Mr Isla was Mr Ortega’s deputy and hand-picked successor. The 75-year-old Mr Ortega remains powerful, however: he still owns 59% of Inditex. He started work in a clothing shop in La Coruña at 13, and has always directed the design, manufacturing and selling side of the business, while delegating other parts, such as finance and IT. The firm has developed a “schism” between the product side and finance, according to “Zara and Her Sisters”, a recent book by Enrique Badía.

Mr Isla’s background is different. A lawyer, he was chairman of Altadis, a tobacco group, before joining Inditex in 2005. Even now that he is the boss, says a former colleague, Mr Isla “has little to do with the product side of the business”. Mr Ortega is still in charge of that, apparently.

Insiders praise Mr Isla. He has curbed costs. During 2010-11 the firm rolled out a global online-commerce platform for Zara. Were it not for Mr Isla, Inditex would probably not have broken with its bricks-and- mortar tradition so boldly. The company does not release figures, but the online store is said to be thriving.

Nevertheless, insiders worry about the day Mr Ortega really retires. Inditex will need a new muse, some say. Mr Isla retorts that product teams make product decisions, and that Mr Ortega’s handover of the chairmanship represented “the complete professionalisation of the company”.

Why has no one copied Inditex’s business model? One executive at Gap is said to have answered: “I would love to organise our business like Inditex, but I would have to knock the company down and rebuild it from scratch.” The gulf between Inditex and its rivals is bound to shrink, however. Isabel Cavill of Planet Retail, a consultancy, notes that retailers such as Gap and George, a brand owned by Britain’s Asda, are seeking to move production away from Asia and closer to home.

As Benetton addresses its problems, it will adopt elements of Inditex’s model, such as the way it frequently updates its collections, says an executive close to the company. Plenty of competitors are poaching the Spanish firm’s people to learn its secrets. “My main task at C&A is to replicate Inditex’s obsessive focus on its products and its shops,” says Mr Pavia, who has hired people from Inditex to help him. Nothing lasts forever in the world of fashion. Fortunes, like hemlines, can go down as well as up.

Current Affairs: : Spanish woman reunited with daughter after 44 years

Spanish woman reunited with daughter after 44 years



A Spanish woman has been reunited with the daughter who was stolen from her as a newborn baby 44 years ago.

The Telegraph

Manuela Polo is one of hundreds of women who were told their babies died shortly after birth when in fact they were taken and given to childless couples in a stolen baby scandal dating back to the Franco era that has only recently come to light.

The 79-year old from Galicia never fully believed that her seventh child had died shortly after she gave birth in a hospital in La Coruna and after a long search and a DNA test she finally met her daughter last week.

Mrs Polo was told that she had a baby boy and held him only briefly before he was whisked away by doctors who later said he had died. Her husband was shown a tiny coffin meant to contain the corpse.

But the baby, a girl, had been sold to a couple unable to have children of their own. The child was brought up in Valencia with the name Maria Jesus Cebrian, who began the search for her birth mother 12 years ago.

"I was told when I was 14 that I was adopted, my parents didn't give details. I know they paid for me but not how much," Miss Cebrian told Spanish newspaper El Pais. "Then when my adoptive parents died I began the search for my birth mother. I always wondered about her, was she a girl without means forced by her family to give me up?"

Mother and daughter were reunited after both registering with their local SOS Stolen Children, a campaign group seeking justice for the families. An initial DNA test provided a match of 99.7 per cent.

"Look at her! Can't you tell she is mine?" exclaimed Mrs Polo on meeting her 44-year-old daughter. "I never believed you were dead."

It is only the second time campaigners have been able to prove that a baby said to have died at birth was stolen and sold in a network in which doctors, nuns, priests and even undertakers were complicit.

More than 1,000 families have registered with campaign groups and are demanding Spain's attorney general's office to launch a full investigation into a widespread scandal stretching over 40 years. Campaign groups suspect there could be as many as 300,000 cases of baby snatching.

Single mothers, those who already had several children, and mothers of twins were targeted on the basis that they did not deserve or need their babies. It began as a policy during the time of dictator General Francisco Franco and is thought to have continued into the early 1990s.

Graves supposedly containing the remains of babies who died at birth have been exhumed to reveal empty coffins. Last month a nun who ran an informal adoption agency was formally questioned over her suspected involvement in baby trafficking networks.

Finance&Economics: Spain’s bullfight with austerity

Spain’s bullfight with austerity



The Financial Times

Just like the bullfighters in his country, Mariano Rajoy faces a dangerous beast. The austerity package unveiled by the Spanish prime minister and his colleagues last Friday aims to bring down his country’s budget deficit from 8.5 to 5.3 per cent of gross domestic product. Were he not to impose this draconian budget Spain would breach the target it has agreed with the EU.

To be fair to Mr Rajoy, he should never have been put in this position. The EU should have allowed Madrid to lift the target to 5.8 per cent – as Mr Rajoy had originally demanded. Spain’s public debt is one of the lowest among developed countries. Too much austerity could reduce growth and augment the risk that Madrid misses its target anyway.

Austerity measures for 2012 amount to €27bn. About €15 of the deficit reduction is to come in the form of spending cuts, and €12bn from revenue-raising measures.

There are doubts on whether the proposed savings will actually be obtained. It will not be easy to take 17 per cent out of ministry budgets, and the decision to freeze public sector salaries is bound to create opposition. Beyond Madrid’s own budget, the central government is rightly seeking to rein in expenditure by the regions, but this has proven hard in the past.

The composition of the cuts is also perplexing. Given the scale of the package, it was clear that all spending, including politically sensitive areas such as health and education, had to take their share of the pain. But cuts to the labour ministry may undermine its vital reforms by reducing resources dedicated to retraining and other active labour market policies.

On the revenue side, the government is relying on a one-off tax amnesty to raise €2.5bn, but it is unclear whether this money will ever find its way to government’s coffers. Showing such clemency to tax evaders may also encourage others not to pay all their dues in the future.

Madrid’s decision to increase the fiscal burden on firms by reducing corporation tax breaks is also odd. This could make it harder to attract the investment that the country needs to resume growth. A better idea would have been to increase taxes on consumption.

This budget risks exacerbating social tensions without creating the conditions that would allow Spain’s bond yields to fall. While the EU is to blame for imposing unnecessary austerity, Mr Rajoy’s budget could have been better designed. It will be a while before his bullfight is over.