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MADRID — Euphoria, then reality.

This story first appeared in the June 12, 2012 issue of WWD.  Subscribe Today.

That was the reaction of global stock markets to the putative deal this weekend to bail out Spanish banks via a 100 billion euro, or $125 billion, infusion from other euro zone nations.  

The initially positive reaction to the bailout, which pushed Tokyo’s Nikkei 225 up 2 percent to 8,624.90, cooled by the time markets closed in Europe. Milan’s FTSE MIB tumbled 2.8 percent to 13,070.75, as Paris’ CAC 40 fell 0.3 percent to 3,042.76 and London’s FTSE 100 slipped 0.1 percent to 5,432.37. And an early rally on Wall Street fizzled quickly, leaving the S&P Retail Index down 1.5 percent to 603.96 and the Dow Jones Industrial Average off 1.1 percent to 12,411.23. Shares of Zara-parent Inditex, the most-prominent Spanish retailer, fell 0.03 to 67.38 euros, or $84.46 at current exchange.

Spanish banks have been creaking under the weight of bad real estate loans since the region’s property boom went bust and the country fell into recession. Spain is in the midst of its second recession in three years and the economy is expected to shrink by 1.7 percent this year.

In Greece, which previously received a bailout on the condition that the government do some serious belt tightening, voters are preparing to return to the polls Sunday. The election is expected to determine whether or not the country remains in the euro zone.

The fear is that trouble in Greece will prompt a run on banks in Spain.

“The Spanish bailout sounds great but so did the last seven or so bailout packages engineered by Europe,” said Andrew Fitzpatrick, director of investments at Hinsdale Associates. “This is another one that, upon further review, seems a little sketchy on the details. At least it buys us more time and takes Spain off the table though.”

In the meantime, Fitzpatrick said investors are looking ahead to the Greek elections as well as next week’s Federal Reserve meeting, which might offer some hint of additional stimulus for the economy.

Fariborz Ghadar, director of the Center for Global Business Studies at Pennsylvania State University, said Spain is likely to need at least another 100 billion euros to shore up its banks, but that the economy is “not in bad shape.”

“Their long-term debt is not a problem,” Ghadar said. “It’s not like Greece where you have a huge amount of debt.”

At least bigger companies based in the country can use their global operations to take advantage of the weak euro, which is trading at $1.25.

“If you look at someone like Zara that manufactures there and exports [from] there, the exports are going to be OK because the euro has fallen,” Ghadar said. “But to the extent that they’re selling in Europe, particularly in Spain and Italy, they’re going to be hurt.”

Even with the potential bailout, surviving the worst financial crisis in the country’s 37-year democratic history won’t get easier anytime soon for Spain’s retailers and fashion firms. While many have shuttered, others are living by their wits, licensing agreements and sales to tourists and adamantly maintain all is not lost.

“We’re about to come out of this mess; I see the light,” said veteran Madrid retailer Elena Benarroch. “It’s been four very dark and uncertain years. Business dropped significantly. I had to throw employees in the street and I suffered a lot but we resisted, we came through it. Spain has been living with over-the-top consumption and now there is a more logical economic balance, people are spending what they have.

“The crisis will end when we stop talking about it,” she concluded.


“It’s true Spanish customers are spending less, but tourism in Barcelona — especially from Russia, China and Brazil — is still growing at a good pace, which compensates for the dip in local shoppers,” said Luis Sans, chief executive and owner of Santa Eulalia, an upscale multibrand store in Barcelona that sells a large range of international luxury brands and no domestic labels.

“The problem with high-end customers is not just the economic slowdown but the so-called ‘poverty effect,’ which is related to the drop in the stock market here and the psychological reaction the crisis is having on luxury customers’ moods,” he continued. “We are more prudent with the risks we are willing to take — but we do take risks because fashion is about looking forward and the presentation of new lines is a part of that [philosophy].”  

Sans said he hasn’t made big adjustments to counter the current ills, “because our situation is good. Last year’s sales grew by 18 percent and for the first quarter of 2012 by 4 percent,” he said.

The government’s budget cuts and austerity measures are aimed at stimulating plummeting consumer demand and slashing unemployment which, at 24.4 percent, is the highest in Europe.  According to reports, unemployment for those under age 24 hovers around 50 percent and 5.5 million are out of work.  In April, Spain — the euro zone’s fourth largest economy — officially slipped into its second recession in three years and growth reportedly will decline by 1.7 percent this year.


The crisis forced a slew of Spanish ready-to-wear designers — who traditionally relied on the domestic market and namesake stores for bread-and-butter sales and a guaranteed image — to close.  Shutterings include such Madrid Fashion Week stalwarts as Amaya Arzuaga, David Delfin, Roberto Torretta and, at the end of 2010, Elio Berhanyer, who closed down after purported losses of 500,000 euros, or $622,000 at current exchange.

Berhanyer, a fashion mainstay here for 66 years, had some harsh words.  “There is no couture in Spain, which is what gives a country prestige. We have prêt-à-porter that doesn’t go anywhere because nobody comes from abroad to buy it,” he said. “There are too many designers in Spain because without export markets [to pick up the slack], we don’t have the capacity to absorb production.”

Linda Heras, international development director for Roberto Verino, a high-end women’s and men’s wear label based in the north of Spain, said, “Many Spanish designers have a small infrastructure that makes it easier to stay in business even if they have to close a store. Some focus on licensing agreements, while others have a retail presence outside of Spain or in [department store chain] El Corte Inglés and a few multibrand stores here that have managed to stay open.”

The latest casualty is Madrid-based Alma Aguilar, who closed her store on a prime corner location in the stylish Salamanca area early last month “because the Spanish public is not investing in domestic luxury prêt-à-porter opting instead for volume merchandise and international status labels. So for the moment, we’ll fall back on what we do best, which is made-to-measure and bridal.”  Aguilar has opened a showroom far from the center of town.

Despite the drumbeat of dire news, Benarroch remains positive about Spanish fashion “because when there is talent, it adapts to the circumstances. Spanish designers have to reinvent themselves, their brand and their image,” she suggested.

Benarroch certainly has seen her share of ups and downs in the economy. Spain’s premier furrier established Madrid’s first multibrand store in the Seventies and over the years has introduced such brands as Bottega Veneta, Loro Piana, Martin Margiela, Sherin Guild, Kiehl’s and Walter Steiger, an exclusivity she maintains to this day.

Her next project is a slick collection of contemporary shearlings and sheepskin pieces for women and men, including coats, capes, jackets, dresses, separates and skirts designed by daughter Yaël Barnatán to be distributed through El Corte Inglés and a New York showroom. The pieces will retail for 500 to 1,500 euros, or $625 to $1,870.

Even as Spanish designers struggle, there is a flurry of launch activity by international brands opening stores in Spain for the first time, including Michael Kors in Madrid; Stella McCartney in Barcelona, and Brunello Cucinelli in both Madrid and Barcelona.

“There is always room for big names, especially when they can afford top retail space where street traffic includes a regular wave of tourists,” Heras explained.

“And emotional buying will consistently attract a customer that doesn’t care about price,” added her boss, Roberto Verino, who operates company-owned and franchised stores in Spain, Portugal, Mexico and Latvia.

Then there are local behemoths Inditex and Mango, both of which have seen their sales continue to grow despite Spain’s crisis — driven mainly by international markets. “While both brands show the strength of the Spanish apparel industry, they do not compete for the same customer,” said Santa Eulalia’s Sans.

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