Cortefiel S.A.

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Cortefiel S.A.

Avda del Llano Castellano 51, Ap
Madrid E-28034
Spain
Telephone: ( +34) 91 387 34 00
Fax: ( +34) 91 387 38 09
Web site: http://www.cortefiel.es

Public Company
Incorporated: 1980; 1993 as Grupo Cortefiel
Employees: 9,767
Sales: EUR 921.25 million ($994.56 million) (2003)
Stock Exchanges: Madrid
Ticker Symbol: CTF
NAIC: 448140 Family Clothing Stores

Spain's Cortefiel S.A. is one of the leading clothing retailers in that country, holding the number three spot behind Inditex (Zara) and Mango. The company is also placed among the top clothing retailers in the European market. One of the first to pursue a brand diversification strategy in Spain, Cortefiel operates under a range of strong brands. These include Cortefiel, with 212 stores; youth-oriented Springfield, with 351 company-owned stores as well as nearly 80 additional franchises and corner boutiques; 18 higher-end Milano stores; 140 Women's Secret lingerie stores; 11 Pedro del Hierro shops; and, in a joint-venture with Germany's Douglas perfume stores, 47 Douglas-branded shops in Spain. Altogether, Cortefiel's operations encompass more than 830 company-owned stores, an additional 150 franchised locations, and strong a number of "corner" shops in department stores and other locations. In 2004, Cortefiel acquired the Werdin chain of men's jeans retail stores in Germany. Most of Cortefiel's activities remain in Spain, which represents some 70 percent of the group's retail empire; however, in the late 1990s and early 2000s the company pursued an ambitious international expansion, adding company-owned stores in Portugal, France, Belgium, Germany, Poland, and Hungary. The company's franchised operations give it a presence in nearly 30 international markets, including Canada, Mexico, Peru, Chile, Malta, Ireland, Slovenia, Serbia, Greece, Ukraine, Russia, Indonesia, Malasia, Israel, Lebanon, Saudi Arabia, Jordan, Qatar, Kuwait, UAE, Oman, Singapore, Thailand, Australia, and the Philippines. In 2004, the company reached a new agreement to introduce up to 200 franchised stores in China as well. Supporting the group's retail sales operations is a manufacturing base of two factories in Spain, three in Morocco, and one factory in Hungary. These plants produce about 15 percent of the company's total requirements; the remainder is outsourced to a global network of third-party manufacturers in Asia, North Africa, and South America, as well as in Spain, where the company's contracts with some 50 cooperative companies produce 40 percent of the group's clothing. Listed on the Madrid Stock Exchange, Cortefiel remains controlled at more than 54 percent by the founding Hinojosa/Garcia families. The company is led by chairman and CEO Gonzalo Hinojosa, who joined Cortefiel in 1970.

Origins and Growth

Cortefiel originated as a small haberdasher's shop in Madrid in 1880. Toward the turn of the 20th century, the shop began producing its own men's suits and accessories. Sales of the family-owned company's clothing remained limited to its Madrid store into the 1920s.

In the 1930s, the Cortefiel company decided to take the next step and develop a full-scale manufacturing wing. In 1933, the company launched the mass-production of its men suits. By the beginning of the 1940s, Cortefiel had already become the top producer of clothing in Spain. In 1950, the company officially launched the Cortefiel retail brand and over the next couple of decades added a small number of new stores, although that number did not top 25 stores before the mid-1970s.

In the meantime, Cortefiel developed into a major supplier of clothing to other Spanish retailers, an activity started in the 1950s. The company also began exporting its clothing to other European markets, then to the United States in the 1960s.

In the 1970s, however, the company came under pressure from the shift in the global textiles market to the cheaper labor markets in the Far East. The growth of the Spanish economy had led to concurrent wage rises. As a result, Cortefiel began to lose its competitive edge against a growing number of Asian and South American clothing producers.

Returning to Retail in the Mid-1970s

In 1975, Cortefiel decided to adopt a new business strategy by reducing its reliance on its manufacturing operations in favor of its retail side. Cortefiel increasingly shifted its own textile needs to a range of contract manufacturers, mirroring an overall industry trend. By the 1990s, reliance on the third-party contract manufacturing market had already begun to impose itself as the dominant business model in the retail clothing sector. Nonetheless, Cortefiel retained a small manufacturing base, with two plants in Spain, three in Morocco, and a sixth plant in Hungary.

From 1976, Cortefiel began adding new stores. Over the next two decades, the number of Cortefiel stores more than quadrupled, topping 112 stores by 1994. In the early 1980s, the company pioneered a new marketing technique in Spain, launching its Club Cortefield loyalty card, which provided customers with credit card services on their purchases.

Cortefiel also pioneered another retailing trend for the Spanish market, that of branded retail diversification. The company began developing new retail formats and clothing collections designed to broaden its consumer base. The group launched its first new retail format, Milano, in 1984. The first Milano store, which opened in Barcelona, offered a line of men's couture products, including suits and accessories appropriate for office wear. The Milano concept was later broadened to include a full range of men's clothing and accessories.

The Milano format catered to older men. Cortefiel moved to broaden its range by launching its next new retail format, Springfield, in 1988. The Springfield stores catered to younger men and featured a full collection of more casual fashions. Springfield turned into Cortefiel's biggest success, and by 1994 the company had opened 85 stores throughout Spain as well as in Portugal. A decade later, there were more than 350 Springfield stores in Cortefiel's growing retail empire.

International Retailer in the 1990s

Cortefiel filled another retail segment in 1986 with the formation of the 50–50 joint venture Dacosa, which began opening a network of Don Algodon franchised stores throughout Spain. The Don Algodon store enabled Cortefiel to extend its range into the young women's knitwear and outerwear segments. The chain flourished, building up a network of some 115 stores before Cortefiel sold its stake in the joint venture in 2002.

The launch of Women's Secret in 1993 brought Cortefiel into the women's lingerie category. The format quickly grew into a segment leader. In the meantime, the company extended its reach into the higher-end fashion market, launching a new chain of Pedro del Hierro stores in partnership with the Spanish designer. That chain reached 16 stores and over 80 corner boutiques by the early 2000s.

Cortefiel also became the first international partner in the expansion plans of famed British retailer Marks & Spencer. In 1989, the two companies reached a franchise agreement whereby Cortefiel was to lead the introduction of the Marks & Spencer brand into Spain. The partnership, in which Cortefiel held a 20 percent stake compared to Marks & Spencer's 80 percent, opened five stores by the mid-1990s. In the later part of that decade, however, Marks & Spencer's financial difficulties led it to end its attempt at international penetration.

In the meantime, Cortefiel had become determined to extend its own operations into the international market. Backing that plan, the company went public in 1994, listing on the Madrid Stock Exchange. The Springfield brand, already present in Portugal, proved to be the company's most successful international format, and the company added France to its regions of operation in the early 1990s. In 1994, the company formed a partnership in order to move into Germany, Austria, and Switzerland as well. Other markets followed, including Belgium, Hungary, and Poland.

Cortefiel developed a franchise network in order to introduce the Springfield brand, as well as its other formats, into other countries. Toward this end, the company entered a far wider range of international markets in the 1990s, with franchised stores in Cyprus, Malta, Greece, Luxembourg, Slovenia, Mexico, Chile, Canada, Saudi Arabia, Jordan, the United Arab Emirates, Qatar, Oman, and Lebanon.

The Milano chain, too, which had grown to 18 stores by the turn of the century, included a growing number of foreign locations, including stores in Lisbon and Oporto in Portugual; Paris, Versailles, Lyon, and Nantes in France; and Antwerp in Belgium.

Challenges and Opportunities
in the Late 1990s and Beyond

In 1997, Cortefiel expanded its retail empire again, reaching an agreement with Germany's Douglas, the leading perfume retailer in Europe, to open a network of Douglas shops in Spain and Portugal. Cortefiel moved quickly, rolling out 40 Douglas shops in Spain and another seven stores in Portugal by the early 2000s.

Key Dates:

1880:
The company begins trading as a haberdashery in Madrid, Spain, then begins manufacturing men's suits by the turn of the century.: 1933:
The company begins mass production of men's suits and other clothing, becoming Spain's leading clothing manufacturer.: 1950:
Cortefiel retail format and brand is launched; the company begins supplying clothing to foreign market.: 1960:
Export of clothing to the U.S. market begins.: 1975:
The company changes its strategy to emphasize retailing over manufacturing.: 1986:
Dacosa joint venture is formed to open Don Algodon women's clothing stores.: 1994:
Cortefiel goes public on the Bolsa de Madrid and begins an international expansion strategy.: 2002:
The company begins a new aggressive store expansion, adding 150 stores over two years.

By 1998, however, Cortefiel appeared to be running out of steam as its growth slowed in the second half of the decade. The company's biggest difficulties came from its reliance on its main Cortefiel brand, which still accounted for more than 55 percent of its revenue and which had slipped to less than 3 percent in sales growth. The company's difficulties continued into the 2000s with the unsuccessful launch of its first e-commerce sites. Additional problems came from Cortefiel's 50 percent stake in the struggling Don Algodon chain, leading the company to sell back its half to that company's founder in 2001. Meanwhile, the Cortefiel increased its presence in Germany, acquiring the 74-store chain of Werdin jeans shops in 2000. Yet that market quickly softened, adding to Cortefiel's difficulties.

With its sales growth stagnating—in part because of increased competition from the likes of Spanish rival Zara and the entry into Spain of other European retailers, including H&M—Cortefiel attempted to regain its momentum by launching a hostile takeover offer for Adolofo Dominguez SA, a smaller Spanish retailer, in 2001. However, the company failed to convince a majority of its rival's shareholders to accept the offer.

Instead, Cortefiel moved to regain its momentum through organic growth. In 2002, the company launched a new and more aggressive expansion program, adding more than 90 stores that year and another 63 stores in 2003. It also reached an agreement with Aldeasa, which specialized in operating retail stores at Spain's airports, to introduce Cortefiel's brands in its shops. The agreement also called for the two companies to investigate the possibility of extending their partnership to the international market.

In the meantime, Cortefiel continued its own expansion, adding sites in Poland and Ireland and extending its franchise empire to include Yugoslavia and Israel. The company's expansion drive had also restored its sales growth, as revenues neared EUR 925 million ($994 million) at the end of 2003. Further growth seemed already assured, particularly through a franchise agreement to open as many as 200 Springfield stores in China before the end of the decade. This and other strategic moves appeared to promise that Cortefiel would retain its place among the leading European retailers.

Principal Subsidiaries

Algamar, S.A.; Bizarro e Milho, Lda. (Portugal); BMML, Confecçoes, Lda. (Portugal); Bruxeland S.P.R.L. (Belgium); Casual Wear Española, S.A.; Classe Affaires, S.A.S. (France); Comercial Española del Vestido, S.A.; Confecciones Sur, S.A.; Confemo—Confecçoes e Moda Portfolio company; Confespanha, Lda. (Portugal); Coralí, S.A.; Corom, S.A. (Morocco); Cortefiel Commercial, S.A. (Switzerland); Cortefiel France, S.A.; Creasel, S.L.; de Espanha, Lda. (Portugal); Dr. E. Rudnick, S.A. (Morocco); Eurofiel Confección, S.A.; Fifty Factory, S.L. (Spain); Hijos de Primitivo Muñoz, S.A.; Milano Difusión, S.A.; Milano France, S.A.S. (France); Quiral Belgique, S.A. (Belgium); Quiral Luxembourg, S.A. (Luxembourg); Quiral, S.A.; Quirós, S.A.; S.B.C. France, S.A.S. (France); SPF Polska Sp. Z o. o. (Poland); Springfield Bekleidung Vertriebs, GmbH (Germany); Springfield France, S.A.S.; Springfield Handelsgesellschaft GmbH. (Austria); Springfield Hungary Trading, Lt. (Hungary); Springfield Sportswear GmbH & Co. KG (Germany); Tulipan Confection, S.A. (Hungary); Werdin Beteiligungs, GmbH (Germany); Werdin GmbH & Co. KG. (Germany); Women'Secret France, S.A.S. (France); Women's Secret GmbH & Co. KG. (Germany); Women's Secret Hungary, Lt (Hungary); Women's Secret, S.A.

Principal Competitors

Royal Vendex KBB N.V.; Benetton Group S.p.A.; Vivarte; Gruppo Coin S.p.A.; Kiabi S.A.; La Redoute; Charles Vogele Holding AG; Peek und Cloppenburg KG; Somfy International S.A; Inditex SA; Mango SA.