Editor’s note: This article was first published in September 2013, as a snapshot of Spain’s crisis then: Panrico’s plan to cut 1,900 of its 4,000 jobs, Oaktree’s ownership of Panrico and stake in Pescanova’s rescue, the store closures listed, and a forecast of a new unemployment record.
Remember when we talked about pessimists, idealistic optimists and realistic optimists? Well, I think that in Spain right now we’re guilty of idealistic optimism.
Panrico is the latest company on the brink of going under, and it is currently considering cutting 1,900 jobs out of its 4,000 employees (who are currently suffering the consequences of the company’s suspension of payments).
Before that it was Pescanova, which presented manipulated accounts to hide the fact that the company was carrying unmanageable levels of debt. The sad reality is that part of Pescanova’s rescue depends on investment from Oaktree, the fund that owns 100% of Panrico and whose efforts to keep Panrico afloat in Spain have quite obviously failed.
But 2013, the year of Spain’s supposed economic recovery, doesn’t seem to be brimming with positivity: part of Adolfo Domínguez‘s clean-up of its accounts and results has involved closing 12 stores in Spain and Portugal.
Sita Murt was forced to close 5 stores in Spain, and has not ruled out further closures.
The Darty chain left Spain, closing 43 stores, while the fashion brand Blanco has closed 45 stores as part of its restructuring.
Pixmanía also pulled out of Spain at the start of this year, closing all its stores in the country.
Even a company in the middle of an expansion boom, such as Imaginarium, listed on the MAB (Spain’s alternative stock market for growth companies), was forced to close stores in Spain after a poor Christmas season, saying it had never before seen such a drop in sales.
I could go on for hours listing all the headlines that end with stores being closed. Needless to say, every store that closes sends more people into unemployment.
Not to mention the restructuring of the banking system, which has cleared out a huge number of workers (with more still to come).
The domino effect is still in full swing.
Most of these companies, and Panrico in particular, had begun a corporate austerity process five years earlier, because they were no longer profitable. Many companies turn to layoffs before expansion or diversification, and these common, widespread measures among Spanish companies are what is causing chaos, both in general and for each company in particular, because all of this sets off a chain reaction.
Let me explain with a simple example: Panrico cuts back, lowers wages and lays people off, so next Christmas, families who are unemployed and/or earning less won’t spend money on toys from Imaginarium, and the company will be forced to lower wages, lay people off and close more stores. In turn, none of these workers will be able to go shopping at Blanco, so it will have to close more stores, leaving people out of work who, in turn, can no longer afford to shop at Sita Murt.
That is what’s known as the domino effect, and it is still in full swing in Spain, because not all the “tiles” that will eventually fall have fallen yet, unless this situation is stopped.
What worries me is that I know many business owners who say they only have enough fuel left to keep their businesses going for 6 or 12 months. If the crisis drags on, they will be forced to close. Not a day goes by without me hearing about another company going straight into insolvency proceedings. They’re small companies at national level, but large ones at provincial level.
Not to mention that the debt levels of Spanish companies, even without having the figures to hand right now, must be terribly unsustainable.
For these reasons, I believe that sooner rather than later we’ll see a new unemployment record in Spain, and if that record isn’t broken, it will probably be because the unemployed have stopped renewing their registration as job seekers, have left the country or have become self-employed.
As a realistic optimist, I don’t see any green shoots. The good news is that, with so many companies closing, new entrepreneurs will have more open, free ground to build on (note the irony).
Further reading
Featured image: Dovidena, CC BY-SA 4.0, via Wikimedia Commons.
