Business, Finance & Economics

Spain's Holiday Shopping Boom Despite Economic Woes

Spain's new Prime Minister has announced spending cuts and labor reform as the country seeks to calm anxious lenders.

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The conservative leader Mariano Rajoy was sworn in Tuesday, and inherits big problems. Unemployment is at 22 percent, the highest in the Euro-zone.

In Spain this holiday season all people seem to talk about is crisis, crisis, crisis. But as Christmas approaches, shops and restaurants seem to be mostly full.

In his inaugural address, Prime Minister Rajoy tried to be optimistic, but he also warned citizens that tough sacrifices lie ahead. His administration, he said, has no choice but to slash government spending — by more than $20 billion. He called it a thankless task.

"We're like those families who find themselves having to feed four people," he said, "with only enough money for two."

The crisis is upon us, goes the mantra in Spain these days. 22% unemployment. A flat economy. Soaring interest rates on government debt. And yet, on the street, you can't help but wonder if things are really that bad.

At a local mall in Barcelona, holiday shoppers are out en masse. Santiago and Lourdes, a young couple pushing a baby carriage, are sort of like the family to which Rajoy eluded in his speech. Lourdes has lost her job as a waitress, Santiago says, but he's still got his, as a security guard.

"We're subsisting on half of what we had," he said, "and this year we've made sacrifices. But we're still spending on the things that count."

This holiday season what counts are presents. Shopping bags hung from Lourdes and Santiago's hands, and from the handles of their baby carriage. So how exactly is this crisis affecting this young family?

"We go out to dinner less," Santiago said. "Instead of going to restaurants, we now gather at friends' houses."

So there you have it. As world financial markets batter Spain with unsustainable interest rates, as the government slashes spending for healthcare and education, as the press reports that businesses are making contingency plans in case the euro currency collapse, this hard hit couple cuts out the occasional restaurant meal.

If something doesn't square for you here, you're not alone. Xavier Oliver, an economist at the IESE Business School in Barcelona, says that this disconnect between "macro" economic gloom and "micro" street-level reality is pervasive. While it's true, he says, that five million Spaniards are unemployed, the rest are still working. And spending.

He said that what probably happens is that if you ask the shop owners they will immediately tell you well shopping is lower than last year, and this will go to the press.
"But if someone says for the year, has it been okay? They'll say yes, we did a very good year. So they're not closing down," he said. "A lot of people are doing well."

Oliver says that what's often lost in the way we discuss this crisis is context. Spaniards may be spending less today, he says, but in recent years they've been spending — and earning — more than ever. He says that when stores report that sales are off, they may be very well be off — but from record highs.

That's the case at Ulanka, a shoe store here in the mall.

"People are more concerned with prices this year compared to last," said manager Asai Juan, "but that sales aren't off by much."

Big malls like this don't tell the whole story, of course. Small independent shops have suffered more in this crisis than the retail chains. But economist Xavier Oliver said the crisis has given small businesses a much needed kick in the pants. The ones that survive, he said, must find ways to stand out.

We've been selling this idea in business schools for centuries," he said, "and no one has believed us till today."

A crisis, he said, is the time to recreate your operations.

"How can I help consumers, my clients, and do it in a way that they notice that you're helping them?"

Oliver sited as a model the Apple store, where you can ask questions, take classes and most importantly, touch the products.

A decidedly smaller store in Barcelona uses that same technique. When you walk into the RC Tecnic hobby shop, you see stacks of remote control cars, planes and, set out on the counter, model helicopters. They let you fly them.

Manager Jose Bollo says sales this year are better than last.

"We're bringing people in by offering sales prices before Christmas instead of afterwards, like most stores do," Bollo said. "And we let people fly the birds."

The new Spanish government hopes to help small businesses like RC Tecnic, by lowering taxes and making it easier to hire and fire employees. But those reforms won't be in place until next holiday season.

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