Consumers in Crisis-Hit Spain Put Brakes on Spending

Spaniards are buying fewer cars, fewer clothes and even cutting back on smoking as a grinding recession and rising unemployment force them to slash spending, dealing a severe blow to manufacturers and shops.

Last week, the headlines surrounding big brands such as Spanish fashion retailer Blanco and tobacco group Altadis highlighted the fallout of the consumer slump in Spain.

Blanco, a budget high street chain which has 300 shops in 27 countries and 2,000 employees, said it had filed for insolvency due to "the difficult economic situation facing the country which has touched consumer spending and credit markets very specifically".

Clothing sales in Spain are down by 8.7 percent this year, the seventh consecutive year that they have fallen, according to clothing retail lobby group ACOTEX.

Altadis, a French-Spanish offshoot of British-based Imperial Tobacco, then announced it would axe nearly 10 percent of its staff in Spain as cigarette sales slumped in the face of no-smoking bans and a booming black market in the recession-hit country.

The company said its cigarette sales had gone up in smoke in Spain, with volumes slumping by 40 percent in the past four years.

It blamed the drop on a smoking ban which came into effect in Spanish cafes and restaurants on January 1, 2011 as well as "a considerable increase in illegal sales, provoked largely by the situation of economic crisis."

Sales of tobacco have plunged from 4.51 billion packages in 2008, the year the country's economic downturn began, to 2.67 billion packages in 2012.

"In Spain we are not only facing a financial, economic and employment crisis, it is also a crisis in confidence and that is reflected in consumer spending, which does not stop falling," said Celia Ferrero, the vice-president of ATA, an association that represents small entrepreneurs.

Spain, the eurozone's fourth-largest economy, is still struggling to overcome the aftermath of a property bubble that imploded in 2008, destroying millions of jobs and sending debt levels soaring.

The jobless rate has rocketed to a record 27 percent and this, combined with sharp government spending cuts and tax hikes aimed at slashing a ballooning public deficit, has led consumers to tighten their wallets.

--- Spaniards shutting off mobile phones ---

"The rise in unemployment has caused families to set priorities when making purchases. Obviously they can't deprive themselves of essential items such as food and basic supplies, but consumption of other items declines," said Rocio Algeciras, a spokeswoman for Spanish consumer group FACUA.

Retail sales in Spain fell 2.6 percent in April -- the 34th straight monthly decline.

"We are very concerned that this will continue as the state of the economy and employment will not improve," she added.

The government predicts the unemployment rate will not fall below 25 percent until 2016.

Automakers predict some 700,000 cars will be sold in Spain this year, compared to yearly sales of 1.5 million vehicles recorded before the start of the economic crisis.

Spanish consumers are also switching off their mobile phones in droves. Some 300,000 phones were cut off in March, the eighth consecutive monthly decline.

Electrical retailer Darty will close its 43 stores in Spain in June. The company's Spanish operations posted a loss of 15.6 million euros ($20.4 million) last year.

Spain has lost nearly 47,000 small business, along with the half a million jobs which they had created, since the start of the economic crisis, according to Ferrero.

"It is a very serious situation because the sector has a very big weight in the Spanish economy and employs nearly three million people," she said, adding that many stores needed to reinvent themselves and adapt their hours better to consumers' needs.

The government on Friday approved a plan to support the retail sector and make it more competitive by facilitating the obtention of loans and making it easier to sell goods online.

Spain's retail sector needs a restructuring, according to Jose Luis Nueno, a management professor at the IESE Business School in Madrid.

"During the boom years we opened too many stores. Spain is the country with the most stores in Europe," he said.

Retail sales could rebound in 2014, Nueno said.

"But we will not return to the level of consumer spending that we had before," he added.