New law spells end for many small Spanish businesses

MADRID -- The Christmas display of dolls and teddy bears in the window of the Asi toy store is a hallmark of the holiday season on Madrid's Gran Via, one of the Spanish capital's busiest shopping streets.

This year, there is a farewell notice among the decorations: "Thank you for these 72 years!" it says. Dozens of shoppers stop to take photos for posterity of one of Madrid's oldest and best-loved stores.

Asi is soon to close its doors for the last time because Thursday will mark the end of an era in Spain -- the abolition of rent controls that helped small businesses and preserved the historical identity of city centers by insulating them from property market pressures. The date was stipulated in a law passed 20 years ago that limited annual rent increases to the same percentage value as the official inflation rate.

About 200,000 mostly family-owned stores, bars and restaurants are affected by the law change that allows their landlords to raise rents to whatever they want. An estimated 55,000 businesses are expected to close down over the coming weeks and months, wiping out around 120,000 jobs in a country which already has a 24 percent unemployment rate, labor groups say.

Luis de Guindos, the Economy Minister in the conservative government, notes that the law passed in 1995 gave businesses two decades to get ready for the scrapping of rent controls. He accuses the center-left Socialist Party, which drew up the law, of doing nothing to address the issue during their years in power.

More deep-pocketed businesses -- such as international chain franchises -- are sure to take the place of the prime real estate that the current tenants occupy. But supporters of the current lease holders say Spain will lose part of its cultural identity.

"It's a change in the business model that has been taking place in big cities. It's already happened in Paris, Florence, Venice," said Robert Tornabell, a professor at the ESADE business school in Barcelona, Spain. "Franchises generate economic activity, but the city's essence is lost, the essence that makes it different from other cities. It's called progress, but there are things whose value cannot be calculated."

Pepa Eznarriega is the fourth generation of his family to run the Asi toy store. His great-grandfather Afrodisio started the business in 1942, when the famous Gran Via was rundown after the Spanish Civil War of 1936 to 1939.

The store became one of the city's best-known places to shop, with generations of children marveling at its handmade, cuddly toys and dolls. Asi has four other stores in the city, but the Gran Via branch brings in 70 percent of the company's revenue. The building's owners allowed the store to complete its holiday season sales campaign, but at the end of January Eznarriega will lock the doors for the last time.

"We have contributed to Madrid's commercial success. We have paid for the building improvements out of our own pockets and now we're being cast out," the 45-year-old said, close to tears. "All our life is here."

The store's eight staff will be laid off. Montse Garcia, a 40-year-old single mother, has worked at Asi for 15 years. "The store is like a family and we're heartbroken," she said. "I try to be positive, but I'm being let go at a difficult age and with a son to look after."

A few yards along the Gran Via, another famous store is shutting. The Camiseria Hernando, which sells shirts, has been dressing Madrid's eminent families for 150 years.

The Cafe Central, a short walk from the toy store, has been one of Madrid's best-known jazz venues for the last 35 years. With three dozen staff, it operates as a cafe during the day and a small concert hall at night. It has a small but loyal number of customers. Gerardo Perez, its 62-year-old manager, is trying to extend the rental contract for another five years. The rent is just more than $6,000 a month -- but the going rate in the area is more than double that.

Perez says he understands the building owners want to earn more money from the place. "But if the Central disappears, I very much doubt anyone will want to open a jazz club here. It will be gone forever," he said.

Cafe Galdos is another Madrid landmark with an uncertain future. Actors, intellectuals and politicians have long been regular customers of the bar located in a street behind Spain's Parliament.

Ramiro Gonzalez, given a month to move out, says he will try and move the business, and his eight staff, to nearby premises. But he won't be able to take the bar's charming high ceilings and spectacular marble bar.

"I understand that times are changing, but it's a shame," 46-year-old Gonzalez said. "Places like this are part of our culture, they have a mythical status."