Nov 4, 2022
Galeria Karstadt Kaufhof: Over 40 branches threatened with closure
Nov 4, 2022
Galeria Karstadt Kaufhof, the last major German department store group still in operation, wants to close down more than 40 of its 131 remaining branches. The announcement was made by the group’s CEO Miguel Müllenbach, in an interview with German newspaper Frankfurter Allgemeine Zeitung (FAZ).
A few hours earlier, and for the second time in less than two years, Galeria Karstadt Kaufhof (Galeria) had to try to ward off bankruptcy by filing for an insolvency protection procedure, as a spokesman for the group said on Monday. The WirtschaftsWoche newspaper also reported the news.
In his interview with FAZ, Müllenbach said that, in order to save the company, the number of its branches had to be “cut by at least a third.” Compulsory redundancies would be inevitable. In a letter to the group's employees, Müllenbach explained that the company needs to divest itself of branches that, given the slowdown in consumption and rising inflation and energy costs, “would no longer be able to operate profitably in the near future.” This is the only way to avoid the group’s definitive financial collapse. Galeria currently employs 17,000 people, and is present in 97 German cities.
Before filing for insolvency protection, the group had negotiated with the federal government for additional financial assistance, on top of the €680 million it had already received.
“But we came to the conclusion that it was not a feasible solution. Permanent state loans are not the solution, what is needed instead is a clear transition towards an economically viable organisation,” said Müllenbach.
Trustees in place since 2020
During the first lockdown for the Covid-19 pandemic, in April 2020, Galeria already made an attempt at financial rescue by resorting to an insolvency protection procedure. The measures had been kept in place until the end of September.
In the recovery-oriented insolvency procedure variant, a court-appointed trustee oversees the rescue operation. The company’s management retains day-to-day control, while receiving advice from an external corporate turnaround expert. According to a report by WirtschaftsWoche, in Galeria’s new protection procedure, Düsseldorf-based lawyer Frank Kebekus will take over as the group’s temporary trustee, while fiscal advisor Arndt Geiwitz will take charge of the group’s operational turnaround. In spring 2020, Kebekus and Geiwitz assumed the same roles during the group’s first protection procedure. At the time, about 40 branches were closed down, some 4,000 jobs were cut and over €2 billion in debt was cancelled.
Jörg Funder, a business strategy expert at Worms University in Germany, has offered a retrospective assessment: “During Galeria’s 2020 insolvency procedure, job cuts were not extensive enough.”
Political pressure, concern for the economic survival of many city high streets in the event of department store closures, as well Galeria owner Signa’s own financial interest, are said to have prevented such cuts from being made at the time.
“Department stores have a raison d’être, but they need a vast catchment area. That is why there is room only for 50 to 60 branches in Germany, and not for Galeria’s 131 stores,” said Funder.
How many branches will manage to survive?
The number of department store branches that can be economically viable in the long term in Germany is a highly debated issue among experts. Johannes Berentzen, managing director of commercial strategy consulting firm BBE, thinks there is only room for fewer than 100 stores, “and these can only have a future if their customer experience quality and business model will be significantly improved.” Berentzen actually ranks as one of the most optimistic observers.
Lovro Mandac, Kaufhof's former managing director, thinks that, in the long term, only 40 to 50 department stores will be viable in Germany. A recent analysis by German real estate weekly Immobilienzeitung concluded that only 30 of Galeria’s 131 branches have reassuring prospects. All the others, according to Immobilienzeitung, have something to worry about.
As Müllenbach acknowledged in his letter to Galeria’s employees: "It is our duty again to painstakingly analyse everything, absolutely everything, in the coming weeks.” Although he did try to offer a glimmer of hope. “Galeria has a future,” he stated, promising that the group would continue to play a key role for German metropolitan high streets.
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