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Crunch time at Karstadt

September 11, 2014

The board of Germany's department store chain Karstadt is meeting to agree on a rescue plan for the loss-making retailer. About 17,000 employees are hoping the group's new owner will turn around their fortunes.

Karstadt Hamburg 11.07.2014 (Photo: REUTERS/Fabian Bimmer)
Image: picture-alliance/dpa

For the first time since taking over Karstadt Group in August, Austrian billionaire investor Rene Benko will chair a meeting of the chain's supervisory board. The main item on the meeting's agenda is purportedly a restructuring blueprint drafted by interim chief executive Miguel Müllenbach.

Müllenbach is the sole board member to be retained after Benko's Signa Group acquired Karstadt, and has been in charge since former IKEA manager Eva-Lotta Sjöstedt quit in December 2013.

Since then, three board meetings, scheduled to deal with the chain's restructuring, have been called off amid rampant speculation that the company was changing ownership. Finally in August this year, Benko bought Karstadt from Berggruen Holding - a US-based company owned by German-American billionaire Nicolas Berggruen.

According to Karstadt board member Arno Peukes, a main pillar in the Karstadt rescue plan is likely to be a re-focusing of the group's marketing and products to a different target group.

Karstadt's department stores would be made fit to "profit from demographic change in Germany," the trade union representative on the board told the German daily newspaper Der Tagesspiegel ahead of the meeting.

Karstadt shouldn't try to compete with young fashion retailers such as H&M, he said, but rather sell more down-to-earth clothing. What he called "outlandish fashion" hadn't worked at Karstadt, he added.

Checkered past

The German department store chain looks back at a history of more than 130 years in the retail business. Founded by Rudolf Karstadt in 1881, the company's rise from a corner shop selling tailor-made clothing to a Germany-wide fashion outlet was boosted by the country's post-war economic miracle. In the decades after World War II, Karstadt bought up two rival department store chains, Neckermann and Hertie, as well as acquired mail order company Quelle.

In the new millennium, however, Karstadt started to suffer heavy losses, due to changing retail patterns and the emergence of online firms as competitors in the fashion retail segment.

German department stores on their way out?

05:03

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In 2010, US billionaire investor Nicolas Berggruen tried to stem Karstadt's slide, buying the chain for a symbolic one euro, following the bankruptcy of the then owner Arcandor retail group. Praised for the rescue by business and politics, Berggruen wanted to make Karstadt "current, modern and exciting," especially for young shoppers.

In 2013, Berggruen brought Sjöstedt on board to head the firm. But the Swedish executive resigned after only 5 months on the job, reportedly because Berggruen had opposed her worker-friendly restructuring plan.

From Berggruen to Benko

In August this year, Karstadt again changed hands. Rene Benko's property vehicle Signa Holding took over full control of the company's 83 department stores across Germany.

At the time, the billionaire from Tyrol, Austria, already owned Karstadt's flagship luxury department stores in Hamburg, Munich and Berlin, as well as the chain's sports fashion outlets, which he had bought from Berggruen for about 300 million euros ($387 million) in mid-2013.

According to Germany's mass-circulation daily Bild, Benko was now weighing the closure of up to 30 of the group's department stores.

This, however, would cost Benko dearly, Peukes told Der Tagesspiegel. The owner would have to spend between 10 million euros and 15 million euros on redundancies and real estate rental contracts, he said.

"The money would be better used in maintaining locations instead of eliminating thousands of jobs," he added.

Johanna Schmeller/uhe/sgb

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