Clothing, shoes, bags, watches – at Galeria Karstadt Kaufhof (GKK) the percentages are plummeting. The insolvent department store chain advertises its spring offers in its branches, in brochures and online – just like most other chain stores do. As if nothing had happened. The clock is ticking. In a good two weeks, at least the trend should be clear – namely whether Galeria has a future or whether the company’s history may end more than 140 years after it was founded.
The deadline for submitting binding offers for the company is March 22nd. Shortly beforehand, figures were published that should interest potential buyers. According to the Federal Statistical Office, sales at department stores in Germany have fallen by a whopping 35 percent since 2003, adjusted for inflation. The question that arises from this is not new, but it is crucial for prospective buyers: Will there still be a need for department stores in 2024?
From the perspective of Johannes Berentzen, managing director of the BBE retail consultancy, it is not the department store as a whole that is in crisis. “It’s not that the business model is fundamentally outdated, but rather the way Galeria operates it. Smaller, owner-managed department stores such as Kaufring from Munich or the oldest department store in Germany, Rid from Weilheim, have been quite successful – even in recent years.”
“The trend is moving from meeting needs to creating needs.”
Galeria’s provisional insolvency administrator, Stefan Denkhaus, recently reported on several interested buyers. There are a lot of numbers on the table when talking to potential investors. Which locations are economical? How many must be retained at least? How much can the rent be reduced? Factors such as the purchasing power of the city and region in which a branch is located also play a role. In the end, it is important to draw the right conclusions from it.
A new owner will have little choice: he or she will have to change the concept, reinvent Galeria at least to some extent and align it with modern needs – for example with more entertainment and experience elements. “Overall, the trend in stationary non-food retail is moving from meeting needs to creating needs. Anyone who does not develop in this direction will leave the market in the long term. From the consumer’s perspective, meeting demand works much faster online, even in the short term,” says Berentzen.
Stationary retail is experiencing difficult times due to various crises and slumps in consumption. According to the German Trade Association (HDE), around 46,000 shops across Germany have had to close since 2019. “This is a dramatic development that is leaving its mark on our city centers,” says Managing Director Stefan Genth. However, looking at the past 20 years, things are looking at least somewhat better for the industry than at Galeria. Since 2003, retail has recorded an overall increase in sales of 11 percent, while mail order and online retail has even increased by 170 percent.
Previously 15 percent market share – today 1.2 percent
In contrast to other industries, Galeria’s downward trend cannot simply be explained by short-term phenomena such as high inflation and increased prices. The crisis is deeper. The company is in its third bankruptcy in three and a half years. The number of branches has halved since 2019. The former department store giant only has fewer than 90 locations. According to the retail research institute EHI, sales fell from 4.5 to 1.9 billion euros between 2019 and 2022 alone.
By 2024, the department store will no longer be a niche phenomenon. The market share, which was 15 percent in the 1960s, has shrunk to a measly 1.2 percent. Cult alone will no longer be enough in the future. “German romanticism, à la ‘Galeria is the German institution that you went to with your grandmother’, is now playing a bigger role in people’s minds before the closure than it previously played in the actual choice of their own shopping location,” says the trading expert Theresa Schleicher.
And if no buyer can be found?
Galeria boss Olivier van den Bossche has recently set the bar high for buyers: He wants to preserve the company as a whole and continue to operate a majority of the 90 or so branches. Discussions with investors who only want to take over a smaller number of locations have been postponed. Experts think this is not very promising. And if no buyer can be found? Schleicher can imagine that the end of Galeria could even have a positive and invigorating effect on inner cities. “New hotels, cafés and individual retailers are being built on the ground floor instead of a large temple. But some also dare to do so: cultural sites or hybrid, i.e. digitally networked, platforms. This creates a new qualitative diversity in the inner cities. And that’s ultimately what it’s all about,” says Schleicher.
The retail expert even sees favorable conditions for the trend to shift back in favor of stationary retail. Compared to previous years, people preferred to shop there again, which had positive effects. “As a result, the individual stores are making more effort to create a special atmosphere, beautiful design, gastronomy and advice. “This also leads to more purchasing power in the city, which can also encourage other companies to invest in space in the city center again.” (dpa)