How many lives does a department store chain have? The question comes to mind when one follows the fate of the last major German department store group, Galeria Karstadt Kaufhof. For the second time in less than two years, the retail giant had to go to the bankruptcy court on Monday and seek rescue in protective shield proceedings. Even state aid of around 680 million euros could not change that.
It is another low point in the decline of department stores that has been going on for around four decades. The branches experienced their heyday in the 1970s, when, according to the trade magazine “Textilwirtschaft”, they captured a market share of around 15 percent. At that time, four large chains were courting customers: Karstadt, Kaufhof, Horten and Hertie.
But then new competitors such as inner-city shopping centers, shopping centers on greenfield sites, specialized chain stores and specialty stores and later also online trade brought an end to the boom of the “everything-under-one-roof providers”. Market shares shrank and the first providers disappeared from the market. In November 1993, Karstadt swallowed Hertie. Kaufhof Horten took over almost at the same time. The market shakeout only brought temporary relief.
Karstadt in particular fell deeper and deeper into the crisis after the turn of the millennium. In 2009, the parent company Arcandor had to file for bankruptcy, and the survival of the subsidiary Karstadt hung by a thread.
The private investor Nicolas Berggruen appeared as a last-minute savior and bought the department store subsidiary out of bankruptcy. It was an unusual investor: a homeless billionaire living in hotels and his plane, who seemed to be able to balance making money and doing good. At first, Karstadt employees really cheered him on.
But the image of the benefactor soon cracked. Because the entrepreneur did not succeed in getting the group out of the red. On the contrary: A failed marketing strategy scared off a number of regular customers. Four years later, Berggruen pulled the emergency brake and resold the chain.
Enter René Benko: The Tyrolean billionaire, one of Austria’s most flamboyant entrepreneurs, had managed to become one of the richest men in the Alpine Republic despite dropping out of school through real estate transactions. Suddenly he also became one of the most important players in German retail.
It quickly became clear that Benko’s goal was to form a German department store AG by merging Karstadt with its last remaining rival, Kaufhof. A first attempt failed in 2015. But at the end of 2018, the merger of Karstadt and Kaufhof Benko’s big moment came. Since mid-2019, after the exit of the Kaufhof owner Hudson Bay, he has been in charge of the last large German retail group.
The timing could hardly have been worse for Benko. Nine months after taking complete control of the retail giant, the pandemic thwarted all ambitious plans. During the first corona lockdown in April 2020, the company had to seek rescue in protective shield proceedings.
This involved severe cuts: the closure of around 40 branches, the reduction of around 4,000 jobs and the cancellation of more than two billion euros in debt should enable the company to restart. The hope that the group would be able to get off to a successful start freed from many legacy issues was not fulfilled. Although the company has received state aid of 680 million euros in the meantime, it had to seek rescue again this week in protective shield proceedings. At least a third of the remaining 131 department stores are to be closed in order to make the rest of the group viable, as Galeria boss Miguel Müllenbach announced in a “FAZ” interview.
Galeria owner Benko has so far avoided the public eye in the current crisis, although there have been repeated calls for him to use his own resources to help the stumbling giant. Verdi board member Stefanie Nutzberger criticizes: “Our colleagues in the 131 department stores are wondering where the owner is in this extremely existentially threatening situation for 17,400 people and their families.”
But Benko has other problems to contend with in his native Austria. A search took place in his Signa holding company in mid-October. According to the Business and Corruption Prosecutor’s Office, there are suspicions that he offered a top Treasury official a job at Signa in order to influence a tax audit.
In addition, a process began in Vienna at the beginning of November about alleged donations from real estate entrepreneurs to the charitable association of a Vienna municipal council, which is said to have promised help with real estate projects. Benko and others are charged with bribery. For Benko, the presumption of innocence applies in connection with the financial allegations and the donation process. The spokesman for Signa Holding did not respond to inquiries from the German Press Agency.
In the crisis, it is up to Galeria boss Müllenbach to give the employees courage. In a letter to her on Monday, he promised that the group would continue to play an important role in German inner cities. “Galeria is sustainable.” (dpa)