Retail struggles

HBC rejects Signa's bid for German Kaufhof chain

Rolltreppe – EU geht gegen Kartell vor
The stairway to... profitability? Source: dpa

Germany’s largest department store chain is carrying a shopping bag filled with worries. For years, Kaufhof has been struggling with declining sales and red ink all over its earnings reports.

Business didn’t turn out as its Canadian parent, the department store operator Hudson’s Bay Company, had hoped it would. But nonetheless, the North American retail giant, which also owns Saks Fifth Avenue, is sticking with the flailing German chain.

On Wednesday, HBC rejected an offer for Kaufhof by Signa Holding, an Austrian property and retail group that owns Karstadt, another German retail chain. Chairman René Benko had put an offer of €3 billion on the table. In 2014, Signa had bought Kaufhof’s competitor Karstadt when it stood on the brink of bankruptcy.

The move is a vote of confidence for Kaufhof at a tumultuous time. Also on Wednesday, the company announced it would cut 400 jobs at its headquarters in Cologne by 2020. That’s about 25 percent of the workforce there.

Kaufhof’s new CEO Roland Neuwald wants to head back into the black with a tough austerity program. A small consolation prize for employees: There will be no redundancies, Mr. Neuwald told Handelsblatt. The management agreed on the possibility of transitional retirement and they will offer severance packages for employees who leave voluntarily.

The cuts are part of a larger restructuring. Shortly after taking the helm of the company, Mr. Neuwald created a team tasked with transforming Kaufhof. Cost reductions are only one of four pillars to prop up the ailing house. The company also wants to increase yields: Kaufhof demands a discount of two percent for the next three years from all its suppliers, a so-called “Together 2 for 3” measure. On top of that, it plans to expand its e-commerce and improve integration of its digital business with its physical branches. By renovating and modernizing its stores Kaufhof also hopes to attract more foot traffic and boost sales.

For Stefanie Nutzberger, board member of Germany’s second-biggest union, Verdi, the job cuts come as no surprise. “Galeria Kaufhof has already cut 1,280 jobs at its branches last year,” she said. Kaufhof is negotiating with Verdi to reach a restructuring agreement to significantly lower personnel costs.

“The industry is going through fundamental changes.”

Helena Foulkes, Incoming CEO of HBC

Meanwhile, HBC is going through vast changes itself. As more and more customers shop online, department stores in Europe and North America are struggling to stay relevant. This trend hasn’t stopped at HBC’s doors. CVS Health Corp executive Helena Foulkes will join the company as its new CEO on February 19. She’s expected to turn things around, to return the business to profitability and stop declining sales.

Despite the problems in Germany, Ms. Foulkes is committed to Kaufhof. In an interview with Handelsblatt, she said, “Europe is a very attractive market and a crucial part of HBC’s strategy.”

The German retail market with its price-savvy consumers is considerably different from North America. Yet, Ms. Foulkes wants to cooperate closely with people on the ground in Germany. As a positive example of a “transfer of expertise from Germany to the US and vice versa”, she cited the cooperation between Kaufhof and the cosmetics retail giant Sephora.

“The industry is currently going through fundamental changes,” she admitted. Her predecessor Jerry Storch once called the Kaufhof overhaul a marathon. But Ms. Foulkes has come prepared: She has already run the New York Marathon in less than four hours.

Florian Kolf covers the retail, consumer goods, luxury and fashion markets, Stephanie Ott adapted this article for Handelsblatt Global in New York. To contact the authors: kolf@handelsblatt.com and s.ott@extern.handelsblatt.com.

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