Markus Jooste, CEO of German furniture company Steinhoff, admits he doesn’t really have much time for media interviews. “I don’t feel threatened easily,” he joked, “but I found magazine articles never really accurate.” He might be referring to a recent one from German weekly Manager Magazin, which said the company was “built on quicksand” and accused management of operating “on the edge of the law.”
These are accusations that Steinhoff vehemently denies. But then, a lack of transparency makes this German retail giant a rather easy target. Steinhoff might be the world’s second-largest furniture company behind Ikea, but unlike the Swedish giant, Steinhoff owns a dizzying array of 40 subsidiaries and brands spread across 32 countries. It is listed on the stock exchanges of Frankfurt and Johannesburg, South Africa, where its management headquarters have been based for the past two decades. The holding company, Steinhoff International, is based in Amsterdam for tax reasons.
That opaqueness, coupled with potential investigations into balance-sheet manipulation and a high-profile lawsuit, has started to take a toll on the company’s reputation with investors. Steinhoff’s market value in Germany has fallen from about €23 billion in August 2016 to €15 billion today. The mid-cap MDAX on which it is listed in Frankfurt has risen about 30 percent over the same timeframe.
Andreas Riemann, an analyst with Commerzbank, rejects the notion that the company is built on quicksand, but he does say it has a serious image problem: “Steinhoff simply isn’t transparent. More and more investors just don’t want to entrust their money to such a company anymore.” Perhaps that’s why Mr. Jooste, who has been running the company for the past two decades, decided to sit down for a rare interview. Once he gets going, it turns out he has quite a lot to say.
Steinhoff has grown into a global conglomerate over the past 15 years, with 130,000 employees and annual sales of around €20 billion, by acquiring dozens of carefully-selected local champions. It may sound unwieldy, but Mr. Jooste insists there’s a method to the madness: “We look at a business that can give us the No. 1, 2 or 3 market position in a country in our category – not necessarily the day we buy it but after a period of time.” Mr. Jooste said.
Some of the more well-known examples include Mattress Firm, which controls about 25 percent of the US mattress market, and France’s Conforama, which was acquired in 2011 and last year contributed about one quarter of Steinhoff’s total revenue. Other European brands include POCO in Germany and Kika in Austria. Steinhoff has also become known as the Ikea of Africa after acquiring a series of continental brands starting with Gommagomma in 1997 (where Mr. Jooste had been CFO) and later the textile manufacturer Pepkor, Afcol and JD Group.
“Anyone who wants to have great quarterly results and win the next quarterly competition should stay away from Steinhoff.”
Steinhoff may be listed on the stock market, but Mr. Jooste admits he takes a long-term approach that mirrors that of a privately-owned company. “I have always said: Anyone who wants to have great quarterly results and win the next quarterly competition should stay away from Steinhoff,” he said. “We are going for the long term sustainability of income and not for the profit of the next year.”
The target business needs to “reach our level of profitability.” The goal is somewhere between 5 to 10 percent of net operating profit. It helps when companies have already achieved a critical mass. “The more volume we put through our sourcing and our distribution network that serves all our companies, the more profitability falls down to the bottom line.”
Unlike Ikea, Steinhoff International doesn’t actually build anything itself. “We don’t run any business. The only thing we run is the balance sheet,” said Mr. Jooste. Steinhoff basically acts as an investor in each of its subsidiaries. That approach has its good and bad sides. Unlike Ikea, Steinhoff won’t be susceptible to the collapse of any one brand.
But such a conglomerate is also unwieldy: Keeping a measure of control over the operations of so many different businesses is tricky. That, in a nutshell, is what has turned Steinhoff from a company that was lauded by investment funds a year ago into a potential problem child: The problems or scandals of a few can easily affect the reputation of the whole.
One example: Troubles with Steinhoff”s $2.4-billion acquisition of Mattress Firm in the United States last year have pulled resources and put a damper on future acquisitions, at least for now. The company has invested another $140 million in a restructuring that has included rebranding some 1,600 stores, shedding its key supplier and abandoning product chains. Mr. Jooste admits the company didn’t expect such a challenge in the first year: “It was disappointing.” Another example is an ongoing dispute with a former partner, Andreas Seifert, owner of German furniture giant XXXLutz, who is suing for stakes in Conforama and POCO.
Steinhoff also faces two investigations into discrepancies in its books. A raid by German authorities in 2015 on suspicions of manipulated balance sheets overshadowed the company’s return to the German stock market after a 20-year absence. More recently, Swiss paper Handelszeitung reported similar allegations, involving financial deferrals between companies directly and indirectly linked to Steinhoff, running into the hundreds of billions.
Steinhoff has denied both charges and Mr. Jooste said the independent auditors have looked into Steinhoff’s accounts and given the all clear. “Tax investigations always concern me, but in a big company like that you have it from time to time,” he said.
After about 90 minutes, Mr. Jooste shows our reporter the door. He seems relieved. But if he doesn’t want scandals to affect Steinhoff’s broader reputation, he might consider giving a few more regular interviews from now on.
Wolfgang Dreschler is a freelance correspondent for Handelsblatt based in South Africa. Gertrud Hussla is an editor covering primarily financial products for Handelsblatt from Düsseldorf. Christopher Cermak adapted this story for Handelsblatt Global. To contact the authors: firstname.lastname@example.org