Changing Hands

Troubled Icon of German Retailing, Karstadt Chain Sold Again

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New owner René Benko.
  • Why it matters

    Why it matters

    One of Germany’s biggest department store chains is changing hands as it is still struggling to find its place in a world of online shopping and discount chains.

  • Facts

    Facts

    • Austrian billionaire real estate owner to take over department store chain Karstadt.
    • The new investor is expected to have other retail outlets within Karstadt shops.
    • British and U.S. department stores already revamped operations years ago.
  • Audio

    Audio

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Five years after filing for insolvency, German department store group Karstadt is still trying to rise from the ashes.

German-American billionaire investor Nicolas Berggruen, who bought the middle class-focused chain for a symbolic one euro after the 2009 insolvency, will hand over the baton to another billionaire. René Benko, a self-made Austrian entrepreneur who made his fortune in real estate, will take over full ownership of the struggling retail group through his firm Signa.

Benko’s firm will pay one euro, Berggruen Holdings said, an indication that the business is not out of the woods yet.

Similar to department stores in other countries, Karstadt has been suffering from increased competition from cheap clothing and discount household stores, online shopping, and a retail offering which to a younger public might seem outdated.

In Britain, department groups such as House of Fraser and Allders had to close stores due to slumping sales. In the United States, Macy’s and Bloomingdale’s changed course years ago, allowing other retail brands to open shop inside the department stores.

“Benko is likely to produce something that the United States produced ages ago with Macy’s or Bloomingdale’s. Like Galeria Kaufhof, who have adopted similar business concepts, Macy’s offers shoppers a more mall-like experience,” said Christoph Schlienkamp, a consumer and retail analyst at Bankhaus Lampe.

Similar to department stores in other countries, Karstadt has been suffering from increased competition from cheap clothing and discount household shops, online shops, and a retail offering which to a younger public might seem outdated.

“The problem with operating in the middle of the market segment is that you are easily replaceable. When you operate at the top or bottom, it is much easier to position yourself on the market,” said Schlienkamp.

“I think Benko will try and position Karstadt at the upper end of the market and raise the company’s profile in this way,” he added.

Kai Hudetz, a managing director at the Cologne Institute for Trade Research also pointed at online competition.

“Amazon has taken away a big market segment from Karstadt. It is easily explainable when looking at the amount of choice Amazon offers in comparison to Karstadt. Shoppers can choose from around dozens of toasters at Karstadt as opposed to hundreds at Amazon,” Hudetz said.

Consumer behavior was also changing in another way, affecting Karstadt, he said.

“We have a new type of consumer – the hybrid shopper. Hybrid shoppers choose very carefully where they buy their products. For some products, they are very willing to spend a lot of money, while for others they don’t,” Hudetz said.

Karstadt, established in 1881 by Rudolph Karstadt in the northern town of Wismar, has been trying to revamp its operations since its insolvency in 2009.

First, a former manager of department chain Woolworths, the Briton Andrew Jennings, modernized operations after the insolvency, and then a former Ikea manager, Eva-Lotta Sjøstedt, gave it a try. She barely lasted five months, announcing her departure in July, saying the conditions lacked to implement her strategy and investment plans for the 83 Karstadt stores.

Benko, 37, who has been sentenced to 12 months of prison over corruption, is expected to find another use for part of Kartstadt’s valuable real estate, which is often located in the heart of Germany’s most important cities.

“Benke’s project with Karstadt is not a warehouse concept. It’s a property and asset management concept,” said Bankhaus analyst Schlienkamp.

 

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Former owner Nicolas Berggruen. Source: DPA

 

Benko, whose firm Signa owns more than €6 billion euros ($8 billion) worth of real estate in Austria, Germany and Italy, has already bought the property of Karstadt’s most well-known store KaDeWe in Berlin and 16 Karstadt outlets in 2012 for €1.1 billion.

Mr Hudetz of the Cologne Institute for Trade Research said Benko was known as a smart and sometimes unpredictable investor but he also expected a different use of Karstadt’s stores.

“One can certainly imagine that Mr. Benko will use the Karstadt retail space for something other than Karstadt. If he keeps the concept, I think it is foreseeable that revenue will not be increasing,” Hudetz said.

Benko’s company already owned 75 percent of the operations of the two premium department stores Oberpollinger and KaDeWe, as well as Karstadt’s 28 sport stores, and will now take full control.

“The concept of the shopping center is legitimate (like Karsatdt) but their market share isn’t.  We will never see the department store as such disappearing but we will certainly see the number of department stores decreasing,” said Joachim Stumpf, a managing director at BBE Business Consultants.

“Not every Karstadt store has failed, in certain places, Karstadt has in fact been successful, such as in Bamberg,” Mr. Stumpf said.

 

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