Selling Itself

Metro on Exit Ramp

Koch-DPA
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  • Why it matters

    Why it matters

    Metro needs to find a new growth strategy as the company retreats from foreign markets once viewed as potentially lucrative.

  • Facts

    Facts

    • Olaf Koch has been Metro’s chief executive for about three years.
    • The company has left the DAX blue-chip stock index.
    • It has exited several international markets, including Britain, Denmark, Egypt, Vietnam.
  • Audio

    Audio

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When he joined Metro in January 2012, Olaf Koch, then 41, became the youngest chief executive of a company listed in the DAX, the German stock index of 30 major companies trading on the Frankfurt stock exchange.

Almost three years later, Mr. Koch’s tenure has included profit warnings, ratings downgrades, a lack of dividends and the Dusseldorf-based company’s exit from the blue-chip stock market index. Metro also had to give up its title as Germany’s largest retail giant to the Schwarz group, which includes the Lidl and Kaufland discount supermarket chains.

Against that background – and the fact that Metro would like to separate itself from real estate to revamp its balance sheet – the official messages in Mr. Koch’s first years sounded almost like a sell-off.

The exit from numerous countries happened first and foremost because the Metro group can’t afford to carry unprofitable businesses any longer – and because Mr. Koch wants to use capital and staffing at the points in the business where it’s worthwhile. It’s a correct move, although substantial projects remain.

Most recently, Metro sold its wholesale cash & carry business in Greece. The step followed exits from Britain, Egypt, Vietnam and Denmark. Other potential candidates on his hit list include Croatia, Kazakhstan and Slovakia as well as Japan and Pakistan.

Mr. Koch wants to leave countries where the group has a low presence and invest instead in growth markets.

The days of conquering foreign markets to grow beyond Germany are over

The days of conquering foreign markets to grow beyond Germany are over, and that’s fine. Metro’s last successful expansion abroad was 2001 in Russia with its cash & carry stores. And the company required more than a decade to reach the breakeven point in China.

Metro needs to do more than simply retreat from underperforming markets – it must tighten its portfolio. And the focus should be on its core cash & carry business, the group’s largest source of sales and earnings.

Mr. Koch is more than happy to unload its Real chain of hypermarkets. He has already sold stores in Poland, Romania and Russia as well as Ukraine and Turkey. But he has struggled to unload hypermarket’s real problem child, the nearly 300 stores in Germany.

The Real stores in Germany are nearly unsellable. Even if someone were interested, antitrust authorities would look meticulously at the deal, given consolidation in the German retail-food market.

The Media Markt and Saturn consumer electronic stores are another construction site. Mr. Koch has already pulled the plug on Media Markt in China. And he is in a permanent clinch with Erich Kellerhals, the unit’s minority shareholder.

Less is more – Mr. Koch was well advised with that strategy in the first three years.

If those problems weren’t enought, Mr. Koch has to find a solution for the Kaufhaus department stores. He had high hopes of selling the troubled chain early on the job.  René Benko and his Signa Holding showed interest but their  financing at the time proved to be too shaky.

Mr. Benko, however, still envisions a merger with Kaufhof and Karstadt, the company he owns. And if the conditions are right and the financing solid, Mr. Koch should take him up on the offer.

Less is more – Mr. Koch was well advised with that strategy in the first three years. And he appears determined to continue down the path of consolidation.

Although investments in customer service, innovation, product range, and new distribution channels are paying off, Mr. Koch must still deliver satisfactory growth from the shareholders’ perspective.

He now has more time to tend to that – his contract has been extended.

The author is an editor in companies and markets. The author can be reached at: ludowig@handelsblatt.com.

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