Retail Reset

Politicians, Unions, Owners Responsible for Karstadt's Ongoing Crisis

  • Why it matters

    Why it matters

    Nicolas Berggruen’s troubled reign of the ailing German department store chain is over. Can new owner René Benko turn it around?

  • Facts

    Facts

    • Karstadt’s previous owner, Nicolas Berggruen, bilked the company and did nothing to improve it.
    • Valuable inner-city locations are most likely far more important to new owner René Benko than Karstadt’s 17,000 workers.
    • To date, the Karstadt drama shows the German government should keep itself out of the business of saving companies.
  • Audio

    Audio

  • Pdf

thomas tuma

Let’s get one thing straight from the start: The German department store chain Karstadt cannot be saved in its present form. Anyone who still believes that is a hopeless romantic. Or an employee of the Verdi labor union.

The new Austrian owner, René Benko, is considered to be a real estate pro. Up to now, he hasn’t been concerned about the retail business but rather maximizing profits. The ailing company’s valuable inner-city locations are most likely far more important to him than are the 17,000 people working for Karstadt.

That may not sound nice now, but at least it introduces a semblance of predictability into the emotionally chaotic world of Karstadt, which was reigned over and in the end ruined by the investor darling and political dreamer, Nicolas Berggruen.

How great were the hopes when the German-American took over Karstadt in fall 2010 – with nothing but warm words and the symbolic sales price of €1. The following four years were marked by continuing losses, relentlessly declining sales and constant new embarrassments surrounding Mr. Berggruen. Although he never put the money he had promised into the company, he did wring out of it millions for licensing fees. Now it’s like a going-out-of-business sale at a dollar shop.

Mr. Berggruen had promised much, delivered nothing and still profited. Although he didn’t put a euro into the department stores, he had himself paid millions in licensing fees.

Still, lessons can be learned even from this drama. First, the German government should largely keep itself out of saving companies again. It is embarrassing even today how Ursula von der Leyen, as minister of labor and social affairs, acted like the savior of Karstadt, mobilized banks and in the end, nervous as a schoolgirl, greeted Mr. Berggruen as he staggered into the spotlight while Ms. von der Leyen fantasized about a “day of joy.”

karstadt2 reuters

 

Second, labor unions occasionally have been part of the problem and not the solution. Labor representatives have seldom been seen so weak and disorganized as in the case of Karstadt. The former deputy head of Verdi, Margret Mönig-Raane, also fell victim to Mr. Berggruen’s charm and, together with the minister of labor at the time and insolvency administrator, Klaus Hubert Görg, pushed through the sale to the new owner.

Right up to the present day, the service workers union has time and again made itself look ridiculous. It made knee-jerk demands for improvements or for plans to help the company but had no plans to offer itself. It accepted the stalling maneuvers of the executives and accepted anything offered without bargaining and also gave in quietly to rounds of layoffs and wage cuts.

Third, we should be warned in the future that the bigger the illusions are in the beginning, the more dangerous it will become later. Mr. Berggruen had promised much, delivered nothing and still profited. Although he didn’t put a euro into the department stores, he had himself paid millions in licensing fees.

And he wasn’t the only big earner. The team led by the insolvency administrator is said to have come away with more than €30 million ($40 million). And don’t worry about the quickly changing chief executives. Karl-Gerhard Eick alone got €15 million for half a year’s “work,” which he had been guaranteed even before he took over the post in 2009.

Karstadt degenerated into a stage for self-promoters of every variety. In the face of this misery, to which top managers, politicians, and unionists certainly contributed, someone such as Mr. Benko doesn’t seem all that bad anymore. Okay, he is a school dropout with a prior conviction for corruption, and some of his business partners are very dubious – and they, by the way, already hold the majority of his less than transparent Signa-Holding. But he has money (or can get hold of it), good contacts, and above all, the absolute will to make things happen, even if it is painful.

Karstadt is facing very tough times. Of the 83 branches that Mr. Benko is now additionally taking over, one in four likely has no chance of survival. The rest will either have to make way for new shopping centers or go in part to Kaufhof, which might end up, after years of discussion, as the Deutsche Warenhaus AG.

At any rate, Kaufhof, as well as Mr. Breuninger and the other successful retailers, are showing that the department store concept is nowhere near as unhealthy as the mis-managers of Karstadt liked to maintain in past years.

You just have to stop dreaming. The Karstadt supervisory board is meeting Thursday. It is also their last chance to wake up.

The author is deputy editor-in-chief. He can be reached at: tuma@handelsblatt.com 

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