In German retail, the news that department store chain Galeria Karstadt Kaufhof may close up to half its stores has cast a further deep shadow over the industry, already reeling from the shock that COVID-19 has dealt it over the last three months. The struggling retail giant’s woes, and a veritable avalanche of smaller but prominent retail chains filing for protection in the insolvency courts, comes amid the wider commercial context of encroaching ecommerce which has left no sector of the industry untouched – and whose troubles the lockdown has served only to exacerbate.
Galeria Karstadt Kaufhof (GKK) has already reported the massive blow to its turnover from the coronavirus, with turnover already down at least €500m by mid-May, and heading towards €1bn depending on the strength of the easing of the lockdown. Closing about 80 of its 173 stores, as mooted by the company and originally reported by Spiegel Online, would also entail the loss of 5,000 jobs. Having filed for insolvency in April, GKK must now present a new restructuring plan by the end of June.
The company had a turnover of €4.6bn in 2018. It had already secured a promise of €500m investment from owner Signa for redevelopment, on top of which a further emergency €140m was injected as a result of corona. Attempts to obtain financial help from state promotional bank KfW Kreditanstalt für Wiederaufbau as part of the state help programme failed to secure funding.
The trade union Ver.di, which represents most of the 28,000 GKK staff, accused the company of opportunistically pushing through long-desired closures and restructurings while blaming coronavirus.
Local authorities across Germany have been expressing their alarm at the potential loss of such key anchor retailers as the GKK department stores, while still uncertain as to which stores the GKK management are initially targeting for closure.
Helmut Dedy, General Manager of the Association of German Cities (Deutscher Städtetag), told the German Press Agency (dpa) that department stores play a key role in attracting people to the city centres, with all the spinoff benefits for the retail trade in their surroundings.
However, consultants who know the German retail trade well are sceptical about the damage done to inner cities as shopping locations should the GKK outlets disappear. Even before the coronavirus, Kaufhof and Karstadt have been in trouble with their retail concepts for years and have only staved off bankruptcy to date through a variety of merger and shielding processes.
Several illustrious names of the German department store scene including Horten, Hertie and original singular versions of Karstadt and Kaufhof themselves have been consigned to history in the last decade. The classic four-to-five storey department story has been under pressure for a long time, with experts saying for years that a two-storey model is more than adequate in most cases. (D-Day for German department stores has been predicted as long as REFIRE has been publishing reports on German retail real estate, and that’s at least fifteen years…)
There is much discussion as to what to do with such prized property assets in premium downtown locations. Replacing department stores with shopping centres is viewed as not viable, except in certain isolated and largely provincial cases. Germany already has more than enough shopping centres, and most of them are struggling with structural change in their industry that’s not going to disappear any time soon.
Several studies are underway to examine the feasibility of re-purposing of department stores to micro-logistics sites, for which department stores with their high ceilings and strong load-bearing floors could be eminently suitable.
Conversion to office buildings is also often sensible, with a good example being the transformation by Signa of one of its former Kaufhof department stores at Berlin’s Ostbahnhof Station into offices for online retailer Zalando.
In Leipzig, conversion of an old Karstadt department store in Petersstrasse, which closed its doors at the beginning of 2019, is well under way to create a new combination of retail, gastronomy, offices and leisure use. Although the closure faced stiff opposition at the time, it seems the public is now warming to the prospects of the new opening.
However - Berlin and Leipzig, these are relatively prosperous and dynamic urban locations. Politicians and developers from the Deutscher Städtetag fear that such re-adaptation might not work in the locations that are now most likely to be in the front line of GKK’s closure plans – namely, weaker and more vulnerable regional locations. In a recent article in daily newspaper Die Welt, Norbert Portz, the infrastructure spokesman for the Städtetag alliance, described department stores as “system-relevant” for the inner cities, without which far less customers would generally be drawn into the downtown areas.
Meanwhile, the German Council of Shopping Places GCSP (previously German Council of Shopping Centres, GCSC), with its over 750 members, has increased its demands for tax breaks for bricks-and-mortar retailers who are experiencing unprecedented suffering under corona. Big names like Esprit, Promod, Tally Weijl, Sinn, AppelrathCüpper, Hallhuber, and Mister Minit are all staring into the abyss, and threatening widespread closure of their outlets. All are in determined negotiations with their landlords, such as mall operator ECE or Deutsche Euroshop.
Other well-known chains who have already started insolvency proceedings include outdoor specialist McTrek, fashion chains Colosseum, AppelrathCüpper, Promod and Sinn, and restaurant chains Maredo and Vapiano, among others. Footwear chain Foot Locker has closed all its 74 Runners Point stores, without filing for insolvency, but because it sees little future for the brand in the immediate competitive future. It’s clear that there’s a lot more pain ahead.
