Galeria Karstadt Kaufhof sought rescue in a protective shield procedure in April in the course of the corona crisis. Now the insolvency proceedings have been lifted. The renovation is to begin under the title “Galeria 2.0”.
For the head of Galeria Karstadt Kaufhof (GKK), Miguel Müllenbach, it was almost a historic moment: The Essen district court lifted the insolvency proceedings of the last major German department store group on Thursday, clearing the way for a restart of the retail giant. “We all longed for this day and this success,” wrote Müllenbach in a letter to employees. Galeria Karstadt Kaufhof is back on the field and will turn the table of successful retailers upside down in the coming weeks and months.
They are confident words. The department store giant only had to seek rescue in protective shield proceedings at the beginning of April in the wake of the corona crisis. At times the losses of the already ailing group due to the state-ordered shop closings added up to around 80 million euros per week.
In the insolvency proceedings, Galeria Karstadt Kaufhof has now shaken off debts totaling more than two billion euros. The creditors had cleared the way for this at the beginning of September when they approved the insolvency plans drawn up by the company’s management at a creditors’ meeting. The redevelopment plans provide for the closure of more than 40 department stores and the loss of thousands of jobs. Above all, the jobs in the branches that are being closed will be eliminated, but jobs will also be cut in the head office and logistics. Basically, according to the insolvency plan, closings were always considered if a branch did not achieve at least a five percent Ebitda margin. Locations were also problematic where key figures, for example with regard to population development or purchasing power, had deteriorated. Special factors such as dual locations, where Kaufhof and Karstadt have so far competed directly with each other, also played a role in the decision according to the insolvency plan.
However, almost 130 department stores and around 16,000 jobs will be retained. Because many landlords and municipalities had recently made considerable concessions to the department store group in order to prevent the closure of the department stores that are important for the attractiveness of many shopping streets. Even more of the Karstadt sports stores have been preserved than initially expected.
GKK boss Miguel Müllenbach wrote in an employee letter after the creditors’ “yes” that the department store giant could probably compete for customers again in October without any bankruptcy restrictions and debt-free. After the end of the insolvency proceedings this Wednesday, Müllenbach was also demonstratively optimistic about the future of the retail giant. “The crisis has made us stronger because, unlike other companies, we have no debts,” he wrote to the employees.
In the insolvency plan it was stipulated that creditors without special collateral would only receive a fraction of their claims in euros. The owner of Karstadt-Kaufhof, René Benko’s Austrian real estate group Signa, is also asked to pay so that the company can continue. Signa had already transferred 162 million euros to GKK shortly before the protective umbrella application at the beginning of April so that business operations could continue. In addition, Benko is now to make a “restructuring contribution” of up to 325 million euros, 125 million euros of which as a bulk loan. Regardless of this, 41.3 million euros are to be paid from promises to pay and “loss compensation obligations” in the past by Signa offshoots. According to reports, department store locations that belong to Signa’s real estate portfolio are also occasionally affected by the closure.
In the future, Galeria Karstadt Kaufhof wants to align its offerings more to the local and regional conditions of the locations and also to become much more digital. “We will massively expand our online trade,” said the manager in a recent interview. In this area, GKK has so far been far too slow and stale. However, not all industry experts are as confident as the GKK boss. The retail expert Gerrit Heinemann from the Niederrhein University of Applied Sciences, for example, is far more skeptical about the future prospects of the retail giant. “With the haircut, the company now has a short-term competitive advantage, a kind of start-up aid. But the basic problem remains: the department stores have outlived themselves, ”he told the German press agency. Perhaps 30 to 50 department stores in the metropolises are viable in the long run. The rest have no future. “Dinosaurs may still survive in Jurassic Park, but not in highly competitive retail.”
In fact, Galeria Karstadt Kaufhof is not only suffering from the corona crisis. Even before the pandemic, the triumphant advance of online trading and the number of visitors to the city centers, which have been falling for years, made problems for the group. The department store giant does not even make five percent of its sales on the Internet. So there is a lot of catching up to do in this important growth market.
With the resolved closings, terminations and the capital injection from Signa, the renovators hope to stabilize the financial position of the group so that GKK can invest significantly more money in the modernization of its branch network and online presence in the future. The redevelopment concept called “Galeria 2.0” envisages an earnings effect of up to 467 million euros by the 2022/23 financial year at Ebitda level. “The improved economic situation will enable future investments from our own resources, so that approx. 650 million can be invested in the realignment over five years.” Of this amount, “more than three quarters will be used for the modernization of the branches remaining in the location portfolio”. The rest will be invested in the technological and digital infrastructure.
A structured change and a new concept are also urgently needed, commented WirtschaftsWoche editor Henryk Hielscher a month ago shortly before the creditors’ meeting: If something is not finally happening in the houses and the still rudimentary online offer will accelerate the customer drift. Investments in the restructuring of the business model – mainly in more modern branches, but also in the online business, which so far has only contributed homeopathic doses to total sales – are important, but so far only simulation games. “Whether they will ultimately become a reality depends on many factors, not least on the employees who have been confronted with ever new waiver demands for years,” said Henryk Hielscher.
More on the subject: Will Galeria Karstadt Kaufhof owner René Benko benefit from the crisis himself?
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