BERLIN — KarstadtQuelle and the union Verdi agreed to a 760 million euro, or $941.6 million, cost-cutting package on Thursday that paves the way for a capital increase for the retailer and an extension of its bank loans.

Just moments before the 3 p.m. deadline and after 29 hours of negotiations, the two sides announced the agreement, which calls for 5,500 jobs to be phased out over the next three years, 4,000 in the department store division and 1,500 in the catalogue division. In the department stores, the cuts will primarily be made in the administrative rather than the sales sectors, Franziska Wiethold, the Verdi negotiator, said.

As a result of the cuts, KarstadtQuelle will be able to proceed with its much-needed capital increase of 500 million euros, or $619.5 million at current exchange, and also extend its bank loans totaling 1.75 billion euros, or $2.17 billion.

Compulsory layoffs for the group’s remaining 100,000 employees, however, have now been largely ruled out, the Verdi representative said. Working hours remain unchanged, but Christmas bonuses have been canceled and wage increases have been frozen for the next three years. Furthermore, Urlaubsgeld, or holiday money, will no longer be paid in currency, but in vouchers for merchandise.

The group’s restructuring plan also calls for the sale of 77 smaller Karstadt department stores as well as the 305 units of the SinnLeffers, Wehmeyer, RunnersPoint and GolfHouse specialty store chains. At a press conference Thursday, Christoph Achenbach, chairman of the KarstadtQuelle management board, again emphasized that the goal is to sell — not to close — the 77 smaller Karstadt doors.

One of the stumbling blocks between Karstadt and the union was the fate of those smaller stores and, according to Verdi’s Wiethold, guarantees were secured for 66 of the locations.

KarstadtQuelle’s troubles are far from over. The crisis-ridden group is expecting a loss of more than $1.6 billion for the year, and while it is forecasting revenues of $1.36 billion from the sale of its various properties, there has been slack buyer interest so far in its apparel retail doors.

Moreover, the group’s announced goal of trading up and focusing more on lifestyle and apparel segments in its larger department store doors has to be realized. “The key is not so much cost-cutting, but sales growth and getting the top line stabilized,” commented a London-based analyst. “They’ve got a lot to do. They have to move the merchandise mix and they don’t have the expertise.”

This story first appeared in the October 15, 2004 issue of WWD. Subscribe Today.

An extraordinary shareholders meeting has been called for Nov. 22, to approve the 500 million euro, or $619.5 million, capital increase. KarstadtQuelle said voting shareholders, including majority shareholders Madeleine Schickedanz (who owns about 41.5 percent) and Allianz (10.5 percent) have agreed in principle to buy new shares totalling about 280 million euros, or $347 million. This is dependent, however, on the condition of the group obtaining a committed three-year term loan from the banks of approximately 1.75 billion euros, or $2.17 billion. KarstadtQuelle said bank negotiations were proceeding favorably.