BERLIN — While no news has yet to emerge from Thursday’s much-anticipated supervisory board meeting of the beleaguered 83-door Karstadt department store chain, the Karstadt Premium Group has turned a significant corner.
The three-door group — comprised of KaDeWe in Berlin, Alsterhaus in Hamburg and Öberpollinger in Munich — is now to be called the KaDeWe group, signaling its independence from the Karstadt Group. A new head office for buying, marketing and other functions is being built near KaDeWe in Berlin to house about 150 people, and as of now, the group also has its own IT, human resources and financial systems in place. Previously, IT, h.r., finances and other functions were managed out of Karstadt headquarters in Essen.
As KaDeWe’s chief and the group’s managing director André Maeder told WWD Thursday, “We are an independent and different group that accidentally happens to be owned by the same owner” as Karstadt, the Austrian Signa Group.
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Signa, which also owns the KaDeWe real estate in Berlin (among other Karstadt department store properties), took a majority stake in the three premium houses as well as the Karstadt Sport stores in September 2013. Signa assumed 100 percent control of the premium and sport stores last month at the same time it acquired the Karstadt Department store chain from former owner Nicolas Berggruen.
More than 100 years old, KaDeWe is Germany’s most luxury-packed department store and continental Europe’s largest, with Alsterhaus and Öberpollinger following its stylistic lead. Maeder said the newly named group would be “building a story around the KaDeWe flagship, and bringing the other stores up to that level. We’re also open for expansion in Europe,” he said.
“The change to the KaDeWe Group,” he went on, “is the final step to [our] becoming a premium luxury store group. We really want to build the three stores to the level of Europe’s top department stores in the premium and luxury sector. I think we’re pretty close,” he said. Oft-quoted benchmarks are Selfridges and Harrods.
Unlike the struggling, midmarket Karstadt department stores, where 20 to 30 loss-making stores reportedly face closure, the premium doors have been profitable and are in the position to invest, Maeder pointed out. In 2013, turnover for the premium doors hit 600 million euros or $797.2 million. Dollar figures are converted from the euro at an average exchange rate for the respective period.
Karstadt, in contrast, has been in a downward spiral for years, and is expected to book a loss in the three-figure million euro range for the current business year ending Sept. 30. In fiscal 2012-13, Karstadt reported a loss of 131.1 million euros, or $172 million, with sales slipping 9 percent to 2.67 billion euros, or $3.5 billion.
After three meetings were canceled, the Karstadt supervisory board met for the first time under Signa chief René Benko, and the almost completely new board membership, which he installed. Prior to the Signa takeover of Karstadt, there had already been talk of ongoing cuts and the possible shuttering of 20 to 30 unprofitable doors.
The closures could affect up to 4,000 of Karstadt’s 17,000 employees, but would at the same time carry a price tag for employee severance costs and ongoing rental contracts per door of between 10 million and 15 million euros or $12.9 million to $19.4 million at current exchange.
Necessary renovation and restructuring of the store network will also come dearly, with experts estimating it could take “at least 1.5 billion euros” to make the stores competitive in today’s multichannel marketplace. As for the loss-making doors, suggested tactics include a partial reduction in their size, complete closures or their transformation into shopping centers or other retail concepts.
Real estate professional Benko and Signa’s plans for the chain have been the subject of speculation in the German press and news media. After a seven-hour meeting, the board released a statement that said, “Management has concluded that the strategy pursued since 2011 has failed economically. To continue following this course would permit losses to further mount in the midterm. A successful reorganization is therefore dependent upon extensive operative and structural measures.”
The management proposed a three-pronged policy: increase in earnings, measures for an ongoing reduction in personnel as well as material costs. It acknowledged the need for more regionally sensitive assortments, the use of local know-how and the experience of Karstadt’s employees, responding to a criticism that has been frequently voiced in the last weeks. Steps to reduce costs will impact all areas, the company said, including the Karstadt branches as well as the service center in Essen and logistics.
Further details as well as the personnel makeup and structure of the management team will be under consideration until the board’s next meeting scheduled for Oct. 23.