Karstadt, the German department store chain, will lay off 2,000 workers over the next two years, representing just less than 10 percent of its workforce.

This story first appeared in the July 18, 2012 issue of WWD. Subscribe Today.

The streamlining will be accomplished through 2014, according to Andrew Jennings, chief executive officer. Karstadt has 22,000 employees currently.

As part of a restructuring pact signed three years ago bringing Karstadt out of bankruptcy, the retailer could not cut its workforce, though it was able to reduce salaries generally by 8 percent and eliminate bonuses. However, Jennings said that full salaries and bonuses are being reinstated starting in September, when the pact comes to a close.

“We are very grateful for their financial sacrifice as a result of the restructuring pact,” Jennings said.

Since being rescued out of insolvency in 2010 by Nicolas Berggruen, who now owns the business, Jennings said Karstadt has been navigating an “unprecedented difficult market environment and dealing with challenging heritage structures. Given the success of our restructuring projects, we are now far more commercial and able to right-size the business. As dolorous as these measures are for the affected employees, Karstadt has to adjust its organization to remain competitive and take the necessary precautions to safeguard its future success for the long term.”

Jennings said full and part-time employees could be affected by the streamlining, and that contract terminations will focus on early retirement, non-extension of temporary assignments and voluntary exits, though he hasn’t yet determined precisely which jobs will be eliminated. “We know we have to right-size the company for the future.”

Jennings also said the decision to streamline was part of his “Karstadt 2015” strategy to modernize the business. Jennings has been aggressively bringing in new labels, rebuilding the merchant team and renovating stores to move the business forward. He’s been working at Karstadt for about 18 months. Since 2010, more than 160 million Euros have been invested into the stores, technology and infrastructure.

As the streamlining and modernization proceed, Berggruen continues to engage in talks to purchase Kaufhof, Germany’s leading department store chain. Talks between the two retailers have been on and off for years, though sources say a merger is still likely.

The $5 billion Karstadt operates 86 Karstadt department stores as well as three premium department stores — KaDeWe in Berlin, Alsterhaus in Hamburg and Oberpollinger in Munich, which are filled with international luxury labels like Louis Vuitton, Prada, Gucci, Hermès and Rolex. KaDeWe is the second-largest store in Europe next to Harrods (where Jennings once worked). The group also has about two dozen sports stores and six bargain centers.

Kaufhof has 109 department stores and 15 sports stores and is part of the Metro Group retail conglomerate.

Jennings had no comment on the potential merger.

“Both the management and the owner are determined to steer Karstadt through difficult times and remain firmly committed to the company for the long run….Under the challenging market conditions of the Euro crisis, the company will carry on with simplifying its legacy structures and processes to achieve the right size of the organization, increase efficiency and keep Karstadt on track for sustainable and lasting growth.”

He explained that the layoffs will occur after approval of the supervisory board, a legal entity with representation from business owners and employees which has the power to approve layoffs and affect streamlinings. Germany’s works councils, another legal body, must also be consulted on labor matters but does not have the power to approve layoffs like the supervisory board.

“We have the strategy in place to put Karstadt back on track,” Jennings said. “Clearly we have already achieved a lot over the last 18 months since we introduced our strategy. However, we still have much more to do on our journey towards fully implementing Karstadt 2015.”

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