Germany’s retail landscape is on the brink of change.
Sources tell WWD that the Kaufhof department store chain, considered the Macy’s of Germany, is up for sale and that a bidding war is in progress.
Karstadt, the other major department store operator in Germany, as well as the Toronto-based Hudson’s Bay Co. are interested parties, according to sources.
The sources said that German retail giant Metro AG is once again interested in selling its Kaufhof chain of department stores. As far back as 2008, Metro considered selling Kaufhof, determining that the retailer was no longer strategic to its core business.
“There is a process going on,” a source close to the situation said Monday.
Karstadt is fighting for its survival and would seek to consolidate with the healthier Kaufhof to gain economies of scale and cut more costs and jobs. Karstadt has been closing stores and battling with unions over cutbacks, but reportedly has rounded up some third-party financial backing to pull off a deal.
In August, Karstadt was bought by Signa, the Austrian real estate company and investor, which acquired it from Nicolas Berggruen. The Karstadt chain has been struggling for more than a decade and attempts to revamp and reposition it have borne little fruit.
Last week, there was an emergency meeting at Karstadt to figure out its future.
“This is a last-ditch effort for survival,” said the source, referring to the possible merger with Kaufhof.
Merger talks between Karstadt and Kaufhof have been on and off for years.
“Karstadt is in real trouble. They will close a great number of stores and ultimately could close them all,” said a source familiar with the retail scene in Germany. “But combining Karstadt with Kaufhof, one department store for the whole country, that could still happen.”
Richard Baker, governor and executive chairman of Hudson’s Bay Co., could not be reached for comment Monday. Baker has been interested in expanding his retail empire into Germany. HBC includes Hudson’s Bay in Canada, and Saks Fifth Avenue, Saks Off-5th and Lord & Taylor in the U.S.
Rather than coming at Kaufhof from a position of distress, his retail operations had a strong 2014 and Baker has been investing in his retail operations, including budgeting $250 million to renovate the Saks Fifth Avenue flagship in Manhattan over a few years beginning this summer.
Kaufhof does have much owned retail real estate that would be of interest to Baker. Of Kaufhof’s 120 stores, about 60 are owned and the remaining units are leased. His acquisition strategy entails seeking companies with strong brand recognition, healthy operations and valuable real estate.
Karstadt operates 83 department stores as well as 28 Karstadt Sports stores.
“It is our company policy not to comment on rumor or speculation,” said Andrew Blecher, spokesman for HBC.
A merger of Karstadt and Kaufhof could lead to a spinoff of the three-unit KaDeWe premium group owned by Karstadt. Several parties are interested, among them Thailand’s Central Group, an international department store operator that already owns the La Rinascente department store in Milan Sources on Monday said HBC is not in the running for KaDeWe, though the company was believed to have been interested.
KaDeWe includes the KaDeWe Berlin flagship, Alsterhaus in Hamburg and Oberpollinger in Munich. KaDeWe and Alsterhaus are performing well while Oberpollinger is said to be oversized and underperforming.
Metro, which operates cash & carry, hypermarket, electronics and department store business, had a difficult first quarter with the retail group’s profits slipping 10.7 percent, partly due to negative currency effects. Earnings before interest and taxes at Kaufhof slipped 12.6 percent, partly due to the warm winter hurting sales.