BY Richard Summerfield
German department store chain Galeria Karstadt Kaufhof has filed for insolvency for the second time in the last two years.
The company, the last major German department store group still in operation, has announced plans to close more than 40 of its 131 remaining branches. The announcement was made by the group’s chief executive Miguel Müllenbach, in an interview with German newspaper Frankfurter Allgemeine Zeitung (FAZ).
Mr Müllenbach noted that to save the company, the number of its branches had to be “cut by at least a third” and that compulsory redundancies would be inevitable. In a letter to the group’s employees, Mr Müllenbach explained that the company needs to divest itself of branches that, given the slowdown in consumption and rising inflation and energy costs, “would no longer be able to operate profitably in the near future”. This is the only way to avoid the group’s total financial collapse. Galeria currently employs 17,000 people and operates across 97 German cities.
Prior to its insolvency filing, the company had negotiated with the federal government for additional financial assistance, on top of the €680m it had already received.
The company will file for what is known in Germany as protective administrative insolvency, Germany’s equivalent of the US Chapter 11 proceedings. Galeria filed for this kind of insolvency back in April 2020, at the beginning of the coronavirus (COVID-19) pandemic. As a result of this first filing, the company was forgiven more than €2bn worth of debt and 4000 jobs were lost. Galeria’s struggles predated the pandemic, however. In 2019, the company recorded losses of €78m. The company was acquired that year by Austrian real estate company, Signa, for an estimated €1bn.
After the 2020 filing, around 40 locations were closed. Other stores were renovated though and the original restructuring plan was to completely remodel 50 to 60 of the remaining department stores, bringing them back to profitability.
The size of Galeria’s chain of stores has been deemed unsustainable. According to German real estate weekly Immobilienzeitung, only 30 of Galeria’s 131 branches have reassuring prospects.
The company has enjoyed strong support from the German state. Galeria has received in excess of €680m from the government, which argued that the company’s stores have an important place in city centres. However, there is some doubt as to whether the company could be saved with government help – and whether this is even desirable given the current economic climate.
News: Galeria Karstadt Kaufhof Files for Second Insolvency, Inside Two Years