Retail chain Karstadt turns its fortunes around

The German department store chain Karstadt reported its first profit in 12 years by subletting store space and ramping up digital sales.
Quelle: dpa
On the road to recovery.
(Source: dpa)

After more than a decade of losses, Karstadt is back in the black. On Wednesday, the German department store chain announced its first profit in 12 years. It recorded a positive result of €1.4 million ($1.7 million) for the past year.

The profit will directly benefit Karstadt’s employees. The company announced that the money will be distributed among them as a special payment. Each will receive a sum in the lower three-digits, which is seen as a token of gratitude, as staff had temporarily accepted lower pay while the company went through turbulent times.

Karstadt has battled with losses for years. In 2014, the chain was bought by the Austrian real estate investor Rene Benko’s holding company Signa. Several branches had been closed and more than 2,000 jobs were cut. The recent turnaround is particularly noteworthy since Signa had separated several more profitable sports and luxury stores in Hamburg, Berlin and Munich.

We are determined to turn Karstadt into one of the strongest distributors in Germany. Stephan Fanderl, CEO, Karstadt

A key to success has been the leasing of space to grocery chains Edeka and Aldi, drugstore chain dm and the optician Apollo which now run shops in the Karstadt buildings. Karstadt’s chief executive, Stephan Fanderl, used the good news as an opportunity to announce the firm will open new branches. "We have a portfolio of interesting locations and it's not a question of whether, but when and where to build new department stores."

Mr. Fanderl wants to put Karstadt on the map in the digital retail world. As more and more customers shop online, department stores in Germany and beyond are struggling to stay relevant. There is a "digitization race" in the German industry, he said.

"Companies that act too slow and inconsistently won’t survive this race," he added. "On the other hand, we are determined to turn Karstadt into one of the strongest distributors in Germany connected through all sales channels."

Quelle: dpa
"It's not a question of whether, but when and where to build new department stores."
(Source: dpa)

By the 2019-2020 financial year, the proportion of online sales is projected to increase to around 10 percent. Mr. Fanderl also wants to increase the number of shops from which Karstadt goods are sent to customers from the current 30 to all 79 stores by the end of the year. Karstadt is thus competing with suppliers like Amazon by offering same-day delivery.

Karstadt had already significantly reduced its losses in the financial year 2015-16. At that time, the loss was €7.5 million. Before that, the deficit was just under €65 million. With its small profit, Karstadt is currently more successful than its competitor Kaufhof, whose high losses are causing a headache for its Canadian owner, the Hudson's Bay Company.

Kaufhof is bracing for further job cuts as it undergoes a tough austerity program. Nevertheless, the Canadian owners have recently rejected a bid by Mr. Benko to combine their chains and continue working on a new concept to stop declining sales and return to profitability.

Florian Kolf leads a team of correspondents who cover retail and consumers for Handelsblatt, Christoph Kapalschinski covers consumer goods, textiles and food for Handelsblatt. Stephanie Ott in New York City adapted this article for Handelsblatt Global. To contact the authors: [email protected] and [email protected].