Galeria twilight at Christmas time

Retail trade - Galeria twilight at Christmas time - who will grab it?

If you haven't yet bought an Advent calendar for your loved ones, now is your chance. Galeria is offering a 30 percent discount on many Advent calendars until December 3. The first door can be opened on Friday. Then the hottest weeks of the year start for the more than 120 Galeria stores. Christmas business traditionally brings in a lot of money.

What happens next for Germany's last major department store chain is completely unclear. Will it continue at all? This question has been on the minds of many of the company's 13,800 employees since this week at the latest.

Application forcreditor protection

Signa Retail Selection AG, the Swiss retail subsidiary of the insolvent Signa Holding, has filed for creditor protection in court. It wants to decouple itself and thus avoid being drawn into the insolvency proceedings. In a somewhat convoluted announcement on Wednesday evening, it was stated that the Board of Directors expects to be able to "settle all external liabilities and sell the assets in a well-organized and structured process over the coming months". This means as much as: The shares in subsidiaries such as Galeria are to be sold.

But who wants to buy a department store group in 2023 that has dragged itself from crisis to crisis in recent years?

"Nobody," believes retail expert Gerrit Heinemann from the Niederrhein University of Applied Sciences. "Anyone who does that is out of their depth. From a business point of view, it makes no sense." Johannes Berentzen, head of retail consultancy BBE, also expects the search for investors to be difficult. "When interest rates were low, entering the German market might have been interesting for international investors or even retail groups. In today's market and interest rate situation, there is hardly any chance of finding a buyer." Berentzen cites the fashion chain Aachener, which moved into six abandoned Galeria locations this year and recently filed for insolvency, as a negative example.

Better prospects for luxury stores

The Central Group is the only possible investor for Berentzen. Like Signa, the Thai retail company already has a stake in various luxury department stores, including the KaDeWe in Berlin, the Alsterhaus in Hamburg and the Oberpollinger in Munich. Berentzen believes that the luxury stores have good prospects for the future. "They primarily serve the luxury market, which is growing very successfully despite times of crisis."

Retail expert Heinemann sees no chance of survival for Galeria in smaller cities. He believes it is conceivable that only individual "cream pieces" will remain. He cites the stores on Hohe Strasse in Cologne and Königsallee in Düsseldorf as examples. He can imagine a takeover of individual locations in major cities, for example by the KaDeWe Group, which is majority-owned by the Central Group. The sticking point, however, is the high rents of the properties currently rented by Signa. After all, whoever buys Galeria does not buy the buildings.

"The most valuable thing is the land and, to some extent, the properties," says Berentzen. From an investor's point of view, key figures such as purchasing power, sales rent or the renovation status of the buildings are particularly important.

Trade association fears for city center magnets

For the German Retail Association, Galeria department stores are still central points of contact in city centers. "Many customers come to the city centers because of them. As a result, the neighboring stores and companies in other sectors also benefit from this. The department store format still has its place in the retail landscape," says HDE Managing Director Stefan Genth.

The fact that the outlook for the Galeria department store chain is so bleak is also due to the fact that its heyday was a long time ago. The past few years have been characterized above all by crises. The group avoided bankruptcy several times and survived two insolvency proceedings. According to the retail consultancy BBE, department stores achieved a market share of 13.5 percent until the end of the 1970s, but this has since fallen to just 1.5 percent.

According to figures from the retail research institute EHI, sales in the bricks-and-mortar retail sector have risen continuously in recent years, but Galeria's sales have declined. Sales fell from 4.5 billion euros in 2019 to 1.85 billion euros in 2022. This is probably also due to the consequences of the coronavirus pandemic and the fact that the number of Galeria stores has shrunk in recent years. In the ranking of department stores with the highest turnover, Galeria came second behind Müller last year. However, according to the EHI, Galeria Karstadt Kaufhof is only in 29th place in the ranking of the top-selling sales divisions in the stationary retail trade in Germany, behind Saturn and ahead of Deichmann.

Fears about Signa financial injection for Galeria

Lena Knopf, EHI expert for shopping centers and retail real estate, considers the department store concept to be "getting on in years". The spaces are often too large and there are hardly any new tenants. Mixed-use concepts - including retail, gastronomy, offices and culture - "could certainly give many city centers more positive energy than an unsuccessful department store," she says. However, this would involve structural changes. "Getting there is very time-consuming and difficult for cities."

What happens now? It may not be difficult for Galeria in the next few days or weeks, not at Christmas, but in the new year. In February, 50 of the 200 million euros that Signa Holding GmbH had promised for the restructuring are to flow. Whether the money will come after the insolvency of the parent company is more than uncertain.

A recent case gives little cause for optimism. Just a few weeks ago, the online retailer Signa Sports United filed for insolvency after Signa Holding GmbH withdrew a financing commitment of 150 million.