Gallery narrowly avoids collapse as lenders agree to reorganization plan

Bankruptcy processes commenced. - Gallery secures another lifeline as creditors approve restructuring proposal.

Karstadt Kaufhof has made its final move toward its rescue. The creditors' meeting approved the restructuring plan for the struggling department store chain on Tuesday, as announced by insolvency administrator Stefan Denkhaus.

This means that the insolvency proceedings for the brand are almost over. After the objection period expires in June, the Essen District Court will have the power to end the proceedings. Following that, Karstadt Kaufhof will be ready for restructuring under its new owners: the US investment company NRDC and the investment firm of former Coty CEO Bernd Beetz. The handover is set to happen in July.

Galeria to close stores nationwide

The employees can now breathe a sigh of relief after going through a third bankruptcy in less than four years. Despite what some retail experts predicted, Galeria won't be closing up shop. However, they'll be paying a high price again with stores shutting down across the country and 1400 people losing their jobs.

To show support for the struggling company, the union Verdi placed a symbolic wooden cross in front of the trade fair building for each closing store. Posters read, "Mr. Beetz, invest in the team," and "Benko, thank you for nothing!" The cuts at Galeria weren't as deep as initially feared. Experts had estimated that at most 20 to 30 locations would survive. Some even believed that finding a buyer might be impossible.

Creditors take a hit

During the non-public event in Essen on Tuesday, about 120 people attended, representing approximately 4600 creditors. They had to accept the insolvency plan again and give up a significant amount of money. These claims amount to 886.1 million euros. It is expected that only 22.5 million euros, or 2.5-3%, will be returned to them. Claims against the previous owner, Signa Group's René Benko, could potentially increase this amount.

Galeria slipped back into insolvency at the beginning of the year due to a lack of financial support from the struggling parent company. The Economic Stabilization Fund (WSF) provided the company with 680 million euros in 2021 and 2022. Most of these claims will expire during the 2023 insolvency proceedings. The WSF will also continue a subordinated loan of 88 million euros. Since new securities for payment defaults were agreed upon, the WSF will now have "priority withdrawal rights" from the insolvency estate, which will help settle these debts. No more defaults are to be expected from this new insolvency.

Denkhaus aims for medium-sized restructured company

The insolvency administrator has set the stage for a new beginning. His primary goal was to transform the group into a medium-sized company. The Essen headquarters will be abandoned, with the management moving to a Düsseldorf branch by 2025, a significant reduction in staff. Out of the 92 branches, 76 will remain, reducing the rental burden by around 80 million euros annually. The name will change from Karstadt and Kaufhof to Galeria. These name changes are thought to distance the brand from the recent bankruptcies.

However, uncertainties and doubts remain, with many unanswered questions. How will Galeria return to success? How will it compete against retail giants like Amazon and new portals like Shein and Temu? And how can future financial difficulties be prevented in 2025?

Beauty products, handbags, shoes, and linen are said to be the main focus of the product range, as announced by Galeria CEO Olivier Van den Bossche. But there's little information about the future direction of the company. The new owners, NRDC and Bernd Beetz, have yet to make any public statements. Beetz, however, has been vocal about his desire to keep the branch in Mannheim, a location set for closure. Being from Mannheim and the president of local third division football club SV Waldhof, it's still unclear whether this branch and others will be moved off the closure list.

It will depend on what Beetz and NRDC bring to the table when they finally unveil their plans for the restructuring and repositioning of the department store chain. However, according to the insolvency plan, they have committed to providing "extensive financial resources" for restructuring and realignment, without specifying an amount. "The new owners must prove that they're serious," said insolvency expert Manfred Hunkemöller.

Up to €100 million is supposedly headed to the company within the next two to three years, according to investor rumors. Whether that amount is sufficient is up for debate, though. Retail experts predict Galeria's investment requirements surpass €1 billion.

There's an air of uncertainty surrounding Galeria's future, but one fact remains: the department store will be given another opportunity.