What happens when Galeria Kaufhof and Karstadt disappear?

Inner cities - What happens when Galeria Kaufhof and Karstadt disappear?

At least there is a construction pit in Rheine. For many residents, this is already a step forward. For 13 years, all that stood on the site was a ruin, a gray concrete block on over four hectares in the middle of the Münsterland municipality's city center. In the past, in the 80s and 90s, trade flourished here. The Staelsche Hof, as the square in front of the building is called, was vibrant - there were restaurants, ice cream parlors and clothing stores. But after first Karstadt and later, in 2009, Hertie left the building, the Staelsche Hof also died. First the passers-by disappeared, then the stores. And it was not until 2022, 13 years later, that it was demolished, with the aim of building a hotel and residential building on the site at some point.

All over Germany, municipalities are struggling with vacant Karstadt, Galeria Kaufhof and Hertie buildings in their city centers. Why is this? Some blame online retail, claiming that it has made the department store principle obsolete. But the matter is probably simpler than that. Actually, only the way we shop has changed. It is not the department store principle itself that is dead, but Galeria Karstadt Kaufhof (GKK) was unable to adapt to the change. And following the insolvency of the parent company, René Benko's Signa Holding, the future of the remaining locations is more uncertain than ever.

Many mayors are therefore once again in turmoil, fearing for the future of their city centers and calling for new concepts. It is still unclear how many and, above all, which stores could be closed. However, experts such as Johannes Berentzen from BBE Handelsberatung are certain: "In the long term, the majority of locations will close. Starting with the small and medium-sized towns."

Interest focused on real estate

Berentzen sees the problems at GKK as home-made: "You certainly can't accuse René Benko of having no fundamental interest in retail," says the expert. "For example, he had great luxury concepts developed. But when I look at the GKK stores, I get the impression that he was primarily interested in the real estate."

Berentzen believes that the department store principle is not dead at all. This can be seen around 40 kilometers east of Rheine, in Osnabrück. L&T is flourishing there - a department store where customers can surf an artificial wave or simulate altitude training at 2,000 meters. "When I create such experiences for customers, the price decision often fades into the background." In other words: Those who advise customers competently and surprise them also get the edge over the Internet. Even if it's a few euros cheaper there.

In Galeria and Karstadt stores, however, little has changed over the past 30 years. Sweets are still lined up next to suitcases and underwear. And further up, fashion brands with timeless clothing compete for the last remaining customers in the huge space. "GKK has massively reduced its costs under René Benko. You can see that in the stores," says Berentzen. "This leverage has almost been exhausted. At the same time, the earnings side has barely recovered since corona. The competition is doing much better." Although the entire market for mid-priced products has suffered recently, GKK has suffered particularly badly.

Real estate expert Lars Jähnichen from IPH Handelsimmobilien also sees a problem in GKK's properties. "Retail space is generally becoming smaller both horizontally and vertically, locations are becoming shorter and retailers are occupying fewer floors. This is not yet apparent at GKK." In addition, the location is often no longer right. "The majority of GKK stores are located in medium-sized cities. Today, these medium-sized centers tend to stand for qualified basic services and much less for fashion shopping," says Jähnichen. For this, residents would travel to the big cities or to huge shopping centers in the country - if they don't order online.

Interest in locations remains

Jähnichen therefore also sees the end of most GKK stores coming sooner or later - not necessarily in the top locations such as Hamburg, Frankfurt or Munich, but certainly in medium-sized cities. Vacancies are a short-term problem for cities. But only rarely will there be such a hangover as in Rheine, according to the expert. Jähnichen and his team have determined that of the 52 recently closed GKK branches, 30 percent have been demolished and 50 percent have undergone massive structural alterations. According to Jähnichen, this is due to the outdated building fabric and the mixed use that follows the department store.

The classic mixed use would be offices, hotels or residential space on the upper floors, with retail on the first floor. However, this is associated with major risks for investors, as the buildings are usually in a poor condition. "The system technology in many branches is more for the German Historical Museum than for everyday use," says Jähnichen. This is why fewer and fewer regulated corporations are being considered.

In principle, says Jähnichen, there is still sufficient interest in the properties, especially from individual family offices from the respective cities or international investors.

However, hardly anyone seriously expects to be able to sublet the buildings in their entirety to a tenant, says the expert. This is why local authorities are also called upon to facilitate accelerated approval procedures for new concepts. "When a department store closes, speed is of the essence. We should have simplified, standardized procedures, especially for the approval of pop-up concepts, so that the space can be used again quickly while preparations for permanent re-use are underway."