Galeria department stores insolvent again: 1 in 3 shops to close

German department store chain Galeria Karstadt Kaufhof is launching a new insolvency procedure, for the second time in three years. At least one in three German locations will have to close.

Fourth time, last time?

The company that was created as the merger between Karstadt and Galeria Kaufhof in 2018, sees no future for a third of its 131 German shops: the management wants to close at least 44 and keep only those in the largest cities. Its Belgian subsidiary Inno, however, stresses that it is pursuing an independent course and will therefore not be affected.

In mid-October, Galeria had applied to the government for further aid for the fourth time in three years. With the outbreak of the Covid pandemic in 2020, the chain ran into serious problems. After solid government support, debt restructuring and a major overhaul, Galeria survived its insolvency. The government came to the rescue a second time in early 2021 and in January this year the German state injected a further 220 million euros, arguing that the department stores have an important place in city centres.

Yet, Galeria has now again launched insolvency proceedings and is seeking protection from creditors. CEO Miguel Müllenbach is doing so in view of a major reorganisation. In an interview with the Frankfurter Allgemeine Zeitung, the chief executive revealed that layoffs are unavoidable and that only “a core number” of department stores could remain. Which ones will be decided in the next three months. Galeria employs some 17,000 people.

In search of a viable model

However, it remains to be seen whether the state will intervene a fourth time. Many politicians and analysts are now wondering whether Galeria Karstadt Kaufhof can still be saved with government help – and whether this is even desirable. As the main creditor, the government will now hold talks with René Benko, the Austrian owner of Galeria, and the trade union Verdi.

The union has already indicated that it wants to save as many jobs as possible, but it is also pointing the finger at Benko. Verdi believes that the Austrian billionaire should first of all invest more in his company himself. Furthermore, the union believes that the workers have made many practical proposals for a successful future, but that management has hardly listened to them. It is now up to them to present a viable model for the future, the union believes.

What this viable concept for the future might be? Galeria’s managers could perhaps take inspiration from the book The Future of Department Stores by Stefan Van Rompaey, editor-in-chief of RetailDetail, and Erik Van Heuven, international department stores expert.