Bankruptcy: Galeria department store closures put cities to the test

It is currently still a well-kept secret whether 40, 60 or maybe even 80 of the almost 130 Galeria Karstadt Kaufhof department stores will close this year.

Bankruptcy: Galeria department store closures put cities to the test

It is currently still a well-kept secret whether 40, 60 or maybe even 80 of the almost 130 Galeria Karstadt Kaufhof department stores will close this year. One thing is certain: With the upcoming wave of closures, a number of municipalities are facing a huge challenge. Finding a new use for the department store property is often anything but easy.

"In most cases, it will take years for the properties abandoned by Galeria to find a new long-term use," predicts Boris Hedde, Managing Director of the Cologne Institute for Retail Research (IFH).

Too many sales floors, too little daylight, too low ceilings

The problem: almost all of the buildings were erected at a time when the demands on trade were very different than they are today. They have too many sales floors, too little daylight and often too low ceilings to meet today's demands. As a rule, complex conversions or even demolition are unavoidable.

This was already evident after the closure of around 40 department store branches in the course of the first insolvency proceedings at Germany's last large department store chain in 2020. A study by the management consultancy PwC, which followed the further fate of 32 of the branches, showed that a year after it became known of the department store closures, a plan for future use was available for more than 70 percent of the closure locations.

In around three quarters of the cases, however, extensive structural changes were necessary to ensure long-term subsequent use. Every third building for which there were already plans should therefore be demolished. Less than a fifth of the properties were re-let without structural changes.

"Department stores have been losing importance for decades. And the corona pandemic has drastically accelerated the development again," says Hedde. Department stores used to impress with the variety of goods on offer. But that's over. "Nowadays, anyone looking for a wide range goes to the Internet."

A new business model is needed

Anyone who comes to the city center today wants advice and a successful pre-selection from the flood of goods - in short, a shopping experience. "But hardly any department store offers that," says the IFH managing director. In his opinion, an attempt to simply continue with the same business model in the old Galeria properties would therefore be doomed to failure.

Instead, one will often see mixed uses: for example food and fashion shops on the ground floor, perhaps a public facility such as the city library and office or residential use on the upper floors, says Hedde. According to another PwC study on the subsequent use of 52 department stores that had already been closed between 2009 and 2020, this development had already become apparent. "The closure of Galeria branches will not be a hard blow for the large metropolises, because the department stores there are no longer big footfall drivers," emphasizes Hedde. The situation in smaller towns is different.

"The pressure to find a solution is greatest in smaller towns," agrees PwC real estate expert Benjamin Schrödl. After a department store is closed, it is particularly important for her to bring life back to the city so that more shops do not have to give up. "Everything that brings pedestrians helps," emphasizes the expert.

Pop-up stores can help bridge the gap

Because it takes a long time before a new use for a department store location is implemented. "If you leave the building largely unchanged and only slightly renovate it, it can be done in six months to a year. But such minimalism will rarely lead to a viable solution. After two to three years, the building is often empty again," he says Schroedl.

If you remodel the building properly, cut in atriums and create the conditions for new uses, it will take two to three years. In the case of a completely new project, however, it could also take five to ten years.

This time must be bridged with offers from pop-up stores to cultural offerings, says Hedde. The local authorities are also asked to make things possible here. According to him, there are already a number of examples of what this could look like. Lübeck, for example, bought the old Karstadt building and is planning to use areas with educational offers. In Homburg an der Saar, a vacant space in the city center is used for fashion shows. Hanau has created an art department store where artists from the region can exhibit and sell. A sustainability-oriented department store has been established in Bremen.

"There must be more of these examples," says Hedde, and even sees something positive in the wave of closures. "These vacancies are more of an opportunity than a danger for inner cities," he says.