Luxury department store group: The department store war over KaDeWe

On Sunday afternoon on Berlin's Tauentzienstraße, in front of the main entrance to the luxury KaDeWe department store, a small crowd of people had formed.

Luxury department store group: The department store war over KaDeWe

On Sunday afternoon on Berlin's Tauentzienstraße, in front of the main entrance to the luxury KaDeWe department store, a small crowd of people had formed. A shopping Sunday was actually planned here, in Germany's most famous shopping temple. But now the people are standing in front of a mighty iron gate and can't get in.

There's a lot of mystery surrounding what's going on here. Not everyone noticed what Capital reported on Saturday: that the KaDeWe Group, which operates the luxury department store, is facing bankruptcy. But even those who know aren't really any smarter. The day before he had asked KaDeWe whether the department store would open, a disappointed customer who had come from Poland specifically to do some fancy shopping reported to an RBB camera team. The head of the Berlin-Brandenburg trade association calls the bankruptcy news just “rumors.”

Probably no one who has to forego their afternoon of shopping this Sunday or a visit to the sophisticated oyster bar under the roof of the world-famous hotel has any idea what has happened around KaDeWe in the past few weeks and days. In fact, after the Signa Group went bankrupt, the situation developed into a real crime thriller. Behind the scenes, a battle is raging between the two owners of the KaDeWe Group with its houses in Berlin, Hamburg and Munich: the Signa Group of the Austrian real estate investor René Benko on the one hand, and the Central Group from Thailand, which has 50.1 percent of the group controlled, on the other. Insiders speak of a “war”. There is talk of violent insults.

The battle is about the valuable KaDeWe property, but also about the exorbitantly high rents that the KaDeWe Group has been transferring to the Signa real estate division for years. What company insiders are reporting sounds as if the relationship between the two partners has completely broken down. A sad consequence of this rift is the insolvency application that was submitted to the Charlottenburg district court on Friday evening. But the company's problems with around 1,700 employees go even deeper. They were just covered up for a long time by the shine and glitter of luxury houses.

When the situation at Signa came to a head last autumn, a time of great concern began for many who had to do with Benko's real estate and trading group: for investors and lenders, but also for the employees of Benko's Galeria department store chain. The KaDeWe Group, on the other hand, was always considered safe. Business is going well in the luxury houses; sales in the last financial year were around 730 million euros, almost 25 percent higher than last year before the corona crisis. In addition, the KaDeWe building in Berlin has just been refurbished for a three-digit million sum. Hardly anyone had any doubts that the luxury group would soon be in safe and financially strong hands as a result of the Signa bankruptcy: namely, with the previous partner Central Group taking over the shares of Benko's group.

In fact, discussions were ongoing after the Signa umbrella company filed for insolvency at the end of November. As can be heard from negotiating circles, the company owned by the Thai billionaire Chirathivat family wanted to take over Signa's 49.9 percent share in the KaDeWe Group's trading business - including the KaDeWe property on Berlin's Tauentzien. In the building, which was temporarily valued at 1.5 billion euros in Signa's books, the Central Group had already bought almost half of the shares from its partner at the end of 2022, even though the KaDeWe was always a jewel in Benko's portfolio and practically unsaleable was valid. At least a contract was concluded shortly before Christmas 2022, and according to official company documents, a down payment in the three-digit million range was made. However, it is unclear whether the deal was ultimately completed.

According to reports, the Central Group was now prepared to pay a higher price for the other half of the KaDeWe property. Insiders say that the discussions have already gone very far. But then the Signa site suddenly demanded a significantly higher sum. There were also disputes over the amount of rent - an issue that has long caused friction between the partners.

Benko had always charged the luxury department store group extremely high rents for the KaDeWe, the Alsterhaus in Hamburg and the Oberpollinger in Munich. The background is that increasing rental income leads to higher property valuations - an important lever for Benko's business model for years. Oberpollinger transfers around 20 percent of its sales to Signa Prime as rent. Retail experts consider a maximum of ten to twelve percent to be acceptable. In total, the rents for the KaDeWe Group's current three houses are expected to total more than 80 million euros in 2023 and will continue to rise in the future, as the "Handelsblatt" reported in December. The rents are “disproportionately high” and “not in line with the market,” KaDeWe boss Michael Peterseim was quoted as saying on Monday.

Even after the insolvencies in the Signa Group, there are different interests between the partners: The existing management on the Signa side - most recently Signa Prime CEO Erhard Grossnigg as well as the restructuring managers and consultants involved - want to prevent the properties from being sold at bargain prices . Accordingly, there is little tendency to grant massive discounts on rents. The Central Group, on the other hand, wants to use the opportunity to reduce the rent burden. These have literally “exploded” since joining the KaDeWe Group in 2015, it says there.

However, a complete escalation between the actual partners recently occurred due to the style of negotiation. At the beginning of last week, the Signa site sent the real estate companies that hold the Alsterhaus and the Oberpollinger and rent them to the KaDeWe Group into bankruptcy. Insiders report that Benko's partners from Thailand were completely taken by surprise by this step and felt duped. Members of the Chirathivat family are said to have complained that they had never been treated like this in the company's 100-year history.

Signa did not comment on these allegations when contacted by Capital. For specific questions, the Central Group simply referred to an official statement on the KaDeWe insolvency from Monday. It says that they have worked hard with the landlords to solve the problem of “unsustainable” rents. However, a solution was not reached due to the "unyielding position" of the Signa side.

According to people with insight into the negotiations, the bankruptcy filing ultimately came about because both sides used tactics: Signa assumed that Central wanted to avoid the image-damaging step into bankruptcy at all costs and would still provide fresh money for the company, which was suffering from financial difficulties. Central has long been counting on Signa's rents to change. In the end, the KaDeWe management had to act in order not to come into conflict with the requirements of insolvency law.

But the current step into insolvency does not come as a complete surprise and without preparation for the employees of the KaDeWe Group. Since the beginning of the series of insolvencies at Signa last fall, company boss Peterseim has made every effort to give the impression that the luxury department stores were not affected by the Benko quake. In interviews, he asserted that the group was "safely positioned" and that the turbulence at Signa had "no impact" on the KaDeWe Group.

Internally, Peterseim, who only took over as interim CEO at the beginning of November, had a video distributed to the workforce in which he also brushed off all the problems: the daily "unpleasant news from the Signa Group" would "not affect" his own company, he assured . And a hacker attack on the KaDeWe Group's IT systems, which made ugly headlines and unsettled many customers, was "easily averted". The attackers were “able to cause virtually no damage.”

But for many employees, the boss's demonstrative confidence no longer matched what they experienced on a daily basis. Especially for those who have to do with paying invoices from suppliers, craft companies and other service providers. Internal documents and emails available to Capital show that only some of the invoices have been paid for many weeks. Approval from the finance department was required for individual transfers. Desperate employees wrote internally that they no longer knew what to tell suppliers who were waiting for their money.

Several weeks ago, weekly Excel tables were created in which the invoices due were listed according to priority. In several such lists from December that are available to Capital, a significant proportion of the claims are marked in red - "not paid". There was also a similar crisis mode at the Galeria department store chain before it filed for bankruptcy at the beginning of January. Finally, the KaDeWe management also brought consultants from the Frankfurt law firm Finkenhof, which specializes in restructuring and insolvency law, into the company.

As employees report, numerous suppliers who are stuck with unpaid invoices have already imposed a delivery stop for the KaDeWe Group. The Berliner Haus is currently converting to the summer season - signs on the shop windows advertise the "Final Sale" with a 50 percent discount. But because of the outstanding claims, some of the new summer goods are currently not coming in, they say. Some shelves are already emptier than usual, for example in the beauty sector. There are also problems with service providers ranging from cleaning to cash transport to fuel cards for the shuttle service. Employee expenses would no longer be reimbursed. The KaDeWe Group left questions from Capital about how to deal with invoices unanswered on Monday.

All of this is not exactly conducive to a premium store that promises its customers the finest shopping experience and the best service. The consequences of what the two shareholders of the luxury chain have accepted with their wrangling behind the scenes and the current big bang could be even more serious.

In contrast, KaDeWe management remained optimistic in its statement on the bankruptcy filing on Monday. “Operationally,” his company is doing “an outstanding job,” said CEO Peterseim. Despite the difficult economic environment, increasing sales were recorded in all stores. His conclusion: "There is no question that the group can have a strong future with normal rents."

This article first appeared in the business magazine "Capital", which, like stern, is part of RTL Deutschland.