Retail: Galeria twilight at Christmas time - who will get it?

If you haven't bought an Advent calendar for your loved ones yet, now is your chance.

Retail: Galeria twilight at Christmas time - who will get it?

If you haven't bought an Advent calendar for your loved ones yet, now is your chance. Galeria offers a 30 percent discount on many Advent calendars until December 3rd. The first door can be opened on Friday. This is when the hottest weeks of the year begin for the more than 120 Galeria branches. Christmas business traditionally brings a lot of money into the coffers.

What will happen next for Germany's last large department store chain is completely unclear. Is it even going ahead? This question has probably been on the minds of many of the company's approximately 13,800 employees since this week at the latest.

Filed for creditor protection

Signa Retail Selection AG, the Swiss trading subsidiary of the insolvent Signa Holding, has filed for bankruptcy protection in court. It wants to decouple itself and thus avoid being drawn into the insolvency proceedings. In a somewhat convoluted statement on Wednesday evening, it was said that the board of directors assumed that it would be able to "settle all external liabilities and sell the assets in a well-organized manner and in a structured process over the next few months." That means something like: The shares in subsidiaries like Galeria should be sold.

But who wants to buy a department store group in 2023 that has dragged itself from crisis to crisis in recent years?

“Nobody,” believes retail expert Gerrit Heinemann from the Niederrhein University of Applied Sciences. "Anyone who does that no longer has all the cups in their cupboard. From a business perspective, it doesn't make any sense." Johannes Berentzen, head of the BBE trading consultancy, also expects a difficult search for investors. "At a time of low interest rates, entry into the German market might have been interesting for international investors or even trading groups. In today's market and interest rate situation, there is little chance of finding a buyer." As a negative example, Berentzen cites the Aachener fashion chain, which moved into six abandoned Galeria locations this year and most recently filed for insolvency.

Better prospects for luxury homes

For Berentzen, only the Central Group comes into question as a possible investor. Like Signa, the Thai trading company is already involved in various luxury department stores, including Berlin's KaDeWe, the Alsterhaus in Hamburg and the Oberpollinger in Munich. From Berentzen's point of view, the luxury houses have good future prospects. "They primarily serve the luxury market, which is growing very successfully despite times of crisis."

Retail expert Heinemann sees no chance of survival for Galeria in smaller cities. He thinks it is conceivable that only individual "pieces of cream" remain. He cites the branches on Hohe Straße in Cologne and on Düsseldorf’s Königsallee as examples. He can imagine individual locations in large cities being taken over, for example by the KaDeWe Group, which is majority owned by the Central Group. The sticking point, however, is the high rents of the properties that are currently rented by Signa. Because: Whoever buys Galeria doesn't buy the buildings.

“The most valuable thing is the land and partly the real estate,” says Berentzen. From an investor's perspective, key figures such as purchasing power, sales-based rent burden and the level of renovation of the houses are particularly important.

Trade association fears for magnets for inner cities

For the German Retail Association, Galeria's department stores are still central contact points in city centers. "Many customers come to the city centers because of them. As a result, neighboring shops and companies in other sectors also benefit from this. The department store format still has its place in the retail landscape," says HDE Managing Director Stefan Genth.

The fact that the outlook for the Galeria department store chain is so bleak is also due to the fact that its heyday was a long time ago. The past few years have been characterized primarily by crises. The group escaped bankruptcy several times and survived two insolvency proceedings. According to the retail consultancy BBE, department stores achieved a market share of 13.5 percent by the end of the 1970s, but now it is only 1.5 percent.

According to figures from the retail research institute EHI, sales in stationary retail have increased continuously in recent years, but Galeria's sales have declined. Sales fell from 4.5 billion euros in 2019 to 1.85 billion euros in 2022. This is also likely due to the consequences of the corona pandemic and the fact that the number of Galeria branches has shrunk in recent years. Last year, Galeria took second place behind Müller in the ranking of the department stores with the highest sales. According to the EHI, Galeria Karstadt Kaufhof is only in 29th place in the ranking of the sales lines with the highest sales in stationary retail in Germany, behind Saturn and ahead of Deichmann.

Fears about Signa's financial injection for Galeria

Lena Knopf, EHI expert for shopping centers and retail properties, considers the department store concept to be “outdated”. The areas are often too large and there are hardly any new tenants. Mixed-use concepts - including retail, restaurants, offices and culture "could certainly give many inner cities more positive energy than an unsuccessful department store," she says. However, this is associated with structural changes. "The way to get there is very complex and difficult for the cities."

How does it go from here? Things may not be difficult for Galeria in the next few days or weeks, not on Christmas Day, but only in the New Year. In February, 50 of the 200 million euros that Signa Holding GmbH had promised for the renovation are to flow. It is more than uncertain whether the money will come after the parent company goes bankrupt.

A recent case gives little cause for optimism. Just a few weeks ago, the online retailer Signa Sports United filed for bankruptcy after Signa Holding GmbH withdrew a financing commitment of 150 million.