Galeria Karstadt Kaufhof: Department store chain receives state loan

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Government aid in the three-digit million range for the only remaining German department store chain has sparked a debate about the sensibility of the actions and a fair treatment of lockdown victims.

The federal government wants to support Galeria Karstadt Kaufhof (GKK) with a loan of up to 460 million euros.

In discussions over the past few weeks it has become clear that “our department stores are also clearly viewed as systemically relevant by our top politicians,” wrote GKK boss Miguel Müllenbach in an employee letter to WELT.

Competition experts, however, doubt that the rescue operation is sustainable.

The President of the Monopolies Commission, Jürgen Kühling, described "the rather less good future prospects of the company" in view of the slow digitization compared to WELT as "problematic".

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One of his predecessors in the office, Justus Haucap, felt reminded of state aid from the Bavarian state government to the Quelle mail order company twelve years ago.

“What did it do?

Nothing, the end of the Quelle catalog and this kind of mail order business was unstoppable, ”said Haucap.

Monopolies Commission warns of bankruptcy

GKK had also found itself in a massive imbalance before Corona due to a lack of online presence - unlike other recipients of state aid such as Lufthansa or TUI.

"The structural problems of Galeria Karstadt Kaufhof should therefore persist even after the pandemic," said Haucap.

The Monopolies Commission is fundamentally critical of state services to individual companies, but considers them to be justified in the Corona crisis, said Kühling: "A prescribed lockdown practically brings the business model to a standstill."

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The competition-distorting effects in the Karstadt Kaufhof case are also less than in the previous state aid for Lufthansa and Deutsche Bahn, for example.

What is critical for taxpayers is the fact that it is a subordinate loan.

"In the event of insolvency, there is little chance of repayment," said Kühling.

The SME association ZGV warned of growing displeasure among smaller competitors.

State aid is legitimate and even necessary in this case, according to ZGV boss Ludwig Veltmann: “However, this must not aggravate the impression among other market participants that the big ones are helped quickly with generous offers, while small and medium-sized companies are neglected. "

The fact that no start date is given for the application for bridging aid III is unacceptable.

"Many companies are on the verge of their liquidity and will not be able to survive further delays," said the SME representative.

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Müllenbach tried to dampen the fear of a burden on the general public.

After all, it is not a gift, but a loan that will be repaid in full and with interest, he wrote to the employees.

The company and the owner, the Austrian investment company Signa, had also provided extensive collateral so that the taxpayer faced “neither a risk nor a disadvantage”.

Importance for inner cities "remains enormous"

The company had to bridge a situation in which the stationary trade got into through no fault of its own, he justified the support.

After the Christmas sales, the important business for Valentine's Day and Easter is threatening to disappear - an unexpected setback.

The company only successfully completed protective shield proceedings in autumn.

"We were debt-free, had a sparkling clean balance sheet and enough liquidity to implement our realignment plans on our own," the company boss insists.

He justified the help with reference to the important role of department stores in the retail landscape: "Their importance for inner cities and our coexistence is undisputed and remains enormous."

Observers, however, doubt the argument that department stores are systemically relevant.

"It is absolutely absurd to claim that the temples of consumption at Galeria Karstadt Kaufhof, which have not been profitable for twenty years with various managers and various concepts, form the basis of a flourishing retail landscape," said commercial consultant Nils Seebach.

The problems of the inner cities cannot be attributed solely to the lack of attractiveness of the department store chain.

How massive the upheaval is at the moment, the perfumery chain Douglas underlined on Thursday with the announcement that it would close 500 of its 2,400 branches across Europe.

CEO Tina Müller justified the shrinking cure with a surge in online business by over 40 percent to more than one billion euros for the first time in the past year.

Of the 430 locations in Germany, 60 are on the verge of extinction, around 600 jobs are to disappear.

Meanwhile, the public prosecutor's office in Essen confirmed a report in the "Süddeutsche Zeitung", according to which persons responsible for the GKK management are being investigated on suspicion of delaying bankruptcy.

The reason was a corresponding report from a private person, said Chief Public Prosecutor Anette Milk.

"We are only at the very beginning of the investigation," she said.

Trade association fears "downward spiral" without GKK

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Galeria Karstadt Kaufhof operates 131 department stores at central locations in all large and many medium-sized cities in Germany and employs around 17,800 people.

Last but not least, the German Trade Association (HDE) campaigned for state aid.

With 310 million customers per year, GKK is extremely important for many inner city cities and the retailers located there as a source of frequency, said HDE Managing Director Stefan Genth.

"If these points of attraction disappear due to the consequences of the corona crisis, many city centers will get into a downward spiral," he fears.

It is therefore right that the state is cushioning this emergency: "The economic stabilization fund was set up precisely for these pandemic-related emergencies."

HDE President Josef Sanktjohanser had previously advertised the rescue operation in a letter to Federal Finance Minister Olaf Scholz.

At the same time, the HDE is committed to giving medium-sized businesses quick access to state aid, the association emphasized.

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