Department store woes Kaufhof continues to struggle

BONN · The department store chain is apparently still struggling financially and looking to cut down on costs. Employees are expected to make sacrifices. But a clear strategy for the future is not recognizable.

It is an unsettling time at Kaufhof. Internal papers supposedly paint a gloomy picture of the department store chain. And that comes just in advance of important talks with the union Verdi in hopes of securing a restructuring collective agreement. Above all, the company needs a clear strategy. Here are the most important questions and answers at a glance.

Who owns Kaufhof?

In 2015, the Canadian Hudson’s Bay Company (HBC) bought the department store chain with 96 branches from the Metro Group. The origins of Galeria Kaufhof date back to 1879. Today, it employs around 21,500 people. Chairman of the management in the Cologne company headquarters is Roland Neuwald, who has held that position since November. He took over from Wolfgang Link, who moved to the top of the advisory board of Kaufhof.

What do we know about HBC?

The history of the Hudson's Bay Company (HBC) predates that of Kaufhof, as it is the oldest company in North America, dating back to 1670. The company, which until a few years ago limited its business to Canada and the United States, includes the U.S. department stores Lord & Taylor, Saks Fifth Avenue and the high-end outlet store Saks Off Fifth. The force behind HBC is American Richard Baker. He bought the company in 2008.

What expectations did HBC have when it purchased Kaufhof?

When HBC took over Kaufhof from the Metro Group, HBC had in mind nothing less than a renaissance of the department store. One billion euros was to be invested in five years. Kaufhof wanted to score points with a stylish women's shoe department. In addition, HBC brought the outlet Saks Off Fifth to Europe, selling top brands at significantly reduced prices. There are now five branches, including one in Bonn. In the Netherlands, department stores were opened under the Hudson's Bay name. The premiere was in Amsterdam in September. There are now more branches, including one in Maastricht. At least four weeks ago, the look was not much different than in the German Kaufhof stores. According to media reports, the pace of expansion in the Netherlands has slowed, just as the investments in Germany are being carried out over a longer period of time.

Have expectations been realized?

Not really. HBC soon acknowledged that Kaufhof was not as good as had been thought initially. 2016 saw a downturn in sales at Christmas and it was the same last year. Kaufhof attracted customers mainly with discounts. In part because of that concept, there were differences of opinion and changes in leadership.

What is the financial situation?

This is not known exactly because business figures from Kaufhof are integrated into the consolidated financial statements of HBC. According to “Manager Magazin”, there was a loss of 100 million euros in 2017/18. In the previous year, the loss was thought to be double that. Internal company papers speak of an “earnings crisis” and even “distress.”

Officially Kaufhof disagrees and says the company is solidly financed and has the support of HBC, which also operates department stores in the Netherlands and Belgium, where things are not going well either.

Why are the department stores struggling?

Kaufhof, like all retailers is under pressure. Inner cities are less frequented and the internet trade is growing.

Personnel changes have also not made it any easier for the business. And managers from the U.S. have simply stocked shelves with the wrong assortment, as trade expert Thomas Roeb asserts. High rent payments are also a problem.

What’s next?

Kaufhof management complains about unequal personnel costs in the branch. It announced that 400 of 1600 jobs in the Cologne headquarters should be eliminated. it wants to negotiate with other employees for a restructuring collective agreement. This could include salary cuts up to five percent, cancellation of holiday and Christmas bonuses for three years, and a return to a 40-hour work week. A meeting on April 13 with the tariff commission formed by Verdi unionists will address these issues.

What is the future strategy for Kaufhof?

In January, Neuwald launched a program which, in addition to savings, includes investments in brand identity and co-operations and a modernization of branches. But this has not materialized yet. Plans for better integration of online and offline business have been announced for years. All these measures cost money, which does not seem to be flowing at Kaufhof.

(Orig. text: Ralf Arenz, Ulla Thiede / Translation: ck)

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