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Enough Is Enough as Nicolas Berggruen Again Fails to Sell German Retailer Karstadt

Nicolas Berggruen / Getty
Buying Karstadt was an improbable dream for Berggruen, a nostalgic rescue mission for a Germany that no longer exists.

The German magazine Focus yesterday claimed that Austrian property investor René Benko is not interested in taking control of the German department store chain Karstadt, deflating once again what has in recent months been something of a perennial trial balloon for dealing with problems at the chain.

Two days earlier, German daily Bild reported that current controlling shareholder, the reclusive globetrotting billionaire Nicolas Berggruen, might indeed sell out for just 1 Euro to Benko and to Israeli businessman Beny Steinmetz, whose name has previously also come up in the same context.

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It was a mere ten months ago, in September 2013, that Berggruen tried, again, to stabilize Karstadt, the once storied, but in recent years sadly ailing, German retailing group, by selling portions of its best properties, and by trading divisions to the Austrian property group Signa, which is controlled by René Benko.

At the time, Benko acquired from Berggruen a 75.1% interest in Karstadt’s luxury goods division, which is comprised of a number of flagship Karstadt stores, including the famous KaDeWe in Berlin. Hamburg, Dresden and Frankfurt are also within this grouping. Benko then agreed that Signa would purchase the 28 stores that comprise Karstadt’s sporting goods division as well.

That left Berggruen with 100% ownership of the remaining 83 Karstadt regular department stores and just 24.9% of the luxury division and, in exchange, about $400 million of fresh money would be injected into the retailing group to provide much needed liquidity. Bergen had already rescued the chain from insolvency in 2010, putting in new money and persuading creditors to take a huge, $2.7 billion writedown of their debts.

But, one week ago, Karstadt’s brand new CEO Eva-Lotta Sjöstedt, parachuted in from IKEA seven months earlier, quit, claiming she was not getting enough support from Berggruen for the strategy she wanted to implement for rescuing the business.

Clearly, Sjöstedt’s plan would have cost a lot more money for store refurbishment and for filling the stores again with desirable merchandise. Just as clearly, Berggruen had had enough of writing blank checks, particularly where, within the European Union, legal impediments and union resistance can also make it extremely difficult for any company to reduce its cost structures to manageable levels in the face of adversely changing fundamental economics of running its operations.

Buying Karstadt was, in any case, an improbable dream for Berggruen, a nostalgic rescue mission for a Germany that no longer exists. High street retailing is now under threat there, too, as never before, same as in other countries. German posh vendors are squeezed by big box retailing on the periphery on the one hand, and by the creeping, inexorable growth of online retailing on the other.

Initially, Sjöstedt said she had enjoyed the backing of Berggruen for her strategy, including her investment plan for the ailing retailer. but after her resignation she admitted, “After the experiences of the last few months and a thorough assessment of financial data, I’ve come to realize […] that basic conditions for my strategy no longer exist.”

Translation: Karstadt is a lost cause at this point. Berggruen must have hoped at some point that the premium businesses and massive property holdings of the group would be enough to underwrite its return to economic health, with intelligent and determined management. That hope appears, at least for now, to have been dashed.



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