International analysis: Karstadt sales suffer after spate of bad news

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Recently leaked confidential figures from a presentation at a Karstadt supervisory board meeting show the retailer posted a significant net loss of E249.6m (£214m) in its last full fiscal year to September 30, 2012.

Karstadt’s boss is to exit, and leaked figures revealed its net loss

A further blow to the German department store operator is the recent announcement that chief executive Andrew Jennings is to step down when his contract expires at the end of this year. The revelation places Karstadt in the spotlight once again regarding whether the retailer can survive in an extremely competitive sector.

‘Karstadt 2015’ emerged as the retailer’s plan of action, involving the modernisation of all its department stores, some 2,000 job cuts - most of which have already been made - as well as a move towards online. At the same time, Karstadt has expanded its fashion offer and closed loss-making multimedia departments.

However, revenue has continued to drop while losses have increased. Indeed, for the financial year ending September 30, 2013, the retailer expects a “negative result before taxes in the low three-digit” range while many expect revenue to fall a further 5% on last year’s figures.

While departing chief executive Jennings and company owner Berggruen reiterated the business’ commitment to the Karstadt 2015 programme, Planet Retail is sceptical as to how the retailer will manage to afford to continue to keep afloat given repeated losses. Its fashion offer - though improved by private-label and exclusive branded stock - has failed to deliver because of strong competition from H&M and Zara.

That said, Karstadt recently renovated its Düsseldorf store with a much more modern appearance and a more premium fashion offer and was rewarded with consumer approval. But a roll-out of youth-orientated brands is likely
to alienate the retailer’s loyal customer base in less affluent and multicultural German towns.

Berggruen has stated that Karstadt has only completed half of its restructuring process - but the first half has been costly and has not led to any progression.

It seems unlikely all of the answers to Karstadt’s problems will be unlocked in the second half of the process.

Its vision lacks a much needed shift in strategic direction and any improvements are likely to be hindered by low cash flows.

With uncertainty over the retailer’s strategic direction, the loss of its chief executive and poor financial results, discussions about a potential break-up of the retailer are beginning to resurface.