Schlecker insolvent after it fails to secure funding

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Schlecker, which as recently as 2009 was by far Germany’s largest drugstore retailer, has filed for insolvency after negotiations for interim financing failed.

Early over-expansion is thought to have contributed to Schlecker’s decline

Schlecker, which as recently as 2009 was by far Germany’s largest drugstore retailer, has filed for insolvency after negotiations for interim financing failed. At its peak, six years ago, Schlecker had about 11,000 stores in the country and a further 3,000 around continental Europe. Since then, however, the retailer’s network has suffered decline and several weeks ago it said it would no longer be able to continue operating in its current form.

In recent years, Schlecker has suffered because of too many stores in its domestic market, many of which are uneconomical. Its recipe for success, albeit a long time ago, was to open new stores in neighbourhoods where there were no competitors. The retailer benefited from low rents and generated high penetration despite low turnover per store. By constantly adding units, the retailer was able to cajole its suppliers into subsidising new locations in advance and granting bonuses and discounts.

However, this strategy made Schlecker weak in the face of increasing competition. As a result, it took to restructuring its business, and store numbers dropped dramatically, down to around 7,000 units. Simultaneously, it has moved away from small, local stores and has been experimenting with larger shops, though without notable success.

Last week it was revealed that its Austrian stores will not be affected by the insolvency as they are still profitable. Its other foreign operations, which are linked to the Austrian business – Luxembourg, Belgium, Poland and Italy – also make a profit.

For the next two to three months, the administrators of the German operation will trade the business as usual, although store closures will continue. In the long term, it will at best become a secondary player in drugstore retailing in the eyes of suppliers, far behind dm and Rossmann.

Schlecker’s fate will very much depend on the future conditions set out by its largest suppliers. Should the administrators fail to save the business, the company’s network will need to be sold. However, competitors are not showing a great deal of interest in the retailer’s stores, primarily due to the unattractive locations of many.

The alternatives for the retailer are minimal, although a lifeline could be its profitable overseas operations, which could be sold to stem losses.