German retail giant launches battle for survival

28th September 2004, Comments 0 comments

28 September 2004 , ESSEN - Europe's biggest retailer, struggling Germany-based KarstadtQuelle, launched Tuesday a EUR 1.4 billion drive, including big job cuts and store closures, to overhaul its business.

28 September 2004

ESSEN - Europe's biggest retailer, struggling Germany-based KarstadtQuelle, launched Tuesday a EUR 1.4 billion drive, including big job cuts and store closures, to overhaul its business.

Outling in the revampat a press conference, company chief executive Christoph Achenbach did not specify how many jobs were at stake as a result of the planned cuts, but said job reductions would be kept to the lowest possible level.

However, the services sector union ver.di said that upwards of 30,000 jobs in the current 100,000-strong payroll would be hit by the overhaul.

Facing sagging German consumer demand in a sluggish economy burdened by stubbornly high unemployment, Karstadt warned in August that it may post full-year losses of some 200 million euros in absorbing the costs of its overhaul.

Folkert Kuepers, a spokesman for ver.di, said that beside the some 10,000 jobs which would be directly threatened by the store closures, another 20,000 jobs stood to be affected by the sale of the stores and other restructuring steps.

Officials at ver.di and the company works council also contradicted Achenbach's claim that the workforce was backing the overhaul plans in what he called an "historic solidarity pact" between management, employees, shareholders and banks.

In a joint statement, ver.di and the works council blasted the revamping plans as being a "clear-cutting policy dictated by the banks". The plans were approved by the supervisory board over the objections of worker representatives on the board.

Under the plans, KarstadtQuelle is to cut its number of department stores, now at 181, by more than one-half, to just 89 stores. Five stores will be closed altogether, while 77 are to be sold or rented. Ten other stores will either be sold or closed.

The 89 remaining stores now combine for turnover of some EUR 4.5 billion or 80 percent of KarstadtQuelle's department store revenues.

In addition, the concern will be selling its specialty retail stores Sinn-Leffers, Wehmeyer, Runners Point and Golf House, totalling more than 300 around the country.

"The business situation is forcing us to make the deepest cuts that Karstadt has ever had to make," Achenbach said.

"We can no longer dance at so many weddings," he added, using a German idiom to explain why KarstadtQuelle aimed to divest itself of its specialty outlets and concentrate on its core business.

Achenbach, who was brought in to revamp the ailing retail giant four months ago, said the cuts "may be painful for the short-term, but they will open up good future prospects for the company over the medium- and long-term".

The chief executive said there would be layoffs, but did not specify a number.

"We will try to keep them minimal, but we believe we cannot avoid them," Achenbach said about the job reductions ahead.

He said reductions in vacation time and other benefits cuts would be carried ouit, whereby the sacrifices would also be shared at the management and executive ranks.

"We are assuming that the workforce is prepared to contribute to the restructuring," Achenbach said.

Besides the department store consolidation, KarstadtQuelle also is revamping its mail-order subsidiaries Neckermann and Quelle. Achenbach said foreign business now had "absolute priority" for these units, which were to expand into 14 countries, particularly in Central and Eastern Europe. Online business is also to be expanded.

Earlier, the company named a new chief financial officer, Harald Pinger, previously head of finances at the gas manufacturer Messer Griesheim. He takes over his duties on 1 October in filling a post which had been vacant for the past year.

KarstadtQuelle posted adjusted pre-interest plosses of EUR 388.5 million in the first half of 2004, some 34 percent above the EUR 289.3 million red ink in the same period last year.

The company is bracing for further red ink this year of EUR 160 to EUR 200 million, while also telling shareholders there will be no dividends for either 2004 or 2005. In 2006, the company aims to be back in the black with operating profits of EUR 355 million.

[Copyright DPA with Expatica]

Subject: German news

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