Berggruen turns Karstadt terminator
At the first possible moment – management hands were tied till now by insolvency agreements where staff renounced tariff wages for three years – two thousand full-time employees are to go at German department store group Karstadt.
They are to leave by 2014 under the all-purpose banners of simplifying structures and greater competitiveness.
Staff numbers were already decimated by about a third from 2006 to 2011. Around 2,000 full-time jobs fell to natural wastage during insolvency year 2009/10 alone.
It seems to be the stock reaction of Karstadt management, whoever is at the helm: when revenues and earnings fall, staff are cut.
Karstadt 2015 in jeopardy
Despite many a vague, but promising-sounding word from Andrew Jennings, Berggruen's UK-born satrap in Germany since the beginning of 2011, operations at Karstadt clearly aren't able to meet costs.
At all events, we are very far away from the €3.5bn in annual revenues and the pre-tax margin of 7 per cent which Jennings hoped to achieve with the "Karstadt 2015" strategy he formulated only a year ago.
Instead, the company's business year to the end of September 2012 is likely to show declines in revenues & earnings, while German retailing in general has been more than holding its own.
Trade sources estimate that Karstadt aimed to reach €3.3bn in revenues and ebitda of €130m, but will probably scrape €3.2bn viz. €90-€100m.
Insiders claim that part of the problem is Jennings's buying network in the UK. Like Marks & Spencer before it, Karstadt is learning the hard way that British mainstream fashion is about as sexy to the Germans as smoked haddock.
Damp squib of a revamp
Meanwhile, as investment to revamp the 83-outlet store base is believed to have fallen, even the money put into key sites in Dusseldorf, Frankfort and Nuremberg does not seem to have pushed sales in line with expectations.
All this is bad news for a company whose personnel costs are set to increase by €50m p.a. when the insolvency wage tariff contract expires in September.
Also, it is unlikely that the €65m+ in annual savings which will be reaped from the new staff cuts as from 2015 will rescue Karstadt from its present dilemma. After all, past waves of redundancies have frequently led to declining sales. However, it is most likely that the latest announcement will further undermine morale among the remaining 24,000 staff.
Relatively high recent management fluctuation would also indicate an unhappy ship as 64-year-old Jennings allegedly plays an "aloof"-style CEO in the company of a German interpreter.
Lebensmittel Zeitung believes that Nicolas Berggruen has quickly lost interest in a high-profile German investment that has probably only cost him €5m net to date and for which he has received gushing praise from government, unions, staff and media.
We also speculate that Berggruen and his confidant Jared Bluestein are flirting with the idea of removing some of the estimated €200m+ liquidity from Karstadt next year. This was "most emphatically" denied by a spokesperson at Berggruen Holding.
However, if only remotely true, Andrew Jennings will soon have even fewer toys to play with.
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