February 17, 2012

Schlecker's foreign drugstore empire

Lars Schlecker, son of Schlecker founder (photo: Thomas Fedra)
Lars Schlecker: "No foreign subsidiary will be made to file for insolvency" (photo: Thomas Fedra)
CEO Lars Schlecker made some bullish statements last week on the financial health of the foreign operations at Schlecker, the insolvent German drugstore group. "No foreign subsidiary will be made to file for insolvency," said the son of the founder.

Schlecker Austria, whose results also include Poland, Belgium, Luxembourg and Italy, received his particular praise. "Austria is our best country, which without question will not be sold."

Lars Schlecker also claimed that the Austrian division posted a "seven-digit" operating profit last year and that all its national subsidiaries are in the black. Really?

We doubting Thomases have had a hard time trying to check the accuracy of these statements. Group structures are opaque, and the main operating arm was run by founder Anton Schlecker as a "sole trader".
Labyrinthine structures

An organigram of the Schlecker organisation, seen by our newspaper, shows eight country operations belonging to Schlecker International GmbH, a limited company which has not filed for insolvency to date.

Within Schlecker International, the results for operations in Belgium, Italy, Luxembourg and Poland are routed through Austrian holding company Anton Schlecker Gesellschaft m.b.H., while those for the Czech Republic, Italy, the Netherlands and Portugal run via Spanish holding company Schlecker S.A.

French operations are not included in Schlecker's international division. Instead, Schlecker SNC is a 100 per cent subsidiary of insolvent German parent company Anton Schlecker e.K. To date, Schlecker SNC has not filed for insolvency and French management continues to talk expansion.

Based on company figures, Schlecker's foreign empire now counts around 2,900 stores. Retail research company PlanetRetail estimates that they achieved annual revenues of just under €1.3bn ($1.7bn) in 2010.

It is however extraordinarily difficult to estimate the profitability of the foreign stores. A financial report filed by Bürgel Wirtschaftsinformationen gives net profit at Schlecker's Austrian division in 2010 as €99m (€129m). Also, net assets of €168m (€220m) would clearly seem to cover liabilities of €70m ($91m).

Declining revenues

However, annual revenues are clearly in decline. If Bürgel's estimate of €420m ($549m) for annual revenues in 2011 is correct, these have fallen by around 9 per cent since 2008 – the third year in a row.

Schlecker's foreign imperium has contracted by a net sum of 370 outlets over the past two years. All nine foreign operations have reduced their store count since the beginning of 2010 with the exception of Poland (+33).

Meanwhile, international competitors dm and A.S. Watson/Rossmann as well as numerous local operators are clearly growing faster than Schlecker. Food retailers also continue to professionalise their health & beauty offers.

It is, of course, not the absolute total, but the quality of the stores which counts with customers. Here, Schlecker likes to point to the ongoing modernisation of the branch network. Ominously, similar attempts to develop the larger "Schlecker XL" format in Germany ended in a flop.

Scrappy store base
In fact, PlanetRetail analyst Mathias Queck still regards most of Schlecker's foreign outlets as "second- or third-class" in terms of store ambience and site quality.

This is confirmed by reports from a number of countries, including Italy. "Particularly in the last two years, Schlecker Italia has opened too many outlets in weak catchment areas," says retail expert, Luigi Rubinelli, CEO of RetailWatch.it.

Local suppliers believe that Schlecker's annual revenues continued to fall during 2011. There are also rumours that Schlecker Italia is negotiating the sale of individual sites with, among others, local drugstore market leader Acqua & Sapone. A request for confirmation by Lebensmittel Zeitung has not been answered by Schlecker to date.

In addition to the decline in store numbers and annual revenues in Italy and elsewhere, one only needs to recall the recent past in order to remind oneself that Schlecker's foreign operations are anything but a bed of roses.

Former plans to enter Switzerland, Slovakia and Slovenia have long been shelved; Denmark was exited in 2009; and the "Schlecker" banner has not fluttered in Belgium, Hungary or the Netherlands since 2010.

Furthermore, although there are some local buying agreements, for instance with Selex in Italy and Auchan-subsidiary Eurauchan in France, Schlecker's foreign IT, logistics and purchasing structures still depend heavily on German head office in Ehingen.

Thus, one hears Lars Schlecker's message of future salvation for the company's foreign operations, but 'tis hard for the unbelieving to share the faith.

N.B. According to unconfirmed sources, the initial result of a feasibility study conducted by McKinsey at the behest of insolvency administrator Arndt Geiwitz would indicate that between 4,000 and 5,000 Schlecker outlets could still be run profitably in Germany.

Lebensmittel Zeitung with its online sisters (photo: LZ)
Lebensmittel Zeitung with its online sisters
Read in German: 'Titel' by international editor Mike Dawson & retail newsdesk manager Jan Mende on page x of
Lebensmittel Zeitung, no. 7, 17.02.2012

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