Kaufhof Adapts to Survive as Germans Lose Retail Tradition

Updated on

At Frankfurt’s Galeria Kaufhof, the department store’s trademark green banners and bags point to 135 years of tradition. To preserve its place on the German retail landscape, the chain is seeking to put history behind it.

“Traditional retail, that’s the truth, is dead,” Olaf Koch, chief executive officer of Kaufhof-owner Metro AG, said at the company’s Dusseldorf headquarters. “Those that protect traditional retail will lose.”

Kaufhof and competitor Karstadt, which have dominated German department-store retailing for more than a century, are having to adapt to survive. Amid competition from Amazon.com Inc. at one end of the scale and ritzy shopping streets such as Dusseldorf’s Koenigsallee at the other, the outlets need to stock more international brands and make greater creative use of their floor space to give customers a reason to linger.

“They don’t have anything unique to offer the customer, and customers around the world are looking for unique products,” said Chris Chaviaras, an analyst at Barclays Capital.

A potential consequence may be consolidation, Chaviaras predicts. Metro’s biggest shareholder, investment company Franz Haniel & Cie GmbH, favors having just one main chain in the country, with one flagship store in each city, according to a person with direct knowledge of the investor’s thinking.

Executives from Metro and Karstadt’s owner, the Austrian property developer Rene Benko, discussed Benko buying Kaufhof earlier this year, according to two people familiar with the matter, who asked not to be identified as talks were private. A spokesman for Benko’s Signa Retail GmbH declined to comment.

Benko, who acquired Karstadt in August for a single euro, plans to close six of its 83 stores next year.

Restructuring Needed

Kaufhof has undergone “a radical shift” in the last four to five years, according to Koch, as the chain seeks to stand out in an increasingly crowded market.

As recently as 2011, Metro had limited knowledge of who Kaufhof’s customers were and relied on “gut feel,” Koch said. After analyzing loyalty card data and realizing its clientele is 70 percent women, mostly aged over 50, the chain cleared out computers and electronics to make way for shoes and handbags.

“We had almost a religious fight back in 2011,” Koch said. “The lady is the queen and she will get more and more.”

Targeting Travelers

The outlets could take a cue from those elsewhere in Europe. London’s Selfridges this year opened a cinema on site. Dutch chain De Bijenkorf held nighttime “Turn on the Lights” festivals with actors and fireworks in four cities last month. France’s Printemps and Galeries Lafayette stock luxury brands the likes of which German department store shoppers can’t find.

Department-store sales in Germany are forecast to grow 1.5 percent this year to 8.33 billion euros ($10.4 billion), compared with worldwide growth of 4.1 percent, according to researcher Euromonitor. Sales have declined in three of the past five years after plummeting more than 23 percent in 2009.

Among Kaufhof’s plans is to target more customers from China, the Middle East and Russia. The company posted an informational Website for Chinese customers in August, many of whom transit through Frankfurt’s busy airport during their travels and stay for a day or two to shop.

Precarious Positioning

Given the stores’ precarious positioning, the outlook for Christmas sales doesn’t look too bad. On Nov. 11, the German Trade Association said it expects Christmas sales this year to rise 1.2 percent to about 85 billion euros.

Metro’s Christmas business “began to pick up” this month after a slow start in November due to warm weather in Germany that deterred winter clothing sales, the company said Dec. 16. The shares have gained nearly 4 percent since the report and were up 2.1 percent at 24.04 euros at 11:17 a.m. in Frankfurt.

Wintry displays such as the cornucopia of golden glass balls, copper snowflakes and ceramic candle jars at Karstadt’s upmarket KaDeWe in Berlin are still bringing in tourists and locals. Yet department stores’ future success may depend on keeping up with the rapidly evolving retail landscape.

“They need to adapt and become a little like a mall and give customers other reasons to visit them than just buying clothes,” Barclays’ Chaviaras said.