Herbert Hainer, the chief executive of the Adidas Group, has his moments. He gave proof of his visionary approach to sporting goods retailing in a speech before the members of the German Sport 2000 when the buying group celebrated its 25th anniversary in Berlin in 2004. The speech was written as if it were being given by a 75-year-old Hainer for the 50th anniversary of Sport 2000 (which is to be celebrated in 2029). He welcomed the retailers as the members of “Intersport 2000,” anticipating a possible merger of the two buying groups in the future. In his speech, Hainer also named “Kaufstadt,” a combination of Kaufhof and Karstadt, as one of his major accounts.
While the merger of the two buying groups might not be the big bang occurring in the near future, Hainer could not possibly have expected five years ago that a merger between Kaufhof and Karstadt would come so soon. In fact, there was a meeting of top managers of the department store chains’ parent companies, Metro and Arcandor, last week to look at the opportunities of a possible merger.
The situation is quite complicated though, because each partner negotiates on a different level of strength. Karstadt, with its 119 outlets (including 28 sports stores), is stronger in turnover than its rival with its 126 Galeria Kaufhof doors (excluding the 15 stores in Belgium) plus the 13 sports stores called Sportarena. In their last fiscal years, Karstadt had a turnover of €4.1 billion versus Kaufhof’s €3.5 million. In terms of profit before interests and taxes, however, Kaufhof was profitable with €113 million in income while Karstadt had red figures in its books of €272 million.
Metro is definitely in a better position to negotiate because Arcandor is running out of money. In an interview with Bild am Sonntag, the German weekly newspaper, Stefan Herzberg, the boss of Karstadt Warenhaus, appealed to the federal government saying that Arcandor badly needs loans and governmental guarantees in the short run. Arcandor has to pay back loans worth some €650 million by June 12. The retailer is, therefore, asking for guarantees worth some €650 million and a loan of €200 million.
Arcandor’s difficult financial situation brings Metro in the pole position and in a comfortable situation. Metro’s chief, Eckhard Cordes, called for the creation of a Deutsche Warenhaus AG (German Department Store Inc.), the would-be merger of the two chains in which it would be clear who the boss will be: Metro. Arcandor managers, however, criticized Metro’s plans, saying that they are based on the expected insolvency of Arcandor, which is trying to avoid receivership through governmental help. In return, a public bail-out of Arcandor is strongly opposed by Metro.
The German government has not commented on the Arcandor case yet. Like many governments in the world, the German one faces the question of which company deserves public support and which does not. As of now, it seems as if Arcandor is not necessarily on the top of the agenda of Chancellor Angela Merkel, who is busy saving Opel, the car manufacturer, in what has become a national mission.
Yesterday, the two companies announced that further talks are “delayed,” because the two “partners” prefer to wait and see what happens with Arcandor, which announced today a delay in the publication of its own half-year results until June 18. Both parties said, however, that they are prepared for further negotiations. A merger would raise the question of how many doors would be closed due to underperformance or overlaps in some locations. Karl-Gerhard Eick, Arcandor’s chief executive, told a newspaper that 40 or 50 stores might be closed in the case of a merger. While some observers guess that this number is a clear understatement, it is possible that Media-Markt and Saturn, Metro’s successful chains for electronic goods, might be interested in many of those locations.
A possible merger of the two department store chains would be, of course, subject to a final decision by the national anti-trust authorities. Observers say, however, that the German Cartel Office is being soft in these troubled times and prefers to allow big new companies that are fit to keep the employees, rather than to be strict on mergers that might lead to a dominant position in the market. Currently, the two chains together employ some 55,000 people.
