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Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.Long-struggling German retail and tourism group Arcandor AG filed for insolvency Tuesday, paving the way for a possible linkup with rival Metro AG and a consolidation of the German department-store sector.
Arcandor is the third German department-store company to collapse this year, as the plunge in consumer spending and scant credit accelerate a reshaping of the retail sector in Europe's largest economy. Arcandor's insolvency filing came after an unsuccessful plea for state aid from the German government.
Arcandor said the court filing covered its Karstadt stores and the Quelle mail-order business, but not its majority stake in Thomas Cook PLC, Europe's second-biggest travel company.
Metro, Germany's remaining healthy department-store operator, moved quickly to repeat an earlier offer to take over about 60 of Arcandor's 91 Karstadt stores, combining them with its own Kaufhof chain.
The move could save many of the retail jobs at Karstadt. Arcandor said 43,000 jobs will be affected by the insolvency.
Under the plan proposed by Metro last month, it wouldn't take on Arcandor's headquarters, debt, administrative costs or employee obligations.
Metro has said that a deal would also require renegotiations of Karstadt's rent payments. Arcandor had sold its real-estate assets in 2006, and has been renting back its stores for payments that have contributed to its current problems.
An insolvency administrator will now look at Arcandor's balance sheet and businesses to determine which parts of the company are viable. The administrator will then look for investors for those parts and determine which creditors and shareholders get their money back first.
Thomas Cook is unaffected by Arcandor's insolvency because its finances are largely independent from those of its parent company. But it is unclear what will happen to Arcandor's majority stake in the tour operator because it was given to banks as a security for loans.
On Monday Germany rejected Arcandor's bid for 650 million euros ($904 million) in guarantees from the government's 115 billion euros fund that was created to help companies hurt by the global credit crisis. The government also rejected a request for a six-month rescue-aid credit of 437 million euros from state-owned bank KfW.
Arcandor has struggled for over a decade and almost went bankrupt once before, in 2004. Founded in the late 19th century, the same time as prominent department stores like Harrods in London, Galeries Lafayette in Paris and Saks Fifth Avenue in New York, Karstadt has long been a fixture on German shopping streets.
But like elsewhere in Europe and the U.S., its concept of selling "Everything Under One Roof," its slogan for decades, has come under pressure from out-of-town shopping malls and specialist retailers.
Left with high downtown rents and without a clear positioning in the market, Karstadt and other department stores have lost customers in recent years.
"Selling everything under one roof means that 400,000 products have to be better than at any other store," said Bernd Hallier, managing director of the EHI Retail Institute in Cologne, Germany.
In Germany earlier this year, both the Hertie chain of small department stores and the German arm of Woolworth collapsed due to the spending slump.
Metro's Kaufhof is faring better than Karstadt because it carefully upgraded its stores and product mix in recent years. Kaufhof's 141 stores now sell premium textiles, jewelry and gift items. The chain turned a profit in 2008.
Credit: By Cecilie Rohwedder
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