KarstadtQuelle Sales a "Major Milestone"

KarstadtQuelle announced Wednesday that it agreed to sell 75 smaller department stores to London-based investment company Dawnay Day Group, and Hilco UK Ltd for about 500 million euros ($616 million). The sale represents a big step forward for the troubled retail giant, which suffered the worst crisis in its history in 2004.

Chief executive officer Thomas Middelhoff said the deal almost completes KarstadtQuelle's goal of securing its finances.

"This is a major milestone in the turnaround of our company and we are glad that it could be achieved in such a short time," Middelhoff said.

The company also announced the sale of its 51-outlet SinnLeffers chain to an international investors group comprised of Deutsche Industrie-Holding (Frankfurt), HMD Partners (US) and British real estate investor Curzon Global Partners. The 124-outlet Runners Point chain was sold to Hannover Finanz Group. KarstadtQuelle did not disclose the sales price of either deal.

Middelhoff said that staff at all 250 outlets involved in the sales would be taken over by the new owners.

"The buyers have stated very clearly that business is to continue in the long run," he said in an effort to allay fears that department store closures could lead to depressed city centers.

Concentrating on core business

The deals leave KarstadtQuelle free to focus on its remaining core 89 department stores. The company plans to remodel the stores and add new high-end fashion, furniture and sporting goods lines to draw customers in future.

The disposals also give the company "more negotiating space" for future divestments, Middelhoff said. According to the divestment plan released in September, a logistics center in Frankfurt is still to be sold.

Another source of concern for the company is its mail-order business, which saw revenues drop by 6.5 percent in the last quarter. Middelhoff promised a management shake-up of the unit last month.

"This business will also be led back into the black," he said.

Long-term strategy

KarstadtQuelle's troubles reached a peak in 2004 due mainly to poor retail sales, and analysts have said the prognosis doesn't look much better for 2005. German retail managers are also worried by the prospect of a possible hike in value-added sales tax.

However, the company is confident that its restructuring plan will be successful in the long run.

"We are glad to report that our margin has improved significantly in the first half of 2005," said Middelhoff, adding that the company had reduced net debt by 800 million euros, not including the new divestments. The company has reduced its number of employees by around 25,000, resulting in a 16 percent decrease in staff costs.

"Overall, we have taken a large step towards ensuring the future of KarstadtQuelle," Middelhoff said.