ESSEN, Germany (AFP) - KarstadtQuelle, the ailing German department store chain, embarked on a massive restructuring, including the sale of nearly half of its stores, a shake-out of non-core activities, and an injection of fresh capital, to overcome financial crisis.
Hit by chronically weak consumer demand in Germany and its own misfired diversification strategy, KarstadtQuelle is having to take radical measures to avert disaster.
"The economic situation is forcing to make the deepest cuts Karstadt has ever made," chairman Christoph Achenbach told a news conference here Tuesday.
"Our situation is very serious, but it's not hopeless," he added.
The measures constituted "a historical solidarity pact" between management, employees, shareholders and creditors that would secure the group's future, Achenbach said.
The chairman refused to say how many of KarstadtQuelle's 100,000-strong workforce could face the axe as part of the belt-tightening measures.
But unions said that more than 20,000 employees could be affected in some way or the other, either via straightforward job cuts or by the spin-off or sale of activities.
The giant services sector union Ver.di, which holds three seats on KarstadtQuelle's supervisory board and voted against the measures at a meeting late Monday, said the restructuring would more likely jeopardise rather than safeguard the future of the group.
Among the most radical plans was the announcement that KarstadtQuelle would sell 77 of its 181 department stores around the country.
The stores, all with sales floorspace of less than 8,000 square metres (86,000 square feet) in smaller town and cities, would be spun off into a separate unit that would then be sold, preferably to a single investor.
But if a single buyer could not be found, the stores could also be sold off separately or even leased.
Negotiations were already underway with potential investors, the chairman said.
The group would concentrate instead on the 89 remaining larger department stores in towns and cities with a population of 100,000 or more.
In addition, non-core activities would be sold off, Achenbach said.
"We can no longer afford to have our fingers in every pie," he said.
Specialist store chains such as the clothing retailers SinnLeffers and Wehmeyer and the sports clothing retailers RunnersPoint and Golf House would all come under the hammer.
And KarstadtQuelle was also "examining all the options for increasing value" of the real estate activities, including a possible stock-exchange listing.
In its core mail-order business, the group would focus on making its Neckermann and Quelle brands more distinct from each other.
As for its 50-percent stake in the loss-making tourism giant Thomas Cook, a 50-50 joint venture with German airline Lufthansa, KarstadtQuelle had no plans to sell it, Achenbach insisted.
Given the group's current financial difficulties, KarstadtQuelle's shareholders would not receive any dividend for either this year or next year, Achenbach said.
For 2004, KarstadtQuelle was pencilling in an operating loss of up to 1.34 billion euros. But it hoped to return to operating profit of 110 million euros in 2005.
Sales this year were expecting to fall by 4.5-5.0 percent.
Another key part of the extensive restructuring programme -- which would cost KarstadtQuelle an estimated 1.4 billion euros in one-off charges this year -- was a 500-million-euro capital increase that would help the company strengthen its capital base and further cut its net financial debt.
German insurance giant Allianz, which holds a 10.5-percent stake in KarstadtQuelle, said pledged to participate in the capital increase.
Finally, KarstadtQuelle appointed a new finance director to oversee the measures.
Harald Pinger, 44, formerly chief financial officer at the industrial gases group Messer Griesheim, would take the financial reins at KarstadtQuelle from October 1.
The post has been vacant since former CFO Norbert Nelles quit a year ago.
Investors appeared cheered by the restructuring plans. In mid-afternoon trading on the Frankfurt stock exchange, KarstadtQuelle shares were showing a gain of 0.48 euros or 3.59 percent at 13.86 euros after earlier topping an intraday high of 14.45 euros.