Karstadt to Explain Plans to Employees

The Verdi service workers union estimated as many as 10,000 jobs would be lost and between 20,000 and 45,000 more Karstadt employees would be affected if the company's plans to sell 77 of its 181 department stores are carried out.

"We will mobilize the workforce so that these stores stay a part of Karstadt," Franziska Wiethold, a member of Verdi's national executive board, told the Berliner Zeitung. She also said the reorganization would end up putting Karstadt's future in danger rather than stabilizing it.

The sale of small and medium sized stores was one part of the €1.4 billion ($1.72 billion) restructuring plan the German retail giant announced Tuesday. Additionally, the company proposed a €500 million capital increase and cuts in social programs and vacation for employees.

"The core of the program is the refocusing of the group on its strengths and core competencies," the company said in a statement. "The management plans, on the basis of the reorientation, to achieve markedly positive earnings as early as the 2005 fiscal year."

The company will also sell its 82 percent stake in a joint venture with coffeehouse chain Starbucks, in addition to parting with its specialist Runners Point, Golf House, SinnLeffers and Wehmeyer outlets in an effort to concentrate on its core retail activities. The company's core retail business portfolio is worth around €4.5 billion in turnover while those non-core activities set to be abandoned are worth €700 million in turnover.

"These steps are inevitable and also overdue," chief executive Christoph Achenbach told a news conference in the western city of Essen.

Trade unions criticize plans

The company's plan has been criticized by the Verdi service workers union, who called the closing of department stores avoidable.

The restructuring "endangers the jobs of thousands of people, and above all does not point to a solid future in the department store area," a union statement said.

KarstadtQuelle has been hemorrhaging money as German consumers continue to show reluctance in spending during the country's gradual emergence from three years of economic stagnation. While exports within a stronger world economy have begun to drive an upturn in fortunes of late, Germany's domestic demand and the consumer environment have remained stagnant, with unemployment above 10 percent and the government moving to trim social programs.

In addition to slow retail sales, Essen-based KarstadtQuelle's performance has been hit recently by losses at the Thomas Cook tourism company, which it co-owns with German airline Lufthansa.

Retail sales expected to drop

The company also released figures that showed the state of the concern. KarstadtQuelle is expected to post a pre-tax loss of €1.3 billion this year and forecasts a drop in retail sales of between 4.5 and 5 percent. The company also revealed that it would not be paying a dividend this year or the next.

In August, the company reported a second quarter net loss of €188 million ($231 million) on slumping retail sales.

Tuesday's statement did not mention any imminent job cuts related to the restructuring, but KarstadtQuelle said in July that it planned to cut about 4,000 jobs from its work force of 47,000 full- and part-time employees by the end of 2006

KarstadtQuelle shares, which dropped by more than 6 percent Monday at €13.38 a share, were up 5.7 percent at €14.14 by noon on the Frankfurt Stock Exchange.