Going to the Mall

There used to be a well-known commercial jingle in the retail business. "Kaufhof offers everything under one roof a thousand times." Department stores used to be a huge draw for shoppers in the inner cities. But the whole concept in which all shopping needs could be met in one huge store doesn't seem to be working anymore. Customers are abandoning the idea, and big chain department stores find themselves in financial straits these days.

In the 1970s, 12 percent of all retail revenues landed in the coffers of nationwide chains such as Karstadt, Kaufhof, Hertie and Horten and Co. Today department stores account for barely 3.5 percent of sales in the retail industry and market share keeps dipping.

Household names such as Wehmeyer and Hertie are fast disappearing, and Wehmeyer's former rival, the clothing chain Sinn-Leffers, recently declared bankruptcy. Even Germany's traditional chains such as Karstadt and Kaufhof are feeling the winds of change.

German household names disappearing

Already in the 1990s, department stores were experiencing the financial squeeze. Cash and Carry discounters in the suburbs and countryside were cutting into their business. That was when Hertie and Horten & Co. had gone under. The Hertie name made an attempted comeback under different management, but is insolvent again. Only about half of the 72 remaining Hertie stores are expected to survive.

Interestingly, neither the mass discount chains nor the upscale, luxury department stores are hurting; only the ones such as Kaufhof and Karstadt in the moderate price segment of the retail market.

“This loss in the middle segment has been creeping up over the last 15 years or so," said Marco Atzberger of the Retail Research Institute (EHI) in Cologne, who explained that too little has been invested name recognition, product lines and giving the stores a facelift.

"And such incremental developments are always the most dangerous, since you don't notice them until it is too late to do something about it,” he said.

Competition squeezes out traditional department store

What's missing in such middle range department stores is an ambiance that seduces shoppers. Otherwise they need to develop new retail concepts, he added.

Another problem is competition from the Internet and the downward pressure on prices from online shopping. The discerning German consumer, according to Atzberger is very price conscious and department stores with their much high overhead costs would have a harder time offering bargains than a company selling goods online.

At the high-end of the retail spectrum, luxury department stores in the best neighborhoods of big German cities such as KaDeWe in Berlin or Alsterhaus in Hamburg offer a unique ambiance and are able to entice shoppers by appealing to their emotions rather than their pocketbook, he said.

US style shopping mall comes to Germany

“We are seeing more and more of the ‘Shop in shop' concept, which means that a department store chain sublets space to a specialty stores such as WMF, which sells household goods and cookery or a clothing brand," Atzberger said. "This concept is better known abroad than in Germany. And it works abroad."

The decline of the department store has also been accelerated by the introduction of American style suburban shopping malls with numerous specialty shops all under one roof. Roughly 400 of such shopping centers now exist in all of Germany and 15 more are expected to be opening their doors next year, according to Atzberger's retail institute.

Even the ownership structure of such retail space is different from the traditional department store. Financial groups invest in the real estate and hire a management team to rent out space to individual retailers.

“The management takes care of everything," Atzberger said. "The opening hours are all coordinated with all the different stores, free parking space is provided for customers. They take care of the retail mix to ensure that there is a wide range of stores that complement each other in terms of price range and variety. That is one thing you don't find in the inner cities, and a drawback for the city department store."