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German Department Stores Merge As Competition With Amazon Heats Up

German Department Stores Merge As Competition With Amazon Heats Up

Hudson’s Bay Company (HBC) and Signa Retail Holdings, a European retail and real estate operator, have agreed to merge two of Germany’s largest department stores.

Under the agreement, HBC’s Galeria Kaufhof and Signa’s Karstadt will merge to form Europe’s third-largest department store chain by revenue, after Spain’s El Corte Ingles and UK’s Marks & Spencer (M&S). The combined department store group will generate annual sales of approximately 5.4 billion euros ($6.3 billion USD).

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The merger comes at a time when European department stores are experiencing similar issues to those in the U.S., related to falling profits, an overreliance on markdowns and younger audiences shopping elsewhere. UK-based Debenhams recently brought in advisors to explore restructuring options, while rival House of Fraser has an uncertain future after being acquired by Sports Direct last month. In the case of House of Fraser, the retailer went into administration — the UK’s version of bankruptcy court — after it failed to reach an agreement with creditors on a restructuring plan.

Kaufhof and Karstadt are on better footing than their UK counterparts, but they have to contend more with Amazon — Germany is the second-largest market for Amazon after the U.S. With major e-Commerce players such as Amazon and Germany-based fashion retailer Zalando in the mix, both department stores felt the pressure to build a stronger foundation via a merger.

Dr. Stephan Fanderl, CEO of Karstadt, will lead the new retail company after the merger. HBC and Signa will share six board seats and have joint oversight of all major decisions.

The combined group will be 49.99% owned by Canada-based HBC, while Austria-based Signa will hold the remainder. The group will have 243 stores in Germany, Belgium and the Netherlands and employ nearly 32,000 people, the two companies said in a joint statement.

HBC said the merger valued the German real estate assets at 3.25 billion euros ($2.9 billion USD), compared to the 2.51 billion euros it paid for Kaufhof in 2015. Rene Benko, the founder of Signa Retail, had sought a Karstadt-Kaufhof merger since late 2017. Benko first offered 3 billion euros for Kaufhof in February 2018, but HBC rejected the offer.

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