Berlin, Dusseldorf The department store group Galeria receives state aid again. The federal corona rescue fund (WSF) approved a rescue package on Tuesday, the Handelsblatt learned from government circles. Galeria will therefore receive 220 million euros net.
The state is providing the company with a silent participation of 250 million euros. In return, a subordinated loan will be reduced from 460 to 430 million euros. Galeria owner René Benko makes a contribution of 15 percent
The background to the aid is losses due to the worsening of the pandemic since autumn, but also the importance of Galeria for suppliers and as a magnet for stationary retail in the city centers overall, it said.
During the pandemic and as part of the protective shield procedure in 2020, the owner Benko had repeatedly injected capital into the company, but some of it as a loan.
This is the second time that Galeria, which was created through the merger of Kaufhof and Karstadt, has received a government loan. At the beginning of 2021, the WSF had already helped the department store group with a loan of 460 million euros, for which the company had to pay 6.5 percent interest. This should protect the company from another bankruptcy during the pandemic. The agreement at that time had already provided for the possibility of a further loan.
Experts see no future for the department store
This is met with harsh criticism from experts. “In my view, the state loan is a scandal,” says Martin Fassnacht, a trade expert from the WHU Otto Beisheim School of Management in Düsseldorf. The taxpayer will most likely not get the money back, he warns. “In the economic state of the company, I don’t see how they can ever pay this money back,” explains Fassnacht.
“Even the second state loan will not end the ailment, but only prolong it a little,” emphasizes Gerrit Heinemann, trade expert at the Niederrhein University of Applied Sciences in Mönchengladbach. The situation is aggravated by this, the company’s own funds are already scarce and the state loan is very expensive.
There’s a reason many other struggling retailers haven’t applied for government loans. Debt service is exacerbating their already precarious situation. “That shows how great the need at Galeria must be,” says Heinemann.
In addition, in order to receive loans from the WSF, there must be a “positive continuation prognosis” for the company seeking help, i.e. there must be good prospects for the future even after the pandemic. But that’s exactly what the experts doubt.
“I don’t see any positive continuation prognosis for the company,” says Fassnacht. Galeria has too much competition in all categories, both stationary and online. “Competitors like Zalando, Zara or Douglas simply come across as cooler in their respective target groups,” he observes.
“In five to ten years there will no longer be Galeria of this size,” says the retail expert. The format of the department store has survived. “There are basically no longer any arguments for customers to shop there.” Professor Heinemann also finds it “completely inexplicable” how Galeria can be given a positive continuation prognosis. “The pit the company is in is getting deeper and deeper, I can’t imagine how they’re ever going to get out of it,” he says.
The Galeria owner contributes 15 percent to the rescue package.
(Photo: Signa Holding)
As early as last July, Galeria boss Miguel Müllenbach had not ruled out applying for a second government loan. “We overcame the pure shutdown with the first loan,” he emphasized in an interview with the Handelsblatt, but at the same time qualified: “The question is how quickly sales in retail will come back. Nobody can predict that with certainty.”
>> Read here: The complete interview with Galeria boss Miguel Müllenbach about the retailer’s strategic restart.
CFO Guido Mager then made it public in December that the company had again asked the state for support. This was due to the decline in customers as a result of the 2G rule in retail. After that, only those who had been vaccinated and those who had recovered were allowed to shop in most stores. Galeria speaks of a 40 percent loss in sales in the important Christmas business.
The dilemma: Despite the loss of sales, the company has to make massive investments. A total of 600 million euros are to be spent on this in the coming years. 400 million euros of this is to be used to modernize the houses. In the current situation, this can hardly be done without outside help. Galeria has 131 branches, 50 to 60 of which are to be completely renovated, the rest at least adapted.
Competitors are bothered by Benko’s praise from politics
Months of tough negotiations preceded the decision to grant Galeria another government loan. The Federal Ministry of Economics and the WSF had always demanded that real estate billionaire René Benko make a personal contribution.
His contribution is now lower than originally requested, “but unlike others, Benko is helping to save his own company with his own money,” it said in Berlin. The Malaysian owner, for example, refused to pay his own sum in the attempted rescue of MV Werften, which is why the company had to file for bankruptcy two weeks ago.
Competitors, however, are annoyed by this praise from politicians. “The political decisions on the corona measures in retail ensure that companies lose massive amounts of equity,” said Patrick Zahn, head of the textile retailer Kik, the Handelsblatt. Many owners would therefore naturally have injected additional capital. “And now Mr. Benko is being celebrated for bringing in some equity. I don’t understand that,” he said.
More: Retailers are allowed to cut rents during lockdown – but not by half across the board