Berlin, Dusseldorf The department store group Galeria receives another multi-million government loan. The federal government will announce the decision for further financial support on Tuesday. The Handelsblatt learned this from three people familiar with the matter. The interministerial committee of the Federal Economic Stabilization Fund (WSF) is to approve the corresponding aid this Tuesday.
Accordingly, Galeria will receive a silent participation subject to conditions. Aid of 240 million euros was recently under discussion. Galeria owner René Benko therefore makes a contribution of 15 percent. There had been tough negotiations until the very end about the amount of the owner’s stake.
In addition to the shareholder contribution, a conversion of 60 million euros in shareholder loans into equity is also planned. During the pandemic and as part of the 2020 protective shield procedure, owner Benko had already injected capital into the department store company several times, but some of it as a loan.
This is the second time that Galeria, which was created through the merger of the department store chains 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.
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With the help of the state, the company should be protected from another bankruptcy during the pandemic. The agreement at that time had already provided for the possibility of a further loan.
2G rule in retail causes sales to collapse
As early as July last year, Galeria boss Miguel Müllenbach had not ruled out applying for a second government loan. “We overcame the pure shutdown with the first loan, and we now have a mid three-digit million amount in the account,” 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.
Galeria CFO Guido Mager then made it public in December that the trading company had again asked the state for support. This was due to the massive drop in customers as a result of the so-called 2G rule in retail. After that, only those who had been vaccinated and those who had recovered were allowed to shop in most stores.
The German Retail Association (HDE) had estimated that pedestrian frequencies in the inner cities had fallen by 40 to 60 percent due to the state-imposed restrictions during this period. Galeria was hit correspondingly hard. The company speaks of a loss of sales in the important Christmas business of 40 percent. The online business did not come close to compensating for this.
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. Of this, 400 million euros are to flow into the modernization of the stores, 100 million euros each into logistics and the expansion of e-commerce. In the current situation, this can hardly be done without outside help.
René Benko’s own contribution is lower than required
When the first pilot branch opened in Frankfurt in October, Jörg Funder, a trade expert from Worms University, had already raised concerns: “The concept is fundamentally interesting, but implementing it is a Herculean task.” He had already predicted back then that the money for a really noticeable revival will probably not be enough.
The Frankfurt branch already showed how tight the budget was. According to Galeria boss Müllenbach, 800 euros per square meter were invested there. With an area of 30,000 square meters, the investments added up to 24 million euros – albeit including contributions from partners.
Müllenbach puts the funds invested by Galeria itself at 30 million euros for the first two converted stores in Frankfurt and Kassel. Galeria has 131 branches, 50 to 60 of which are to be completely renovated, the rest at least adapted.
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 Benko make a personal contribution.
His contribution is now lower than originally demanded by the federal government, “but unlike others, Benko is helping to save his own company with his own money,” it said in Berlin. An Asian owner, for example, refused to pay an amount of his own when trying to rescue MV Werften, which is why the company had to file for bankruptcy two weeks ago.
In order to receive loans from the WSF, there must be a so-called “positive continuation prognosis” for the company seeking help, i.e. there must be good prospects for the future even after the pandemic. With the first loan, the federal government justified the aid by saying that Galerias department stores are crowd pullers in many pedestrian zones and the loan thus makes an important contribution to securing jobs.
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