Page last updated at 15:11 GMT, Tuesday, 1 September 2009 16:11 UK

The unravelling of Germany's Arcandor

By Tristana Moore
BBC News, Berlin

Arcandor sign
Arcandor's demise has shocked Germany

Thousands of workers at the insolvent German retail group Arcandor face an uncertain future amid growing signs that the company will be broken up.

The company's collapse has also all but wiped out the $5.5bn (£3.4bn) fortune of its reclusive shareholder Madeleine Schickedanz, introducing her to a life of cheap pizzas, discount supermarkets and home-grown vegetables.

All eyes are now on Klaus Hubert Goerg, the court-appointed administrator who has the unenviable task of restructuring Arcandor.

On Tuesday, the insolvency proceedings were officially opened and Mr Goerg presented the bankruptcy court in the German city of Essen with a plan mapping out the road ahead.

The plan coincided with news that there are 18 potential investors for Arcandor's mail-order unit Quelle, with eight or nine of them interested in Arcandor's entire mail order operation.

Yet many unresolved questions remain, not least with regards to how many jobs will be cut.

Corporate nightmare

The saga surrounding the collapse of Arcandor has gripped Germany throughout this summer, ever since the retail giant filed for insolvency on 9 June.

Angela Merkel
Chancellor Merkel refused to help Arcandor.

With 40,000 jobs in Germany under threat, it was one of the biggest insolvencies Europe had seen since the financial crisis started last year.

German newspaper commentators referred to the "nightmare at Arcandor" and the company's share price continued its downward slide.

Even its main investors, the Schickedanz family and the private bank Sal. Oppenheim, said they could not stump up any more cash.

No state support

Despite a heated public debate, Chancellor Angela Merkel's government refused to help Arcandor, claiming the group ran into trouble before the current downturn.

It was a controversial decision. At the time, there was much focus on how ministers had given the green light for a bail-out of the troubled carmaker Opel, whilst at the same time ruling out state aid for Arcandor.

The company's Karstadt chain of department stores, the German mail-order unit, Quelle, and the Primondo service group were all affected by the insolvency, among other entities.

"Chancellor Merkel's government was right not to bail out Arcandor because it's better to let the market decide whether a company has a viable business model," says Stefan Kooths, an economist at the German Institute for Economic Research in Berlin.

"But the government sent a contradictory message when it [vowed to] bail out Opel.

"That was clearly a protectionist measure designed to help the German car industry."

Buyers sought

Back in June, Arcandor hoped a single investor could be found, but the company's optimism proved to be ill-founded and separate investors are now being sought.

Arcandor's former chief Karl-Gerhard Eick
Arcandor's former chief Eick believes Karstadt could be run profitably.

Arcandor is searching for buyers for its different divisions and the group's creditor banks are looking to sell most of its 53% stake in Thomas Cook, the UK tour operator.

"Our priority is to save as many jobs as possible," says Gerd Koslowski, a spokesman for Arcandor.

"We tried to find an investor for the whole Arcandor group, but that wasn't possible in these difficult market conditions.

"We're still looking for two investors for the Primondo mail order unit and the Karstadt stores and we're hopeful."

Predictable demise

Arcandor's decision to file for insolvency was seen by many as inevitable, given the group's long-standing difficulties.

Once called KarstadtQuelle, Arcandor almost went bankrupt in 2004 and the company later struggled to stay afloat.

Karstadt's department stores, which employ 30,000 people in Germany, were regarded by analysts as retail sector dinosaurs.

In recent years, large shopping malls were built outside city centres and the catalogue business of Quelle faced a massive threat from internet companies.

After the German Woolworth chain filed for insolvency in April, Karstadt's days were numbered.

"We've seen a gradual demise of traditional department stores in Germany over the past couple of decades," says Professor Thomas Roeb from the Bonn-Rhein-Sieg University of Applied Sciences.

"Karstadt wasn't able to adapt fast enough to a deteriorating economic environment, it didn't cut costs and it didn't invest enough. So Karstadt failed to keep up with its rivals."

Sinking ship

As Karstadt crumbled, its rivals were gleeful.

Dusseldorf shopping street
German shoppers are increasingly going elsewhere.

The retail giant Metro emerged as the market leader after upgrading its stores and modernising its products.

Metro still has its eye on Karstadt, keen to merge the chain with its Kaufhof department stores - though outgoing Arcandor chief Karl-Gerhard Eick recently told Der Spiegel that a merger is "not necessarily needed".

"I'm deeply convinced that it is possible to run Karstadt profitably," he said, though only if costs were cut further and loss-making stores shut.

Mr Eick stepped down as chief executive of Arcandor on Tuesday with a 15m euros ($21m; £13m) pay packet after six months in the job, sparking criticism from Chancellor Angela Merkel, politicians and union leaders.

The Arcandor group is still plagued by other deep-rooted structural problems.

"Arcandor was a sinking ship," says Professor Roeb.

"Two out of three of its main businesses - Karstadt and Quelle - were deteriorating fast and the third business, the travel group Thomas Cook, wasn't profitable enough to sustain the whole group."

Billionaire millionaire

As Arcandor fell apart, the public spotlight switched to Ms Schickedanz, who broke her silence when she gave an interview to the German media in July.

Two years ago, she was one of the richest people in the world, ranked number 142 on the Forbes' list with an estimated wealth of $5.5bn.

Ms Schickedanz is the daughter of Gustav Schickedanz, the founder of the German mail-order giant Quelle and she inherited a huge fortune from her father.

In 1999, Quelle merged with the Karstadt chain of department stores, creating the retail and travel group Arcandor.

But over the past decade, the group racked up losses and Ms Schickedanz found her fortune melt away.

The current financial crisis was just the tip of the iceberg.

It now appears that Ms Schickedanz, one of the main shareholders of Arcandor, has been forced to tighten her belt.

She told Germany's tabloid newspaper "Bild am Sonntag", in a rare interview this summer, that she was saving wherever she could.

"If my husband and I go out for a meal, we go to the pizzeria round the corner and spend up to $50," she said in the interview.

"We're now living off around $800 each month. We're shopping at discount supermarkets. We've got vegetables, fruit and herbs in our garden."

Once a billionaire, following the disaster at Arcandor, Ms Schickedanz is now apparently "only" a millionaire.

"My Karstadt/Quelle stake used to be worth $4bn at its peak, today it's only worth around $38 million," she said.

"On paper, we've lost $4bn.

The 65 year-old heiress claims that she stands to lose everything in the future.

"If Arcandor can't be rescued and the banks call their loans, I lose everything - stocks, houses, holdings in other companies. I wouldn't even get a pension," she said.

Madeleine Schickedanz says she partly blames herself for the collapse of Arcandor, realising too late that she had lost control over the group.

But there are many complex reasons behind the downfall of Arcandor - and it is clear that more painful changes lie ahead.



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SEE ALSO
Metro seeks takeover of Arcandor
10 Jun 09 |  Business
Germany's Arcandor in bankruptcy
09 Jun 09 |  Business
State rejects Arcandor aid claim
08 Jun 09 |  Business
Thomas Cook owner needs state aid
03 Jun 09 |  Business

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