Arcandor – the business formerly known as Karstadt-Quelle - filed for bankruptcy because it went into this recession crippled with debt and was unable to devise a plan for shedding that debt.
It was ultimately forced to go out of business because its management gambled – wrongly – that the German government would guarantee its loans. Its eventual collapse says little about the state of the apparel industry in Germany or any of the countries where Primondo (the bizarre name adopted by the group's home shopping division, trading mainly as Quelle) had operations.
However, the depressed state of Germany's clothing market clearly did not help. Arcandor's collapse is just the latest in a recent series of significant disappearances among German clothing retailers – or more precisely, among German clothing retailers once owned by Karstadt Quelle. In May, former subsidiary Hertie went into liquidation, amid recriminations about incompetent owners. Other former Arcandor divisions have fared slightly better – but none are really healthy.
The bankruptcy does not immediately affect every aspect of Arcandor's operations. The speciality division of the Primondo group (which includes catalogues such as catalogues such as Baby Walz and Madeleine) are excluded, as is Thomas Cook and the home shopping channel HSE24. Unusually, Arcandor controls neither its sourcing nor its retailing real estate. The company was among Li & Fung's top five customers, accounting for 6% of L&F sales: a level of exposure likely to mean little in terms of reduced sales volumes for Li & Fung – but potentially a level of bad debt which could damage the Hong Kong-based trader severely if several months' invoices were unpaid at the time of bankruptcy. However, Li & Fung had appeared in autumn 2008 to have moved the risk to subcontracting manufacturers.
Arcandor's real estate was owned by Goldman Sachs-run High Street, whose ownership of the Karstadt shops might complicate negotiations with rivals Metro AG. Metro made no secret over the past few weeks of its interest in merging Karstadt's department stores with its smaller Kaufhof chain. Metro repeated its interest as soon as news of the bankruptcy became known. "We continue to stand by our idea of taking over about 60 Karstadt locations, thereby saving the majority of jobs," Metro said. "We're very interested in coming to a speedy agreement with Karstadt, so that a rescue of Karstadt stores won't be delayed by Arcandor's insolvency," Metro said
The Quelle home shopping business looks less likely to attract a trade bidder. Restructuring costs would be too high for rival Otto, it is claimed - though we suggested a few months ago that rumours of Wal-Mart's interest in Aracandor were more likely to reflect a likely offer for the home shopping business than for the bricks and mortar business. Otto has said, however, that it is interested in the free-standing Karstadt sports stores.
At the heart of all this, however lie two basic problems quite separate from the general state of the clothing trade. Department stores in Europe, at least as far as clothing is concerned, are yesterday's business model. And the Quelle business has been slow to adapt to the rapid switch to the internet which has transformed home shopping over the past three years. Arcandor's two major trading assets may well turn out to be a poisonous a pill for any acquirer as Sinn Leffers, Hertie and all Arcandor's previous cast-offs. There may not be a mad rush of potential new investors
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