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Karstadtquelle Crisis

In: Business and Management

Submitted By muienie
Words 2935
Pages 12
Outline

1) Introduction 1. History of Karstadt 2. History of Quelle

2) Crisis 2.1 What is a business crisis in general? 2.2 KarstadtQuelle crisis 2.3 Wrong Management 2.4 The stores

3) The Turning 1. New manager 2. The merger 3. New marketing 4. Out of the crisis

4) conclusion

The KarstadtQuelle Crisis

Introduction

It is well known that KartsadtQuelle AG has been through big crisis which caused a lot of changes. This objective is to show the crises Karstadt Quelle went through. It questions how this could happened and why. Further it will show the changes KartsadtQuelle started to prevent going bankrupt and the position in the market in the past and present.

History of Karstadt

The eponym of Karstadt, Rudolph Karstadt (1856-1944) opended a "Clothing manufacture and retail shop C. Karstadt" in 14th May 1881 in the north of Germany with the help of his father.
1885 the fabric merchant Theodor Althoff (1858-1931) takes over “the haberdashery, linen and woollen goods shop” from his mother. While Rudolph Karstadt expanded in the north of Germany, Theodore Althoff extended in the western of Germany. By 1910 Theodor Althoff operated 11 stores and established in 1912 his largest store in Essen with 10.000 square meters of selling space and with 53 different departments. These two persons had a similar concept – low prices and cash payments. This was not general at that time as people bought goods on credit. So it was just a matter of time for Theodor Althoff and Rudolph Karstadt to merge. What actually happened in 1920 as a cause of WORLD WAR I. Both Karstadt and Althoff struggled at that time as the consumers were stockpiling their money and goods became scanty. As the Clothing manufactures and retail shop C. Karstadt was renamed to Rudolph Karstadt KG and became a public company. [1] Together they had 89 branches and 59 of them were named/ renamed into “Rudolph Karstadt AG”. 30 of the stores still held the name “Theodor Althoff, Lindemann”. Through this merger they expanded geographically and built up different sized department stores what has been unique at that time. Through their dynamic strategic decision they could successfully respond to the market of lower and middle income consumers who held a big part of the market.[2]
In 1963 the company’s name and the name of all stores were renamed to “Karstadt AG”. Only Karstadt “Oberpollinger” store in Munich kept its name. In 1996 Karstadt moved his Head office to Essen. Karstadt tookover Hertie in 1994 and renamed the branches into Karstadt.[3]

History of Quelle

In 1923 Gustav Schickedanz founded his wholesale business for haberdashery, linen and woollens “Schickedanz Handelswerte GmbH & Co. KG”. In 26th October 1927 Gustav Schickedanz named his company “Quelle” which means “source”. He thought he could reach more people by mail order and it was a big success. He soon extended his product range. In 1930 Germany had over five million unemployed but Schickedanz business survived. Moreover he offered lower prices through his mail order than many other shops and made himself a name for good standards. In 1933 Quelle becomes Germany's most successful German mail order company.[4]

In 1971 the Trans Europa Reisen GmBH was founded by Karstadt and Quelle Gustav Schickedanz as a joint venture. It was renamed to KS-Touristik. But as Karstadt bought stakes of Neckermann Versand which had a travel subsidiary itself Karstadt had to sell its shares in KS Touristik. This was a first step into the travel-tourism industry. [5]

The Schickedanz Holding AG the parent company of Quelle Group bought 20,3 per cent of Karstadt’s nominal share capital and Karstadt looked forward to this involvement.[6]
1999 KarstadtQuelle AG has been registered in the trade register. With this registration the merger of europe’s biggest department store Karstadt and biggest mail- order Quelle was sealed with a shared sales of $18.1 billion. The retail sales of course remained the core business. There were operating more than 470 department stores and speciality stores; Karstadt, Wertheim, Alsterhaus, Sinn Leffers, Runners Point, World of Music, Le Buffet restaurants and Neckermann. KarstadtQuelle also began to build up a real estate division.
“After this big merger the revenue increased in the year 1999 from 14,843 Mil DM to 15,240 Mil DM in the year 2000 amounted to the affiliate company sales. This accounted more than 2, 7%.”[7].

What is a business crisis in general?

I would first like to define the term business crisis and the effect of a crisis. What are the prospects of generalization? How do enterprises and entrepreneurs deal with the different types of crisis? A crisis in general is “a difficult and dangerous situation; a turning point”.
The world business crisis already says it is a crisis within the business. These crises are unintentional and unplanned processes of a temporary nature, but they are in the position to stop or to threaten the business continuity. There are different types of threats: first as I mentioned before the business continuity in general, second the existence of the sub-segments. There can also be problems in different operations.
Another way to recognize a threat is in the reduction of market share or the fifth the decline of the profits. The business liquidity is a big issue, too. The business should be able to pay all debts within a certain time. Last but not least conflicts between the employees and the management can cause disturbances in the business procedures.[8]

Analysts have found out that the biggest mistakes done in the business itself are mismanagement and illegal behaviour. Exogenous crisis are economic undesirable developments. The crisis in the economy is divided into four sections: first potential, second latent, third controllable and fourth uncontrollable phase. It is not easy to distinguish these phases from each other. The crisis can start with the first phase, get immediately to the uncontrollable fourth part but then get slowly into the third phase i.e. get controlled again e.g. be able to pay debts.[9]

The crisis management is a special type of leading of high priority. Its challenge is to avoid crisis, to keep it in control and to deal with it to secure business continuity, i.e. make plans to set objectives. It is there to assure e.g. profits, liquidity and employment.[10]

KarstadtQuelle crisis

The following years after merging got worse for KarstadtQuelle. German’s economy was heading to a depression. The forecasting for the survival of retail stores were damaging. “In 2003 the annual sales of Karstadt decreased to 3, 5 per cent. The annual turnover of Quelle in 2003 declined to 2, 7 per cent. Stock market experts lost the trust in the company. And the target was downsized from 20€ to 18€.”[11] But also external economic problems affected KarstadtQuelle. To begin with unemployment which was at a high rate of 10, 6 per cent, the wages were low about 3,3 per cent in 2003 and there has only been a small increase in 2004 of 1,1 per cent. This buying weakness has accounted for the crisis, too.[12]

Wrong Management

The management didn’t respond fast enough to the market situation. The market has been changing, the customers demanded lower prices and more attention to their needs. The competitors were dumping prices or specializing to the consumers need and there has been no reaction to all this from KarstadtQuelle.[13]

The stores

KarstadtQuelle has no answer to the question why consumer should buy goods at their places. The competent advices of the qualified staff were history. Finding ways to deal with the market Karstadt laid off staff and shortened further sale training. Of course customers got angry and the image of KarstadtQuelle sunk. The competition was stiff. The company had to sign off over 25.000 employees and the remaining had to tighten their belt. They voluntary renounced their benefits to keep the company moving on.[14]

The Turning

New manager

KarstadtQuelle AG is searching for a quick and radical change. Thomas Middelhoff has the answer. Karstadt had always search for top manager external and recruited the former CEO of Bertelsmann AG. He is the new CEO of the company. He has to do crisis management and he is ready to make changes. He focused on what is important for the company.[15]
Selling is Middlehoffs motto. First he sold 74 Karstadt Kompakt department stores- smaller warehouses- which were renamed to Hertie. He also sold the subsidiary Sinn Leffers and Runners Point. The real estate division was disposed, too as KarstadtQuelle sold its Ware- and Sportshouses for over 4, 5 Bil.EUROs but Karstadt is still using the premises. This amount helped Karstadt to amortise the bank debts and it is still expecting money from the divestitures.[16]
Barbara Ambrus at Landesbank Baden-Wurtenberg said “the retailer was not a reals estate manager and should concentrate on core business” [17]

The merger

The money KarstadtQuelle received was invested. Now the company held 50 per cent of Lufthansa and the merger with Thomas Cook Ag has been sealed wih the permission of the EU. Tourism has become an important but not unknown part of the company and KarstadtQuelle AG renamed to “Arcandor” in July 2007. The branches will still remain Karstadt and Quelle will still hold his name Quelle.[18]

The new marketing

Karstadt invests into the 89 Karstadt department stores. The company follows a new concept. One can’t serve all customers or satisfy all consumers.[19] Karstadt has to define his “Unique selling Point “.[20]
Marketing steps were taken by presenting every month a new shopping motto e.g "Schöner Shoppen in der Stadt - Karstadt" ("Better shopping in town - Karstadt"). Karstadt wants to create awareness again. The people should identify themselves with the town and Karstadt. The company is selling itself as a new and modern warehouse.[21]

Out of the crisis

The tourism and trade company is in the black again. The strong subsidiary Thomas Cook and the restructured Warehouses have achieved revenues of 346 Million Euros in 2006. KarstadtQuelle AG had an annual loss of 317 Million EURO in 2005.[22]
The turnover settled to 13,1Billion Euros. Only the mail order still has some problems.[23]
The Holding and its subsidaries are now Karstadt Warenhaus AG, Quelle AG, Neckermann Versand AG , Karstadt Quelle Service GmbH, Itellium (IT service), Karstadt Quelle Bank and Thomas Cook Group plc. It has more than 55 600 employees.[24]

Conclusion

Karstadt is a big and well known brand. This crisis could only happen because of the fear of changes. It is not only a fear of companies but a fear of the society. The German society is afraid of making changes. This starts within the politics. To secure safety it refuses changes. Changes are indeterminate and that’s why kind of risky. Changes are generally made when things got out of control and there is no other way to solve the problem. The government should give the country a positive understanding of changes. This could have helped KarstadtQuelle not getting into this crisis. After making a big change in the structure of the company it got out of the crisis, this shows that changes sometimes need to happen to secure surviving.[25]

Is selling properties and laying-off employees really a long term solution? This is the big questions which can only be answered in the coming future of the Arcandor AG. The company has to strengthen its position in the market and not only by marketing steps as “Better shopping in town”. Karstadt should realize that it should be more than just a shopping store and Quelle more than just a mail order. The company must commit the consumer. There are big and rapidly changes on the market which each company needs to be aware of. Arcandor now opened its eyes but it should keep them open![26]

Bibliographie

Financal Times, Lex Live: Karstadt Quelle, published December 08/2005 http://search.ft.com/ftArticle?queryText=karstadt&page=10&id=051208005700&ct=0&nclick_check=1 accessed October 13th 2007

Wiesmann, Gerrit. „KarstadtQuelle to sell more property to wipe out debt” Financial Times Published December 08, 2005, Frankfurt http://search.ft.com/ftArticle?queryText=karstadt&page=10&id=051208007445&ct=0 accessed October 13th 2007

Atkins, Ralph. “ Companies International: KarstadtQuelle to sell more properties”, Financial Times, published April 03.2006 http://search.ft.com/ftArticle?queryText=karstadt&page=1&drillDown=%2Bgapeople%3A%5E%22Thomas+Middelhoff%22%24%2C%2Bgacompanyname%3A%5E%22Karstadt+Quelle+AG%22%24&id=060403000712&ct=0 accessed October 13th 2007

Die Zeit, „Chronik einer angekündigten Krise“, 15.7.2005, edition 29 http://www.zeit.de/2005/29/Karstadt_Chronik?page=2 accessed October 13th 2007

Deckstein, Dagmar.”Dornröschen wartet auf den Kuss” Süddeutsche Zeitung, 10/2007, http://www.sueddeutsche.de/wirtschaft/schwerpunkt/592/40552/1/index.html/wirtschaft/artikel/997/40957/article.html accessed October 13th 2007

Siewer, Clark and Stanfel, Rebecca. “Arcandor AG”, answers.com, 2006 updated 2007 http://www.answers.com/topic/karstadt-quelle-ag?cat=biz-fin accessed October 13th 2007

Wassener, Bettina and Rigby, Elizabeth. „Far reaching changes planned at Karstadt- Quelle“, Finincal Times.com site, Sep 07, 2005, Essen http://search.ft.com accessed October 13th 2007

Landler, Mark. “Middlehoff’s 2nd act: Revamping Karstadt”, International Harald Tribune, September 2nd 2005 http://www.iht.com/articles/2005/09/01/business/karstadt.php accessed October 13th 2007

van Leeuwen, Marcel. “Karstadt case demonstrates German politicians and unions hypocrisy on change, Yeald The interactive investor journal, 10/2004 http://www.yeald.com/Yeald/a/31081/karstadt_case_demonstrates_german_politicians__and_unions__hypocrisy_on_change.html accessed October 13th 2007 http://www.yeald.com/Yeald/a/31081/karstadt_case_demonstrates_german_politicians__and_unions__hypocrisy_on_change.html;jsessionid=40DC70B6C4CAE36D04D5AAE8B8295A76

Weber, Stefan, „Warenhaus Konzerne Ungleiche Konkurrenten“, Süddeutsche Zeitung, 27.09.2007 http://www.sueddeutsche.de/wirtschaft/schwerpunkt/592/40552/1/index.html/wirtschaft/artikel/106/40066/article.html accessed October 13th 2007

Die Zeit, “Kehraus bei KarstadtQuelle“, 15.7.2005, edition 29 http://www.zeit.de/2005/29/Karstadt_krise accessed October 13th 2007

Die Zeit, „KarstadtQuelle wird zerlegt“, 30.09.2004 Nr.41, page 29 http://www.zeit.de/2004/41/Karstadt accessed October 13th 2007

Tagesschau, “Die KarstadtQuelle-Krise“, 14.10.2004 http://www.tagesschau.de/wirtschaft/meldung216814.html accessed October 13th 2007

-----------------------
[1]Arcandor History, www.arcandor.com, http://www.arcandor.com/en/aktuelles/1716.asp,
[2] Homburg, Heidrun, The First Large Firms in German Retailing – The Chains of Department Stores from the 1920's to the 1970/80's: Structures, Strategies, Managmen, Jahrbuch für Wirtschaftsgeschichte/Academic History Yearbook (JWG) 2000/1, S. 171 Jahrbuch für Wirtschaftsgeschichte/Academic History Yearbook
[3]Arcandor History, (http://www.arcandor.com/en/aktuelles/1716.asp)
[4] Siewer, Clark and Stanfel, Rebecca. “Arcandor AG”, www.answers.com, 2006 updated 2007 http://www.answers.com/topic/karstadt-quelle-ag?cat=biz-fin
[5] Siewer, Clark and Stanfel, Rebecca. “Arcandor AG”
[6] Homburg, Heidrun, The First Large Firms in German Retailing – The Chains of Department Stores from the 1920's to the 1970/80's
[7] Arcandor Geschäftsbericht, www.arcandor.com, http://www.arcandor.com/de/downloads/karstadtquelle_konzern_geschaeftsbericht_2000_d(1).pdf page 1
[8] Kerkhoff, Stephanie van de Krisen als Chance oder Gefahr für das Überleben von Unternehmen,Unternehmenskrisen und ihre Bewältigung im 20. Jahrhundert/ Company Crisis and Crisis Management in the 20th Century, Jahrbuch für Wirtschaftsgeschichte/Academic History Yearbook Berlin Akademi Verlag 2006/II, page 9.
[9] Kerkhoff, Stephanie van de Krisen als Chance oder Gefahr für das Überleben von Unternehmen
[10] Kerkhoff, Stephanie van de Krisen als Chance oder Gefahr für das Überleben von Unternehmen
[11] Tagesschau, www.tagesschau.de, Chronologie der Ereignisse;Die KarstadtQuelle-Krise, published 14.10.2004, http://www.tagesschau.de/wirtschaft/meldung216814.html
[12] the Economist, 2004, Economic and financial indicators. Vol.372
[13] Siewer, Clark and Stanfel, Rebecca. “Arcandor AG”
[14] Deckstein, Dagmar.”Dornröschen wartet auf den Kuss” Süddeutsche Zeitung, 10/2007,www.sueddeutsche.de http://www.sueddeutsche.de/wirtschaft/schwerpunkt/592/40552/1/index.html/wirtschaft/artikel/997/40957/article.html [15] Landler, Mark. Far reaching changes planned at Karstadt-Quelle“Middlehoff’s 2nd act: Revamping Karstadt”, International Harald Tribune, September 2nd 2005 http://www.iht.com/articles/2005/09/01/business/karstadt.php
[16]Handelsblatt, www.handelsblatt.com, Karstadt trennt sich endgültig von seinen Warenhäusern, Handelsblatt, published Montag, 25. Juni 2007, http://www.handelsblatt.com/News/Unternehmen/Handel-Dienstleistungen/_pv/grid_id/911832/_p/200040/_t/ft/_b/1285488/default.aspx/karstadt-trennt-sich-endgueltig-von-seinen-warenhaeusern.html
[17] Wiesmann, Gerrit. „KarstadtQuelle to sell more property to wipe out debt”
Financial Times Published December 08, 2005, Frankfurt http://search.ft.com/ftArticle?queryText=karstadt&page=10&id=051208007445&ct=0 [18] Tagesspiegel, www.tagesspiegel.de, Karstadt-Quelle heißt jetzt Arcandor 30.3.2007,http://www.tagesspiegel.de/wirtschaft/;art271,2270338
[19] Brück, Mario, Wie Yin und Yan, Unternehmen und Märkte, Karstadt, Wirtschaftswoche, Interview mit Karstadt-Chef Peter Wolf 02.04.2007
[20] Deckstein, Dagmar.”Dornröschen wartet auf den Kuss” Süddeutsche Zeitung
[21] Karstadt Unternehmen, www.karstadt-unternehmen.de, Karstadt from vision to reality, http://www.karstadt-unternehmen.de/en/profil/59.htm
[22] Manager Magazin, Zurück in der Gewinnzone, www.manager-magazine.de, http://www.manager-magazin.de/geld/artikel/0,2828,474630,00.html, published 29.03.2007
[23] Tagesspiegel, www.tagesspiegel.de, Karstadt-Quelle heißt jetzt Arcandor
[24] Meyers Lexikon, Karstadt Quelle, www.meyers-lexikon .de, http://lexikon.meyers.de/meyers/Karstadt_Quelle_AG
[25] van Leeuwen, Marcel. “Karstadt case demonstrates German politicians and unions hypocrisy on change, Yeald The interactive investor journal, 10/2004 http://www.yeald.com/Yeald/a/31081/karstadt_case_demonstrates_german_politicians__and_unions__hypocrisy_on_change.html [26] =DInort‰Ÿ ¶ÀÁÂÃÄDeckstein, Dagmar.”Dornröschen wartet auf den Kuss” Süddeutsche Zeitung

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...financial stability of the organization. This crisis involves a recent explosion at one of the plants at the XYZ Corporation and will require the development of an external relations strategy in order to rebuild the corporate image of the organization. The goal of the XYZ Corporation will be to develop a communications and external relations strategy to explain the events that led up to the explosion at the plant and explains the steps that will be taken to fix the problem. The external relations strategy will coordinate the dissemination of information and effectively manage the crisis. An effective communication channel is needed to establish positive feedback throughout the organization. So then, a team is created specifically to implement these channels. This communications team will be responsible for assessing the situation, developing and implementing the communication plan and following up on the success of the plan. The communication team will develop a plan of action that will result in a more positive corporate image. This team will consist of: top executives from the XYZ Corporation, a PR person will be identified and the communication nodes will be determined. The PR will be used to establish the credibility of the corporation and to persuade the public to take a more positive view of the corporation. The team will also come up with the steps that it will take to repair the image of the corporation. Successful crisis management depends largely on developing......

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