German Karstadt department store group revealed today that it would cut 8% of its 24,000-strong workforce, in part due to the euro crisis.
Karstadt said that “under the challenging market conditions of the euro crisis” it was necessary to make further cuts to ensure it reached “a suitable size that further raises efficiency and puts Karstadt on track for enduring growth”.
Germany’s biggest department store chain aims to simplify its structures and processes with the move, as part of its on-going business strategy. Karstadt will cut 2,000 jobs by the end of 2014, predominantly through early retirements, not renewing temporary contracts and voluntary redundancies.
Is the department store’s move a sign of things to come? Will the volatiltity of the euro and the uncertainty about its future inspire cost saving measures in retailers across Europe as they prepare for the worst?
Not especially, says Niklas Reinecke, associate analyst at Planet Retail. He believes the Euro-crisis is only a minor driver of the department store’s restructuring.
“I don’t really see that it’s the euro crisis,” says Reinecke. “It’s more about the fact that the German department store market has been really challenging and demanding over recent years. It would be closer to the truth if you took into account the higher cost base that the retailer is going to face from September.”
Having gone into insolvency in 2009, the chain was bought by German-American investor Nicolas Berggruen. At the time, wage concessions were put in place. But full wages are being re-introduced in September, with an expected 8% increase in cost to the retailer. This higher cost base will have significantly contributed to the current restructuring decisions, Reinecke points out.
In general, the euro crisis is being overshadowed by other pressures, he adds. German retailer Otto Group, for example, is laying off staff, squeezed by a decline in catalogue sales and competition from online retailers, rather than the euro crisis.
But while the crisis in the eurozone may not have as direct an affect on other retailers’ strategy as it has Karstadt, there is no doubting its impact on consumer confidence, which has a huge influence on retail spend.