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Germans Go Festive to Lure Buyers Into Department Stores

November 28, 2012

Germans Go Festive to Lure Buyers Into Department Stores

After years of declining sales, store closures and job cuts, the country’s big retailers see the holidays as a chance to recapture some of the magic. Photographer: Steffi Loos/dapd/AP Photo

Step inside a Kaufhof, Karstadt or other German department store this holiday season, and you’ll find yourself in sensory overload. There are roast goose and fresh pastries. Kids can get free baking lessons. And at one store a top designer will read Christmas stories.

After years of declining sales, store closings and job cuts, the country’s big retailers see the holidays as a chance to recapture some of the magic. German shoppers will increase Christmas spending more than other Europeans this year, according to consultant Deloitte.

“Christmas can’t save a dying format on its own, but it is a key opportunity to earn money,” said Antonia Branston, a senior analyst at Euromonitor International. “When it comes to gifts, people don’t want to necessarily get the cheapest option. They want to go somewhere nice.”

The troubled industry could use a lift. The number of German department stores declined to 247 at the end of last year, down a third from 2006, according to Euromonitor. In France, department store numbers remained stable in the period, while in Britain they have risen by about 20 percent.

Even as Germans are expected to spend more this Christmas, department-store sales in the country are forecast to fall in 2012, their third year of decline, Euromonitor predicts. A key reason is that online purchases more than doubled from 2006 to 2011, the researcher reports. While online purchases are also rising fast in Britain and France, shoppers there will spend more at department stores this year, Euromonitor says.

‘Not Healthy’

In Germany, “the general environment for department stores is not healthy,” said Niklas Reinecke, an analyst at Planet Retail in London. “Revenue will most likely keep on declining” as shoppers turn to more specialized retailers such as Zara, H&M and Esprit.

Department stores are finding it increasingly difficult to compete with Web retailers for basics. And when shoppers in Germany look for something distinctive, they often turn to the traditional markets filled with seasonal treats and booths selling handcrafted toys that pop up on town squares across the country every December.

“If you want to get people a special German gift, it’s not something that you are going to find at a department store, it’s something you’re going to find at the Christmas market,” said Kristy Lutz, a 30-year-old mother of two who moved from Wisconsin to Stuttgart eight years ago. “If I want to buy generic gifts like Lego, I can do it online.”

Market Atmosphere

To keep customers coming through the door, retailers are trying to recreate the festive market atmosphere.

“One advantage of stores is that people want to try, taste and smell,” said Mirko Warschun, head of A.T. Kearney GmbH’s retail practice in Munich. “And they want to be able to easily return the goods they have bought.”

Karstadt aims to attract buyers with 100 gift suggestions in its windows. Karstadt’s KaDeWe, a Berlin landmark that was an icon of capitalism during the Cold War, is offering free shipping during the holidays to compete with online rivals such as Amazon.com Inc. (AMZN:US)

At Kaufhof, a giant talking teddy bear occupies kids with stories while parents shop. And at one of the chain’s outlets in Munich, designer Wolfgang Joop -- whose jewelry and perfume are available at the store -- will read Christmas tales.

Kids' Classes

Breuninger, a Stuttgart-based chain founded in 1881, is organizing baking activities for kids throughout December -- freeing parents to buy gifts. The store is focusing on a cabaret theme and has hired a local theater group, the Friedrichsbau Variete, to design windows and give performances.

“Christmas is the best time to create customer loyalty because you have so much traffic in the stores,” said Markus Hepp, a partner who specializes in retail at Boston Consulting Group in Cologne.

Germans plan to increase their budget for gifts and holiday fun by 7 percent this year, the most among 13 western European countries surveyed by Deloitte. Irish, Portuguese, Spanish, Greek and Italian households will all spend less this holiday season.

Nonetheless, the industry in Germany remains troubled. Sales at Kaufhof dropped 3.7 percent last year. Owner Metro AG (MEO) has tried to sell the unit since 2008 as it aims to concentrate on its wholesale and electronics businesses.

Karstadt has announced it will cut 2,000 jobs by 2014, and its clothing, footwear and homeware sales fell to 1.89 billion euros in 2011 ($2.45 billion) from 1.97 billion euros in 2010, according to researcher Textilwirtschaft.

The chain was bought by billionaire investor Nicolas Berggruen in September 2010, more than a year after the retailer filed for bankruptcy. Berlin’s KaDeWe -- continental Europe’s largest department store -- is also for sale as Karstadt tries to stem losses.

“Christmas looks like it could be make or break for Karstadt,” said Daniel Lucht, an analyst at Research Farm in London. “They have to get Christmas right and provide a shopping experience that is special.” That, he said, could include “promotions and activities that can’t be replicated online, like the German Christmas markets do.”

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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