Signa-Holding and René Benko: Rent dispute over the Galeria department stores

In the Advent season, the Galeria department store in downtown Cologne is busier than usual. The floors in the department store, which is located between Hohe Straße and Schildergasse on two of the most visited shopping streets in Germany, are decorated for Christmas. Nevertheless, the department store is worrying the department store group, as it is one that is in the red and burdened with extremely high rental costs. The department store is owned by Signa.

For years, it was mainly representatives of unions like Verdi who accused the owner of Galeria Karstadt Kaufhof, René Benko, of not actually being interested in the department store business, but only in the rents. Benko first took over the Karstadt Group with his real estate company Signa and merged it with Kaufhof in 2018.

In the Galeria environment, allegations about rent were always rejected. Because who bites the hand that feeds them? “Without Signa, there would no longer be any department stores in Germany,” said former Galeria boss Miguel Müllenbach, who is now CFO of the hardware store chain Obi, in an interview with the FAZ. The owner has invested almost a billion euros in the past.

From 15.5 to 18.6 million euros rent

Now the financial situation has been affected by the insolvency of Signa Holding. Other retail subsidiaries such as Sports United or Sportscheck have already ended up in bankruptcy and the future of the department stores is once again very uncertain. Therefore, resistance is slowly emerging even within our own house. This is due to the fact that managers in the department store group increasingly feel as if the owner, of all people, is taking the breathing room away from the constantly struggling company with his high rent demands.

Galeria did not comment on this when asked. According to information from the FAZ, rents in Cologne, for example, have increased significantly in recent years. In 2019 it is said to have amounted to 15.5 million euros, this year it is said to be 18.6 million euros including the parking garage. The next rent increase is due in January. The rent should already amount to 32 percent of the house's sales.

In the past four years there has been a pandemic, wars, an energy price crisis and inflation that leads to reluctance to buy. None of this bodes well for people's desire to shop in department stores. At the same time, Galeria went through two insolvency proceedings during this time and received 680 million euros in tax money as state aid.

These were much discussed and criticized measures, but also ones that were intended to stabilize the ailing department store group and give it future prospects. During the bankruptcies, new contracts were negotiated with many landlords in order to save houses in cities. On the other hand, rents rise, sometimes even indexed, i.e. every year.

Did rents rise to increase the value of the properties?

It's not just about the question of whether the rent increases are eating away at the substance of a company that is supported by the state or by creditors waiving billions. There is also the suspicion that rising rents also improve the valuation of real estate. Building values ​​are calculated using rental payments over many decades.

According to reports, it is not only in Cologne that rents are so high compared to sales. In Mannheim it should be 19 percent of sales, in Frankfurt a quarter. According to retail experts, rents that reach double-digit percentages of sales are a problem for department stores. In other cities with different landlords, the situation is reportedly not as tense.

There is a huge crunch in the Signa Empire

“Manager Magazin” reported that of the 92 remaining Galeria branches, 82 were supposedly profitable, although many were only just profitable. According to the report, nine of the ten houses that are in the red belong to Signa. It's not just the Galeria department store group that is affected. The premium houses that belong to the KaDeWe group and in which Signa holds a little less than half also pay high rents.

The “Handelsblatt” reported, with reference to documents that hackers had captured in an attack on KaDeWe, that rents amounted to between 13 percent at KaDeWe and 20 percent at the Oberpollinger department store in Munich. However, the premium department stores have a completely different buyer structure and are in top locations, where there is a completely different purchasing power than in cities like Mannheim.

Signa sees factual allegations in the reporting. There is no basis for the alleged “gag agreements”, “unusual rental agreements” or “artificially increased property valuations”, said a spokesman. “We reject this representation, it is false.”

Things are crunching enormously in the ailing Signa empire. Signa's trading division had applied for a debt moratorium in the wake of Signa Holding's insolvency and had it approved. With this, the Swiss Signa Retail Selection AG wants to handle the business “in an orderly and transparent manner” on its own responsibility and independently of the insolvencies of the rest of the Signa Group, it said.

The future of Galeria is therefore open, as the retail company's plan is to possibly sell the subsidiaries. There would be no reason to keep Galeria independent if the retail sector was independent because no rent flows there. The appointed administrator, Eugen Fritschi, did not want to comment on Galeria when asked.