Department stores in Germany Status I Quo I Vadis

01 Foreword

Quo vadis, department stores? The as well as the competition structure The study is particularly intended for title of this study reflects the prevailing and potential demand in the retail and practical use in everyday work. The body uncertainty surrounding the future of property sectors. of data presented can also act as an the department store. For decades, essential reference work. department stores have represented This is why, in summer 2015, Savills local retail leaders and main draws in and Stadt+Handel compiled store data We hope that the study will assist you with many town and city centres. In recent on Karstadt and Kaufhof properties, your discussions and decision-making times, however, department stores in analysed this data and evaluated it processes. Germany have lost significant market via a scoring process. The outcome share and whether the store closures is the present study, which provides over the last decade should be a bird‘s eye view of the situation and regarded as consolidation or as erosion structures the department store stock is a matter of perspective. in terms of location and property- related conditions. The scoring results Both the type of property and quality and tools presented in the study can be of location cover a broad spectrum. used by owners and retailers, investors From flagship store to local supplier: and developers and even local who will „draw the short straw“ in the authorities and expansionists to gain Ralf Beckmann Silke Wittig competition against other formats a good impression of future options Stadt + Handel Stadt + Handel and the Internet? Where does strong for the individual stores. This not only positioning succeed? Sweeping refers to owners and purchasers of judgements regarding the department department store properties but also store as a retail format are always surrounding properties, which can be inadequate. The differences are simply affected either positively or negatively too great both in respect of the quality by the fate of nearby department Jörg Krechky Matthias Pink of individual locations and properties stores. Savills Savills Content

04 Executive Summary 06 1 I Introduction 08 2 I The department store sector in Germany 22 3 I German department stores compared 46 4 I Quo vadis, department store? Five theses

03 Executive Summary

Where next for German department approximately €9.5bn of investment A total of 46 department stores make stores? Once regarded as „cathedrals during the same period. A total of up the group of „frontrunners“, which of retail“, the department store is 193 department stores have changed have the highest scores and, thus, the experiencing a prolonged period of hands, almost half of which were part best conditions. This group includes crisis as a retail format in Germany. A of portfolio transactions. the three premium stores of the review of the current situation in the KaDeWe Group as well as both stores retail sector illustrates that the situation An analysis of transaction activity in Mannheim. Galeria Kaufhof operates for department stores is not hopeless demonstrates that department 24 of these stores while 22 belong but there are many challenges to stores can represent an appealing to Karstadt. The „midfield“ group overcome in order to emerge from the investment for all types of investors. comprises a total of 62 department current crisis. Online retail continues to For conservative investor groups, store properties with mid-range scores. exert pressure on stationary operators such as insurance companies and These include 33 Kaufhof department in the sector, mainstream prices are pension funds, department stores let stores and 29 Karstadt properties. becoming increasingly unattractive on long-term leases in 1a locations are Finally, 53 department stores make and department stores are not alone particularly interesting since they offer a up the „laggards“, which are generally in having to go to ever greater lengths stable rental yield and a high probability characterised by less favourable to attract customers through the of capital preservation. Opportunistic conditions in terms of property and doors. The crisis and ultimate fate of investors and developers, on the other location. Galeria Kaufhof operates 29 department stores not only affects hand, are more interested in properties of these stores while the other 24 are consumers, municipalities and, of with short lease terms and uncertain Karstadt department stores. course, the department store retailers futures since this creates opportunities themselves, but also property owners for re-positioning and the associated Upon analysing the scoring results, and investors. The department store value-add potential. it is immediately apparent that the retail format is intrinsically linked frontrunners are predominantly with its structural envelope. This is Against this background, and taking situated in major cities, whereas the not least attributable to department into account the close relationship laggard stores are over-represented in stores‘ unique capability to use several between the department store as smaller towns and cities. No town or storeys (more than five on average) a retail format and property type, it city with 50,000 or fewer inhabitants as sales space. If a department store is essential to consider the current appears among the frontrunners, closes, conversion of the department situation and future viability of the while almost three quarters of stores store property to an alternative use is remaining department stores. The in such locations are found in the the only option in the vast majority of outcome of such deliberations will laggard group of the scoring. Thus, cases. determine the extent to which a the scoring results suggest that the department store property is of conditions for the future viability of Today, there are 161 remaining free- interest to completely different department stores tend to be worse in standing department store properties types of investor. Furthermore, an medium-sized towns and cities than in Germany occupied by either Galeria understanding of the current conditions in major cities. However, this places Kaufhof or Karstadt. These have of a department store will be helpful department stores in such towns and an average lettable area of around to local authorities as well as other cities in a predicament. On the one 17,900 sq m and an average sales area stakeholders. Despite the general crisis hand, the less favourable conditions of some 14,400 sq m. Department facing the retail format, the German restrict the size of the department store stores are, therefore, among the department store is highly diverse and while, on the other hand, history shows largest retail properties both in terms each property has its specific strengths that a department store should have a of footprint and usable floor area. This and weaknesses. minimum sales area of 8,000 sq m in characteristic, combined with their order to successfully fulfil its role as a normally central locations in town and The scoring system, which evaluates full-range provider. Consequently, the city centres, makes department stores the macro and micro-locations as outlook for the future viability of such a unique property type. Around three well as the quality of the 160 or stores is less auspicious. To assess quarters of all properties are situated in so department store properties in whether the existence of any stores A locations. Germany, covers such strengths and is under threat, and which stores they weaknesses. The results of the scoring might be, requires consideration of It is not least the high-quality locations allow for conclusions as to the future the specific competitive conditions in that make department stores appealing viability of the individual department each location. Properties in competitive to investors. Department stores have store locations in the context of these markets such as Gießen will face accounted for inflows of around conditions. Thus, property investors, greater challenges than those that €6.2bn, more than 10% of investment local authorities and department store enjoy the status of local retail leader in retail property, since 2009. By way retailers themselves, as well as other such as in Iserlohn. of comparison, hotel and logistics stakeholders, can use the results as a properties have each accounted for guideline or basis for decision-making. Executive Summary

The scoring results also show that It is precisely this structure created most department stores are situated by the discovery of location and in good to very good micro-locations. property-related strengths and Only few properties are situated weaknesses that makes the scoring in genuinely poor micro-locations. a valuable instrument in practice. Furthermore, the spectrum is narrower Property investors, local authorities in this respect than that for the quality and other stakeholders can use the of macro-locations and properties. scoring to prepare, reach or validate Thus, department stores differ decisions. Furthermore, combined with relatively modestly in the quality of retail expertise and knowledge of the their micro-locations but considerably property market, the scoring results in terms of how these locations have provide a basis for venturing a number developed. In particular, it can be of theses on the future of the „old observed from the scoring results that lady“ of retail over the coming years. micro-locations with generally below- There is much to suggest that some average performance in the scoring department stores will continue to lose have fared much worse in terms of their magnetic effect going forward attractiveness in recent years, which while others will even close. Properties is manifested in declining rents. On in medium-sized towns and cities the other hand, those micro-locations with fewer than 100,000 inhabitants with above-average location quality are particularly under threat, as are frequently show rising or at least stable those situated in unfavourable micro- rental levels. Thus, department stores locations and faced with intensive in such locations are in danger of competition in the local retail market. losing their competitive advantages However, it is precisely the high-quality while the selection process threatening micro-locations of most properties otherwise crisis-stricken department than can act as a starting point for a stores is likely to continue. renaissance of the department store.

05 1 Introduction

Where next for German department abundantly clear from developments The subject is also multi-faceted stores? This is a question currently to date: stationary retail is faced with since it not only affects towns, cities occupying both the trade press and the immense challenges. If consumers and communities but ultimately also wider public alike. Not only are many spoiled by online retail make the consumers and the two remaining jobs under threat, but the department effort to visit a prime retail location, major department store retailers store continues to represent a beloved they expect perfect brand staging, in Germany, Galeria Kaufhof and retail flagship and local full-range an experience, surprise and emotion, Karstadt. Furthermore, the future of provider in many towns and cities. preferably combined with in-depth department store property is closely On the other hand, however, many service and a wide assortment – ideally, linked to the fate of the retail format. It individual stores have long since at bargain prices. The assertion that is the department store‘s unique ability lost this elevated status. Against this is unsustainable over the long term to offer more floors than other retail this background, it is more pressing is supported by declining footfalls in formats that restricts the alternative than ever to question the future town and city centres and the demise use of the properties. Thus, questions of department stores in the highly of owner-operated specialist retailers. surrounding the future of department competitive and increasingly saturated At first glance, the falling market share stores are also relevant for owners of German market. of department stores in the German department store properties and other retail sector is a further consequence. investors active in the retail sector as The strength of shopping centres and However, a more in-depth analysis well as developers. e-commerce, in other words the current reveals underlying reasons. dynamic change in the retail sector, has had a material impact on the department store format. Nobody can accurately predict how e-commerce will alter the retail landscape over the long term. However, one thing is 1 Introduction

Consequently, the present study turns The property perspective starts by market participants. its attention to the future viability of examining the role of the department department stores in Germany with store in the German retail property Furthermore, the scoring not only an explicit focus on property-related landscape. Department stores‘ provides a basis for objective analysis aspects. For the purposes of this unique characteristics, such as but can also act as a frame of reference study, a department store is defined as generally outstanding locations, make for looking to the future, which is follows: department stores attractive properties the core subject of the fourth and to real estate investors. This is reflected concluding chapter. A number of A department store is a property whose in the transaction volumes in recent theses on the future of department anchor tenant or principal occupier is years. An analysis of this market stores provide an outlook as to the Galeria Kaufhof or Karstadt, including also illustrates the closeness of the potential future for the „old lady“ of the premium stores of KaDeWe Group. connection between the department retail in 2016 and beyond. In addition to traditional department store as a format and its structural store formats, this also includes envelope. Depending on the future One thesis can be ventured at this early speciality stores (e.g. bargain stores). viability of a particular department stage, however: the department store The effective date is 30 June 2015. store, the property might be of interest will remain a subject of great interest to completely different types of over the coming year, both as a retail Department stores occupying space investor. It could be said that every format and property segment. within a shopping centre or that are department store has its market. structurally integrated into a shopping centre or are at least connected to a In keeping with the context of the shopping centre structurally or via a retail and property management marketing association (e.g. Karstadt perspectives explored in the second in the Boulevard Berlin mall) have chapter, Chapter 3 presents the been disregarded in the empirical part analysis results of a full census of all of this study since, from a property German department stores by way management perspective, they are of scoring. The adage that „location, located within a different property type. location, location“ is the most Sportarena and Karstadt Sports stores important success factor for property in have also been excluded since these general and retail property in particular do not primarily occupy entire buildings is reflected in the composition of but generally occupy retail space as the scoring. The scoring comprises one of many tenants. three pillars. The first is the macro- location and its relevant conditions for In order to explore the question of the department stores. The second pillar future viability of department stores relates to the prevailing conditions in as defined above from a retail as well the micro-location and the third and as a property perspective, Chapter final pillar of the scoring reflects an 2 examines the German department appraisal of the quality of the property. store landscape from both angles. The retail perspective focuses on The scoring results provide a the current dynamic situation in the comprehensive overview of the specific retail sector and discusses trends conditions of all German department and influencing factors that, albeit not stores and help to create a structured exclusively, have a material impact on view of the current department store the department store format. A brief landscape. They also indicate which journey through the 150-year history of properties benefit from outstanding the format reveals that the department conditions as well as highlighting store itself once revolutionised the retail those in less favourable situations. sector. And today? Today, the „old These results alone can provide a lady‘s“ glorious past is little more than basis for decision-making with regard a distant memory in many places in to department stores, whether by Germany as illustrated by a concluding local authorities, property investors or look at the status quo of the German department store retailers themselves. department store landscape. However, the scoring also provides a useful foundation for more detailed analysis. This is illustrated with the example of a competition analysis as well as two analysis tools for property

07

2 The department store sector in Germany

2.1 Department stores as a retail Retail space grew by a total of The interaction between these format approximately 12.1 million sq m trends is resulting in an increasing The present study places the between 2001 and 2014 according homogenisation of the main retail department store at the centre of its to GfK, taking the total retail stock locations, which time and again appear deliberations. However, this particular to 123.1 million sq m. However, to comprise the same brands. This, format and its development cannot if we look at the last five years, in turn, is leading to boredom among be viewed in isolation but can only development of space appears to consumers and declining footfalls in be understood in the context of the have reached a plateau. According to city centres. The power of e-commerce dynamic retail landscape. The latter, GfK Geomarketing, Germany has a is further exacerbating this trend in turn, is characterised by constant total retail stock equating to 1.46 sq m and stationary retail is suffering from change, new trends and innovations per inhabitant, which is relatively high stagnating sales. and a pressure for continuous renewal. compared with the rest of Europe. This raises questions such as the The demand side is also witnessing following for the department store. At the same time, the number of massive change. Not only are What are the general developments operators is in decline. International customers becoming more that are affecting the department vertical retailers such as Primark, unpredictable, more demanding store today and that will affect it in the Uniqlo, Forever21 and Reserved are and increasingly selective in their future? How has the department store surging into cities‘ prime locations and spending behaviour, the decline in retail evolved in the past and what is its displacing traditional, owner-operated purchasing power is also affecting situation today? specialist retailers by achieving higher the retail sector. Energy transition and sales and, thus, having larger rental the restructuring of private pensions Trends in retail budgets. That this trend has resulted as well as an increasing emphasis on Like any other market, the retail in a further increase in retail space is leisure time are ensuring that there is landscape is shaped by the interaction partly attributable to the fact that the less money left in people‘s wallets for between supply and demand – and all major multiples are increasingly using consumption. Thus, not only is buying the more if both sides of the equation their stores as showrooms rather than behaviour changing when it comes are undergoing fundamental change. pure sales outlets. Large, modern to fashion retail; mainstream prices stores are used to showcase the brand in general are becoming increasingly On the supply side, the nationwide and to make shopping an experience. unattractive to consumers. The trend in Germany towards building However, expanding formats such as beneficiaries of this development more and more retail space has factory outlet centres and designer are price-aggressive retailers, with evidently ceased for the time being. outlet centres are also establishing some 50% of sales in Germany now themselves in the German market and generated by discount formats. swelling the retail stock.

09 2 The department store sector in Germany

Key factors such as brand value and The inexorable rise of smartphones customer loyalty have fundamentally and mobile shopping will only further changed. Over-saturated and bored these trends going forward. Some consumers are now placing increasing 45.6 million people in Germany value on the „outcome“ or that „certain currently own a smartphone and the something extra“. The new customer trend is rising sharply. On the other type „homo eventicus“, the experience hand, e-commerce is now making its or event junkie, can apparently only be way into German city centres. One- enticed away from comfortable sofa time pure plays such as Zalando are shopping by product presentation opening physical stores in cities such that includes variety, sensations and as Frankfurt and Berlin. The future brand events. Retailers who manage to looks bright for multi-channel retailers imbue the sales process with an „aura that manage to supply their customers of the extraordinary“ can stand out via all platforms and to successfully against the competition. Should they combine their stationary retail business fail to attract customers with exciting with online sales. offers and bargain prices, however, the disappointed customer will turn to the In general, the increased competitive Internet. Indeed, massive increases pressure in the retail sector means in sales from the sofa are witnessed that flexibility and readiness to on public holidays and weekends. adapt quickly to current trends are According to projections from the key success factors for companies. EHI Retail Institute, e-commerce will Ponderous „old ladies“ such as account for 27% of total retail sales by department stores are seemingly 2025. unable to keep pace. However, this was not always true as a look back at Internet-friendly sectors such as the early days of department stores bookselling and electrical goods reveals. already account for a significantly higher proportion of revenues. This is having a noticeable impact on city centres, where these sectors previously occupied large stores and are now beginning to reduce their sales areas.

Fig. 1 B2C-E-Commerce turnover

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bn 25 €

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5 13.8 15.7 17.8 19.7 21.8 23.9 26.3 29.7 33.3 39.0 43.6 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Own illustration based on HDE Handelsverband Deutschland 2015 2 The department store sector in Germany

Once upon a time... During the post-war years, the Shopping was gradually becoming What future does the department store increasing affluence generated by a leisure activity, causing shopping have in the fiercely competitive market rebuilding the country meant increased centres to transform from full-range environment outlined above? Many demand for consumer goods as well providers to worlds of experience and, believe none at all. „The category is a as for greater motorisation of the thus, retain their status as attractions dying breed unless the business model population. As the economic upswing for shoppers. Compared with the is dramatically altered,“ wrote Stern in Germany continued, large stores with greenfield sites, city centres have magazine in August 2015 of a format even wider and deeper assortments witnessed a revival in recent years that has been in existence for around sprang up on greenfield sites. and are regaining their significance. 150 years. The department store Shopping centres are now preferably announced itself as a retail format in The savings achieved by optimising opened in good to very good major 1852 in Paris when Aristide Boucicaut business processes resulted in a retail locations while the number of opened his „Au Bon Marche“, one of constant expansion of retail space. department stores continues to decline. the first department stores in history. Furthermore, the associated growth in Despite the closures, turnover by sales The store was characterised by both a assortments attracted new customers area remained low relative to average broad and deep assortment of goods and increased turnover of stock. Higher retail figures, as well as to turnovers and innovations such as advertising order volumes led to better purchasing achieved in shopping centres, and has and price maintenance; essentially conditions, which had a positive impact continued to decline. a revolution in retail. Access barriers on the profitability of companies. were removed to reduce the distance between customer and products and In the city centres, the focus was on enable unconstrained shopping. larger and larger sales areas. The first pedestrian zones also began to Germany continued the trend with appear around city-centre department stores from Abraham Wertheim (1878) stores. In the 1970s, the department and Leonard Tietz (1879) in Stralsund, store reached its heyday, accounting Rudolph Karstadt (1881) in Wismar and for a market share of around 15%. Hermann Tietz (1882) in Gera. Such At the same time, however, a new department stores drew customers format emerged that would quickly put with their accessible city-centre the department store under massive locations and their wide assortments. pressure. The shopping centre copied These were soon followed by major the idea of having „everything under stores such as KaDeWe (1906/1907), one roof“ but used the intelligent built „like stately shopping palaces, arrangement of retailers by central bathed in light with multi-storey management to achieve synergies. atriums and ornately sculpted ceilings, Consequently, the department store with French-influenced, Gothic lost its monopoly as a full-range sacral, historicising and Art Nouveau provider and would consistently lose architecture” (RKW Rhode Kellermann further market share from the 1980s Wawrowsky 2015, p. 37). onwards due to the emergence of further competitors, such as vertical The years of hardship around World retailers and discounters. These War I gave way to growth and developments not only impacted the expansion of the new format, which department stores themselves but was further fuelled by a sellers‘ market. also the city centres, which witnessed By 1920, Karstadt had become a declining footfalls. stock corporation and increased its portfolio to 44 stores via a merger with In the 1990s, department store retailers Theodor Althoff. However, it was after attempted to salvage their profitability these „years of plenty“ that department via acquisitions. Hertie, the third stores suffered their first major slump largest department store group at in the build-up to World War II. „Anti- the time, was sold for DM 300 million department-store propaganda“ from to Karstadt, while Kaufhof bought the Nazi regime led to intimidation competitor Horten. As the takeovers of operators and forced closures. completed, Germany saw a wave of According to figures from Frechen department store closures. University, only around 364 out of 1,400 large and small department stores remained by 1939.

11 2 The department store sector in Germany

Fig. 2 Development of sales productivity As a result, shopping centres have consistently improved their position Galeria Kaufhof Shopping centre Retail total in the retail sector while department stores have lost further market share in 4,500 recent years (Fig. 3). 4,000 The provisional nadir of this trend 3,500 came in 2009 when Karstadt filed for bankruptcy. The turbulent years 3,000 that followed were characterised by 2,500 embezzlement proceedings, job cuts and changes of ownership. One-time 2,000 beacon of hope Nicolas Berggruen, who acquired Karstadt in 2010, 1,500 sold the group for one euro in 2014 Euro per sqm sales area sales sqm per Euro to Austrian property investor René 1,000 Benko. The latter lost a bidding war 500 for Kaufhof in 2015. The Metro Group parted with Kaufhof following years 0 of declining profits, selling the chain 2006 2007 2008 2009 2010 2011 2012 2013 for approximately €2.8bn to Canadian

Source: Own illustration based on Metro Group 2013, German Council of Shopping centres, HDE 2015 group Hudson’s Bay.

Status quo Not only does the department store Fig. 3 Development of retail market shares have an eventful history, it must also hold its ground in the present in a dynamic and hotly contested market department stores shopping centres environment. The constant changes in 12% management, rebuilding processes and the associated unsettling of customers

10% has manifested itself in the net revenues of both Karstadt and Kaufhof in recent years (Fig. 4). 8%

6%

4%

2%

0% 2006 2007 2008 2009 2010 2011 2012 2013

Source: Own illustration based on EHI 2014, German Council of Shopping centres 2015 2 The department store sector in Germany

However, the problems are more Fig. 4 Development of net revenue profound. Falling sales can be attributed to the unclear positioning of Karstadt Galeria Kaufhof assortments, which have traditionally 4.5 been in the mid-price range. In fashion retail in particular, therefore, there are currently two other beneficiaries; the 4.0 price-aggressive vertical retailers and those operators that can impress with 3.5 their retail experience, service and

quality. These might be considered bn 3.0 core strengths of the department € store. However, ongoing personnel 2.5 reductions by department store retailers threatens to undermine service quality and the associated elaborate 2.0 and enticing presentation of products. While this continues to be successfully 1.5 implemented in high-end stores such as KaDeWe and Oberpollinger, some jaded, previously robust department *2013 is a short fiscal year. stores in mid-sized towns and cities are Source: Own illustration based on EHI 2015 / * Galeria Kaufhof: short financial year Jan-Sep 2013 witnessing drastic declines in footfall (Fig. 5).

In smaller towns and cities, department Fig. 5 Development of department stores visitors stores, with their diverse assortments, continue to hold their own as key Karstadt Galeria Kaufhof retailers and even as anchor tenants. In 30 large cities with a broad and colourful retail landscape, on the other hand, department stores can lose their 25 significance as full-range providers amid competition from numerous 20 specialist retailers. Consequently, it is impractical to make a wholesale judgement as to the future viability of 15 the format. Rather, a more in-depth million analysis of the German department store landscape is required. 10

The 161 department stores studied in 5 this research are regionally distributed as follows (Fig. 6): 0 • 49 in large cities with 500,000 2007 2008 2009 2010 2011 2012 2013 2014

inhabitants or more Source: Own illustration based on EHI 2012 und Statista 2015 • 66 in large cities with 100,000 - 500,000 inhabitants • 31 in large mid-sized towns and cities with 50,000 - 100,000 inhabitants and • 15 in small mid-sized towns and cities with 20,000 - 50,000 inhabitants

13 2 The department store sector in Germany

Thus, the distribution is largely Fig. 6 Department stores in Germany consistent with that of the population. Only the former East German federal states have a below-average supply of department stores with just twelve properties. This is particularly striking in the federal state of Thuringia, which has just one store.

The distribution by department store retailers is almost identical. There are 86 Galeria-Kaufhof stores compared with 75 Karstadt stores. The latter are divided into eight specialist stores and 67 traditional department stores.

An analysis of the sales areas reveals that Kaufhof has a total of 18 department stores with areas below the 8,000 sq m threshold identified by Hessert as a „magic limit“ for a successful department store. Karstadt, meanwhile, has only four stores with a sales area below 8,000 sq m. Galeria- Kaufhof department stores have an Source: Own illustration Stadt + Handel average sales area of 12,779 sq m, compared with 15,397 sq m for Is it premature or pessimistic, El Corte Ingles in Spain, Rinascente Karstadt department stores. therefore, to declare the end of the in Italy and Marks & Spencer in Great department store format? Such Britain are just a few such examples. One feature that markedly differentiates sweeping questions can be answered the department store from other retail in the negative since a glimpse across formats is the distribution of the sales national boundaries reveals successful area over several floors. This is unusual international department store chains in retail since customers have a clear that are prospering and expanding preference for barrier-free shopping rather than contracting. and, thus, ground-floor stores, whereas concepts laid out over several floors require highly attractive uses on the upper floors to achieve an even Fig. 7 Gross sales of the leading department store companies in Europe in distribution of internal footfall across all 2014 storeys. The department stores studied range from single-storey to ten-storey John Jewis (UK) 8,596 properties. It is noteworthy that in 139 Dunnes (UK) 8,068 of the 161 stores, more than three floors are used for retail. Marks & Spencer (UK) 8,013

Casino (F) 7,409 Against a background of the developments outlined in the German Galeries Lafayette (F) 6,799 retail landscape, as well as the Home Retail Group (UK) 6,058 declining turnover by sales area and market share of department stores, El Cortes Ingles (ES) 3,938 the question is whether such stores can remain sufficiently attractive to Galeria Kaufhof (D) 2,568 successfully support their distinctive Debenhams (UK) 2,529 multi-storey properties. Karstadt (D) 2,192

0 2,000 4,000 6,000 8,000 10,000 Turnover per sq m sales area

Source: Own illustration based on EHI 2014 2 The department store sector in Germany

At first glance, therefore, the faltering of suitable for a garden centre occupier To a certain extent, the combination the department store format appears but not a clothing retailer. This, in of these three features of the use, to be a problem of the German market. turn, makes the property attractive to building fabric and micro-location, A more in-depth look at department certain investors but uninteresting to creates a unique letting and investment stores, the quality of the properties and others. The DIY store example also market. At the very least, department their locations, as well as the intensity illustrates another point. Some retail stores constitute an independent of local competition, provides further properties are intrinsically linked to the sub-segment of the retail property indications as to the future viability corresponding retail segment and each market. The relevant characteristics of of the stores and allows detailed is inconceivable without the other. At department store properties from a real discussion as to the future evolution of the other extreme are agglomerative estate perspective and the respective the „department store species“. properties such as shopping centres, (sub)markets of this property type are, which are suited to a wide range of therefore, discussed in further detail 2.2 Department stores as properties retail segments. Department stores below. The retail sector is a central pillar of share closer proximity with DIY any national economy. And while online stores than shopping centres on In their halcyon years, department retail is increasingly seizing market this intellectual spectrum. Without stores were regarded as „cathedrals share from its stationary counterpart, a department store as an occupier, of retail“. Many of today‘s department by far the largest proportion of sales the department store property also stores have lost this erstwhile continues to be completed „on the essentially loses its status, although splendour, just as their developers have shop floor“. In Germany, stationary this may only definitively occur once lost their penchant for ostentatious retail still accounts for approximately another use is found for the property. architecture. What has remained, 90% of total retail sales at present At that point, it becomes an emporium however, is the critical mass of the according to HDE. This also means or high-street property or, as is often structures that likely contributed to that retail space currently generates the case, the vacancy paves the way the origin of the cathedrals metaphor. more than €420bn per year in the retail for redevelopment as a completely The 161 department store properties sector, most of which is turned over in different property type. However, it is in Germany have an average rental retail properties. The number of such these various options for subsequent area of some 17,900 sq m over more properties existing in Germany and use that also fundamentally differentiate than five storeys. The sales area of the their total rental area are unknown. the department store from the DIY properties averages approximately Therefore, the total sales area of store. In their original form, department 14,400 sq m and some buildings 120 million sq m is essentially the only stores display features that make them include additional space for offices and figure that offers an indication as to what they are and distinguish them other uses. The KaDeWe in Berlin is the the size of the German retail property from other retail properties. largest department store in Germany stock. By way of comparison, the with a sales area of some 60,000 sq m, present office stock was estimated at The German department store stock while the Galeria Kaufhof on the Zeil around 320 million sq m a number of and its characteristics in Frankfurt is the highest with ten years ago by the Society of Property A fleeting glance at the distinctive storeys. Only two properties have Researchers, Germany (gif), while the „Hortenkachel“ tiled façades alone fewer than three storeys, the Karstadt- logistics property stock is believed is sufficient for department store Schnäppchencenter in Gießen with to be of a similar size. Thus, while its connoisseurs and many consumers to one floor and the Karstadt-Warenhaus property stock may be somewhat differentiate department stores from in Bremerhaven with two floors. smaller than that of the two other other properties. However, since the Department stores are, therefore, sectors mentioned, retail remains one Horton chain that gave its name to the among the largest retail properties both of the largest commercial property tiles is no longer in existence and the in terms of footprint and usable floor sectors in Germany. tiles are becoming an increasingly rare area. Only shopping centres and retail sight on the high street, there are other parks can match such floor areas as a Compared with logistics and essential characteristics that distinguish general rule. particularly office property, the retail department store properties. property landscape is also significantly more heterogeneous and is divided First and foremost, like all other types into several sub-segments, including of property, department stores define high-street properties, shopping themselves by their use. In addition centres and retail warehouses. These to their use by a department store sub-segments are characterised retailer and the associated status by specific structural and locational as single-tenant properties, from a qualities and, consequently, represent property management perspective distinct letting and investment they are also characterised by a markets. The building envelope of a number of structural features as well DIY store, for example, may also be as by their specific micro-location.

15 2 The department store sector in Germany

There are also only two other types The high-quality locations of most location of a retail property, then we of retail property that can compare department stores is naturally also can conclude from this analysis that with department stores when it comes reflected in rental levels. Department the decline in department store sales in to their number of floors, namely store rents typically range between recent years can only be attributed to emporiums and high-street properties. €10 per sq m and €20 per sq m with causes relating to the micro-location in However, it is almost a unique feature some higher rents in prime locations isolated cases at the most and not for of department stores that all storeys in the largest cities and significantly German department stores as a whole. are used as sales floors. For the most lower rents in secondary locations part, the storeys have generous floor in smaller towns and cities. When to ceiling heights, no steps and large comparing these rents with those column grids. They are normally normally published for prime highstreet accessed centrally via escalators and locations, it must be taken into account lifts. Basement or upper levels are, in that department store rents indicate some cases, used as underground the average across all floors whereas car parks or parking decks. In many the latter typically relate to small, other cases, there are adjacent or purpose-built and barrier-free ground- neighbouring multi-storey car parks, floor areas. With this in mind, we take a normally providing 200 to 500 parking look at rents and rental growth in prime spaces. highstreet locations in the department store cities below. While there are That department stores have so many numerous department stores outside parking spaces is an indication for of prime highstreet locations, for which their often easy accessibility by private the graphic below has little or limited motorised transport. Local public relevance, there is no consistent pool transport links are normally even better of data for such locations. since most department stores are situated in central city-centre locations. Rents for prime highstreet locations Only around one in ten department are available for 85 of the 107 towns stores is situated in a non-city- and cities with a department store. centre location and these are almost These rents average almost €77 per exclusively in Berlin, Hamburg, Cologne sq m. The lowest average rent is found and Munich, cities with over a million in Bayreuth at €12 per sq m while the inhabitants. However, not only are the highest figure is achieved in Munich properties centrally located, around with €170 per sq m. The average three quarters of these are situated in rent across all towns and cities has A locations. These high-quality micro- risen by almost 6% since 2010, with locations also differentiate department Regensburg witnessing the highest stores from most other retail properties. rental growth of 32%. In Siegen, on Only emporiums and high-street the other hand, rents have fallen by properties and, to a lesser extent, 13% during the same period, the city-centre shopping centres are found strongest decline across all locations. in such highly frequented A locations. A comparison with the IPD retail rent The quality of the locations is also index, which rose by 3.6% between reflected in land values, which typically 2010 and 2014, illustrates that rents account for 30-50% of the total value in prime highstreet locations in the of department store properties. In view towns and cities studied increased by of the relatively large site areas, the an additional two percentage points. absolute value of the land is often a For those department stores in prime figure of considerable magnitude, i.e. highstreet locations at least, the over €10m. The standard land value analysis above demonstrates that, for the KaDeWe site, for example, not only are these situated in the best is €20,000 per sq m. In terms of the locations a city has to offer, but these entire German department store locations have pulled further ahead stock, whose value is probably at least of all other locations in terms of value €8bn, if we assume that 40% of this in recent years. The available data for is attributable to the land value, this other highstreet locations also indicates produces a cumulative land value of that rents have grown at an above- approx. €3.2bn. average rate in such locations. If we accept that rents and rental growth are good quality indicators for the micro- 2 The department store sector in Germany

Fig. 8 Prime highstreet rents in cities with department store(s)

Average rent prime highstreet (left-hand axis) Change 2010-14 (right-hand axis) 180 45% 160 40% 140 35% 120 30% 100 25% 80 20% 60 15% 40 10%

EUR per sq m 20 5% 0 0% -20 -5% -40 -10% -60 -15% Ulm Köln Trier Bonn Erfurt Fulda Berlin Mainz Düren Essen Neuss Witten Hanau Hagen Hamm Kassel Siegen Gießen Krefeld Leipzig Lübeck Coburg Aachen Bottrop Bremen Cottbus Koblenz Münster Rostock Freiburg Dresden Solingen Bielefeld Stuttgart Erlangen Potsdam Bayreuth Kempten Duisburg Bamberg Hamburg München Landshut Konstanz Nürnberg Chemnitz Lüneburg Karlsruhe Hannover Heilbronn Augsburg Würzburg Gütersloh Göttingen Flensburg Dortmund Ingolstadt Offenburg Pforzheim Wuppertal Offenbach Mannheim Darmstadt Paderborn Oldenburg Reutlingen Düsseldorf Osnabrück Heidelberg Hildesheim Wiesbaden Rosenheim Magdeburg Schweinfurt Neumünster Regensburg Halle (Saale) Saarbrücken Durchschnitt Bremerhaven Braunschweig Gelsenkirchen Recklinghausen Neubrandenburg Frankfurt am Main Mönchengladbach

Source: Own illustration based on Riwis / Bulwiengesa

The investment market for Since the start of 2009, 193 Some 84 of the properties, almost half, department stores department stores have changed changed hands by way of portfolio The high-quality locations are not owners. In this context, department transactions. The two cities with the least material grounds for many real stores are defined as not only highest numbers of department store estate investors to allocate (some of) those properties that were used as transactions since 2009 are Berlin and their capital to department stores. department stores at the date of sale, Hamburg, each with 12 stores, followed Retail property in general is one but also vacant properties whose by Munich with seven property sales. of the most liquid sectors in the previous occupier before the sale A further 25 cities witnessed at least commercial property investment was one of the four major department two department store sales during the market. Since 2009, properties in store retailers (Hertie, Horten, Karstadt same period. Germany have changed hands for and Kaufhof). This is also one reason approximately €60bn. Only office why the average transaction size per property has seen greater inflows property was just €32.2m. If one only during the same period with €64bn. takes into account those properties Around €6.2bn, more than 10% of the still occupied at the date of sale, the funds invested in retail property, was average transaction size per property attributable to department stores. By rises to almost €47m. way of comparison, hotel and logistics properties, which are independent Fig. 9 Department stores transaction volume sectors in the property market and are, thus, shown separately in investment market reports, each accounted for Transaction volume (left-hand axis) Share of total retail transaction volume (right-hand axis) approximately €9.5bn of investment. 3,000 30% This illustrates that department stores are without doubt a significant segment 2,500 25% in the German property investment market. This is all the more apparent when the transaction volume is viewed 2,000 20% in the context of the overall property stock. There are more than 230 hotels m 1,500 15% in Berlin, significantly higher than € the number of department stores in the whole of Germany. From this 1,000 10% perspective, department stores could even be described as an exceptionally 500 5% liquid segment of the property investment market. 0 0% 2009 2010 2011 2012 2013 2014 2015 H1

Source: Savills

17 2 The department store sector in Germany

Almost one third of properties sold Fig. 10 Types of investors (31%) were located in cities with at least 500,000 inhabitants, while Purchase volume Sales volume almost as many (29%) changed hands Net investment volume in cities with 100,000 to 500,000 Listed property company inhabitants (29%). The remaining Other Asset Manager 39% of properties were located in Open-ended special fund towns and cities with fewer than Developer 100,000 inhabitants, with the number Housing association of properties sold falling in direct Closed-ended fund correlation with descending population Public administration figures. Only six department stores Other (4%) changed hands in towns with Open-ended public fund fewer than 20,000 inhabitants. This Private investor / Family office distribution is broadly in line with the Bank current property stock, although towns Insurance company / Pension fund and cities with fewer than 100,000 Private-equity fund inhabitants have been represented Corporate somewhat more strongly (39% -3 -2 -1 0 1 2 3 compared with 27% of the current €bn department store stock). This is primarily attributable to the fact that Source: Savills many vacated department stores, including numerous Hertie stores, were If this „extraordinary effect“ is excluded purchaser group (approx. €0.9bn), sold and these were predominantly when interpreting the figures, we along with special property funds located in smaller towns and cities. can make other key observations. (approx. €0.6bn) and other fund and Investment is evenly balanced between asset managers (approx. €0.9bn). By far the largest group of vendors domestic and foreign purchasers. The vendor side is dominated by US were corporates (primarily department The two most active nations on the investors (approx. €1.4bn), followed store retailers themselves in the context purchaser side are Austria (approx. by domestic vendors (approx. €0.8bn). of this study) with a sales volume of €0.8bn) and Israel (approx. €0.6bn), Once again, private equity funds were more than €2.5bn. However, this figure although these figures are primarily the most active investor type in terms was only made possible by the transfer attributable to two investors, Signa- of department store disposals (approx. of more than 40 Kaufhof properties Gruppe and BSG Investments Real €1.5bn). All other investor types were for approx. €2.4bn from the new Estate. In terms of types of investor, significantly less active on the vendor Kaufhof owners Hudson’s Bay to a joint private equity funds represent the side. venture with Simon Property. The same largest transaction is also responsible for the fact that Canada provided the most Fig. 11 Origin of buyers active vendors with disposals totalling €2.4bn. Other There are similar anomalies on the 16% purchaser side. Listed property companies represented the largest Germany 30% purchaser group (almost €1.5bn), followed by corporates (approx. €1.2bn). In terms of purchasers‘ Austria country of origin, USA and Canada 13% claimed second and third place, each with acquisitions totalling approx. €1.2bn (Fig. 11).

Canada 20% United States of America 21%

Source: Savills 2 The department store sector in Germany

As a general observation on transaction As mentioned earlier, it is not least locations in all of these towns and cities activity from recent years, it is apparent the high-quality locations that makes in 2010 would have since achieved a that department stores can represent department stores appealing to (theoretical) increase in capital value an interesting investment for all types investors. Therefore, just as we have of approx. 11%. In contrast, the of investor. For conservative investor analysed rents and rental growth, IPD retail portfolio would have only groups, such as insurance companies it makes sense to also analyse the achieved capital growth of just below and pension funds, department stores yields in these locations, i.e. for 85 of 6% during the same period. While let on long-term leases in 1a locations the 107 towns and cities with at least this is purely a synthetic analysis of are particularly interesting since they one department store. The net initial value based upon market data and offer a stable rental yield and a high yields in central locations of the towns does not allow any reliable inferences probability of capital preservation. and cities studied averaged approx. as to the performance of department Opportunistic investors such as private 6.1% at the end of 2014. The lowest store properties, it does at least equity funds, on the other hand, are yield was found in Munich at 4.1% provide some evidence that, despite more interested in properties with while the highest level was recorded the challenging conditions for their short lease terms and uncertain futures in Solingen at 8.7%. Since 2010, the occupiers, department stores represent since this creates opportunities for average yield hardened by 29 basis an attractive, highly profitable market re-positioning and the associated points. Yields tightened the most in segment for investors. value-add potential. Department stores Aachen, Augsburg and Wiesbaden are also of interest to developers, with 80 basis points while Hamm, particularly when they are vacant Neuss and Recklinghausen witnessed or about to be vacated, since this the strongest rise in yields of 20 basis presents an opportunity to redevelop points. Once again, a comparison with a property in a retail location that will IPD data produces some interesting generally enjoy a high level of footfall. observations. According to the IPD, Retailers themselves will also have an retail yields hardened by 12 basis interest in acquiring the department points during the same period. By store properties they occupy since combining the rental growth and they will have greater freedom in terms yield movements in the towns and of business strategy if they own the cities studied in this report, we can property themselves rather than being conclude that an investor who acquired dependent on third parties. a portfolio of retail properties in prime highstreet

Fig. 12 Net initial yields in central location of cities with department store(s)

Retail NIY in central loactions (left-hand axis) Change 2010-14 (right-hand axis) 10 100 9 80 8 60 7 40 6 20

% 5 0 Bps. 4 -20 3 -40 2 -60 1 -80 0 -100 Ulm Köln Trier Bonn Erfurt Fulda Berlin Mainz Düren Essen Neuss Witten Hanau Hagen Hamm Kassel Siegen Gießen Krefeld Leipzig Lübeck Coburg Aachen Bottrop Bremen Cottbus Koblenz Münster Rostock Freiburg Dresden Solingen Bielefeld Stuttgart Erlangen Potsdam Bayreuth Kempten Duisburg Bamberg Hamburg München Landshut Nürnberg Konstanz Chemnitz Lüneburg Karlsruhe Hannover Heilbronn Augsburg Würzburg Gütersloh Göttingen Flensburg Dortmund Ingolstadt Offenburg Pforzheim Wuppertal Offenbach Mannheim Darmstadt Oldenburg Paderborn Reutlingen Düsseldorf Osnabrück Heidelberg Hildesheim Wiesbaden Rosenheim Magdeburg Schweinfurt Neumünster Regensburg Halle (Saale) Saarbrücken Durchschnitt Bremerhaven Braunschweig Gelsenkirchen Recklinghausen Neubrandenburg Frankfurt am Main Mönchengladbach

Source: Own illustration based on Riwis / Bulwiengesa

19 2 The department store sector in Germany

If the performance described above Fig. 13 Ownership structure of department store properties continues over the coming years, Canada‘s Hudson’s Bay Company and America‘s Simon Property Group will Other 15% Private investor / be among the greatest beneficiaries. Family office Following the acquisition of Galeria 20% Kaufhof, these are the two largest owners of German department stores, having incorporated most of these Bank properties into a joint venture. Together, 9% the two partners hold 40 properties (as well as three sports arena properties excluded from this study), with HBC Insurance (part) owning a number of other company Corporate properties. Highstreet-Konsortium 9% 19% remains the third-largest owner with more than 20 Karstadt department stores according to the latest press Private-equity reports, although the consortium fund Listed property partners would like to dispose of these. 10% company / REIT Overall, there are currently more than 18%

50 different owners of department Source: Savills, Stadt + Handel stores, of which around 20 companies or private individuals co(-own) more Italy and Israel (each with 20). obvious subsequent use and may, than one department store property. therefore, be considered worthless Private investors and family offices The outlook for department store or at least significantly less valuable. represent the largest group of owners properties Secondly, only department store with combined holdings of more than In summary, we have established retailers have managed to successfully 50 properties. The second largest that the 160 or so department store operate properties of such size group of owners is corporates, who properties in Germany represent a and with so many floors to date in own 50 department stores. However, specific niche within the retail property Germany. This is highly important for this is almost exclusively attributable sector and a highly attractive niche for property investors since the single- to the Hudson’s portfolio. Property investors. This is substantiated by the occupier and single-use structure of companies and REITs have the third- highly buoyant investment market for the properties requires significantly less largest combined holding with 46 this type of property. The attractiveness management compared with multi- properties, 40 of which are accounted of department store properties is tenant or even multi-use properties, for by HBC‘s joint venture partner, not least attributable to their specific which department store properties Simon Property. In fourth place are locations, which, along with other would almost inevitably become if not private equity companies with 27 characteristics, differentiate them used as department stores. Thus, the properties, followed by insurance from many other (retail) properties. future of department store properties companies in fifth with 24 department The high quality of the locations, is indeed closely linked with that of the stores. Yet again, this distribution combined with the large floor areas, retail format, albeit the dependencies illustrates that department stores have is rare and consequently sought-after are certainly asymmetrically distributed. highly diverse risk profiles according by occupiers and investors. Thus, it Real estate investors looking at to the condition and location of is little surprise that the department department stores would, therefore, properties as well as unexpired lease store‘s crisis as a retail format can only benefit from analysing the location of terms, and the ownership structure be identified from the property-related the properties and hence their future of the properties is correspondingly figures for this segment under close viability. Whether because they want heterogeneous (Fig. 13). scrutiny. Indeed, it could even be said to secure those „gems“ whose future with a certain degree of exaggeration viability as department store properties The two major German department that the future of the department store is almost certain or because they are store retailers are not alone in being is meaningless for the performance of more interested in finding a „casualty“ in foreign ownership following the today‘s department store properties. with low survival prospects but acquisition of Galeria Kaufhof by HBC; However, this conclusion would be significant potential for alternative use. most department store properties in misleading. Firstly, such a blanket Germany are in foreign hands. Around statement disregards the individual 80 properties are held by domestic circumstances of each property. owners, with the largest foreign investor Without an occupier, a department nations comprising the USA (approx. store in an unfavourable micro-location 60 properties), Canada (50), and/or macro-location may have no 2 The department store sector in Germany

Department stores and shopping centres – a promising symbiosis?

31 department stores in Germany are a structural part of a shopping centre. They are accordingly either a large-scale tenant of the shopping centre or they are located in an independent building in close proximity to the centre. In this case, both are often structurally connected and nearly always part of the centre advertising association. Of those 31 department stores 16 are Galeria Kaufhof stores, 15 belong to Karstadt.

The number of these department stores might be interpreted as a promising symbiosis between both retail formats. On closer inspection, an opening of a department store within a centre often entails the closing of a once detached location, in part even the demolition of the building. The seemingly expansion of department stores in shopping centres is one side of the coin, the other side is a decline of independent department store locations.

Against this background, shopping centre owners with an attached department store currently owned by a third party are vastly interested in acquiring it. This way, it is up to the owners to manage the leased space in case the department store closes and avoid a negative impact on the rest of the shopping centre. In the past years, owners of centres consistently bought attached department stores, especially in the larger cities. Since 2011, there have been at least seven of those transactions (see overview below).

In conclusion: The symbiosis between department stores and shopping centres is based on the relative frailty of the department store format and it remains questionable whether this will stay a continuous connection.

City Despartment store, Name of shopping centres, Transaction year, Customer Berlin Galeria Kaufhof, Linden-Center, 2012, ECE

Hamburg Galeria Kaufhof, Alstertal-Einkaufszentrum, 2012, consortium led by ECE

Hamburg Galeria Kaufhof in Quarrée centre, acquired by UIRE in 2014

Frankfurt (Main) Galeria Kaufhof, Hessen-Center, 2012, consortium led by ECE

Munich Galeria Kaufhof, Olympia-Einkaufszentrum, 2012, consortium led by ECE

Nürnberg Karstadt, Franken-Center, 2011, ECE

Leonberg Karstadt, Leo-Center, 2011, ECE

Source: Own illustration based on press releases

21

3 German department stores compared

3.1 Introduction to the department towards people returning to cities and of each individual department store store scoring city centres. Department stores are, location. Thus, property investors, Following the acquisitions of Karstadt fundamentally, also ideally equipped for local authorities and department store by Benko and Galeria Kaufhof by the „experience retail“ trend discussed retailers themselves, as well as other Hudson’s Bay, the German department earlier. The properties combine ideal stakeholders, can use the results as a store is, once again, entering a new era locations with sufficient space to set guideline or basis for decision-making. whose outcome is uncertain. However, the scene for experiences and, thus, to the arguments put forward in the be able to draw in customers. That properties in general and retail previous chapter illustrate that the retail properties in particular are more format is faced with great challenges. In brief, the German department store dependent on their location than any Like the rest of the retail sector, is still without doubt in a state of crisis. other assets is also demonstrated department stores are losing revenues However, this crisis does not have to by the scoring, which is based upon to online retailers and e-commerce be the last act for the „old lady“ by any three pillars. The first pillar evaluates sales are growing particularly strongly means. The only statement that can be the macro-location, i.e. the general in clothing, a core segment for made with some degree of certainty is conditions in the respective town or department stores. However, once that no sweeping judgements can be city. Since just a few dozen metres‘ today‘s increasingly spoiled and reached in respect of the future viability distance from the peak areas of footfall comfortable consumers are attracted of German department stores, whether can make the difference between a into the store, there is another hurdle as a retail format or property type. The successful department store and an to overcome in the most literal sense. department store landscape is simply unsuccessful one, the micro-location In order for customers to benefit from too diverse, with each property having represents another pillar of the scoring. the department store‘s function as a specific strengths and weaknesses. In addition to the immediate and full-range provider, they must negotiate The objective of this chapter is to wider vicinity of a department store, a number of escalators. Then there explore such individual strength and the property itself is also an important are other exertions, such as queuing weakness profiles. To this end, all determinant for the success of a store. to pay at several counters, carrying department store locations in Germany Thus, the third pillar of the scoring purchases over long distances and as defined in this study are evaluated model comprises an assessment of wintry sweats because, with no in-store via the scoring process below. This the property. The scores for both the lockers, customers are forced to keep scoring is intended to illustrate the individual pillars and the overall results their winter coats on throughout the location and property- are assessed on a scale from 1 to 10, entire shopping experience. This clearly demonstrates that the department Fig. 14 Scoring model store format has a problem. The insolvencies of recent years and numerous closed stores are merely its Total score most obvious manifestation. However, this vivid description is also intended to highlight that the problems are not least home-made. This is further supported when looking outside the German Score micro location Score property quality Score macro location department store sector. Elsewhere, - Standard land value - Footprint - Average asking rent (2014/15) - Sales area there are stable, functioning and even (2013/14/15) - Rental indicator (2015) - Construction quality - Prime highstreet rent expanding formats, albeit the market - Development of rent (2015) environment in other countries is not (2013-15) - Population forecast entirely comparable with the German (2015-30) market. Indeed, German department stores are implementing various ideas to overcome the challenges related conditions of each property. where 10 represents the best and 1 the mentioned. Furthermore, some of The results of the scoring allow for worst possible score. The methodology the characteristics described in the conclusions as to the future viability for calculating the results was devised previous chapter represent unique of the individual department store such that the full range of the scoring competitive advantages from which locations in the context of these scale is used and that all ten scores the department store can benefit in the conditions. The actual performance of are awarded with the same frequency current changing retail sector. These the department stores is not taken into (for further details, see the ‚Scoring particularly include the central locations account. Consequently, the results of methodology‘ text box. A score of 10 on town and city-centre shopping the scoring do not make any assertions always represents the top 10% of the streets, which is a clear plus point in with regard to the turnover, productivity department stores studied (or towns view of the current trend, both in the or general success of a department and cities in the case of the macro- retail sector and the wider economy, store. Rather, they indicate the potential location), while a score of 1 represents

23 3 German department stores compared the worst 10%. The same applies for Scoring methodology components. Moreover, department scores between these two extremes. The department store scoring in this study storesis based are upon easily a ablequantile to gear ranking their That properties in general and retail evaluation of all initial values, whose resultsproduct are translated assortments into a toscale local from demand. 1 to properties in particular are more 10. The process is best explained with a concrete example of the scoring. dependent on their location than any other assets is also demonstrated One of the three indicators for assessing the macro-location quality is the by the scoring, which is based upon average quoting rent for retail space in a town or city. These range from €6.09 three pillars. The first pillar evaluates per sq m to €22.73 per sq m in Frankfurt (Main) across all towns and cities with the macro-location, i.e. the general department stores. An appropriate quantile ranking is calculated for the rents conditions in the respective town or in all towns and cities ranging from 0 to 1 and indicating the percentile ranking city. Since just a few dozen metres‘ of each rent. For the two extremes mentioned in this example, this means that distance from the peak areas of footfall Hof has a quantile ranking of 0 because 0% of all rents are below this figure. can make the difference between a Conversely, the Frankfurt rent has a quantile ranking of 1 since 100% of all successful department store and an rents are lower than in Frankfurt. Another example: Mannheim has an average unsuccessful one, the micro-location rent of €15.91 per sq m, which is higher than in 85% of all towns and cities represents another pillar of the scoring. studied, producing a quantile ranking of 0.85. In addition to the immediate and wider vicinity of a department store, The quantile rankings created using this method are translated into a scale from the property itself is also an important 1 to 10 as follows. All quantile rankings up to 0.1 receive a score of 1. Those determinant for the success of a store. with a quantile ranking between 0.1 and 0.2 receive a score of 2, etc. Thus, Thus, the third pillar of the scoring the scores for the three example towns and cities are: Hof = 1, Mannheim = 9, model comprises an assessment of Frankfurt (Main) = 10. the property. The scores for both the individual pillars and the overall results The same methodology is used to calculate the scores for eight of the total of are assessed on a scale from 1 to 10, nine indicators used in the scoring. Only the structural quality indicator in the where 10 represents the best and 1 the scoring pillar relating to the quality of the properties uses a different procedure. worst possible score. The methodology Here, there are only three possible initial values (above average, average and for calculating the results was devised below average), which are translated into quantile rankings of 1/0.5/0 or the such that the full range of the scoring corresponding scores in accordance with the process outlined above. scale is used and that all ten scores are awarded with the same frequency The initial scores for each of the three pillars are combined into an aggregate (for further details, see the ‚Scoring score, which is published in this study. These are calculated from the quantile methodology‘ text box. A score of 10 rankings of the three indicators within each column. The first stage is to always represents the top 10% of the calculate the arithmetic mean of these quantile rankings. This, in turn, is department stores studied (or towns transformed into a quantile ranking in the second stage and into the ten scores and cities in the case of the macro- in the third stage following the procedure described above. The quantile location), while a score of 1 represents ranking for each of the three scoring pillars calculated in the second stage the worst 10%. The same applies for forms the basis for determining the overall score for each department store scores between these two extremes. examined. Here again, the process starts with calculating the mean value before translating this into a quantile ranking and then into the corresponding 3.2 „Macro-location“ scoring pillar score. Indicators The macro-location should always play a decisive role from a property management perspective. There reasons for this are two-fold. Firstly, the circumstances of the macro-location cannot be influenced by any individual as possible in relation to retail. Since If a department store also offers market participant nor the owner or department stores are full-range local supplies, for example, it is occupier of a property. Rather, they are providers, they combine a number conceivable that clothing will represent the product of overriding social and of different retail assortments under a significantly smaller proportion economic developments in a region. one roof and have a correspondingly of the product range while more Secondly, the prevailing conditions in a diverse target customer base. Against space will be given to groceries and macro-location only change over a very this background, it would not make drugstore products. Consequently, the prolonged period. sense to tailor the scoring indicators indicators for this pillar must fulfil the purely to clothing retail, for example. requirement of combining to reflect the To fulfil the objective of this pillar of the Although clothing is indeed the largest attractiveness of each macro-location scoring, it seems appropriate to select element of a typical department for retail as a whole. The first of the indicators that reflect the attractiveness store‘s product range, this assortment three indicators selected is, therefore, of the macro-location as holistically itself comprises numerous other the average retail rent for a town or city, 3 German department stores compared measured as the average of all quoting retail in a holistic manner that cannot rents on retail space on the market in be achieved by other retail-related the respective town or city during the indicators, such as purchasing power, period between January 2013 and centrality or footfall. August 2015. The rationale behind this parameter is that, the more attractive a In order to reflect the future town or city is to retailers, the greater development of a macro-location in the demand for retail space in the town addition to the status quo, population or city and, consequently, the higher projections for the period 2015-2030 the average rent. Consequently, a high are incorporated into the scoring as a rent is a manifestation of attractive third indicator. Since the inhabitants conditions in the macro-location and of a town or city are principally is, therefore, reflected in a higher score responsible for the demand and than that for a lower rent. sales of the stores in each location, the population is fundamental to The logic behind the second indicator, the local retail market. While purely the prime rent in the 1a location focusing on the population size does of the respective town or city, is leave aspects such as purchasing essentially the same as that behind power and centrality differences out the average rent for the entire town of the equation, population size can or city. However, there is methodical be projected with relatively greater reasoning behind adding this into the accuracy than any other relevant scoring. While the average quoting rent indicator over prolonged periods. in most towns and cities is calculated This allows the fundamental change using several hundred or even several in attractiveness of a macro-location thousand quoting figures, this could from a retail perspective over the next still deviate from actual prevailing 15 years to be assessed since a town rental levels in certain circumstances. or city with a declining population will, This may be the case, for instance, all other conditions remaining equal, if there happens to be a high volume become less attractive to retailers while of expensive new-build property or a location with population growth will large amounts of inexpensive space become more attractive. in peripheral locations on the market during the period under evaluation. Scoring results Such distorting effects are excluded The results of the macro-location from prime rents in prime highstreet scoring, as well as those for the other locations since these always relate to pillars, are summarised into three small, purpose-built, modern space in groups. The first group represents the a defined location. Thus, these figures „frontrunners“, comprising those towns perfectly complement the average and cities or department stores with quoting rents since they balance the three highest possible scores, i.e. out the methodological weakness in from 8 to 10. The second group, the the latter. Conversely, however, they „midfield“, includes the results for all would not be suitable as a sole rental towns and cities or department stores indicator since they reflect not only with score from 4 to 7. The third and the conditions of the macro-location final group, the „laggards“, occupy the but also the specific conditions in the scores from 1 to 3 (Table 1). micro-location, i.e. the respective 1a location. Together, the two indicators provide a very good picture of the status quo of a macro-location with regard to its attractiveness in terms of retail. It may be true that rents include effects that are irrelevant from a retail perspective, such as general demand for space, including demand from other uses. However, these should also be taken into account since the rents, therefore, reflect all factors relevant to

25 3 German department stores compared

Table 1 Scoring results macro location

Score = 10 Score = 9 Score = 8

Düsseldorf Stuttgart Bad Homburg v.d. Höhe

Frankfurt a.Main Bonn Berlin

Freiburg Braunschweig Darmstadt

Hamburg Ingolstadt Hannover

Heidelberg Lüneburg Heilbronn

Karlsruhe Mainz Landshut

Köln Münster Nürnberg Frontrunners Mannheim Oldenburg Regensburg

München Potsdam Rosenheim

Rostock Ulm

Trier

Wiesbaden

Score = 7 Score = 6 Score = 5 Score = 4

Aachen Bamberg Bielefeld Coburg

Augsburg Bremen Dresden Düren

Dortmund Brühl Gütersloh Göppingen

Erlangen Erfurt Leipzig Hanau

Esslingen Essen Lörrach Kassel

Göttingen Flensburg Neuss Kempten

Midfield Konstanz Gießen Pforzheim Kleve

Lübeck Koblenz Reutlingen Krefeld

Offenbach Osnabrück Siegburg Memmingen

Offenburg Paderborn Speyer Saarbrücken

Würzburg Worms Singen (Hohentwiel)

Score = 3 Score = 2 Score = 1

Celle Bad Kreuznach Bremerhaven

Duisburg Bayreuth Chemnitz

Fulda Bottrop Cottbus

Halle Euskirchen Goslar

Hildesheim Gelsenkirchen Hof

Landau Hagen Iserlohn

Limburg (Lahn) Hamm Neubrandenburg

Leggards Schweinfurt Magdeburg Neunkirchen

Wuppertal Mönchengladbach Siegen

Neumünster Solingen

Recklinghausen Wesel

Wismar

Witten

Source: Own calculations and graph based on Brockhoff, Empirica systems, Lührmann, RIWIS / BulwienGesa, Federal Statistical Office 3 German department stores compared

Frontrunners Fig. 15 Clustered scoring results macro location The highest scoring group comprises a total of 31 towns and cities Scoring Macro and, unsurprisingly, includes all of Population forecast Ø Asking rent Prime highstreet rent Germany‘s major retail markets, such as Berlin, Düsseldorf, Cologne and 0.12 22.73 380 Munich. With four exceptions, Bad Homburg, Landshut, Lüneburg and 212 Rosenheim, all locations in this group have more than 100,000 inhabitants. 16.35

The average population size is almost 13.36 12.62 66 79 460,000, which is several times greater 0.04 0.01 25 than that of the other two groups. -0.03 8.97 19 The city with the highest average 6.09 quoting rent in the group is Frankfurt (Main) with a figure of €22.73 per sq -0.09 m, followed by Munich with €21.72 per sq m. The lowest rental level is found -0.18 in Nuremberg with €12.62 per sq m. Frontrunners Midfield Laggards The average rent across all 31 towns and cities is €16.08 per sq m. The Mean Median prime rents in 1a locations range from Source: Savills, Stadt + Handel €66 per sq m in Landshut to €360 per sq m in Munich, with an average figure of just over €150 per sq m. In terms €12.43 per sq m, with figures ranging is found in Hof with €6.09 per sq m. of population projections, Potsdam from €8.97 per sq m in Leipzig to The average rent among these towns is a clear leader (+12.1% population €16.35 per sq m in Offenbach. With and cities is €9.63 per sq m. growth by 2030), while Berlin has the regard to prime rents in 1a locations, The highest prime rent in a 1a location least favourable forecast with -2.6%. Dortmund leads the field with €212 per is found in Wuppertal with €79 per On average, the populations in the 31 sq m, while the lowest rent is found in sq m, while the lowest is found in towns and cities studied will grow by Singen with €20 per sq m. The average Neubrandenburg at just €19 per sq m. 3.7% by 2030. prime rent across all town and cities is The average prime rent is approx. €45 almost €81 per sq m. The populations per sq m. The population projections The 31 towns and cities in this group in the midfield towns and cities will are almost entirely negative, the only are home to a total of 76 department decline by an average of 1.5% by exception being Landau with a positive stores, which represents almost half 2030, with Freiburg showing the most figure of 1.2%. The least favourable of all stores taken into account in favourable (+3.8%) and Saarbrücken outlook is found in the town of Goslar, the scoring. These have a combined the least favourable (-10%) projections. where the population is forecast to sales area of approx. 1.3 million sq m, The towns and cities with mid-range decline by almost 19% by 2030. The or almost 60% of the overall stock. scores are home to 50 department average projected population change Thus, a relatively large proportion of stores with a total sales area of approx. across all towns and cities is -7.6%. German department stores are found 630,000 sq m. This corresponds to The relatively unfavourable conditions in towns and cities with very favourable 31% and 28% respectively of the from a macro-location perspective conditions in terms of macro-location. overall stock studied. are reflected in the number of department stores located in Midfield Laggards these towns and cities. Only Fulda The midfield comprises a total of 43 The group with the lowest scores and Mönchengladbach have two towns and cities, the largest of which is comprises 33 towns and cities. The department stores, while all other Dortmund with approximately 572,000 largest representative is Duisburg with towns and cities in the cluster have inhabitants. There are four other cities almost 490,000 inhabitants, while the just one store. The 33 towns and cities with a population of over 500,000 in smallest group member is Limburg are home to a total of 35 department this cluster; namely Bremen, Dresden, with a population of approx. 34,000. stores, representing around a fifth Essen and Leipzig. The smallest The average population size across of all stores studied and covering a municipality in the field is Siegburg with these towns and cities is approximately total sales are of some 340,000 sq m just less than 40,000 inhabitants, while 130,000. (approx. 15% of the overall stock). the average population size is approx. 165,000. The highest average retail rent in the group is recorded in Neumünster with The average retail rent in this group is €13.36 per sq m, while the lowest rent

27 3 German department stores compared

3.3 „Micro-location“ scoring pillar for the site. Thus, in order to reflect figures will be based upon different Indicators the value of the micro-locations of planning directives in respect of floor The micro-location plays a more the department stores studied, the space index, for example. Thirdly, decisive role for retail property than standard land value determined by furthermore, the standard land value is almost any other property type. Just the local valuation committee for each not a retail-specific parameter. Rather, a few metres can make the difference store location has been incorporated it represents the general attractiveness between an ideal retail location and into the scoring. However, since of a site for all conceivable uses. For a completely unsuitable location. the absolute figure of a land value these reasons, the standard land This is also true for department reflects not only the attractiveness of value is accompanied by the retail stores. A high level of footfall is just each respective micro-location but rent in the (nearest) A location of the as beneficial to sales, for example, also the prevailing conditions in the department store site as a related as good accessibility by public and macro-location, the latter must be indicator. Since this figure explicitly private transport. Consequently, the filtered out. This is achieved by not reflects the attractiveness of a location circumstances of German department using the standard land value for the from a retail perspective, it rectifies stores relating to micro-location department store location itself in one of the weaknesses of the standard represent a further pillar of the scoring. the scoring but rather its ratio to the land value. In addition, the market rents highest standard land value in the collated for this indicator consistently Chapter 2.2 demonstrated that German respective town or city. Accordingly, a reflect the same quality of space, department stores are predominantly value of 1 indicates that the standard increasing the meaningfulness of located in prime highstreet locations land value of a department store comparisons between two figures. As and this very fact is a manifestation location represents the highest value per the standard land value, the retail of the relatively favourable conditions in a town or city and, thus, the best rent in the department store location is in the micro-locations of department possible micro-location within this town also represented in proportion to the stores. However, highstreet locations or city. A value of 0.5 means that the highest value in the respective town or themselves vary significantly in standard land value of the department city in order to exclusively reflect the terms of quality and it is these very store location is half the amount of the quality of the micro-location. The retail differences that the micro-location highest value for the respective town rents would not be suitable as a sole scoring is intended to illustrate. The or city and, consequently, that the indicator of the quality of the micro- content requirements of the scoring are specific micro-location is only to be locations since they lack the spatial identical to those of the macro-location considered average. This is illustrated differentiation of the land values and, scoring. Firstly, the attractiveness by the following two examples. The additionally, they are only available on of a micro-location is reflected as Oberpollinger store in Munich has a a nationwide basis from a consistent holistically as possible from a retail standard land value of €80,000 per data source for the A locations. Thus, perspective, taking into account the sq m, which is the highest figure in the standard land value is more useful function of a department store as a full- Munich. Thus, the standard land value outside of the A locations in particular. range provider. The second objective, score is 1. The KaDeWe in Berlin is in addition to reflecting the current situated in an area with a standard land The third and final indicator for the prevailing conditions, is to also account value of €20,000 per sq m. Since the micro-location is also based upon the for the (future) development of the highest standard land value in Berlin is retail rent in the (nearest) A location of location in the scoring. €40,000 per sq m, the standard land a department store. However, it is not value score for the KaDeWe is 0.5. the figure itself that is used but rather As per the macro-location, this the change in rent over the last three pillar of the scoring comprises three In keeping with the macro-location years. The objective of this indicator is indicators that are intended to cover scoring, a second indicator is used to reflect the current development of this content. The first indicator is based for the micro-location that strongly the actual micro-location. Accordingly, upon the standard land value as a resembles the first in terms of a declining rent suggests worsening parameter. The underlying idea is that content but compensates for its conditions for retail in a location, the land value completely reflects the methodological weaknesses. The while a rising rent is indicative of an attractiveness of a location or site since weaknesses of the standard land value improving location. As per the second the high attractiveness of a location will as the first indicator are as follows. indicator, the market rent in the be manifested in intensive competition Firstly, standard land values can be (nearest) A location of a department from potential occupiers and, hence, based upon very small samples of store is used. a high value. Furthermore, the land data since, particularly in town and city value includes the future expectations centres, few undeveloped sites change for the attractiveness of a site, since hands and the proportion of the land potential purchasers will take into value in relation to the overall sale account expected future income from price is not always known. Secondly, a the occupation of the site as a factor pure ratio between two standard land for calculating an appropriate bid values can be misleading since the two 3 German department stores compared

The scores are calculated in the same manner as those for the other pillars. However, the results for the micro-location pillar differ in terms of distribution from the pattern seen elsewhere. The most visible manifestation of this is the absence of department stores with a score of 6. This is explained by the fact that many stores have identical indicator values (standard land value and rental figures of 1 and change in rent of +/ 0%) and, thus, cannot be differentiated in the scoring results. All of these are given a score of 5 and the next highest score remains unoccupied.

29 3 German department stores compared

Table 2 Scoring results micro location

Score City Address (company) Score City Address (company)

10 Köln Hohe Straße 41-53 (G) 8 Göttingen Groner Straße 43 (K)

10 Frankfurt a.Main Zeil 116-118 (G) 8 Trier Simeonstraße 46 (K)

10 Leipzig Neumarkt 1 (G) 8 Trier Simeonstraße 53 (G)

10 Bielefeld Bahnhofstr. 15-17 (K) 8 Paderborn Königsplatz 1 (K)

10 Münster Ludgeristr. 1 (G) 8 Siegburg Kaiserstraße 21-27 (G)

10 Wiesbaden Kirchgasse 28 (G) 8 Reutlingen Karlstr. 20 (G)

10 Wiesbaden Kirchgasse 35-43 (K) 7 Berlin Alexanderplatz 9 (G)

10 Aachen Adalbertstr. 20-30 (G) 7 Berlin Tauentzienstraße 21-24 (K)

10 Saarbrücken Bahnhofsstraße 82-100 (G) 7 München Bahnhofplatz 7 (K)

10 Ulm Bahnhofstraße 5 (G) 7 Köln Breite Straße 103-135 (K)

10 Flensburg Holm 7 (K) 7 Essen Kettwiger Straße 1a (G)

10 Paderborn Westernstraße 26 (G) 7 Krefeld Hochstraße 57-59 (G)

10 Konstanz Hussenstr. 23 (K) 7 Freiburg Kaiser-Joseph-Str. 165 (K)

10 Kempten Residenzplatz 2 (G) 7 Heidelberg Bergheimer Straße 1 (G)

10 Würzburg Schönbornstraße 3 (G) 5 Berlin Carl-Schurz-Str. 24 (K)

9 München Kaufingerstraße 1-5 (G) 5 Stuttgart Königstraße 6 (G)

9 Frankfurt a.Main Zeil 90 (K) 5 Dresden Prager Straße 12 (K)

9 Düsseldorf Heinrich-Heine-Platz 1 (K) 5 Hannover Seilwinderstraße 8 (G)

9 Bremen Papenstr. 5 (G) 5 Hannover Ernst-August-Platz 5 (G)

9 Bremen Obernstraße 5-33 (K) 5 Hannover Georgstr. 23 (K)

9 Leipzig Neumarkt 30 (K) 5 Karlsruhe Kaiserstr. 147-159 (K)

9 Mannheim P1, 1 (G) 5 Augsburg Bürgermeister-Fischer-Str. 6-10 (K)

9 Chemnitz Am Rathaus 1 (G) 5 Gelsenkirchen Bahnhofstrasse 48-56 (G)

9 Magdeburg Breiter Weg 128 (K) 5 Mönchengladbach Hindenburgstr. 125-133 (G)

9 Freiburg Kaiser-Joseph-Str. 195 (G) 5 Halle Marktplatz 20 (G)

9 Lüneburg Große Bäckerstraße 31 (K) 5 Erfurt Anger 1-3 (K)

9 Darmstadt Rheinstrasse 2 (G) 5 Potsdam Brandenburger Str. 49/52 (K)

9 Speyer Maximilianstr. 43 (G) 5 Regensburg Neupfarrplatz 8 (G)

9 Heidelberg Hauptstraße 30 (G) 5 Gütersloh Berliner Straße 21 (K)

9 Rosenheim Münchener Str. 12 (K) 5 Gießen Seltersweg 64 (K)

9 Landshut Ländtorplatz 1 (K) 5 Cottbus August-Bebel-Str. 2 (G)

8 Berlin Kurfürstendamm 231 (K) 5 Neubrandenburg Stargarder Str. 19 (G)

8 Berlin Augsburger Straße 36-42 (K) 5 Hildesheim Almsstr. 41 (G)

8 München Neuhauser Straße 18 (K) 5 Kassel Obere Königsstr. 31 (G)

8 Düsseldorf Königsallee 1-9 (G) 5 Fulda Universitätsplatz 2 (K)

8 Dortmund Westenhellweg 70-84 (G) 5 Recklinghausen Markt 16-19 (K)

8 Dortmund Westenhellweg 30 (K) 5 Wesel Hohe Straße 57 (G)

8 Mannheim N7/Kunststrasse (G) 5 Kleve Große Straße 42-46 (G)

8 Rostock Lange Straße 29-31 (G) 5 Bad Kreuznach Mannheimer Straße 152 (G)

8 Oldenburg Ritterstr. 17 (G) 5 Koblenz Löhrstraße 77-85 (G)

8 Osnabrück Wittekindstr. 23 (G) 5 Bad Homburg Louisenstr. 91-95 (K) 3 German department stores compared

Score City Address (company) Score City Address (company)

5 Limburg (Lahn) Werner-Senger-Str. 15-17 (K) 3 Landau Ostbahnstrasse 36 (G)

5 Neunkirchen Stummstraße 3-9 (G) 2 Hamburg Mönckebergstraße 3 (G)

5 Worms Kämmererstr. 24-32 (G) 2 Hamburg Mönckebergstraße 16 (K)

5 Esslingen Bahnhofstr. 14 (K) 2 Düsseldorf Am Wehrhahn 1 (G)

5 Pforzheim Westl. Karl-Friedrich-Str. 17-19 (G) 2 Düsseldorf Schadowstraße 93 (K)

5 Singen Bahnhofstr. 19-21 (K) 2 Wuppertal Neumarkt 26 (G)

5 Ingolstadt Ludwigstr. 29 (G) 2 Bonn Poststr. 23 (K)

5 Erlangen Nürnberger Str. 30 (G) 2 Münster Salzstr. 47-50 (K)

5 Hof Altstadt 26-30 (G) 2 Mönchengladbach Markt 10 (K)

5 Bamberg Grüner Markt 23 (K) 2 Braunschweig Schuhstr. 29-34 (K)

5 Coburg Mohrenstr. 17-19 (G) 2 Trier Fleischstraße 68-76 (G)

4 Hamburg Jungfernstieg 16-20 (K) 2 Fulda Rabanusstr. 19 (G)

4 München Leopoldstraße 82 (K) 2 Brühl Steinweg 26 (G)

4 München Schleißheimer Straße 93 (K) 2 Euskirchen Spiegelstr. 14 (G)

4 Nürnberg Königstr. 14 (K) 2 Siegen Kölner Str. 41 (K)

4 Bonn Remigiusstraße 20-24 (G) 2 Iserlohn Schillerplatz 8-10 (K)

4 Mainz Schusterstr. 41-45 (G) 2 Göppingen Bleichstraße 15 (G)

4 Mainz Ludwigsstr. 12 (K) 2 Heilbronn Fleinerstraße 15 (G)

4 Wismar Rudolph-Karstadt-Platz 1 (K) 2 Memmingen Königsgraben 3 (K)

4 Celle Bergstr. 1 (K) 2 Braunschweig Poststraße 4-5 (K)

4 Goslar Rosentorstr. 1 (K) 1 Berlin Koppenstraße 8 (G)

4 Neuss Niederstr. 42 (G) 1 Berlin Hermannplatz 5-10 (K)

4 Düren Wirtelstrasse 38-42 (G) 1 Berlin Wilmersdorfer Straße 118 (K)

4 Witten Bahnhofstr. 5 (G) 1 Berlin Tempelhofer Damm 191 (K)

4 Offenburg Lindenplatz 3 (K) 1 Berlin Müllerstraße 25 (K)

4 Lörrach Turmstr. 1 (K) 1 Berlin Karl-Marx-Straße 101-105 (K)

4 Bayreuth Maximilianstr. 40-42 (K) 1 Hamburg Schloßmühlendamm 2 (K)

4 Schweinfurt Am Jägerbrunnen 11 (G) 1 Hamburg Wandsbeker Marktstr. 63-65 (K)

3 Stuttgart Eberhardstraße 28 (G) 1 Hamburg Osterstr. 119 (K)

3 Nürnberg Königstraße 42-52 (G) 1 Hamburg Sachsentor 33-39 (K)

3 Duisburg Düsseldorfer Str. 32 (G) 1 Hamburg Bergedorfer Markt 5-7 (K)

3 Braunschweig Bohlweg 72 (G) 1 München Karlsplatz 21-24 (G)

3 Lübeck Königstr. 54+56 (K) 1 München Pötschnerstraße 5 (G)

3 Hagen Elberfelder Str. 23-25 (G) 1 Köln Neusser Str. 242 - 244 (G)

3 Saarbrücken Bahnhofstr. 15 (K) 1 Stuttgart Badstr. 8-12 (G)

3 Neumünster Großflecken 4-10 (K) 1 Aachen Komphausbadstraße 10 (K)

3 Bremerhaven Bürgermeister-Smidt-Str. 50-64 (K) 1 Gießen Rodheimer Straße 116 (K)

3 Solingen Hauptstr. 75-77 (G) 1 Hamm Bahnhofstr. 6-12 (G)

3 Bottrop Hansastr. 7 (K)

3 Offenbach Frankfurter Str. 12-16 (G)

3 Hanau Am Markt 2 (G)

Source: Own calculations and graph based on Brockhoff, lokale Gutachterausschüsse, Lührmann / G = Galeria Kaufhof, K = Karstadt

31 3 German department stores compared

A glance at the mid-range scores Fig. 16 Clustered scoring results micro location of the three indicators reveals that the department stores studied are Scoring Micro predominantly situated in good to very Standard land value indicator Rental indicator Development of rent good locations within their respective towns and cities. The average standard 1 1 1 1 + 25 % 1 1 land value of the department store + 18 % locations equates to 73% of the 0.75 highest value for the reference town or city. Around half of all department stores are even situated on sites showing the highest standard land + 1 % +/- 0 % value for the town or city. Moreover, - 6 % the general quality of the locations is bettered by the quality from a retail 0.18 perspective. The retail rents in the 0.15 department store locations correspond, 0.07 0.03 on average, to 84% of the highest 0.02 - 27 % value in the respective town or city. Frontrunners Midfield Laggards In 111 of the 161 cases, these even represent the highest value. These Mean Median values substantiate the high quality Source: Savills, Stadt + Handel of the department store locations, which was also shown to be a material no department store there, meaning of 63 stores with a combined characteristic in Chapter 2. However, that all Berlin department stores are sales area of approx. 876,000 sq m, the change in rents since 2013 shows deducted points in terms of standard equating to 39% of the total stock. The that the locations have evidently not land value. standard land value indicator figures increased in attractiveness since the for these properties range from 0.03 on average rent across all locations has The standard land value indicator the Karstadt store in Berlin-Spandau remained unchanged. Nevertheless, figures across all 47 locations range to a maximum of 1. The highest value more locations show rising rents (58) between 0.15 and 1 with a mean figure is achieved in 42 cases. The average than declining rents (36). In the majority of 0.85. The highest value is achieved figure is 0.85, which is equal to the of cases (67), rents have remained by 29 stores, while the Karstadt- corresponding figure for the top group. stagnant since 2013. Bettenhaus store in Augsburger Straße, The Karstadt store in Berlin-Spandau Berlin, shows the lowest score. The also shows the lowest rent indicator Frontrunners stores in the top group are almost value of 0.18. The highest value of 1 A total of 47 department store locations exclusively situated in locations is achieved in 49 cases. The average achieve a score of at least 8. These where the prime retail rent in the value is 0.9, which is only marginally have a combined sales area of almost respective town or city is achieved. lower than in the top group. Thus, the 740,000 sq m and represent almost a This is the case for 40 out of 47 stores difference in the current location quality third of the total sales areas studied. A and, consequently, the average rent of stores in the frontrunners group and total of 11 towns and cities in the group indicator value is extremely high at those in the midfield group is negligible. of frontrunners have two department 0.97. The lowest value is achieved by However, the difference in rental stores, including major cities such the Carsch-Haus store in Heinrich- growth is significantly larger. Rents in as Munich, mid-sized cities such as Heine-Platz, Düsseldorf (0.76). A locations in the midfield group have Mannheim and smaller municipalities Furthermore, none of these stores grown by an average of just 1%. Some such as Paderborn. It is notable that, is found in a location with declining locations have even witnessed negative of the three Karstadt premium stores, rents. The lowest rental growth since growth. Bahnhofstraße in Witten is the only Oberpollinger features in this 2013 is recorded in Westenhellweg, worst performer with a rental decline of group. Alsterhaus and KaDeWe are Dortmund (+1%), which is home to 6%, while the highest rental growth is absent since their indicator values were both a Karstadt and Galeria-Kaufhof shown by Berlin‘s Alexanderplatz with ultimately inadequate for a top ranking. department store. The Breite Weg in +25%. In the case of KaDeWe, this is not least Magdeburg, which features a Karstadt attributable to Berlin‘s history as a city store, shows the highest rental growth that was divided for a long period. of +18%. On average, rents in the Today, the highest standard land values locations found in the top group have in the German capital are found along increased by 6% since 2013. strips previously occupied by the Berlin Wall, with the highest value recorded in Midfield Pariser Platz. However, there is The midfield category comprises a total 3 German department stores compared

Laggards As explained in Chapter 2, department The final indicator for the quality The bottom group comprises 51 stores are not typical retail properties of the properties constitutes an department stores with a combined since they usually have several storeys assessment of the structural condition sales area of approx. 660,000 sq m, which are predominantly used for of the department store property. equating to 29% of the total stock. retail. In order to evaluate the quality This appraisal includes structural Here again, there are stores that of the property, therefore, the scoring characteristics such as floor-to-ceiling show a standard land value indicator is based upon three indicators: the heights, column grids and state of figure of 1. In all five cases, these sales area of the department store, the repair. The combined assessment of are properties in smaller towns and footprint and an assessment of the these factors is reflected in „above- cities (Bremerhaven, Hagen, Hanau, structural quality. Accordingly, a larger average“, „average“ and „below- Neumünster and Offenbach). In sales area produces a higher score average“ classifications of the the majority of cases, the figure since more sales area fundamentally structural quality. is significantly lower. The average offers more potential for product indicator figure is 0.48, with a low of presentation as well as greater breadth 0.015 for the Karstadt store in Berlin- and depth of the product assortment. Neukölln. With regard to the rent In other words, the larger the sales indicator, a value of 1 was achieved in area, the more potential for successful 22 cases. Again, the majority of stores operation of the department store as a concerned are located in smaller towns full-range provider. and cities. The lowest figure is shown by the Galeria-Kaufhof department The footprint provides information as to store in Berlin‘s Koppenstraße with the size of the property on the ground 0.08. The average rent indicator value floor and, thus, represents an important is 0.65, which is significantly lower indicator for retail properties in general, than in the two other groups. Average since ground-floor sales areas offer the rental growth is even negative. Rents greatest appeal to customers. Since have declined by an average of more negotiating floors, whether via stairs, than 4% since 2013 and not one escalators or lifts, always presents location witnessed positive growth. at least one psychological barrier to In 27 instances, rents have remained customers, a large footprint is regarded stable. The most severe decrease as a positive feature for a property. is found in the part of Hamburg‘s Mönckebergstraße that is home to a Karstadt store. The location has witnessed a 27% decline in rental levels since 2013.

3.4 „Property quality“ scoring pillar Indicators Having assessed locations at macro and micro level, another important pillar in the overall evaluation of German department stores is the quality of the properties themselves. Naturally, potential purchasers will be interested as to whether it will be necessary to invest capital in refurbishing a property. However, local authorities also have a vested interest in keeping the urban landscape in their town and city centres free from eyesores. Above all, however, it is the customers who determine whether a department store is sufficiently attractive to visit and, ultimately, to make a purchase there by voting with their feet. Da die Überwindung von Geschossen, sei es mit Treppen, mit Rolltreppen oder Fahrstühlen stets mindestens

33 3 German department stores compared

Table 3 Scoring results property quality

Score City Address (company) Score City Address (company)

10 Berlin Alexanderplatz 9 (G) 8 Aachen Adalbertstr. 20-30 (G)

10 Berlin Tauentzienstraße 21-24 (K) 8 Saarbrücken Bahnhofsstraße 82-100 (G)

10 Berlin Kurfürstendamm 231 (K) 8 Oldenburg Ritterstr. 17 (G)

10 Hamburg Jungfernstieg 16-20 (K) 8 Osnabrück Wittekindstr. 23 (G)

10 Hamburg Mönckebergstraße 16 (K) 8 Limburg (Lahn) Werner-Senger-Str. 15-17 (K)

10 Hamburg Wandsbeker Marktstr. 63-65 (K) 7 Berlin Tempelhofer Damm 191 (K)

10 München Neuhauser Straße 18 (K) 7 Düsseldorf Am Wehrhahn 1 (G)

10 Düsseldorf Königsallee 1-9 (G) 7 Dortmund Westenhellweg 70-84 (G)

10 Düsseldorf Schadowstraße 93 (K) 7 Hannover Georgstr. 23 (K)

10 Dresden Prager Straße 12 (K) 7 Nürnberg Königstr. 14 (K)

10 Leipzig Neumarkt 1 (G) 7 Bonn Remigiusstraße 20-24 (G)

10 Leipzig Neumarkt 30 (K) 7 Mannheim P1, 1 (G)

10 Karlsruhe Kaiserstr. 147-159 (K) 7 Chemnitz Am Rathaus 1 (G)

10 Wiesbaden Kirchgasse 35-43 (K) 7 Aachen Komphausbadstraße 10 (G)

10 Gießen Seltersweg 64 (K) 7 Freiburg Kaiser-Joseph-Str. 165 (K)

9 Berlin Hermannplatz 5-10 (K) 7 Potsdam Brandenburger Str. 49/52 (K)

9 Berlin Wilmersdorfer Straße 118 (K) 7 Flensburg Holm 7 (K)

9 Berlin Carl-Schurz-Str. 24 (K) 7 Heidelberg Hauptstraße 30 (G)

9 München Bahnhofplatz 7 (K) 7 Reutlingen Karlstr. 20 (G)

9 Köln Hohe Straße 41-53 (G) 7 Pforzheim Westl. Karl-Friedrich-Str. 17-19 (G)

9 Köln Breite Straße 103-135 (K) 7 Singen (Hohentwiel) Bahnhofstr. 19-21 (K)

9 Frankfurt a.Main Zeil 90 (K) 7 Erlangen Nürnberger Str. 30 (G)

9 Stuttgart Königstraße 6 (G) 6 Hamburg Schloßmühlendamm 2 (K)

9 Hannover Seilwinderstraße 8 (G) 6 München Kaufingerstraße 1-5 (G)

9 Nürnberg Königstraße 42-52 (G) 6 Bielefeld Bahnhofstr. 15-17 (K)

9 Mannheim N7/Kunststrasse (G) 6 Mönchengladbach Markt 10 (K)

9 Magdeburg Breiter Weg 128 (K) 6 Halle Marktplatz 20 (G)

9 Saarbrücken Bahnhofstr. 15 (K) 6 Rostock Lange Straße 29-31 (G)

9 Kassel Obere Königsstr. 31 (G) 6 Regensburg Neupfarrplatz 8 (G)

9 Darmstadt Rheinstrasse 2 (G) 6 Cottbus August-Bebel-Str. 2 (G)

8 Heilbronn Fleinerstraße 15 (G) 6 Bremerhaven Bürgermeister-Smidt-Str. 50-64 (K)

8 Berlin Koppenstraße 8 (G) 6 Hildesheim Almsstr. 41 (G)

8 Berlin Müllerstraße 25 (K) 6 Goslar Rosentorstr. 1 (K)

8 Hamburg Mönckebergstraße 3 (G) 6 Neuss Niederstr. 42 (G)

8 Frankfurt a.Main Zeil 116-118 (G) 6 Brühl Steinweg 26 (G)

8 Dortmund Westenhellweg 30 (K) 6 Koblenz Löhrstraße 77-85 (G)

8 Bremen Papenstr. 5 (G) 6 Rosenheim Münchener Str. 12 (K)

8 Bremen Obernstraße 5-33 (K) 6 Hof Altstadt 26-30 (G)

8 Hannover Ernst-August-Platz 5 (G) 5 Duisburg Düsseldorfer Str. 32 (G)

8 Bonn Poststr. 23 (K) 5 Braunschweig Schuhstr. 29-34 (K)

8 Braunschweig Bohlweg 72 (G) 5 Krefeld Hochstraße 57-59 (G) 3 German department stores compared

Score City Address (company) Score City Address (company)

5 Ulm Bahnhofstraße 5 (G) 3 Iserlohn Schillerplatz 8-10 (K)

5 Lüneburg Große Bäckerstraße 31 (K) 3 Heidelberg Bergheimer Straße 1 (G)

5 Neumünster Großflecken 4-10 (G) 3 Konstanz Hussenstr. 23 (K)

5 Fulda Rabanusstr. 19 (G) 3 Memmingen Königsgraben 3 (K)

5 Recklinghausen Markt 16-19 (K) 2 Hamburg Osterstr. 119 (K)

5 Düren Wirtelstrasse 38-42 (G) 2 München Leopoldstraße 82 (K)

5 Bad Homburg v.d. Höhe Louisenstr. 91-95 (K) 2 München Schleißheimer Straße 93 (K)

5 Hanau Am Markt 2 (G) 2 Mönchengladbach Hindenburgstr. 125-133 (G)

5 Offenburg Lindenplatz 3 (K) 2 Mainz Schusterstr. 41-45 (G)

5 Ingolstadt Ludwigstr. 29 (G) 2 Hagen Elberfelder Str. 23-25 (G)

5 Kempten Residenzplatz 2 (G) 2 Fulda Universitätsplatz 2 (K)

5 Bamberg Grüner Markt 23 (K) 2 Bottrop Hansastr. 7 (K)

5 Braunschweig Poststraße 4-5 (K) 2 Wesel Hohe Straße 57 (G)

4 Berlin Karl-Marx-Straße 101-105 (K) 2 Siegburg Kaiserstraße 21-27 (G)

4 München Karlsplatz 21-24 (G) 2 Euskirchen Spiegelstr. 14 (G)

4 München Pötschnerstraße 5 (G) 2 Witten Bahnhofstr. 5 (G)

4 Essen Kettwiger Straße 1a (G) 2 Göppingen Bleichstraße 15 (G)

4 Wuppertal Neumarkt 26 (G) 2 Landshut Ländtorplatz 1 (K)

4 Augsburg Bürgermeister-Fischer-Str. 6-10 (K) 2 Bayreuth Maximilianstr. 40-42 (K)

4 Lübeck Königstr. 54+56 (K) 2 Würzburg Schönbornstraße 3 (G)

4 Göttingen Groner Straße 43 (K) 1 Berlin Augsburger Straße 36-42 (K)

4 Trier Fleischstraße 68-76 (G) 1 Hamburg Sachsentor 33-39 (K)

4 Trier Simeonstraße 46 (K) 1 Köln Neusser Str. 242 - 244 (G)

4 Trier Simeonstraße 53 (G) 1 Stuttgart Badstr. 8-12 (G)

4 Celle Bergstr. 1 (K) 1 Mainz Ludwigsstr. 12 (K)

4 Hamm Bahnhofstr. 6-12 (G) 1 Gießen Rodheimer Straße 116 (K)

4 Lörrach Turmstr. 1 (K) 1 Neubrandenburg Stargarder Str. 19 (G)

4 Coburg Mohrenstr. 17-19 (G) 1 Wismar Rudolph-Karstadt-Platz 1 (K)

4 Schweinfurt Am Jägerbrunnen 11 (G) 1 Paderborn Königsplatz 1 (K)

3 Hamburg Bergedorfer Markt 5-7 (K) 1 Paderborn Westernstraße 26 (G)

3 Stuttgart Eberhardstraße 28 (G) 1 Solingen Hauptstr. 75-77 (G)

3 Düsseldorf Heinrich-Heine-Platz 1 (G) 1 Kleve Große Straße 42-46 (G)

3 Münster Ludgeristr. 1 (G) 1 Offenbach Frankfurter Str. 12-16 (G)

3 Münster Salzstr. 47-50 (K) 1 Neunkirchen Stummstraße 3-9 (G)

3 Wiesbaden Kirchgasse 28 (G) 1 Speyer Maximilianstr. 43 (G)

3 Gelsenkirchen Bahnhofstrasse 48-56 (G) 1 Worms Kämmererstr. 24-32 (G)

3 Freiburg Kaiser-Joseph-Str. 195 (G) 1 Esslingen Bahnhofstr. 14 (K)

3 Erfurt Anger 1-3 (K) 1 Landau Ostbahnstrasse 36 (G)

3 Gütersloh Berliner Straße 21 (K)

3 Bad Kreuznach Mannheimer Straße 152 (G)

3 Siegen Kölner Str. 41 (K)

Source: Own calculations and graph based on Galeria Kaufhof, Karstadt and our own surveys / G = Galeria Kaufhof, K = Karstadt

35 3 German department stores compared

Frontrunners Fig. 17 Clustered scoring results property quality The frontrunners group comprises 46 buildings with a combined sales area Scoring property of approx. 1 million sq m, equating Sales area Footprint Property quality to around 44% of the total stock. Above average An analysis of the top third shows 60,000 12,034 an unsurprising regional distribution primarily across cities with more Above than 500,000 inhabitants. Some 29 8,339 average Above department stores are located in average cities with a population of over half 3,010 26,000 a million people while a further 15 average 5,147 are found in cities with a population between 100,000 and 500,000. 10,000 1,560 16,700 Limburg and Gießen are the only outliers as representatives of smaller 7,000 668 mid-sized towns. Dresden, Leipzig Below average Below and Magdeburg represent the only 1,800 average locations with structurally attractive Frontrunners Midfield Laggards department stores in the federal states created from the former East Mean Median

Germany. Of the 11 department stores Source: Savills, Stadt + Handel situated in Berlin, eight are among the frontrunners. The frontrunner stores On the contrary, 29 of the frontrunner Only the Kaufhof store in Brühl is are divided almost equally between properties are above average while 17 below the 8,000 sq m threshold. The Karstadt and Galeria-Kaufhof with 25 are of average structural quality. midfield department stores have and 21 department stores respectively. smaller footprints than those in the Midfield upper segment of the scoring. The The sales areas in the best stores The middle of the pack comprises 65 Karstadt store in Lübeck has a modest range between approx. 10,000 and properties with a total sales area of footprint of approx. 1,560 sq m, while 60,000 sq m with KaDeWe being an approx. 815,000 sq m. This equates the Karstadt in Nuremberg has a outlier as the largest store. In terms to around 36% of the overall stock substantial ground floor area with a of sales area, it is apparent that the in Germany. Half of the department footprint of more than 8,000 sq m. department stores with a good to stores in the midfield of the scoring are The number of storeys has a very good ranking all have a sales situated in B towns and cities, while correspondingly large range from two area greater than 8,000 sq m, which the other half are principally divided to nine, with the majority (54 stores) is the minimum sales area generally between A towns and cities (10 stores) comprising more than three floors. considered necessary for a successful and C towns and cities (15 stores). Six In view of the somewhat smaller store. Indeed, some 60% of stores stores located in D towns and cities footprints, it is apparent that the stores have sales areas larger than 20,000 also found their way into the middle of in this segment tend to have a less sq m, which is equivalent to the size the pack. The federal states of Bavaria favourable ratio of the footprint to the of a shopping centre. The footprints and Lower Saxony are noticeably number of storeys. The midfield stores in the top three rankings are relatively well represented in the midfield of the are primarily of average structural evenly distributed between approx. scoring. More than half of all Bavarian quality (37 out of 65 stores). Some 25 3,000 sq m for the Galeria Kaufhof department stores and eight out of stores are of above-average quality on the Zeil in Frankfurt and approx. 13 in Lower Saxony are found in the while three properties are below 12,000 sq m for the KaDeWe store. middle segment. average. Almost all frontrunner stores, or 40 out of 46 properties, have more than four In terms of department store retailers, storeys. Thus, it can be concluded that there is no clear trend among the the critical minimum size combined midfield stores. Galeria Kaufhof is with a higher number of storeys tends represented with 37 stores, which is to prevail in towns and cities with an only moderately ahead of Karstadt adequate potential customer base. with 28 outlets. The sales areas of the properties range from approx. Overall, it can be observed that, 7,000 sq m in Brühl to approx. unsurprisingly, no property in the 26,000 sq m in Nuremberg. A top segment with a structural quality significant majority, 53 properties, are deemed to be „below average“ is large stores with sales areas of more found among the top three rankings. than 10,000 sq m. 3 German department stores compared

Laggards Overall, the property-based scoring 3.5 Overall scoring results The bottom segment and, thus, demonstrates that there are no The overall results bring together the the laggards in the scoring for the fundamental differences between the individual results from the three pillars quality of the properties comprises 50 two department store retailers in terms of macro-location, micro-location and department stores. With a total sales of structural quality. However, when property quality, with each of these area of approx. 415,000 sq m, these looking at the department stores with elements having equal weighting in account for around 18% of the overall a sales area below 8,000 sq m, it is the results. Here again, the scores stock. The stores are distributed almost apparent that Galeria Kaufhof is over- are calculated using deciles, with evenly across the different town and represented with around two thirds approximately the same number of city size categories. of properties. Evidently, Karstadt has properties allocated to each of the 10 succeeded in removing such properties scores. A score of 10 indicates that Erfurt, Wismar and Neubrandenburg from its portfolio or has converted a property is among the best 10% occupy the bottom of the rankings. them. Stores with areas below of the stores studied with regard to Around half of all 41 properties in North 8,000 sq m are predominantly found in the conditions analysed. The same Rhine-Westphalia are in the lower the laggard segment. Only the store in rationale applies to all other scores. segment of the scoring. Conversely, Brühl makes it into the midfield of the the federal state of Lower Saxony does scoring. not have a single store with a below- average property score.

The bottom third is noticeably characterised by smaller sales areas, with 23 out 50 stores having sales areas smaller than 8,000 sq m. A further 11 stores have sales areas of less than 10,000 sq m. Accordingly, around two thirds of the stores can be described as having (excessively) small sales areas for department store use.

Moreover, the footprints are also predominantly small, ranging from approx. 660 sq m to 5,100 sq m. The smallest footprint is found in the original Karstadt store in Wismar, while the Karstadt in Eimsbüttel has a ground floor area of more than 5,000 sq m. In overall comparison, it is evident that 47 of the 161 department stores studied have a footprint of less than 3,000 sq m. Some 32 of these properties lie in the bottom third of the property-based scoring.

Only three laggard stores have above- average structural quality, while three fifths of the laggards are of average quality and 17 stores are deemed to be of below-average quality.

37 3 German department stores compared

Table 4 Total scoring results

Score City Address (company) A B C Score City Address (company) A B C

10 München Neuhauser Straße 18 (K) 10 8 10 8 Wiesbaden Kirchgasse 28 (G) 9 10 3

10 Köln Hohe Straße 41-53 (G) 10 10 9 8 Osnabrück Wittekindstr. 23 (G) 6 8 8

10 Köln Breite Straße 103-135 (K) 10 7 9 8 Hamburg Mönckebergstraße 16 (K) 10 2 10

10 Frankfurt a.Main Zeil 116-118 (G) 10 10 8 8 Konstanz Hussenstr. 23 (K) 7 10 3

10 Frankfurt a.Main Zeil 90 (K) 10 9 9 8 Gießen Seltersweg 64 (K) 6 5 10

10 Düsseldorf Königsallee 1-9 (G) 10 8 10 7 Bonn Remigiusstraße 20-24 (G) 9 4 7

10 Mannheim P1, 1 (G) 10 9 7 7 Reutlingen Karlstr. 20 (G) 5 8 7

10 Mannheim N7/Kunststrasse (G) 10 8 9 7 Nürnberg Königstraße 42-52 (G) 8 3 9

10 Wiesbaden Kirchgasse 35-43 (K) 9 10 10 7 Hannover Georgstr. 23 (K) 8 5 7

10 München Bahnhofplatz 7 (K) 10 7 9 7 Hamburg Wandsbeker Marktstr. 63-65 (K) 10 1 10

10 Berlin Alexanderplatz 9 (G) 8 7 10 7 Dresden Prager Straße 12 (K) 5 5 10

10 Berlin Tauentzienstraße 21-24 (K) 8 7 10 7 Potsdam Brandenburger Str. 49/52 (K) 9 5 7

10 Berlin Kurfürstendamm 231 (K) 8 8 10 7 Heidelberg Bergheimer Straße 1 (G) 10 7 3

10 München Kaufingerstraße 1-5 (G) 10 9 6 7 Trier Simeonstraße 53 (G) 9 8 4

9 Dortmund Westenhellweg 30 (K) 7 8 8 7 Hamburg Mönckebergstraße 3 (G) 10 2 8

9 Karlsruhe Kaiserstr. 147-159 (K) 10 5 10 7 Magdeburg Breiter Weg 128 (K) 2 9 9

9 Freiburg Kaiser-Joseph-Str. 165 (K) 10 7 7 7 Saarbrücken Bahnhofsstraße 82-100 (G) 4 10 8

9 Lüneburg Große Bäckerstraße 31 (K) 9 9 5 7 Göttingen Groner Straße 43 (K) 7 8 4

9 Darmstadt Rheinstrasse 2 (G) 8 9 9 7 Trier Simeonstraße 46 (K) 9 8 4

9 Aachen Adalbertstr. 20-30 (G) 7 10 8 7 Braunschweig Bohlweg 72 (G) 9 3 8

9 Oldenburg Ritterstr. 17 (G) 9 8 8 7 Erlangen Nürnberger Str. 30 (G) 7 5 7

9 Heidelberg Hauptstraße 30 (G) 10 9 7 6 Bonn Poststr. 23 (K) 9 2 8

9 Rosenheim Münchener Str. 12 (K) 8 9 6 6 Würzburg Schönbornstraße 3 (G) 7 10 2

9 Hamburg Jungfernstieg 16-20 (K) 10 4 10 6 Nürnberg Königstr. 14 (K) 8 4 7

9 Stuttgart Königstraße 6 (G) 10 5 9 6 Düsseldorf Am Wehrhahn 1 (G) 10 2 7

9 Leipzig Neumarkt 1 (G) 5 10 10 6 Essen Kettwiger Straße 1a (G) 6 7 4

9 Rostock Lange Straße 29-31 (G) 9 8 6 6 Heilbronn Fleinerstraße 15 (G) 8 2 9

9 Leipzig Neumarkt 30 (K) 5 9 10 6 Ingolstadt Ludwigstr. 29 (G) 9 5 5

9 Bremen Obernstraße 5-33 (K) 6 9 8 6 Kassel Obere Königsstr. 31 (G) 4 5 9

9 Ulm Bahnhofstraße 5 (G) 8 10 5 6 Pforzheim Westl. Karl-Friedrich-Str. 17-19 (G) 5 5 7

9 Flensburg Holm 7 (K) 6 10 7 6 Berlin Hermannplatz 5-10 (K) 8 1 9

8 Dortmund Westenhellweg 70-84 (G) 7 8 7 6 Berlin Wilmersdorfer Straße 118 (K) 8 1 9

8 Bielefeld Bahnhofstr. 15-17 (K) 5 10 6 6 Berlin Müllerstraße 25 (K) 8 1 8

8 Münster Ludgeristr. 1 (G) 9 10 3 6 Paderborn Westernstraße 26 (G) 6 10 1

Bad Homburg v.d. 8 Freiburg Kaiser-Joseph-Str. 195 (G) 10 9 3 6 Louisenstr. 91-95 (K) 8 5 5 Höhe

8 Berlin Carl-Schurz-Str. 24 (K) 8 5 9 6 Regensburg Neupfarrplatz 8 (G) 8 5 6

8 Düsseldorf Heinrich-Heine-Platz 1 (G) 10 9 3 6 Landshut Ländtorplatz 1 (K) 8 9 2

8 Düsseldorf Schadowstraße 93 (K) 10 2 10 6 Kempten Residenzplatz 2 (G) 4 10 5

8 Bremen Papenstr. 5 (G) 6 9 8 5 Krefeld Hochstraße 57-59 (G) 4 7 5

8 Hannover Seilwinderstraße 8 (G) 8 5 9 5 Offenburg Lindenplatz 3 (K) 7 4 5

8 Hannover Ernst-August-Platz 5 (G) 8 5 8 5 München Leopoldstraße 82 (K) 10 4 2 3 German department stores compared

Score City Address (company) A B C Score City Address (company) A B C

5 München Schleißheimer Straße 93 (K) 10 4 2 3 Brühl Steinweg 26 (G) 6 2 6

5 Augsburg Bürgermeister-Fischer-Str. 6-10 (K) 7 5 4 3 Esslingen Bahnhofstr. 14 (K) 7 5 1

Singen (Hohent- 5 Bahnhofstr. 19-21 (K) 4 5 7 3 Cottbus August-Bebel-Str. 2 (G) 1 5 6 wiel)

5 Berlin Koppenstraße 8 (G) 8 1 8 3 Hanau Am Markt 2 (G) 4 3 5

5 Stuttgart Eberhardstraße 28 (G) 10 3 3 2 Gelsenkirchen Bahnhofstrasse 48-56 (G) 2 5 3

5 Braunschweig Schuhstr. 29-34 (K) 9 2 5 2 Köln Neusser Str. 242 - 244 (G) 10 1 1

5 Limburg (Lahn) Werner-Senger-Str. 15-17 (K) 3 5 8 2 Duisburg Düsseldorfer Str. 32 (G) 3 3 5

5 Berlin Augsburger Straße 36-42 (K) 8 8 1 2 Bremerhaven Bürgermeister-Smidt-Str. 50-64 (K) 1 3 6

5 Berlin Tempelhofer Damm 191 (K) 8 1 7 2 Celle Bergstr. 1 (K) 3 4 4

5 Hamburg Schloßmühlendamm 2 (K) 10 1 6 2 Mönchengladbach Markt 10 (K) 2 2 6

5 Chemnitz Am Rathaus 1 (G) 1 9 7 2 Kleve Große Straße 42-46 (G) 4 5 1

5 Koblenz Löhrstraße 77-85 (G) 6 5 6 2 Bad Kreuznach Mannheimer Straße 152 (G) 2 5 3

5 Braunschweig Poststraße 4-5 (K) 9 2 5 2 Mönchengladbach Hindenburgstr. 125-133 (G) 2 5 2

4 Siegburg Kaiserstraße 21-27 (G) 5 8 2 2 Goslar Rosentorstr. 1 (K) 1 4 6

4 München Karlsplatz 21-24 (G) 10 1 4 2 Worms Kämmererstr. 24-32 (G) 5 5 1

4 Hildesheim Almsstr. 41 (G) 3 5 6 2 Neumünster Großflecken 4-10 (K) 2 3 5

4 Neuss Niederstr. 42 (G) 5 4 6 2 Fulda Rabanusstr. 19 (G) 3 2 5

4 Aachen Komphausbadstraße 10 (G) 7 1 7 2 Fulda Universitätsplatz 2 (K) 3 5 2

4 München Pötschnerstraße 5 (G) 10 1 4 2 Offenbach Frankfurter Str. 12-16 (G) 7 3 1

4 Bamberg Grüner Markt 23 (K) 6 5 5 2 Schweinfurt Am Jägerbrunnen 11 (G) 3 4 4

4 Erfurt Anger 1-3 (K) 6 5 3 1 Wuppertal Neumarkt 26 (G) 3 2 4

4 Mainz Schusterstr. 41-45 (G) 9 4 2 1 Wesel Hohe Straße 57 (G) 1 5 2

4 Saarbrücken Bahnhofstr. 15 (K) 4 3 9 1 Bottrop Hansastr. 7 (K) 2 3 2

4 Paderborn Königsplatz 1 (K) 6 8 1 1 Iserlohn Schillerplatz 8-10 (K) 1 2 3

4 Speyer Maximilianstr. 43 (G) 5 9 1 1 Hamm Bahnhofstr. 6-12 (G) 2 1 4

4 Trier Fleischstraße 68-76 (G) 9 2 4 1 Memmingen Königsgraben 3 (K) 4 2 3

3 Münster Salzstr. 47-50 (K) 9 2 3 1 Landau Ostbahnstrasse 36 (G) 3 3 1

3 Gütersloh Berliner Straße 21 (K) 5 5 3 1 Euskirchen Spiegelstr. 14 (G) 2 2 2

3 Lörrach Turmstr. 1 (K) 5 4 4 1 Hagen Elberfelder Str. 23-25 (G) 2 3 2

3 Düren Wirtelstrasse 38-42 (G) 4 4 5 1 Gießen Rodheimer Straße 116 (K) 6 1 1

3 Coburg Mohrenstr. 17-19 (G) 4 5 4 1 Neubrandenburg Stargarder Str. 19 (G) 1 5 1

3 Hamburg Bergedorfer Markt 5-7 (K) 10 1 3 1 Wismar Rudolph-Karstadt-Platz 1 (K) 1 4 1

3 Halle Marktplatz 20 (G) 3 5 6 1 Solingen Hauptstr. 75-77 (G) 1 3 1

3 Mainz Ludwigsstr. 12 (K) 9 4 1 1 Siegen Kölner Str. 41 (K) 1 2 3

3 Hof Altstadt 26-30 (G) 1 5 6 1 Witten Bahnhofstr. 5 (G) 1 4 2

3 Berlin Karl-Marx-Straße 101-105 (K) 8 1 4 1 Neunkirchen Stummstraße 3-9 (G) 1 5 1

3 Hamburg Osterstr. 119 (K) 10 1 2 1 Göppingen Bleichstraße 15 (G) 4 2 2

3 Hamburg Sachsentor 33-39 (K) 10 1 1 1 Bayreuth Maximilianstr. 40-42 (K) 2 4 2

3 Stuttgart Badstr. 8-12 (G) 10 1 1

3 Lübeck Königstr. 54+56 (K) 7 3 4

3 Recklinghausen Markt 16-19 (K) 2 5 5

Source: Savills und Stadt + Handel / G = Galeria Kaufhof, K = Karstadt, A – Score Makrostandort, B – Score Mikrostandort, C – Score Objekt- qualität

39 3 German department stores compared

Frontrunners Fig. 18 Clustered total scoring results The frontrunners group comprises 46 department stores in total, including all Total scoring three premium Karstadt stores. These Scoring macro location Scoring micro location Scoring property quality stores have a combined sales area of more than 954,000 sq m, which equates to 42% of the overall sales area studied. The 46 properties are 10 10 10 10 10 10 10 10 divided into 24 Kaufhof department 9 stores (approx. 419,000 sq m) and 22 8

Karstadt stores (approx. 536,000 sq m). 7

6 5 6 Midfield 5 5 The midfield of the scoring comprises 4 62 department stores with a total sales 3 3 area of approx. 847,000 sq m (approx. 2 2 37% of the overall stock). These are 1 1 1 1 1 1 1 divided into 33 Kaufhof department stores with a combined area of Frontrunners Midfield Laggards around 440,000 sq m and 29 Karstadt properties with a total area of approx. Mean

408,000 sq m. Source: Savills, Stadt + Handel

Laggards Thus, the scoring results suggest that in smaller towns and cities have The laggard segment comprises 53 the conditions for the future viability of no future would be too simplistic. department stores. These stores have department stores tend to be worse in Despite, or precisely because of the a combined sales area of approx. smaller towns and cities than in larger relatively unfavourable local conditions, 473,000 sq m, equating to 21% of the municipalities. This may not appear department stores in smaller towns and overall stock. Galeria Kaufhof operates to be a new or surprising discovery cities have a significant advantage over 29 of these stores with a total sales at first glance. However, a closer those in larger municipalities. They are area of approx. 240,000 sq m, while the consideration of the individual pillars frequently the retail leader in the town remaining 24 are Karstadt department of the scoring offers two revealing or city with no local competition. This is stores with a combined sales area of insights in this context. Firstly, the true without exception in municipalities around 233,000 sq m. attractiveness of the macro-location with fewer than 50,000 inhabitants is closely correlated with the size of while, of the 29 towns and cities with a Interpreting the scoring results a town or city. In other words, the population of 50,000 to 100,000, only Upon analysing the scoring results, macro-locations (particularly) suitable Fulda and Gießen have two department it is immediately apparent that the for department stores are also large stores. For those department stores frontrunners are predominantly situated cities. Only very few towns and cities regarded as unrivalled retail leaders, in major cities, whereas the laggard with fewer than 100,000 inhabitants the low degree of competition means stores are over-represented in smaller offer attractive conditions. Secondly, that moderate conditions in respect towns and cities. The following offers the quality of the property also of location and property may well a more in-depth appraisal of the corresponds to the size of a town be adequate to be profitable and, situation. Around half of all department or city. Department stores with large potentially, to remain so. Conversely, stores in cities with more than 500,000 sales areas, a plus point in the scoring, operating a department store under inhabitants are among the frontrunners are primarily found in cities with high moderate conditions in a major city in the scoring, while only one in ten populations. This stands to reason, contested by department stores and such stores appears in the laggard since successfully operating a large shopping centres may not (or no group. As population size decreases, sales area requires a sufficiently large longer) be worthwhile. However, the the proportion of frontrunners declines potential customer base. However, this central realisation remains that, owing while the laggards account for a places department stores in smaller to the generally more unfavourable consistently increasing proportion towns and cities in a predicament as conditions in a town or city with (see graphic). No city with 50,000 or history shows that a department store fewer than 100,000 inhabitants, fewer inhabitants appears among should have a minimum sales area of it is normally more challenging to the frontrunners, while almost three 8,000 sq m in order to successfully successfully operate a department quarters of stores in such locations fulfil its role as a full-range provider. store. Consequently, the outlook for are found in the laggard group of the However, to conclude from this the future viability of such stores is less scoring. realisation that all department stores auspicious. To assess whether 3 German department stores compared the existence of any stores is under Fig. 19 Scores by size of city threat, and which stores they might be, requires consideration of the specific Frontrunenrs Midfield Laggards competitive conditions in each location. 100% This aspect is discussed separately in 90% Chapter 3.6. 80% In (over-saturated) cities with several 70% department stores in particular, it is ultimately the quality of the individual 60% micro-location that determines which 50% ones will continue to attract enough customers inside. The conditions 40% of the macro-location are the same 30% for all department stores in a given town or city and differences in the 20% quality of properties can be eliminated 10% via appropriate investment in the poorer quality property. The only 0% unchangeable differentiating condition > 500,000 100,000 to 500,000 50,000 to 100,000 up to 50,000 inhabitants inhabitants inhabitants inhabitants of such stores is the micro-location. In that respect, the micro-location score Source: Savills, Stadt + Handel is highly revealing with regard to the issue of the future viability of those competitive advantages they have department stores that compete with over many rival retail formats, such as other department stores in their local shopping centres. market. It can generally be inferred from the scoring results that most The observations above demonstrate department stores are found in good the potential of the scoring results. micro-locations. Only few properties They do not reflect a comprehensive are situated in genuinely poor micro- overview of the current department locations. Thus, German department score landscape but, rather, provide a stores differ relatively modestly in the framework for structuring the German quality of their micro-locations but department store stock as well as considerably in terms of how these for comparing individual stores. This locations have developed. In particular, foundational assessment reveals it can be observed from the scoring a number of insights that provide results that locations with generally meaningful starting points for more below-average performance in the in-depth analysis. Clearly, such scoring scoring have fared much worse in must also neglect or completely mask terms of attractiveness in recent years, certain aspects and details in order which is manifested in declining rents. to create a structure. However, these On the other hand, those micro- aspects and details can be explored locations with above-average location in further stages of analysis that build quality frequently show rising or at upon these scoring results. Some least stable rental levels. The growing examples of how the scoring can spread between good and poorer be used as a basis for generating locations is not a phenomenon limited additional findings for specific market to department stores but has been participants are discussed in the generally apparent in the retail sector following section. for a number of years (see Chapter 2.1). However, the consequence of this is that the selection process threatening otherwise crisis-stricken department stores is likely to continue if some department store locations continue to become less attractive. This will deprive such stores of the material

41 3 German department stores compared

3.6 The scoring as an analysis tool All three indicators are analysed at however, the closure of the Karstadt- Competition analyses town or city level. The colour of the Schnäppchencenter after the effective The observations above illustrate that competition traffic lights reflects date for data collection in this study the scoring results can be used as a the results according to these three demonstrates that the competitive basis to structure the entire German indicators, where red indicates high environment in the city was too department store segment and to intensity of competition in a town or intense to support two department compare individual stores with regard city and yellow and green represent stores. In the case of Gießen, the to their location-related and property- moderate and low levels respectively. composition of the overall scores with specific conditions. However, this is Naturally, this simple tool only allows one frontrunner (score = 8) and one just one factor for assessing the future for a basic screening of department laggard (score = 1) illustrates that the viability of individual department stores. store towns and cities. However, even town has two department stores with A further element not considered in the such a basic process can reveal a completely different conditions. In the scoring is the individual competitive number of meaningful insights and, event that the competition in Gießen situation of each department store. combined with appropriate knowledge proves too great for the existence of However, knowledge of this situation is of a local market, can provide a basis two department stores, one of the essential to answer the question as to for more detailed analysis of the local two stores is in a significantly worse whether two properties with the same competition. position, at least with regard to these overall score, of 6 for example in the conditions. case of the two Galeria-Kaufhof stores Major cities with more than 500,000 in Regensburg and Würzburg, should inhabitants, such as Berlin, Frankfurt really be considered equal in terms of and Hamburg, are characterised by future viability. an intensive competitive environment since they are home not only to several Reflecting competition in the scoring department stores but also a number of model would have been difficult for two shopping centres. From the customers‘ reasons and was, therefore, excluded. perspective, such cities offer a rich Firstly, the local competitive situation supply of „full-range providers“, where is difficult to record quantitatively they can satisfy all of their requirements since this depends on many details under one roof (Fig. 20). that cannot be sensibly taken into account in a scoring model that covers However, even in some smaller towns the entire German department store and cities, such as Paderborn and segment. These include, for example, Gießen, the competition traffic lights the spatial proximity of department are on red. Both markets have two stores in a given town or city and the department stores competing for attractiveness of the respective town or consumers. In the case of Paderborn, city centre as well as the overlap of the product ranges of the local department stores. Secondly, including competition Fig. 20 „Competition traffic lights” by city size in the scoring approach selected would have „diluted“ the results since low competition moderate competition high competition the competition in attractive macro 70 and micro-locations tends to be more intensive and vice versa. Since the 60 objective of the scoring is to be able to differentiate German department 50 stores, incorporating the element of competition would have been 40 detrimental. Against this background, it appears more sensible to consider the 30 subject of competition in a subsequent analysis in order to be able to interpret the individual scoring results in their 20 specific competitive context. To that end, we have developed a „competition 10 traffic lights“ system based upon the following three indicators: department 0 store sales area per capita, shopping > 500,000 100,000 to 500,000 50,000 to 100,000 up to 50,000 centre sales area per capita and the inhabitants inhabitants inhabitants inhabitants number of department stores. Source: Savills, Stadt + Handel 3 German department stores compared

The city of Iserlohn can be used as an case of Würzburg, the green traffic light with more than 500,000 inhabitants. example of low competitive intensity. suggests less intensive competition, The minimum rental area ensures a The local Karstadt department store is since Würzburg neither has another certain minimum investment volume in the comfortable position of neither department store nor a shopping per property while the restriction having to compete with another centre. to major cities serves to filter on department store nor with a shopping those markets with relatively high centre in the city. However, its overall On the whole, taking into account liquidity in their investment markets score of 1 indicates markedly poor the competitive situation allows for in order to minimise risk on exit. conditions for the future viability of differentiation of the scoring results and This is more likely to be true of the the department store, yet the low combining the scoring results with the large metropolises than mid-sized competition in the city might mean insights from the competition traffic towns and cities. Screening with that operating a department store is lights can provide valuable conclusions these criteria produces a list of 23 nevertheless profitable. as to the future viability of the properties that appear fundamentally respective department stores. This can suitable as investment properties Dortmund, in contrast, with a green be equally helpful to local authorities, for our fictitious insurance company traffic light, appears on the surface to investors and other stakeholders and (see graphic „Target properties for an have a completely different competitive can provide useful guidance when insurance company“). This list can then situation with two department stores making investment decisions. be further filtered by looking only at in the city‘s main retail area plus three properties with an overall score of 10, shopping centres, one of which is As an analysis tool for property for example. Furthermore, the selected also in the A location. The expectation market participants properties can be analysed from a might be to see strong competition Since the scoring system devised variety of perspectives or extensively between the department stores as well places significant weighting on investigated in a due diligence process. as between the related retail formats. building-related and property-market- In any case, such an approach can However, compared with Iserlohn, related criteria, among other retail- be used to easily identify department Dortmund has a significantly larger related factors, it can also serve as stores best suited to the risk profile potential customer base. Within a a useful analysis tool for property and existing portfolio of the insurance 20-minute radius of travelling time from market participants. In principle, the company. each city, Iserlohn has a catchment conceivable applications are as diverse area comprising almost 250,000 as the range of market participants that inhabitants, which is significantly lower might use the scoring as such a tool. than that of Dortmund with over a The potential applications are illustrated million potential customers. In other below with two practical examples. words, while the stores in Dortmund are concentrated in the respective One scenario for applying the scoring micro-locations and, therefore, involves using the overall and partial certainly compete with each other, their scores to identify department stores actual offerings are shared across an with a risk profile best suited to a adequate population size. The overall certain property investor. Evidently, scoring results for the department the overall scores alone could be used stores in the city of 8 and 9 are, thus, in a basic segmentation process. considered fundamentally plausible The frontrunners in the scoring, for while consideration of the competitive example, would surely be of particular situation can, in this instance, provide interest to risk-averse investors such an additional layer of validation when as insurance companies, while the classifying the results. laggards would be more interesting to investors with an opportunistic However, the competition traffic lights approach. This simple yet very basic also work in terms of differentiating screening can then be refined in between similar overall scores across accordance with the requirements of a several department stores. With specific investor. regard to the department stores in Regensburg and Würzburg used as An insurance company planning earlier examples, the question as to invest in department stores, for to whether both stores should be example, could concentrate on assessed similarly in terms of future those stores that feature among the viability remained unanswered. frontrunners in the scoring while also When the competitive situation is having a sales area of at least 20,000 incorporated, the answer is „no“. In the sq m and being situated in a city

43 3 German department stores compared

Fig. 21 Target properties of an insurance company since these contain department stores with above-average property scores. Properties in quadrants I Score = 10 Score = 9 Score = 8 and IV, on the other hand, would 4.0 fundamentally benefit substantially 3.5 from investment in the building fabric. However, for properties in quadrant IV, 3.0 it is questionable to what extent such investment would be profitable since 2.5 both the property-related and location- related conditions are at best average, 2.0 meaning that the future viability of the 1.5 current department store use would be in jeopardy despite upgrading the

million inhabitants million 1.0 building. Properties in quadrant I would have a greater chance of converting 0.5 an investment in the building fabric into higher sales and, thus, potentially 0.0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 sustainable rental growth since sq m rental area these locations show above-average conditions and the building currently

Source: Savills, Stadt + Handel represents the weakest link in the chain. The second potential application can A second scenario for applying the be illustrated using a similar scenario. scoring may be useful for current A developer is looking for department owners of department stores in stores whose future viability is Germany. Combined with additional questionable or in real jeopardy. data and information, the scoring also The developer would like to identify represents a meaningful analysis tool properties for refurbishment that are that can be used to prepare, reach suitable for retail use. The department or validate decisions. A comparison store scoring could be used to restrict of location and property scores, for the developer‘s search to the laggard example, could be used to identify stores since these show the least properties that are worthwhile favourable conditions. As a second candidates for investment in the selection criterion, the developer could building fabric and properties for which apply a minimum micro-location score this would be less sensible owing to of 5 to filter on those properties with unfavourable conditions in the location. the most favourable environment for A simple screen for this question alternative use with regard to their could be created by calculating the micro-location. The selection described average of the macro-location and highlights 16 department stores to the micro-location score. This value developer, which can then be narrowed could be labelled the „location score“ down further using additional criteria. and represents the location-related The competition traffic lights tool conditions that are unchangeable for presented above could be used as an the department store owner or that can additional filter, for example, since the only be influenced to a limited degree. probability of department store use not Each of these location scores produced being sustainable in the long term will for all department stores could now surely be highest in the five out of 16 be compared with the respective instances with a red competition traffic property scores in order to identify light. Additional indicators could also how the location-related and property- be used in a similar manner to identify related conditions of a department department stores whose future store interact (see graphic „Location vs viability is under threat and that would property scores“). For a simple screen, be suitable for conversion to residential it would initially suffice to divide the use, for example. resulting „department store cloud“ into four quadrants. In quadrants II and III, the issue of investment in the structural fabric is at least not urgent 3 German department stores compared

Undoubtedly, the methods presented Fig. 22 Location vs. property score here merely provide a basic instrument that is useful for initial categorisation but that cannot replace an in-depth 10 case-by-case investigation. However, 9 with adequate knowledge of the German department store market, 8 they represent a helpful first stage of 7 II analysis that allows sound and time- I saving initial classification or selection 6 that can be built upon with additional, more in-depth analysis processes. 5

4 Score location quality 3 IV III 2

1 1 2 3 4 5 6 7 8 9 10 Score property quality

Source: Savills, Stadt + Handel

45 4 Quo vadis, department store? Five theses

Normally, a study such as this ends Germany. That the external conditions with a summary and a conclusion for most department stores are including a number of more or less overwhelmingly positive is one of the sound recommendations for action. principal findings of this study. Based The latter are precluded here since upon this finding and other insights into this study primarily takes a bird‘s eye the status quo of German department view of the German department store stores, the study therefore closes with landscape. Such a perspective means an outlook as to the potential path for that, while the department stores the department store over the coming themselves and their environments years in five theses. Above all, however, can be closely examined, the business these should invite the reader to processes remain obscured from view. participate critically in the discussion However, such processes are material surrounding the „old lady“ of retail. to the future of department stores in 4 Quo vadis, department store? Five theses

1. The anchor is rusting continuation of a trend that is already when retail is becoming increasingly In its heyday, the department store was apparent and, barring a change of specialised and differentiated, there is a magnet, an anchor and a principal course, everything points towards a place for precisely this concept. The starting point for new product ranges towns and cities of this size no longer tremendous success of Amazon is not and innovative ways of presenting having a single department store in least based upon the fact that it sells goods to consumers and making the future. To avert this denouement, almost everything. Department stores sales. This status is now only enjoyed department stores must tailor conceivably have the right conditions by a limited number of department their assortment far more to local to become the Amazon of the „real stores serving as local retail leaders demand than previously and position world“. To do so, they must translate while the latest trends are found only themselves as local suppliers, for their „brand essence“ of „everything in the premium department stores. example. Department stores and small under one roof“ into the modern day In many other cases, it is noticeable to mid-sized towns and cities do not by incorporating a click-and-collect that department store uses are being have to be mutually exclusive. On the facility, for example, and achieving curtailed in favour of other often more contrary, it is in these towns and cities a cohesive marriage of online and successful tenants or, in some cases, in particular that department stores offline offerings. Then, department are even being replaced completely. have an opportunity to seize the role of stores could offer customers what This highlights the fact that many local retail leader. they once so admired in these stores: department stores are no longer the good service, a large assortment and anchor tenant in their retail location and 4. Micro-location? No problem! everything within close proximity - all in are even increasingly dependent on The scoring results show one thing all a convenient shopping experience. other stores to attract sufficient footfall very clearly. The majority of department This is undoubtedly what many people to enable them to function. A further stores are located in very high still want and Peter Praschl was manifestation of this is the relocation value (retail) locations. Even many probably speaking to their hearts when of a number of former stand-alone of the laggard stores score at least he wrote in „Die Welt“ newspaper: „No department stores into shopping respectably in terms of micro-location. department store is also no solution“. centres in recent years. Few other retail formats could make such a claim. However, this also means 2. Department store deaths to that those who wish to understand continue for the time being the plight of the German department The complete census and scoring store must start their research into the demonstrate that most department causes elsewhere. Conversely, the stores benefit from good general micro-location is a veritable asset from conditions. However, they also reveal which department stores can benefit that there are still many stores whose significantly. Indeed, this asset could conditions are probably no longer be the starting point for a renaissance adequate to secure their future in of the department store. However, the current retail environment. Some even in those locations where such a stores, for example, have sales areas renaissance is utopian owing to other that are too small to implement a obstacles, a favourable micro-location traditional department store concept expands the potential spectrum for or their micro-location, combined re-positioning and conversion of the with the lost magnetic function of the properties concerned. department store, is no longer suitable. Thus, it can be assumed that further 5. „No department store is also no closures will be announced in the solution“ coming months. epartment stores are suffering without question from declining footfall, 3. Department stores and small increasing competition, online retail to mid-sized towns and cities - and many home-made problems. mutually exclusive? Among these is their loss of profile. A principal finding of this study is that The one-time strength of department department stores in towns and cities stores as an „everything under one with fewer than 100,000 inhabitants roof“ concept can no longer be are faced with relatively unfavourable implemented in its original form today conditions. Despite low competition since even department stores no in the majority of cases, many such longer have sufficient sales area at towns and cities may bid farewell to their disposal. However, this does the department store going forward. not mean that the concept is wrong Fundamentally, this would only be a in itself. On the contrary, at a time

47 Sources and Picture credits

Sources Books on Demand, Leipzig Picture credits

The statements and data in this Immobilien Zeitung 15.06.2015: Cover picture document are mainly based on the Hudson’s Bay übernimmt Kaufhof „Das Seiden- und Modehaus following sources ( in alphabetical Bruno Schellenberger an der sequence ). Collection date of the data Karstadt GmbH, Homepage Königstraße Ecke Johannisplatz used is 30 June 2015th in einer Innenansicht um die Lührmann: CityFacts 2012/13 sowie Jahrhundertwende“ by Uwe Kaufmann Blank, Oliver 2004: Entwicklung des 2014/15 (URL: https://www.flickr.com/ Einzelhandels in Deutschland. Der photos/41569813@N03/11685539425), Beitrag des Gebietsmarketings zur Metro Group licensed under Creative Commons- Verwirklichung einzelhandelsbezogener Lizenz CC BY 2.0 (URL: https:// Ziele der Raumordnungspolitik. Reink, Michael 2014: Aktuelle creativecommons.org/licenses/by/2.0/) Deutscher Universitätsverlag, Entwicklungen und zukünftige Trends Wiesbaden im Einzelhandel – und mögliche All other pictures räumliche Auswirkungen auf die thinkstockphotos Brockhoff: Einzelhandelsmietspiegel Innenstadt. In: Informationen zur 2013/14/15 Raumentwicklung Heft 1.2014 1-10 RKW Rhode Kellermann Wawrowsky. Bulwiengesa AG/Riwis-Datenbank Architektur + Städtebau (Hrsg.) 2004: Herzschlag der Städte. Die Die Welt 04.07.2015: Das deutsche Renaissance der Warenhäuser. Warenhaus – ein Ort, den niemand Düsseldorf braucht Shopaffairs 01/15: Radikal EHI Retail Institute GmbH digital – Dichtung und Wahrheit. Sonderveröffentlichung des Empirica-Systeme GmbH Handelsjournals und des dlv Netzwerk Ladenbau e.V. 4 Frechen, Joseph 1998: Optionen zur erfolgreichen Positionierung von Statista GmbH Warenhäusern. Dt. Fachverlag GmbH, Frankfurt am Main Statistisches Bundesamt

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Hessert, Gerd 2012: Zukunft der Warenhausstandorte in Deutschland. Disclaimer

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49 Authors: Matthias Pink (Savills) Jasmin Brunke (Stadt + Handel) Research by Silke Wittig (Stadt + Handel)