Karstadt Quelle AG

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Karstadt Quelle AG

Theodor-Althoff-Strasse 2
Telephone: +49-20-17271
Fax: +49-20-1727-5216
Web site: http://www.karstadtquelle.com

Public Company
1920 as Rudolph Karstadt AG
Employees: 104,536
Sales: EUR 15.8 billion ($16.56 billion) (2002)
Stock Exchanges: German
Ticker Symbol: KAR
NAIC: 452110 Department Stores; 454110 Electronic Shopping and Mail-Order Houses; 561510 Travel Agencies; 561520 Tour Operators

Karstadt Quelle AG is the product of the 1999 merger between German retail powerhouse Karstadt Aktiengesellschaft and the Quelle Group, the largest mail-order retailer in Germany. Karstadt Quelle is the largest retail concern in Germany. Since the merger, however, Karstadt Quelle has sought to expand beyond its traditional base as a retail chain in order to withstand the vagaries of the German consumer market. It now operates in four distinct business sectors. Retail sales do remain the core of the company, as Karstadt Quelle runs 190 department stores (under the brand names Karstadt, Herties, Wetheim, Alsterhaus, and KaDeWe), as well as 280 specialty stores, such as SinnLeffers, Runners Point, WOM World of Music, and LeBuffet restaurants. But in its mail-order business, under the Quelle and Neckermann brands, Karstadt Quelle disseminates about 40 million catalogues to consumers in 17 countries. Moreover, Karstadt Quelle has emerged as a dominant force in the European travel services sector. It jointly operates Thomas Cook Group Ltd. with Deutsche Lufthansa AG. Other businesses in Karstadt Quelles services sector provide consulting, information, and financial services. Since 2000, Karstadt Quelle has also worked to build a real estate division that manages the groups far-flung properties and develops shopping centers.

Karstadts Mid-19th-Century Origins

Rudolph Karstadt, founder of the company and a pioneer of department store retailing in Germany, was born near Lübeck on February 16,1856. He completed his commercial apprenticeship in Rostock and then worked in his fathers textile shop in Schwerin. Rudolph soon became impatient with the business customs of the time, whereby customers generally bought items on credit, forcing merchants to set prices high as protection against nonpayment and hindering flexibility in terms of stock changes. He saw the secrets of successful retailing as low prices, cash payment, and rapid stock turnovera revolutionary concept that caused some disagreements within the family. Finally, in 1881 Rudolphs father lent him 3,000 marks to put his ideas into practice. On May 14, 1881, Rudolph, with his brother Ernst and sister Sophie, opened a shop, Rudolph Karstadtselling dress materials and ready-to-wear clothesin the harbor town of Wismar. Newspaper advertisements excited local interest and ensured large crowds on the opening day. Despite the low prices, however, customers were unused to the idea of immediate payment, and monthly sales in the first year were modest. Rudolph Karstadts brother and sister withdrew from the business at this stage, leaving him as the sole owner.

Karstadt stuck to his convictions and was soon proven rightin the second year of business monthly sales rose to 20,000 marks, and in 1884 another shop was opened in Lübeck, with a range of goods extending to household items, leather goods, and toys. Further branches were opened in Neumünster in 1888 and in Braunschweig in 1890. The business grew rapidly: the balance sheet total in 1882 was 49,000 marks, which rose to 613,000 marks in 1890, and to 1.8 million marks in 1894. Rudolph Karstadts conception of the modern department store was perfectly in tune with the times: the increasing economic power of the middle and working classes meant that consumer goods were demanded in ever larger quantities. In founding his business, Karstadt was also in line with a broader European trend: department stores had already been successfully established in Francenotably with Bon Marché, Magasins du Louvre, Samaritaine, Printemps, and Galeries Lafayetteand in England, with Whiteleys, Harrods, and Selfridges.

Karstadts Late 19th-/Early 20th-Century Expansion

A new branch was opened in Kiel in 1893, and Karstadt, who had previously moved from Lübeck to Berlin, now moved from the capital to this rapidly growing town, a focus of imperial military expansionism. During the 1890s and the first decade of the 20th century the business continued to expand at a considerable rate: new branches were opened, established branches were extended, and in 1900 Rudolph Karstadt took over 13 stores owned by his brother Ernst, who had gotten into financial difficulties. By 1906, the 25th anniversary of the company, Rudolph Karstadt owned 24 department stores in northern Germany. In 1912 a prestigious new store was opened in Hamburg, with 10,000 square meters of sales area and a turnover of nearly seven million marks in the first year, and in 1913 Rudolph Karstadt reestablished the headquarters of the company in that city.

While Karstadt was establishing his chain of stores in northern Germany, a business run by Theodor Althoff in the western part of Germany was following a very similar course. Althoff, born in 1858, had taken over a millinery and linen shop from his mother in 1885 and had soon succeeded in expanding the business considerably, following principles similar to those espoused by Karstadtcash payment and low prices. In 1904 Althoff opened his first department store, in Dortmund, with a sales area of 5,000 square meters, and in 1910, the 25th anniversary of the business, the enterprise consisted of 11 stores in all. The year 1912 saw the establishment of Althoffs largest store yet, in Essen, with 10,000 square meters of selling space and 53 departments.

Interwar Merger of Karstadt and Althoff

World War I put an end to the years of prosperity and expansion for both Karstadt and Althoff. People hoarded their money, and goods became increasingly scarce. The similarity of the two businesses and the need to concentrate resources during this crisis brought the two department store pioneers together for the first time in 1917. In 1919 the firms agreed on a common purchasing arrangement. In 1920 Rudolph Karstadt KG was converted into an Aktiengesellschaftjoint stock companywith founding capital of 40 million marks, based in Hamburg. Theodor Althoff was chairman of the supervisory board. A complete merger of Karstadt AG and Theodor Althoff KG followed in May of the same year, and the share capital was raised to 80 million marks; at this time Karstadt had 31 stores and Althoff 13.

The decade which followed the merger was one of rapid expansion, funded by numerous capital-raising measures. The company opened new branches and extended existing ones, as well as acquiring a number of manufacturing businesses in the furniture, textiles, and grocery sectors. EPA Einheitspreis AG, a subsidiary enterprise started by Theodor Althoffs son Heinrich, was established in 1926 following the American model of five-and-dime stores, with goods sold at four prices: 10, 25, 50, and 100 pfennigs. This business was tremendously successful, with 52 branches in Germany and a turnover of about 100 million Reichsmarks (RM) in 1932. In 1927 Karstadt acquired the 19 stores owned by M.J. Emden Söhne KG, and in 1929 a new store was opened in Berlin, one of the largest and most modern in Europe at the time, with a sales area of 37,000 square meters. Another 15 stores were added by the merger with Lindemann & Co. KG in the same year. By the time of the companys 50th anniversary, in 1931, Rudolph Karstadt AG and its subsidiaries had 89 branches and about 30,000 employeescompared with 11,500 in 1924and a turnover of around RM 200 million.

Great Depression Threatening Karstadts Survival

This phase of growthconceived and carried through, it appeared, on the initiative of Hermann Schöndorff, a dominant member of the companys management board at the timereached its climax with the construction of an impressive new headquarters in Berlin, covering 70,000 square meters. Employees in the former headquarters in Hamburg were transported to Berlin in a specially commissioned train on January 1, 1932. The plans for expansion ended in crisis, however. The national and international economic difficulties of the early 1930s, combined with debts incurred during the previous decade, brought the company into severe financial trouble. In 1931 only five of Karstadts stores were showing any profit. Theodor Althoff died in August 1931, when the business he had helped to found was approaching collapse. In April 1933 a consortium of banks assisted in drawing up a program of reorganization in order to ensure the companys survival. All the production subsidiaries were to be divested, share capital was to be reduced from RM 80 million to RM 7.6 million, the branch network was to be reduced, and EPA Einheitspreis was to be sold. The newly built headquarters was sold in 1934, and the companys administration moved into smaller premises in Berlin.

The restructuring effected a recovery in financial terms. Karstadt then, however, had to contend with difficulties arising from the National Socialists (Nazi) campaign against department stores, involving boycotts and restrictive legislation, as some department stores had Jewish owners and were seen as representing a threat to the specialty German retail tradition. Despite these obstacles the company reached an economic high point before World War II: in 1939 it had 67 branches, a total sales area approaching 260,000 square meters, and a workforce of 21,000. Annual sales rose from RM 190 million in 1933 to RM 300 million in 1939.

Company Perspectives

If you do not try to get better, you have stopped being good. That is the principle that Karstadt Quelle is committed to. Our customers, shareholders, and the public have a right to expect a great sense of responsibility and above-average service in the areas of environmental protections, social policy, and professional organizations. We are continuously trying to meet those expectations with top performances for the benefit of all.

Wartime Difficulties Yield to Postwar Growth for Karstadt

Business conditions during and immediately after World War II became increasingly primitive, determined by rationing and the scarcity of goods, by changes of staff as women replaced the men who were called for military service, andespecially in the later yearsby the damage to or destruction of stores by Allied bombing. In 1944 Rudolph Karstadt died at the age of 88. The end of the war saw the expropriation of 22 stores in the Soviet occupation zones and the destruction of more than 30 of the 45 branches in the western zones.

The currency reform of 1948 marked the beginning of West Germanys economic recovery. In this year Karstadt had 6,700 employees, 55,000 square meters of sales area, and an annual turnover of DM 172 million. During the years that followed, rising incomes and consumer confidence fueled the reestablishment and renewed growth of Karstadts retail business. In 1952 Karstadt reacquired 75 percent of the former EPA Einheitspreis AG, now called Kepa Kaufhaus GmbH (Kepa); the remaining 25 percent was acquired in 1958. In 1956, the year of the companys 75th anniversary, the turnover of Rudolph Karstadt AG exceeded DM 1 billion for the first time. By this stage Karstadt had 49 branches and Kepa 51, with a total sales area of 222,000 square meters and 31,000 employees. The company name was changed to Karstadt AG in 1963, and a new administrative headquarters was opened in Essen in 1969.

Karstadts Diversification in 1970s

The 1970s saw another important phase of expansion for the group, accompanied, as in the 1920s, by a diversification of interests. A travel company, TransEuropa Reisen GmbH, was jointly founded by Karstadt and mail-order company Quelle Gustav Schickedanz KG in 1971. The following year the company was renamed KS-Touristik-Beteiligungs GmbH. KS-Touristik itself held 25 percent of Touristik-Union International GmbH KG. In 1976 Karstadt agreed to buy a stake in the mailorder company Neckermann Versand, which was experiencing financial difficulties. As Neckermann itself had a travel subsidiary, the Federal Monopolies Commission required Karstadt to sell its share in KS-Touristik. In 1977 Karstadt raised its share in Neckermann to a controlling 51.2 percent. Neckermann was converted to a joint-stock company in the same year.

As well as moving into the mail-order and travel businesses, Karstadt diversified its retailing interests during this decade. The groups first furniture and home decoration store was opened in Munich in 1972. By 1980 the group had nine such furniture outlets. Seven self-service department stores began operation with the foundation of Karstadt SB Warenhaus GmbH, a subsidiary of Kepa, in 1974. The first specialized sports equipment store was opened in 1976: nine of these outlets were in operation in 1980. Further specialty outlets for fashion, music, books, and leisure activities were opened between 1977 and 1980.

The second half of the decade also saw the rationalization of Karstadts retailing businesses. In 1977 it was decided that the concept behind the Kepa outlets would not be successful in the long run, and 25 of Kepas outlets were reintegrated into the Karstadt chain; the remaining 42 branches were sold or leased. The self-service department storesby then numbering 18were also brought into the main Karstadt network. Between 1977 and 1979, 17 of Neckermanns stores were turned into Karstadt outlets and 17 new Karstadt stores were established.

Pursuing Productivity in the 1980s

By 1981, Karstadts department store business had 155 branches and 71,000 employees, and accounted for 77 percent of turnover. Neckermann Versand AG, the mail-order subsidiary, had a workforce of 6,600 and accounted for 13 percent of the groups annual sales. NUR Touristic GmbH, Neckermanns travel subsidiary, had 1,500 employees and a 10 percent share of sales. The restructuring at the end of the 1970s indicated a shift in strategy from expansion in store numbers to increasing the productivity of each store. This policy was pursued through the 1980s. Karstadt, in 1991, had 155 storesthe same number as in 1981. However, sales area during the decade increased from 1.3 million square meters to 1.4 million square meters. Workforce numbers tended to declinefrom 79,500 in 1981 to 71,000 in 1990. Annual turnover was DM 12.7 billion in 1981; after a decline in the first half of the 1980s, this had risen to DM 16.8 billion in 1990.

Key Dates

Rudolph Karstadt launches eponymous store.
Theodor Althoff opens his first store.
Rudolph Karstadt and Theodore Althoff merge operations and form Rudolph Karstadt AG.
Karstadt launches EPA Einheitspreis AG.
Gustav Schickedanz founds Quelle.
Restructuring of Karstadt.
First Quelle department store opens.
Quelle launches NORIS Bank GmbH (later Quelle Bank).
Karstadt fully reacquires EPA Einheitspreis AGnow called Kepa Kaufhaus GmbH(Kepa).
Karstadt purchases stake in Neckermann Versand.
Quelle opens new mail-order center in Leipzig.
Karstadt merges with Hertie Waren & Kaufhaus GmbH.
Schickedanz purchases 20 percent stake in Karstadt.
Karstadt creates C&N Touristic with Lufthansa.
Karstadt purchases Quelle from Schickedanz and becomes Karstadt Quelle.
Karstadt Quelle purchases Thomas Cook.

Facing increasing competition from self-service and out-of-town stores, Karstadts strategy in the 1980s was to maintain its traditional emphasis on department stores carrying a full range of goods in town centers. In the late 1980s, however, the company implemented a refurbishment and realignment program by which individual stores have been modernized and adapted to the nature of their localities. Furthermore, a distribution center was established at Unna, near Dortmund. The project was started in 1987 and was fully operational for the first time in 1990, costing DM 210 million. This center replaced regional warehouses and enabled Karstadt AG to make efficiency and cost improvements in the area of logistics, the distribution of goods between warehouses and stores. Diversification, which was at the core of Karstadts development in the 1970s, was not part of the companys strategy during the 1980s. Although the company retained specialty outlets for sports equipment and furniture, accounting for about 9 percent of annual turnover, all other ventures into specialty areas, except Runners Point, had ceased operations by 1987.

In 1981 Karstadt raised its stake in Neckermann Versand AG to more than 94 percent, and in 1984 the group acquired all remaining shares in this subsidiary. Both Neckermann Versand AG and its travel subsidiary NUR Touristic GmbH continued to take losses during the first half of the 1980s, returning profits only since 1986 and 1987, respectively. Improvements at Neckermann were due largely to its abandonment of specialty catalogs, returning to one main catalog targeting families in the medium- to lower-income groups. Staff reductions also played a part. Neckermann, which produced around three million catalogs each season, was by the end of the decade the third largest mailorder company in Germany, behind Otto and Quelle, and had subsidiaries in the Netherlands, Belgium, France, and joint ventures in Greece and Poland. NUR Touristic, which has subsidiaries in the Netherlands and Belgium, also reduced its workforce, from 1,445 in 1981 to 937 in 1989. Despite these improvements at Neckermann and NUR, the problems were not entirely eradicated: while both businesses showed increases in turnover, their profits declined in the waning years of the decade.

Karstadt in the 1990s

The reunification of Germany, along with tax reforms that increased consumer-spending power, brought Karstadt and its subsidiaries a significant boost in sales in the early 1990s. Department stores along the border with the former German Democratic Republic benefited from visiting customers from the new federal states, while the mail-order business was able to penetrate into the eastern territories and take advantage of the rise in consumer demand without having to establish retail outlets. Karstadt had believed that its coverage of Western Germany had reached a saturation point, but the new Länder, or federal regions, presented the group with an opportunity for further expansion. In 1990, a cooperation agreement was reached with the Centrum department stores in Eastern Germany; in March 1991, Karstadt acquired seven of these storesin Dresden, Gurlitz, Halle, Hoyerswerda, Leipzig-Lindenau, and Magdeburgas well as leased two former Magnet stores in Brandenburg and Wismar. Conversion of these stores to Western standards required considerable investment. Neckermann and NUR also developed mail-order and tourism infrastructures in the East.

Further consolidation of Germanys retailers came in 1994, when Karstadt merged with Hertie Waren & Kaufhaus GmbH. The DM 1.5 billion deal added Herties 300 department and specialty stores with $4.2 billion in sales to form what Daily News Records James Fallon called the richest retailing group in Europe. The merger also signaled Karstadts commitment to department store business in the face of a potentially slackening business. German shoppers were increasingly looking to specialty retail stores or to the new discounters, rather than to traditional department stores such as Karstadt and Hertie, for their shopping needs

Karstadt showed off its cyber-savvy with the launch of My-World, Europes largest online shopping site, in October 1996. The electronic mall offered over 150,000 items and generated an average of $20,000 in sales every day. However, while the chain continued to seek new ways to present its wares to the buying public, it did not neglect the old ways. Thus also in 1996, Karstadt staged a grand reopening of its Berlin outlet, Kaufhaus des Westens. Known colloquially as KaDeWe (ka-day-vay), the store had first been built in 1907 and had long been sequestered in East Germany by the Cold War-era Berlin Wall. A renovation and expansion made it the largest department store on the European continent, with 60,000 square meters of selling space.

Karstadt was among the retailers who helped to slowly erode Germanys blue laws in the early 1990s. The product of lobbying efforts by the nations powerful unions, these laws prohibited work on Sundays (known as Feiertag or free day) and ended the workday at 6:30 p.m. on weekdays and 2 p.m. on Saturdays. As the German retail environment worsened in the mid-1990s, store operators were able to convince local governments and, in November 1996, the national government to ease restrictions on store hours. The national reform did not allow Sunday hours but did allow the extension of the weekday to 8 p.m. and Saturday hours to 4 p.m. Karstadt took advantage of the new selling time, but, like many of its competitors, did not see an immediate payoff.

In fact, while Karstadts sales rose more than 60 percent in the early 1990s, from DM 16.77 billion to DM 26.98 billion, its net income declined from DM 227.8 million in 1990 to a low of DM 41.9 million in 1994 before recovering somewhat to DM 109 million in 1995.

In response to its falling income, Karstadt launched a restructuring program in 1995. Company Chairman Walter Deuss announced that Karstadt would integrate its Hertie acquisition over a five-year period by reducing the number of Hertie stores (some would be converted to the Karstadt name; others would be closed). Nevertheless, Karstadts retail division continued to encounter difficulties, although the companys mail-order and travel arms performed well.

Karstadt also cast about for ways to insulate itself from the vicissitudes of the retail sector. Its travel business, operating chiefly through NUR Touristic, was a perpetual bright spot on earning reports, even in years when retail sales flagged. Karstadt built upon this strong base in the travel sector when in 1997 it formed a joint venture with Deutsche Lufthansa AG, Germanys flagship airline carrier. This new business, of which each company owned 50 percent, was christened C + N Condor Neckermann Touristik AG. The alliance sought to create an integrated company with a presence in all aspects of the tourist business. In particular, Karstadt and Lufthansa wanted to link charter flights and tourist packages to boost profits for both. To this end, Karstadt transferred its NUR operations to C + N.

In 1997, Karstadt sold an 18 percent stake of its operations to Schickedanz Holding AG, the parent company of Quelle, the largest mail-order retailer in Germany and the second largest in Europe. With lackluster consumer demand in Germany posing obstacles to profit, both Karstadt and Quelle sought to maximize efficiencies, particularly by synthesizing their mail-order operations. Analysts believed that this new arrangement would be advantageous, and Karstadts share price rose immediately upon news of this transaction.

The following year, Schickedanz announced that it wanted to gain an additional 30 percent stake in Karstadt, which would raise its ownership in the company to a controlling 48 percent. In the midst of these negotiations, Karstadt and Schickedanz decided to take the bolder step of merging Karstadt with Quelle.

Early Years at Quelle

Gustav Schickedanz, Quelles founder, was born in 1895, the son of a craft factory employee in Fürth, a small city adjacent to Nuremburg. He left school at the age of 15 to work at Speed and Son, the local branch of a sportswear firm. He soon was due to be appointed as a company representative in South America, but he decided to complete his army-service obligation first. World War I broke out and an expected service period of one year turned into seven. He was wounded and discharged in 1919. Schickedanz returned to Fürth where he worked as a salesman and married Anna Zehnder, a local master bakers daughter, in September 1919. In 1922, he opened a small haberdashery business and struggled to keep the firm going in the midst of Germanys period of hyperinflation. His employees were his father, wife, and sister.

Economic reforms led to a degree of stabilization and a short period of improvement. Schickedanzs observations of customer behavior led him to believe that he could sell to a larger market through the mail. With the resulting low overheads and greater volume, he could offer lower prices. These ideas were not new, but hyperinflation presented great difficulties to mailorder firms. The new stabilization convinced him that mail order could work. The mail-order venture opened in November 1927. The name chosen for the company, Quelle, means source in German. Schickedanz hired 15 new workers. One, Grete Lachner, would one day become his second wife and play an essential role in the companys future.

His first catalogs emphasized wool, thread, and materials for home sewing, rather than ready-to-wear clothes. The company enjoyed a modest success in its first 18 months of operation. Schickedanzs 33-year-old wife Anna and their five-year-old son were killed in an auto accident in July 1929; his 72-year-old father died shortly afterward. His problems were compounded by the Wall Street crash, which halted the German economys faltering recovery and threw millions out of work. Schickedanzs sister, Liesl Kiesling, stepped into Annas position in the company.

By the end of 1930, five million Germans were unemployed. Schickedanzs new business survived, however, and, especially by the standards of the Great Depression, prospered. Quelle was able to offer lower prices than many shops, and quickly developed a reputation for reliability and good value. Soon Schickedanz began to offer more clothes and accessories. By 1934 Quelle had 250,000 customers. By 1936 this number had grown to a million, the majority of whom were women.

Wartime and Postwar Difficulties for Quelle

This success came about despite the restrictions on trade introduced by Adolf Hitlers new Nazi regime, which came to power in January 1933. As Jews began to leave or face imprisonment, they disappeared as competitors in the clothing trade. In 1935 Schickedanz bought VP, a paper factory, to publish catalogs and make cartons. This factory had been Jewish property. Some suspected him of having an invisible Jewish partner, but this was never proved. World War II began on September 1, 1939, and the Nazis required that the paper factory be turned over to war work. Schickedanz continued to operate under severe restrictions and clothing rationing, but the dislocations of the war meant that mail order provided an alternative source of supply to people in bombed-out cities. Schickedanz was offered several positions as an economic administrator, but he preferred to remain with the business.

In 1942 Schickedanz married Grete Lachner. One year later their only child was born in a bombproof bunker. As Allied bombers began to attack the Nuremburg-Fürth area, the Schickedanz family moved out to quarters in the nearby forest village of Hersbruck. In August 1943 Quelle was virtually put out of business when an Allied bombing raid destroyed 90 percent of the companys warehouse in Fürth. On April 19, 1945, American troops occupied the ruins of Fürth and Nuremburg. Three weeks later, Germany surrendered. Although the Schickedanzes were fortunate to find themselves in the U.S. zone of occupation, their enterprise was not initially encouraged. Schickedanz was classified as a Nazi by the occupation authorities and prohibited from reopening his business. Buildings were in ruins or requisitioned by the occupation authorities and customer records had been lost.

Grete Schickedanz opened a small clothing shop in Hersbruck to support the family. It was a success, but was closed by the military authorities. Eventually, the Schickedanzes were able to use the influence of the anti-Nazi politician and economist Ludwig Erhard, a family friend who was also from Fürth, to gain permission to reopen.

Quelles Growth in the 1950s and 1960s

Gustav Schickedanz remained under a prohibition and, in theory, could not even discuss business with former employees. The ban was removed in 1949. Former employees were found and Quelle was off to a fresh start. It was just in time to benefit from Ludwig Erhards currency reforms of the previous year. Following the founding of West Germany in 1949, Erhard moved as quickly as possible to remove restrictions and rationing and to encourage competition. He believed that sales of consumer goods would encourage production and jobs.

After many years of hardship, Germans responded by going on a buying spree. The Quelle name was remembered and respected by many former customers. By utilizing previous contacts, Grete Schickedanz was able to obtain superior but inexpensive goods for sale. It was on this foundation that the new Quelle was built. By the end of 1949 Quelle had a turnover of DM 12 million and mailing list of 100,000 addresses, but the couple had also opened their first department store.

Germany, especially, benefited from the economic expansion stimulated by the Korean War in the early 1950s. Between 1949 and 1952 the companys turnover rose by 900 percent. By 1952 Quelle had one million credit customers and sales of DM 103 million. The company now faced the classic problems of a successful business: how to expand without overextending and damaging a reputation for quality. The answer was to invest in new computer and data processing technology that was just appearing in the United States and barely known in Europe.

Schickedanz hired the best experts and gave them a free hand to design systems that would enable Quelle to handle millions of mail-order and credit transactions per year. Thirty-five engineers from the firm SEL in Stuttgart worked for two years to develop and set up a system appropriate for Quelles needs. In 1955 the first phase of the companys new mail-order center was finished. By 1957 SEL had completed the building of the new system. It was one of the most sophisticated mail-order computer information systems and attracted worldwide interest. Quelle was able to rationalize its operations and achieve even greater efficiency. The company has continued to give high priority to updating its computer and data information systems. In 1990 it maintained information on some 32 million customers.

A new emphasis was placed on quality control. In 1953 Schickedanz set up an institute for testing products to be sold through Quelle. It became known as the Quelle Institute für Warenprüfung and is the largest institute of its kind in German commerce. At first only textiles were tested, but gradually it began to examine other product types. In 1990 it had made more than 25,000 annual tests. The institute also attracted international interest.

Grete Schickedanz was increasingly responsible for buying. She also directed careful attention to new catalogs and added more color pages. By 1954 more than half the pages of the spring-summer catalog were in color. She carefully monitored fashion trends. Later, the company hired prominent German designers such as Heinz Oestergard as advisers.

The range of mail-order products was continually expanding. In 1954 the company bought a bicycle factory and began to sell bicycles. The next year, a favorable response to a line of small electronic appliances led to the introduction of washing machines and large appliances, which Quelle was able to offer at very competitive prices. In 1957 one of its most successful ventures was into photographic equipment, where it was able to offer large mail-order discounts. By the early 1960s it was even offering travel services.

Quelle learned how to target special interest groups and to develop special catalogs alongside its main catalog to spotlight lifestyle groups and hobbies such as gardening. A bank, NORIS Bank GmbH (later Quelle Bank) was started in 1956 and developed to help customers with credit. By 1958 Quelle had a turnover of DM 406 million. It had become the largest mailorder firm in West Germany.

From the early 1960s, Grete Schickedanz traveled to the Far East on buying trips. In 1962 Quelle opened an office in Hong Kong. Eventually, the region became one of the companys most important sources of supply. Later, Grete Schickedanz established important business contacts in the Peoples Republic of China and opened an office in Shanghai.

In 1964 Quelle had a turnover of DM 1.64 billion and called itself the largest mail-order house in Europe. The 1960s and 1970s were a period of continued growth for Quelle in Germany, but unlike its competitor, Otto Versand, which made a very successful investment in Spiegel in the United States, Quelle had been more cautious about foreign expansion. The process had been slow, mainly into neighboring countries. It began in 1959 with Austria, where results were so encouraging that the company decided in 1966 to make a much more risky move into France, opening a new mail-order facility in Orleans.

New Developments at Quelle: 1970s80s

Gustav Schickedanz died on March 27, 1977, in the 50th anniversary year of the company. He was succeeded as chairperson by Grete Schickedanz. Because the two had worked as partners for many years, Gustavs death did not disrupt the company or bring about any major policy changes. Grete continued her worldwide buying trips. By 1981, Quelle had a turnover of DM 10 billion.

In May 1985 Grete Schickedanz broke new ground in West German-East European trade politics by signing an agreement with Hungarotex, the Hungarian foreign trade organization. The agreement allowed Quelle to sell by mail in Hungary and included plans for a new chain of jointly owned department stores. In 1990 Quelle started Intermoda, a joint-venture catalog operation in the Soviet Union. In 1987 Grete Schickedanz relinquished her position as chairperson of the board of Quelle, but she remained as head of its supervisory board. Into the 1990s she still traveled widely on behalf of the company.

The 1990s and Beyond at Quelle

The speedy German reunification process, which began with the collapse of the East German regime in November 1989 and culminated a year later, presented both new markets and challenges from Otto and other German competitors. Quelle saw opportunity in this environment, and moved quickly to capture what it viewed as a vast new market. The company distributed its catalog to nine out often households in the former East Germany, and opened new stores and facilities in Gera, Jena, and Erfurt.

German unification boosted Quelles mail-order sales 40 percent by 1990, but the company struggled to handle the volume of its new business. As a result, its profits remained in the single low digits. To address this problem, Quelle began planning a huge new regional mail-order complex in Leipzig (in the former East Germany). The Leipzig facility signaled Quelles commitment to central and eastern European markets. By the time it opened in 1995, the facility, which employed 2,500 people, could process 180,000 parcels a day.

In addition to mining the emerging consumer economies to the east, Quelle looked to diversify by entering entirely new business sectors. At the end of 1990, Quelle surprised many German financial institutions by entering into a new agreement, through its subsidiary Quelle Bank, with the Bank of Scotland to compete in the undeveloped German credit card market. (Analysts had long considered Germans to be resistant to credit cards.) According to the plan, Quelle was to offer direct banking and credit card services using its mail-order database, which contained information on more than 30 million customers in Germany, France, and Austria. Bank of Scotland would handle the processing in its facilities in Dunfermline, Fife, Scotland. Quelle hoped to issue roughly one million cards in its first five years.

During this period, Quelle also launched the first-ever home shopping television network in Germany as a joint venture with Pro-7 Television GmbH. Home Order Television GmbH (HOT), as the commercial channel was called, featured peppy German salespeople touting merchandise in a format pioneered in the United States by QVC Inc.

In 1997, Quelle found a further avenue for expansion when it purchased an 18 percent stake in Karstadt AG, Germanys largest retailer. Two years later, Quelle and Karstadt merged, creating a retail and mail-order powerhouse.

Karstadt Quelle AG: 19992003

The merger of Karstadt and Quelle resulted in a German retail giant with combined sales of nearly $18.1 billion. Both companies had considerable mail-order operations, as well as retail stores throughout Europe. Karstadt Quelle, as their combination was called, sought to use its newly acquired bulk to operate more efficiently, particularly in its mail-order segment.

Soon after merging, however, Karstadt Quelle encountered some significant obstacles. The German economy was in the midst of a slump, and retail sales, particularly at the higher-end Karstadt department stores, suffered accordingly. Karstadt Quelle reported a loss of nearly EUR 50 million for the first half of 2000. The market noticed. The data [on the new company] are fundamentally bad, an analyst for Fritz Nols Global Equity Service, told the Wall Street Journal Europe on August 29, 2000.

In response to this dismal earnings report, Walter Deuss, the longtime chairman of Karstadt, stepped down, and was replaced by Wolfgang Urban, who had built his reputation for hard-nosed decision-making at Karstadts chief rival, Metro AG. Urban immediately announced a ten-point plan to turn around Karstadt Quelle, and promised that the companys earnings would grow to EUR 731.2 million by 2003. As part of this process, the company would lay off 7,000 workers (mainly sales staff at Karstadt department stores) by that date.

The lynchpin of Urbans program was to move Karstadt Quelle beyond the confines of the retail sector. Sustainable profitability, Urban believed, would come only if Karstadt Quelle transformed itself into a broad-based retail and services group, diversified enough to withstand the cyclical downturns in the German retail sector. In keeping with this strategy, Karstadt Quelle announced in December 2000 that its C + N Touristic joint venture would acquire Thomas Cook Group Ltd., the second largest travel company in the United Kingdom, for EUR 890.1 million. With the merger, C + N Touristic became the second-largest travel group in Europe.

Karstadt Quelle also unveiled a series of partnerships with strategic allies that furthered its diversification efforts. In 2001, it announced its alliance with American coffee chain Starbucks to open Starbucks outlets in Karstadt department stores. In 2002, Karstadt Quelle changed the name of its in-house bank from Optimus to Karstadt Quelle Bank and broadened the range of services the institution provided. Karstadt Quelle also teamed up with Deutsche Telekom to offer customer bonus programs under the brand name HappyDigits.

Karstadt Quelles ongoing efforts to reinvent itself continued in 2003. Although 2002 was another difficult year for the companyretail sales in Germany were again low, as the national economies across the entire so-called Euro-zone struggledKarstadt Quelles diversification promised to develop the company in new directions.

Principal Subsidiaries

Alsterhaus; Herite; Karstadt; Runners Point and Golf House; Sinn Leffers and Wehmeyer; Neckermann; Quelle; IN-TELLIUM; Karstadt Quelle Bank; Quelle Versicherung; Karstadt Immobilien; Thomas Cook Tourism Group (50%).

Principal Competitors

American Express Company; AVA Allgemeine Handelsgesellschaft der Verbraucher AG; Douglas Holding AG; Lidl & Schwarz Stiftung & Co. KG; METRO AG; Spiegel, Inc.; TUI AG.

Further Reading

Cole, Deborah, Berlin Reopens Beloved Symbol of Consumer Freedom, Reuters Business Report, September 24, 1996.

Dauer, Ulrike, and Angela Cullen, Retailing: Karstadt Discusses Joining Forces with Schickedanz, Wall Street Journal Europe, April 20, 1999.

Demain, Beth, Karstadt Quelle Unveils New Strategy, But Skeptical Investors Arent Buying, Wall Street Journal Europe, October 18, 2000.

Doran, Patricia, Konig Karstadt, Sporting Goods Business, August 1994, p. 56.

Fallon, James, Confirm Karstadt to Acquire Hertie Department Stores; Deal Worth $1.6 Billion, Daily News Record, November 16, 1993, p. 10.

Fessenden, Helen, Lufthansa-Karstadt Venture Praised But Cartel Issue Looms, Dow Jones International News, September 18, 1997.

Gilardi, John, German Retail Unions Stage More Strike Actions, Reuters, May 30, 1995.

Grete Schickedanz: Ein Leben für die Quelle, Fürth, Quelle, 1986.

Karstadt Magazin: Jubiläumsausgabe, 18811981, Essen: Karstadt AG, 1981.

Karstadt Reports Loss, Wall Street Journal Europe, August 29, 2000.

A Little Online Shopping but with a European Flair, PCWeek, January 20, 1997, p. 115.

Pentz, Michelle, Teleshopping Gets a Tryout in Europe, Wall Street Journal, September 9, 1996.

Miller, Marjorie, Unions Seeing Red As German Blue Laws Ease, Los Angeles Times, October 29, 1994, p. 2A.

Prada, Paulo, Field Thins Out After Deal by C + N for Thomas Cook, Wall Street Journal Europe, December 8, 2000.

Rohwedder, Cacilie, Karstadt Agrees to Acquire Retailer Hertie, Wall Street Journal Europe, November 12, 1993.

Spahr, Wolfgang, Merger Causes Alarm in Germany; Retailers Told to Sell Some Music Outlets, Billboard, March 19, 1994, pp. 49, 50.

West German Shops; Geschlossen, Economist, March 1, 1986, pp. 6768.

Whitney, Craig R. Comfortable Germans, Slow to Change (Especially If It Means More Work), New York Times, January 16, 1995, p. 6A.

Clark Siewert

update: Rebecca Stanfel

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