The department store chain Galeria Karstadt Kaufhof (GKK) is fighting for survival. Despite the closure of 60 branches, the deployment of a new management team and financial injections from investor René Benko, the company is deeply in crisis, and many employees have been worried about their jobs for months. At the beginning of the year, the company had to apply for a subordinated loan from the state of 460 million euros.
In the cities in which GKK has already closed branches, space could now be free for another market participant: the Müller drugstore chain. At least this is the thesis of the economist Martin Fassnacht. The director of the chair for strategy and marketing at WHU – Otto Beisheim School of Management says in an interview with NewsABC.net: “I believe that Müller can become GKK’s successor as a local supplier in the city centers.”
His main argument for this thesis: The drugstore chain based in Ulm offers a similarly wide range for everyday supplies as GKK. While GKK sells around 300,000 items on an average shop area of around 13,000 square meters, Müller’s range already comprises an average of 190,000 products – and that in much smaller shops. Müller sells a significantly wider range than his direct competitors Rossmann and dm – from drugstore, multimedia, perfumery, toys, stationery, household and natural cosmetics items to pet supplies and organic food and can therefore be found according to Fassnacht rather compare with the former department store giant.
Similar to GKK, Müllers offers almost everything under one roof
The assortment that Müller offers is in high demand for the “immediate satisfaction of needs”, as Fassnacht calls it. Drugstore, stationery or household goods: All of these are products that you can take with you “just in passing”, says Fassnacht. With the perfumery or multimedia segments, Müller even offers short-term gift options.
Müller as the local supply successor for GKK – but Fassnacht does not mean that the drugstore is moving into the large department store properties as a new tenant. Because that is exactly one of the advantages of the drugstore chain: Müller works on significantly smaller sales areas, which means that the company also has lower costs, for example for high rents. Because the high rents in the city centers are increasingly becoming a major burden for many retailers such as GKK. The Müller branches have between 400 and 4,500 square meters of retail space, while the GKK location with the highest turnover is around 40,000 square meters.
A large part of the space at Galeria Karstadt Kaufhof is used for the sale of clothing, shoes and jewelry or watches – all of these are product groups, but their sale is increasingly shifting to the Internet. “In contrast to GKK, Müller does not offer any clothing, shoes or jewelry – and that’s a good thing,” says Fassnacht. In Germany, 40 percent of the fashion sector is now sold online, and it is estimated that in a few years the online share will be well over 50 percent. For stationary retailers who, like GKK, only act as a marketplace for other clothing brands, it will be difficult in the future, experts have been forecasting for a long time. Müller also does not sell large electronic devices, which, according to Fassnacht, is also a smart decision, as this group of goods is bought most on the Internet after fashion. In short: “Müller’s range is more in demand than that of Galeria Karstadt Kaufhof – and is therefore better positioned,” says Fassnacht.
Müller’s area productivity is probably higher
Fassnacht also assumes that the Müller range is significantly more profitable than that of GKK. “The turnover rate, i.e. how often the average inventory of a company is sold within a year, and the productivity per square meter should be significantly higher at Müller,” he says. This in turn is likely to have something to do with the smaller retail space.
With its 567 branches in Germany, Müller made a turnover of 4.01 billion euros in the past financial year – added up, Galeria Karstadt Kaufhof made around 4.7 billion euros in sales before the corona pandemic at 243 locations, and the trend has been falling for years. There is no number for 2020, but since the outbreak of the pandemic, several media outlets have reported a drop in sales in the billions. Otherwise, the company would probably not have had to apply for state aid in the amount of 460 million euros.
Müller also sells strong own private labels, but also offers well-known manufacturer brands. From a strategic point of view, the mix is very clever, says Fassnacht. “The consumer has more options when it comes to choosing a brand, and the margins for Müller should be higher, especially with their own private labels,” he says.
On the way to becoming an omni-channel retailer
Müller is also expanding with his online shop and now delivers over 7,000 products to his home. The expansion of the online shop and delivery service gives Müller another advantage over GKK, says Fassnacht. Because GKK also slept through digitization for a long time. Many products in the GKK online shop can only be pre-ordered online via Click & Collect, but must be picked up on site.
Müller set up the webshop together with the startup Niceshops from Styria within just under a year. “We had a lot of catching up to do in the digital sector,” said Müller Managing Director Günther Helm recently to the “Handelsblatt”. “Without the cooperation, we would have needed significantly longer for this,” says Helm, because before the pandemic, the drugstore was rather skeptical about online trading for a long time. The direct drugstore competitors Rossmann and DM also started their own online shops relatively late, but still have a lot ahead of Müller when it comes to digitization. Compared to GKK, however, Müller is in any case better.