KaDeWe says soaring rents have harmed its profitability despite booming sales

KaDeWe Group, which runs the eponymous retailer in Berlin and two other high-end outlets in Hamburg and Munich, has filed for insolvency under self-administration, the corporation announced this week.

The company said that while the stores are operationally healthy, it has been “forced” to restructure due to exorbitant rent costs, which “make it impossible to operate profitably.”

The group’s sales in the 2022-2023 financial year reached €728 million ($786 million), the highest in its history and nearly a quarter more than prior to the Covid-19 pandemic. However, rents during that time have spiked by nearly 37%.

“This means that the business is clearly profitable ‘before rent’ – but clearly not ‘after rent’… There is no question that the group can have a strong future with normal rents,” Chief Executive Officer Michael Peterseim said, as cited by Deutsche Welle news outlet.

KaDeWe Group is majority owned by Thailand’s Central Group, and 49.9% owned by Signa Retail, an Austrian-based property empire which itself declared insolvency last year, citing the “severe economic pressure” brought about by interest rate hikes in Europe. Signa also owns the KaDeWe Group buildings, which it leases back to the department stores. According to Central Group, it was unable to reach an agreement on store rents with Signa due to the “intransigent position of the landlord,” Bloomberg reported, citing the Thai company’s statement. It added, however, that it “remains committed to providing full support to KaDeWe and its other European luxury stores.”

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KaDeWe’s management said that while the business will undergo restructuring, the stores will continue to operate. However, Bild reported on Friday that entire areas of the department store in Berlin have stopped sales and closed down, with signs informing customers that the stores are closed “temporarily” for technical reasons.

The 116-year-old Berlin KaDeWe or Kaufhaus des Westens, which can be translated as “department store of the West,” is an iconic feature of the city’s commercial and architectural landscape. The store has over 66,000 square meters of retail space, and sells brands including Yves Saint Laurent, Prada, Boss, Lacoste, Chloé and Ralph Lauren. It was once considered the largest in continental Europe and one of the five largest department stores in the world.

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