The crisis in Europe’s largest department store chain, Karstadt-Quelle AG, has newly ignited the discussion about the sustainability of the department store. Although one should not generalize the very specific problems Karstadt-Quelle AG is facing, the question has come up in this case, to what extent different management and other owners might have been able to escape the general crisis of the department store.

In actuality, the department store only has a small chance for survival. It has had its day just like the Mom and Pop store twenty years ago.

In the year 2000 we already wrote in our Synesis that the department store lies on our model of the Waisted Rectangle© in the center of the market between the vertical structure of the distribution of luxury goods on one hand and the discounter in charge of fulfilment of demand on the other hand where they can hardly find adequate living-space. Aside from this, customers nowadays prefer other shopping sites, where lettuce and bras are not presented on rummage tables, where hi-fi equipment at premium prices and copies of Louis Vuitton bags and garden furniture are being offered. Sparse service, barely existent specialized staff, and often prices which are only conditionally competitive, push the consumer one step further toward other forms of retail.

The concept “all under one umbrella” no longer applies to today’s saturated markets. That there are traditional houses, such as KADEWE in Berlin is the exception which proves the rule, but basically, the department store has outlived its usefulness after one hundred years.

The concept for survival introduced by Karstadt-Quelle AG, where approximately half of its department stores only offer luxury goods and thus generate profit through higher margins, is also going to fail. The great brands have already found their way to the customer through the vertical distribution. And with those who have not yet made it, Karstadt-Quelle AG is not going to find a sufficient base for its business.

For a number of department stores, we see the possibility to convert them into malls, where brand companies do their business, as tenant on consignment. The job of the department store company is that of real estate management. If the companies ask for a set rent or if they take a share in the profits, like it is already done at many airports, depends on the conception. We think the malls have good chances as successor of department stores. The rent ought to be more favourable than in a store with the door facing the street. The concentration of specialized stores usually combined with a car park, is attractive. One can surely assume that specialty stores are going to be superior to department stores when it comes to service. And, what is also of great importance: The brands can, in the mall environment, unfold their full aura, which is only conditionally possible in the department store setting.

We concede only limited prospects for survival to the traditional department store and therefore advise against investing in department store chains.