In a rich, rich country, there was a rich, rich city. In the rich, rich city there was a rich, rich street. And on the rich, rich street – with apologies to the books of Janet and Allan Ahlberg – there were two rich, rich department stores.
Or at least, there were. Soon, there will be just one. And maybe at some point, none at all. Welcome to Zurich, to Bahnhofstrasse, and to the situation facing two Swiss institutions you would be forgiven for never having heard of: Jelmoli, and Globus.
This is a modern fairy story about how sometimes the stardust of luxury (and a tidal wave of cheap credit) is enough to deflect investors, commentators and rational observers from seeing a business model in decline. Albeit a very old and prestigious one, bound up with the history of modern consumption itself.
This year, Jelmoli, which opened in 1899, will close its doors before being redeveloped as a mixed-use building with a smaller retail footprint. The business of selling luxury to the wealthy in a vast, city-centre “glass palace” is simply not viable in the modern age, the store’s owners, Swiss Prime Site, concluded last year.
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That leaves Globus, its neighbour. But Globus is also facing problems, despite its management’s perseverance. Even before the pandemic, it was suffering from falling sales. If the two ritziest luxury department stores in Europe’s richest city are struggling, can any succeed?
In November, one of Globus’s ultimate co-owners, René Benko’s Signa Group, collapsed. This tale is really Signa’s story. There are many reasons for Signa’s troubles – its leverage, its byzantine corporate complexity and the domineering way it was run by Benko – but one of the biggest is simply about the bet that it took on department stores. Or rather, the myths it spun about them.
Sometimes Signa simply bought places that were already famous, like Globus. Sometimes Signa bought staid old inner-city stores and, in their place, erected new gleaming temples to excess. In both cases, it usually carved out the buildings from the operating companies and leveraged them separately.
The play then went something like this. Out went discount underwear, in came French lace. Goodbye cheap pizza slices, hello Gillardeau oysters. The car park? It’s now going to be a luxury hotel. And up and up and up went the valuation of the properties.
The message communicated to journalists prying too hard in recent years, sometimes contained in legal threats, was always the same – Signa owns “ultra-prime” properties. The retail sector might be in trouble, but these are not ordinary retail locations. And the buildings we own are worth every penny of their valuations as a result.
On Monday, the 116-year-old Berlin institution KaDeWe — the most famous name in German shopkeeping, with luxury retail space equivalent in size to eight football pitches — filed for insolvency. It too, you guessed it, is co-owned by Signa, alongside Thailand’s Central Group.
The latter says the operating company of KaDeWe had to file for insolvency in part because Signa was charging it unsustainably high rents on its building. Business at the store, says Central, is otherwise booming. That may be so, but I wonder (see Globus and Jelmoli) for how much longer.
It seems to me that Signa, with its aggressive business model, has hastened a secular decline facing many department stores. Signa and Central also co-own another famous name in this world, Selfridges of London, through a holding company Cambridge Retail Group. That vehicle, too, was lossmaking in the year to January 2023.
Cambridge Retail Group also owns Brown Thomas and Arnotts in Ireland.
My colleague Adrienne Klasa has written on the diverging fortunes in the luxury market. The mega brands with their €800 sneakers and €8,000 handbags will endure. But the “aspirational” luxury market is in trouble. And it is this market which is the customer base of the luxury department store.
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Now interest rates may ease, and these spenders may get some of their disposable income back. But even when they do, I wonder whether big luxury stores – where the selection of items is always more meagre than the brands’ own boutiques and more expensive than the internet – will really rebound.
I think of my own recent department store trips, to KaDeWe to try to find proper marmalade, or to London’s Liberty on December 23rd, an annual ritual of regret. Strip away the glitz and the credit, and the luxury department store – once that great disruptive trailblazer of modern consumption – may be no more resilient to the trends ravaging the high street than any other ordinary retailer. – Copyright The Financial Times Limited 2024
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