Deal Reached at KarstadtQuelle | Business| Economy and finance news from a German perspective | DW | 15.10.2004
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Deal Reached at KarstadtQuelle

Management and unions at KarstadtQuelle finally reached agreement Thursday on a package of measures aimed at pulling the troubled German department store chain out of its current crisis, company officials said.


Karstadt employees were able to avoid massive job cuts

"We've done it. Agreement has been reached," KarstadtQuelle spokesman Jörg Howe said after 29 hours of talks.

The cost-cutting measures are designed to save €760 million ($941 million) at the department store chain. But 5,500 jobs would also have to be cut in the next three years in order to secure the company's survival, and negotiators agreed to a three-year pay freeze.

"I think that this sum was worth it when you think that we were able to take away the fear of losing a job from 100,000 people," said Franziska Wiethold, chief negotiator for the union Ver.di, which represents KarstadtQuelle employees.

Company chairman Christoph Achenbach spoke of a giant step in the right direction.

'Seven mile step'

"We were able to take a seven-mile step in the restructuring program," he told reporters following the completion of the talks.

Thursday had been deadline for a deal on a package of drastic cost-cutting measures, otherwise KarstadtQuelle's creditor banks had been threatening to turn off any further funding for the crisis-ridden group.

On Wednesday, management had said it wanted employees to accept pay cuts of at least 5 percent as their contribution to a €500 million ($618.8 million) cost-cutting package.

The giant services sector labor union Verdi had countered it would not agree to a cut in pay for employees as long as management refused to forego any redundancies as part of the rescue plan.

Job guarantees

On Thursday afternoon, union officials said company officials had agreed to that. Though Karstadt employees had to accept the job cuts and pay freeze, Ver.di was able to secure job guarantees for the 100,000, even in tough times. The clause was greeted by Germany's labor minister but disappointed analysts.

KarstadtQuelle shares initially rose on the announcement that a deal had been made, but plunged in trading after details of the had been announced. Karstadt share values have lost nearly half their value since December.

"Their refusal to consider operational job cuts should be seen negatively," said Barbara Ambrus, an analyst for the Landesbank Baden-Wuerttemberg, according to Reuters. "The planned sale of department stores could suffer as a reusult of that."

KarstadtQuelle is planning to sell nearly half of its stores and noncore activities and seek an injection of fresh capital from shareholders in a bid to overcome a financial crisis sparked by chronically weak consumer demand in Germany and the group's own misfired diversification strategy.

"We were able to secure guarantees for many of the branches, though not for all," Wiethold said. "In a lot of inner cities, fears will be dampened that Karstadt stores could be closed."

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