Woolworth deal

Just over a year after German discounter Woolworth filed for bankruptcy, the retail chain has returned to profitability and found a new investor.

Woolworth is being sold to North Rhine-Westphalia-based HH Holding, a subsidiary of the Tengelmann retail group, which plans to expand the brand's network of 162 stores to 500 outlets within a few years, and eventually to 1,000.

The sale saves some 4,300 jobs, at least for a year. HH Holding was put forward by New York-based Cerberus Capital Management, which leases the commercial space for 82 Woolworth stores and strong-armed the company's insolvency administrator into rejecting three rival bidders.

Return to profits

Insolvency administrator Ottmar Hermann said he expects Woolworth's gross income to reach 500 million euros ($634 million) this year.

The company's return to profitability was achieved by selling or closing 150 smaller outlets, each approximately 400 to 450 square meters (4,300 to 4,800 square feet) in size with an average of 10 employees. The stores which were kept are 900 to 1600 square meters in size and employ 25 to 30 people each.

The purchase price was not disclosed. Woolworth has been in business in Germany since 1926, and was once part of the US-based department store chain Woolworths. That company went out of business in 1997, while the British chain folded at the beginning of 2009.

Cooperation with KiK

Pietro Nuvoloni, a spokesman for Hermann, described Woolworth as iconic. "We find ourselves in an extremely difficult market environment, and this was an act of strength for the insolvency administrator," he said.

Woolworth's new owners are uniquely positioned to expand the chain because they also own clothing discounter KiK. The textile discounter has nearly 3,000 stores and a network of direct contacts with clothing manufacturers in Asia, according to Nuvoloni.

Although Nuvoloni said the new owners are committed to maintaining Woolworth as an independent brand, the chain's central office in Frankfurt is being closed. A new office will be opened in the North Rhine-Westphalian city of Bohnen, where KiK is headquartered.

"The buyers have made clear the Woolworth brand will remain in existence, that it will be further developed, and that significant growth is expected through the Woolworth brand," Nuvoloni said.

Labor practices criticized

While Woolworth and KiK both advertise textiles and other items at rock-bottom prices, enthusiasm for the chains is far from universal. Critics say they underpay workers, while KiK has been embroiled in controversy because of the allegedly unethical practices of its suppliers in Asia.

Cornelia Hass, a spokeswoman for the services trade union Verdi, said Woolworth pays its full-time employees up to 200 euros less than the monthly standard for the sector. The company also relies heavily on part-time workers to further reduce its costs, she said.

"This does not open any kind of perspective of the future for employees. The fact that the current contracts will be limited to one year certainly does not inspire much confidence," Hass said.

"We have a lot of experience in dealing with the mergers of commercial enterprises, and thus far it has always led to chaos."

While Hass acknowledged the rescue of 4,300 jobs is a good thing, she said she expects HH Holding will attempt to staff its rapid expansion using more part-time workers.

"We would actually expect compensation to be improved, and that a company with a future would endorse a wage agreement," she said.

The sale was registered with Germany's Federal Cartel Authority Wednesday and should be approved within a month, barring complications, according to a government spokesperson.

Author: Gerhard Schneibel
Editor: Sam Edmonds