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Strategic Turnaround Management on the example of Karstadt Warenhaus GmbH

Studienarbeit 2016 27 Seiten

BWL - Unternehmensführung, Management, Organisation

Leseprobe

Table of Contents

II. List of Abbreviations

III. List of Figures

1. Introduction
1.1 Problem Definition and Objective
1.2 Structure

2. Turnaround Management in Theory
2.1 Phases of a Crisis
2.2 Phases of Turnaround Management
2.3 Effective Measures and key-success Factors

3. Turnaround Management in practice: Karstadt
3.1 Situation Analysis
3.2 Crisis Analysis
3.3 Phases of Turnaround and Applied Measures
3.4 Recommendation for action

4. Conclusion and Outlook

IV. List of References

V. ITM-Checklist

II. List of Abbreviations

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III. List of Figures

Figure 1 - Crisis Strategies

Figure 3 - Insolvencies in Germany from 1950 to 2014

Figure 4 - Most common internal causes for a corporate crisis

Figure 5 - Crisis Process

Figure 6 - Symptoms of a strategy crisis

Figure 7 - Symptoms of a success crisis

Figure 8 - Phases of Turnaround Management

Figure 9 - Common measures of restructuring

Figure 10 - Key success factors in restructuring

Figure 11 - Adjusted EBITDA 2004 – 2008, in Mio. €

Figure 12 - Revenues of Karstadt since 2000 (in Bn. €)

Figure 13 - Course of the Karstadt Crisis

Figure 14 - Sales distribution in retail trade in Germany

Figure 15 - Retail sales of Karstadt Warenhaus GmbH in Germany

1. Introduction

1.1 Problem Definition and Objective

When companies are facing a crisis, there a different ways and strategies to react to this situation.

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Figure 1 - Crisis Strategies.

Source: Own creation, based on Glamuzina (2013, p. 93).

Turnaround Management is needed, when the liquidity and revenue situation are a serious threat to the sustainable existence of a company, but the shareholders and the management strive for a continuation of the operating activities. In this situation, turnaround management aims to restore the operational performance, liquidity and creditworthiness by initiating a systematic restructuring process. Due to the critical situation of the company, also radical measures are possible to achieve those results (Schawel and Billing 2014, p. 258).

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Figure 2 - Insolvencies in Germany from 1950 to 2014.

Source: Own creation, based on Statistisches Bundesamt (2015).

Considering the high amount of insolvencies nowadays, as it can be seen in the figure above for Germany, it is highly important for managers and company owners to know how to react properly in case of a crisis. Therefore, the goal of this assignment is to outline the most relevant aspects of turnaround management and to apply them exemplary to a company which is currently in a crisis situation.

1.2 Structure

The following chapter 2 will focus on creating a theoretical background, considering the main aspects of turnaround management: Recognizing a crisis and analyzing in which stage a company already is, performing a turnaround along the right phases and knowing the main counter measures and key success factors of restructuring concepts.

Afterwards, the knowledge will be applied by analyzing the situation of the Karstadt Warenhaus GmbH, a German department store chain, which struggles since the turn of the millennium and tried several turnarounds since then. The relevant and publicly available facts will be summarized and the course of the crisis of Karstadt will be analyzed as well as the different turnaround attempts that have been made so far. Afterwards, recommendations for further actions are proposed.

Finally, the assignment will end with a conclusion about strategic turnaround management and Karstadt’s situation. Due to the mentioned example, the focus of this assignment will be on the German market.

2. Turnaround Management in Theory

2.1 Phases of a Crisis

The internal causes why companies enter a state of crisis are manifold, but most commonly they are related to the management and their actions or lack of actions, as it can be seen in the following figure:

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Figure 3 - Most common internal causes for a corporate crisis.

Source: Own creation, based on Turnaround Management Society (2014, p. 3).

Knowing how a crisis develops and knowing possible reasons makes it easier for the management to foresee a crisis and also to identify available and suitable turnaround strategies. Such knowledge may also help not being drawn into a crisis in the first place (Baur 2012, p. 298). The time between when a company is healthy to when its existence is threatened can be divided into four stages: strategy crisis, success crisis, liquidity crisis and insolvency (Buschmann 2006. p. 13).

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Figure 4 - Crisis Process

Source: Own creation, based on H. Buschmann (2006. p. 13).

As mentioned, it is important to understand the phases in order to know in which stage an observed company is, to identify the right actions.

- Strategy Crisis

A strategy crisis starts when the success potential of a company is seriously endangered (Rüsen 2009, p. 47). This might happen when e.g. the factors that made the company grow and successful have been used up, or when the company has created no new future success factors – like loyal clients, competitive advantages, motivated employees or profitable products (Lymbersky 2013, p.53). Symptoms of a strategy crisis are the following:

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Figure 5 - Symptoms of a strategy crisis.

Source: Own creation, based on ISU Institut für die Standardisierung von Unternehmenssanierungen (2008, p. 514).

- Success Crisis

In case no counteractive or wrong measures are taken during a strategy crisis, a success crisis follows. During such a crisis, a company registers losses that slowly eat up the company’s equity. Exemplary reasons might be a decline in sales, cost increases, a drop in prices or inefficiency in its operative business (Lymbersky 2013, p. 54). Symptoms to recognize a success crisis are the following:

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Figure 6 - Symptoms of a success crisis.

Source: Own creation, based on Lymbersky (2013, p. 54) and Crone and Werner (2007, p. 6).

- Liquidity Crisis

A company finds itself in a liquidity crisis if there is an acute danger that the company will go bankrupt (Harz et al. 2006, p. 20). In this phase, banks often terminate their loans to the company, which makes it even more difficult to survive the crisis. Moreover, the success factors of a company often disappear or are not effective anymore (Crone and Werner 2007, p. 4). Reasons for such a crisis might be a financed-inexperienced management, a bankruptcy of a major partner, client or associate, miscalculations or fraud (Lymbersky 2013, p. 54).

- Insolvency

In case no turnaround management has been done or if the countermeasures fail to bring the company back on track, then a company will go into insolvency (Lymbersky 2013, p. 55). Main characteristics are impending inability to pay, excessive debts or already the inability to pay (Geuting 2007, p. 47).

2.2 Phases of Turnaround Management

In literature, there is not only one accurate definition for the correct approach of a turnaround, but rather a variety of different concepts. Nevertheless, comparing various concepts shows that although different phase names are given, the underlying actions are all very similar. The subsequent explanation will basically follow the comprehensive structuring and nomenclature of Faulhaber and Grabow (2009) while considering additionally the recommendations of other authors for the individual actions within the phases.

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Figure 7 - Phases of Turnaround Management.

Source: Own creation, based on Faulhaber and Grabow (2009, p. 20).

- Phase 1: Crash Phase

This first major phase is primarily about ensuring liquidity, as when a company is in distress, its cash resources are used up or will be soon. Therefore, all cash reserves of the company need to be mobilized, while simultaneously the core functions and important business relationships have to be maintained (Faulhaber and Grabow 2009, p. 21). The turnaround leader has to take rapid control of the situation and implement a strict cash management process (Federowski 2009, p. 67) with the following objectives:

- Implementing strategies that generate cash in the short run
- Preserving cash in the short term gains time to develop a plan of how to proceed with future cash flows and how to restructure the company financially (Lymbersky 2013, p. 118).

- Phase 2: Start Restructuring / Diagnosis of the initial situation

The second phase is essentially characterized by a comprehensive analysis of the situation of all relevant areas of the company, in order to derive the need for action and to develop a feasible restructuring plan (Faulhaber and Grabow 2009, p. 21). For this purpose, the market, the competition and the company's position need to be analyzed. The results of the analyses have to be prepared and documented, to enable a structured discussion of the complex interdependencies which leads to a directional decision for the company (Keusgen 2007, p. 83).

- Phase 3: Implement Restructuring

The third phase includes the actual implementation of the developed turnaround concepts, by strategically and organizationally restructuring the company (Faulhaber and Grabow 2009, p. 22).

- Phase 4: Ensuring Restructuring

In the final phase, the structural changes are firmly anchored and the company focuses on its core competencies (Faulhaber and Grabow 2009, p. 22). In this phase, the company should not lose any more money and should be back on its feet and stronger (Lymbersky 2013, p. 120).

If a turnaround is needed, the survival of a company is mostly at stake. For this reason, the main focus in the early stages of a turnaround is on the realization of fast and effective improvements and short-term stabilization measures and results. Due to this temporal limitation, turnarounds often have the character of a project. However, in order to ensure also the long-term survival of a company it is recommended – like in the model described before - to see restructuring as a permanent task, which goes over to a corporate transformation after overcoming a crisis (Baur 2014, p. 8).

2.3 Effective Measures and key-success Factors

Turnarounds require a drastic change that produces significant achievement in growth and profitability in a short period, followed by long periods of sustained improvements (Yandava 2012, p. 161). Therefore, the consulting company Roland Berger examined in a Europe-wide study the importance of the right measures and the success factors of corporate structuring. The following figure hereby illustrates the most frequently used measures, divided by region:

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Figure 8 - Common measures of restructuring.

Source: Own creation, based on Roland Berger (2013, p. 28).

As it can be seen, the measures most frequently used are cost reductions and efficiency improvements, as well as measures to improve the revenue. Here it has been shown, that during very successful restructurings 80% of the realized earnings come from cost reductions, while only one fifth comes from sales growth (Falkenberg and Dony 2009, p. 91). This might be due to the fact that cost reduction measures tend to achieve much earlier an effect than measures on the market side – although this might be associated with aching personnel measures (Katzdobler 2014, p. 15).

While the prior figure shows the right measures, the following diagram outlines which factors are important or less important for the implementation success of such a measure:

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Figure 9 – Key success factors in restructuring.

Source: Own creation, based on Roland Berger (2013, p. 29).

The most frequently mentioned factor is the strong management commitment. Here the management should provide positive future visions and should not hesitate to initiate severe changes (Hornstein 2009, p. 67 and Rasheed 2005, p. 241). This factor is followed by a clear communication and a swift implementation.

Additionally, guidelines for the successful management of a company crisis are the following:

- Everything should be questioned critically: During the restructuring there are no “sacred cows” which may not be touched and have to be accepted as unchangeable.
- Facts- and data-based thinking: Facing a threatening insolvency, one should not solely rely on the gut feeling.
- Holistic thinking: The overall well-being of the company and the stakeholders should be above individual optimizations.
- Following the 80/20 rule: Considering the time pressure, a concentration on the most urgent and important issues is mandatory.
- Pragmatism and focus on implementation as guiding principle: No endless discussions and ever deeper analyses.
- Turning affected people into involved participants: Integrating all relevant stakeholders of the corporate restructuring (Kraus and Buschmann 2009, p. 55).

3. Turnaround Management in practice: Karstadt

3.1 Situation Analysis

Karstadt Warenhaus GmbH was founded in 1881 and is based in Essen, Germany. The chain of department and sports stores operates as a subsidiary of SIGNA Holding GmbH and its product line includes textiles, leather, electronic goods and home furnishings (Bloomberg 2015). Already in 2004, it is announced that Karstadt Warenhaus AG as well as the entire KarstadtQuelle Group are in dramatic financial difficulties. The company struggles with the problems of the entire retail trade, but also with home-made problems: The company is criticized for holding on to their assorted goods model, their old-fashioned interior and for not being customer-friendly. In the same year, an extensive restructuring program is presented and is approved by the control committee. This most radical restructuring program of the company’s history includes the following main aspects:

- Capital increase of 500 Mio. €
- Extension of credit lines in the total volume of 1.75 Bn. €
- Massive sales of business units worth 1.1 Bn. €
- This plans might lead to a reduction in staff of about 10%
- Cutting salaries and vacation entitlements while increasing working hours should bring savings in the amount of 750 Mio. €.

The Verdi union calls this an austerity program forced by the banks, which was implemented against the voices of the workers’ representatives (Handelsblatt 2004). In the following years, Karstadt sells its retail chains SinnLeffers, Wehmeyer, RunnersPoint, Golf House as well as 75 smaller “Hertie” department stores for over 500 Mio. €. Moreover, the department store real estates are sold to investors like Goldman Sachs for 4,5 Bn. €, leading to high rental charges and contracts with running times over several decades (Hielscher 2009a). In 2006, Karstadt celebrates its 125th anniversary, with 25.000 employees less and with an again increasing share price. The management promises that the success will last, and uses the proceeds of the real estate deal to pay back debts, to buy the British travel agency MyTravel and to buy Lufthansa’s shares of the mutual travel company Thomas Cook. Therefore, the former retail group KarstadtQuelle is now additionally a global player in the tourism business and changes its name into Arcandor Group, in order to create a new image (Hielscher 2009b).

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Figure 10 – Adjusted EBITDA 2004 – 2008, in Mio. €.

Source: Own creation, based on Arcandor (2008, p. 6).

In 2008, and after a four-year upward trend in terms of earnings, the former CEO Thomas Middelhoff finally announces in 2008 the successful completion of the restructuring of the company (Hielscher 2009b). Nevertheless, the company is with 2,6 Bn. € still deep in debt, with rising tendency, due to amongst others very high rental expenses since the sale of the real estates (Arcandor 2008, p. 93). A total of 650 Mio. € needs to be refinanced until mid of 2009, and further 900 Mio. € will be needed within the next 5 years (Zeit 2009). Moreover, as it can be seen in the following figure, the revenues keep on decreasing.

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Figure 11 - Revenues of Karstadt since 2000 (in Bn. €).

Source: Own creation, based on Statista (2015).

In the beginning of 2009, Arcandor-CEO Karl-Gerhard Eick announces again a further restructuring program and applies for government aid (Zeit 2009). As those aids are denied, Arcandor has to file for insolvency on June 9th 2009. In the same year, the insolvency proceedings are opened and the union accepts a salary cut of 150 Mio. € for the 28.000 employees in the next three years. Afterwards, the creditors agree to the option of selling Karstadt to an investor, and after considering three offers, the German finance investor Nicolas Berggruen wins the contract on 7th June 2010 and the local court in Essen stops the insolvency proceedings. In 2011, the new future concept “Karstadt 2015” is being presented, according to which all 115 department stores will be kept and will be modernized gradually. Additionally, the investor wants to lay off 2.000 employees until 2014 (Manager Magazin 2012). In 2013, 75,1% shares of the premium- and sportswear department stores of Karstadt are being sold to the Austrian Signa Holding of the investor René Benko. The resulting revenue of 300 Mio. € is intended to be spend on the modernization of the various Karstadt stores. By the end of 2014, finance investor Berggruen sells the remaining Karstadt department stores for the symbolical price of 1€ also to the same investor, the Austrian Signa Holding, to whom the company belongs since then (Stratenschulte 2014).

3.2 Crisis Analysis

For a better understanding of Karstadt’s situation, the previous data will be translated into the phases of a crisis.

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Figure 12 – Course of the Karstadt Crisis.

Source: Own creation, based on data of chapter 3.1.

A strategy crisis is marked by the decrease of success potential of a company. As mentioned, Karstadt has been criticized for being customer-unfriendly and having a business model which is out of fashion. Hence, the former success factors have been used up and the company failed in building up new future success factors like loyal clients, competitive advantages, motivated employees or profitable products. Therefore, it can be said that Karstadt has already been in a strategy crisis before the dramatic financial difficulties occurred in 2004. As apparently no counteractive measures were taken, the crisis extended to a success crisis in 2004, characterized by a worsening of the balance sheet and shrinking sales revenues. The radical restructuring program is proving effective in the following years and the financial key indicators recover. Nevertheless, the success crisis is not overcome, due to the high liabilities and the increasing debt financing. In 2008, the company reaches a liquidity crisis, as the impending danger is being recognized and a high amount of liabilities needs to be paid back in the following summer. This liquidity crisis holds on until mid of 2009, until the governmental aid is denied and the company has to file for insolvency. A bankruptcy can be averted, as the company is bought by finance investor Berggruen. However, although the liquidity issues are solved, the company still registers losses that slowly eat up the equity, which is why the company is back in the success crisis. This situation remains for the next years, and although the diverse restructuring programs are making progress, the company is still not profitable and is making losses – amongst others due to the high restructuring costs - and sales revenues are shrinking. Currently, the company expects to turn to profit in 2015/16 (Bloomberg 2015), which is why this might be the first fiscal year coming out of the crisis.

[...]

Details

Seiten
27
Jahr
2016
ISBN (eBook)
9783668226654
ISBN (Buch)
9783668226661
Dateigröße
920 KB
Sprache
Englisch
Katalognummer
v323362
Institution / Hochschule
FOM Hochschule für Oekonomie & Management gemeinnützige GmbH, Köln
Note
1,3
Schlagworte
Strategy Turnaround TurnaroundManagement Management Crisis CompanyCrisis StrategicCorporateManagement Strategic Krisenbewältigung Unternehmenskrise Krise Strategie Restrukturierung StrategyCrisis Insolvency Liquidity Crisis

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Titel: Strategic Turnaround Management on the example of Karstadt Warenhaus GmbH