Selfridges stands out as a winner in Signa’s retail implosion

On London’s busiest shopping street, Selfridges’ holiday window displays feature Christmas traditions and a large neon sign flashing “Showtime!,” while visitors inside clutch the store’s eye-catching yellow tote bags amid stacks of goods from the likes of Hermes and Fendi. 

With disco balls scattering glints of light and carols rising above the hum of activity, the crowds are thick even before the shopping landmark rolls out its full array of in-store entertainment, featuring dancers, confetti cannons and of course Santa Claus. But this kind of flair and spectacle stands out in the teetering retail and property empire pieced together by self-made mogul Rene Benko. 

In addition to a stake in Selfridges, the 46-year-old’s Signa owns Germany’s largest department-store chain as well as stakes in retailers in Italy and the Netherlands. As the debt-laden conglomerate fights to ward off collapse, joint venture partners like Thailand’s Central Group, creditors and rival investors are set to jostle for control over key assets. Destination-style outlets like Selfridges, Berlin’s KaDeWe and Switzerland’s Globus are well-positioned, but most locations are outdated and are likely to end up as castoffs.

“You would think there would be no end of potential Middle East or Asian investors who would be very keen to invest in Selfridges,” said John Stevenson, a retail analyst at Peel Hunt in London. “It’s very much still regarded as a trophy asset.”

The same can’t be said for many of Signa’s other department stores, which will likely require total redevelopment to have any kind of sustainable future, according to Lea Scholze, an architect at AIP — a Dusseldorf-based developer that transformed a shop from Benko’s Galeria Karstadt Kaufhof chain into a mixed-use facility in the former German coal mining town of Recklinghausen.

With high interest rates weighing on property markets, it’s a difficult time for commercial real estate, especially in the retail sector after the Covid-19 pandemic made online shopping commonplace. With 37 of the 129 remaining Galeria stores set to close by next year, Germany will be a focal point of the upheaval.

“A giant store with only one function won’t work long-term anymore, especially in smaller towns,” said Scholze.

Signa’s complex structure complicates the process of picking through assets to extract winners. While Benko wooed local officials with promises to revive struggling town centers, he was mostly interested in select locations and developing projects around them. He separated retail operations from the underlying property, creating a multi-layered structure with different investors and financing structures at various levels. 

Benko’s strategy fared well in Switzerland. Signa and Central Group acquired the Globus chain in 2020 for around 1 billion Swiss francs ($1.1 billion) and moved swiftly to sell off more than 30 outlets in smaller towns to focus on a handful of large stores in cities such as Zurich, Geneva and Basel, where they could still draw a crowd.

However, Germany has been a real problem. Since Signa merged Galeria Kaufhof and Karstadt in 2020, the retailer has initiated two insolvency proceedings. Despite several state-subsidized rescue attempts, thousands of people are now losing their jobs and local municipalities face the challenge of how to put unwanted properties to use.

Retailers in smaller markets are still struggling to get foot traffic back to pre-pandemic levels while vacancies are rising, said Jan Schönherr, German head of retail investment at real estate brokerage CBRE. “There has always been a gap, and it has widened further,” he said.

Hanau, a city of 100,000 people near Frankfurt, is one of the communities hit, and the local Galeria outlet is shuffling through its final holiday season. Shop windows that used to be adorned with toy trains are plastered with posters informing customers that the store will be gone in less than three months. The clearance sale — announced by a 15-foot pink-and-yellow banner — means even clothing racks and display cases can be bought for a discount.

It’s a heartbreaking sight for locals. During its golden days, Hanau’s prime shopping destination accounted for 10% of all sales in the city center. But things could get worse when the store finally closes for good.

“The day after Galeria hands over the keys, this building would fall into disrepair,” said Mayor Claus Kaminsky. His administration bought the store to prevent a yawning gap and will initially use it as a community center. “As a city, we are taking matters into our own hands to steer our downtown in the right direction,” he said.

At its peak, Signa’s €23 billion ($25 billion) property empire stretched from luxury hotels in Venice to high-end malls in Vienna and the Chrysler building in New York. As valuations came under pressure and financing issues mounted in recent months, Benko was pushed by other investors to step back. Restructuring experts Ralf Schmitz and Arndt Geiwitz were brought in to spearhead an overhaul. Forced asset sales could be part of a survival plan. 

The situation is moving quickly. Central Group has already secured control of Selfridges’ operating company by converting a loan into equity earlier this month. The Thai retail conglomerate, which is owned by the Chirathivat family, has said it intends to support all of its European luxury businesses — which also includes Berlin’s KaDeWe — and ensure they receive the necessary support to continue operations.

“Selfridges is a winner in the sense that it has stood the test of time” and has continued to evolve, said Joe Dawson, a retail analyst at consulting firm GlobalData Plc. 

At the 500,000-square-foot store in London, the seasonal retail theater has only just started. The festivities will ramp up to include live DJs and choirs. Its Christmas Shop offers sparkly home decorations including golden poodle tree ornaments and personalized Santa stockings. The festive mood is still bringing in the shoppers.

“We love the atmosphere,” said Marie Smith, who was visiting Selfridges with her daughter as part of their annual ritual to see the Christmas lights on Oxford Street. “Selfridges is amazing. It’s never standing still.”