Galeria Secures EUR160 Million Loan Amid Planned Store Closures
The German department store chain Galeria has obtained a fresh loan of up to EUR160 million in a move aimed at stabilizing its financial position following a period of significant uncertainty. The financing, provided by the US investment firm Gordon Brothers, comes with strict requirements, including a comprehensive restructuring programme. This plan is expected to involve the closure of additional stores and will be implemented over the next three years.
The loan agreement was finalized after extensive negotiations and the submission of an independent economic assessment by consultancy AlixPartners. Galeria's management intends to use the capital to support its ongoing restructuring, which will include a thorough evaluation of its current store portfolio. The company plans to assess the profitability of each location and enter discussions with landlords regarding potential rent reductions and more flexible leasing terms. The goal is to ensure that all remaining stores are financially sustainable in the long term.
According to company sources, approximately 30 out of the 83 existing department stores are considered at risk and will be closely scrutinized as part of the review process. While certain locations may close, there is also the possibility of reopening stores in former locations if market conditions improve. Galeria's leadership has indicated that, as a result of the restructuring, the company's store network could be significantly reduced within the next three years.
Most of the newly secured funds are expected to be used to repay an existing loan from minority shareholder Bain Capital, reportedly amounting to around EUR80 million. The remainder of the capital will be allocated to cover outstanding rent payments and to finance inventory purchases for the upcoming autumn and winter seasons. Several landlords had previously reported delays or partial payments in rent, which Galeria attributed to liquidity constraints. While some outstanding payments have now been settled, there are locations where a few months' rent remains unpaid.
In recent months, Galeria has attempted to boost sales through extensive discount campaigns, aiming to strengthen its cash flow and support day-to-day operations. However, the planned store closures are expected to result in further costs, including severance and redundancy payments for affected employees and possible compensation for landlords. The company currently employs around 12,000 people.
This financial intervention comes after Galeria filed for insolvency for the third time in four years in early 2024. The latest insolvency was driven in part by financial instability at the parent company, Signa. Over the past year, Galeria has closed nine of its stores and subsequently came under the ownership of US investment group NRDC and an investment firm owned by entrepreneur Bernd Beetz. As part of its recovery efforts, Galeria has renegotiated rent agreements with many landlords, resulting in a notable reduction in rental expenses.
Gordon Brothers, the investment firm now providing the latest financing, has prior experience with Galeria. The firm previously managed store liquidations for both Kaufhof and Karstadt branches in the period leading up to their closures. The new loan is secured against Galeria's merchandise stock, reflecting the lender's cautious approach and the ongoing risks in the retail sector.
The challenges facing Galeria are reflective of broader difficulties in Germany's brick-and-mortar retail industry, which continues to struggle with subdued consumer spending and shifting shopping habits. As Galeria embarks on another round of restructuring, the company's future will depend on its ability to adapt its store network, manage costs, and respond to changing market conditions.