Arcandor filed yesterday for bankruptcy in a court in Essen, Northrhine-Westphalia. The holding company announced that its subsidiaries Karstadt Warenhaus, Primondo (head of the group’s mail-order operations) and Quelle are also seeking protection under the German bankruptcy code. Arcandor’s move excludes the group’s profitable tourist operations under Thomas Cook , the specialty mail-order businesses of Primondo and HSE24, the TV shopping branch of Arcandor.

The company emphasizes that all business units continue to operate, that the salaries of all 43,000 concerned employees are secured through August, and that the major shareholders, Madeleine Schickedanz and the private bank Sal. Oppenheim, have expressed their clear commitment to Arcandor.

Karstadt is one of the most powerful outdoor retailers in Germany. As a stand-alone company it is probably No. 2 in the market behind Globetrotter, not counting the combined sales of the retailers affiliated with the buying groups Intersport or Sport 2000. According to Intersport's estimates, Karstatd and its specialty chain Karstadt Sports had sales of outdoor items woth some €100 million in 2008.

Various factors made the retail giant’s dramatic step inevitable, shifting the burden of its financial problems to its suppliers: First, short-term loans worth some €710 million are due on June 12. The company has been scrambling to come up with the funds in the past days and weeks. Second, the German government refused to help out, stating that the shareholders should be the first to put money into the troubled group. Third, these shareholders did not make their precise rescue plans public. Last but not least, potential new partners, led by the Metro Group, did not come to an agreement to rescue Arcandor at the last minute.

On Monday, the so-called “steering committee” of “Deutschlandfond,” the government’s triple-digit billion fund aimed at rescuing companies that are affected by the global financial crisis, refused to put money into Arcandor. The company had already halted payments for the rents of Karstadt’s leases.

With this step, the German government shared the point of view of the European Commission, which stated last week that Arcandor’s problems are not a result of the current global crisis that started last July. Arcandor’s difficulties are by far older. The government rejected Arcandor’s application for an “emergency loan” that would have been handled through KfW, a state-run bank in charge of supporting private companies. The refusal was not 100 percent final yesterday, as the loan would have been subject to certain conditions such as the existence of serious talks with potential buyers of parts of the group as well as with major shareholders. Arcandor admitted that it could not meet all the conditions imposed by Berlin.

Arcandor’s situation was dramatic and chaotic over the weekend for various reasons. First, the retailer counted on a public bail-out, but the political class was acting under the pressure of the elections for the European Parliament on Sunday. Angela Merkel, the chancellor, and her party, CDU, survived this vote not necessarily as a winner, but at least not as a major loser. Merkel, however, was clear on Arcandor even before the elections. She called for a solution without state intervention whereby the current major shareholders wold put it new equity and some competitors would take over parts of the huge retailer quickly. It is safe to say that Karstadt's suppliers and other creditors are also being asked to contribute to keep the giant alive.

As far as the shareholders are concerned, every Karstadt employee is counting on Madeleine Schickedanz, the heir of Quelle, Arcandor’s mail-order branch. She is a major shareholder of Arcandor together with Sal. Oppenheim, a private bank. The two parties control some 60 percent of Arcandor’s shares. Even though Schickedanz, the former majority shareholder, has reduced her own shares over the past years, she has always been ready to give some of her own money to the company formerly known as Karstadt-Quelle. According to media reports, Schickedanz has left notice to say that she would help out, but no details have been revealed.

Probably more important than the shareholders’ moves are the strategies of Arcandor’s competitors. The Otto Group leaked information to the effect that it might be interested in some parts of the Quelle operations, but it was apparently unwilling to take action until Arcandor filed for insolvency. Otto, which owns Sport-Scheck, may be also a candidate to acquire the Karstadt Sports stores. The key protagonist in this drama, however, is the Metro Group, which has frequently suggested a merger of Karstadt with its own department store subsidiary, Galeria Kaufhof. A possible merger was again discussed in Munich on Sunday under obscure circumstances: Metro said that negotiations were progressing as far as a rescue/merger plan was concerned, but then it withdrew the announcement just half an hour later.

Major issues of the ongoing negotiations have been the price for Karstadt, the rents charged for the real estate of its stores and the question of how many doors should be closed. According to Metro, the group thinks that 30 Karstadt and 10 Kaufhof department stores might be closed due to underperformance and/or local overlaps between the two chains.

A possible merger with Kaufhof and its specialized Sportarena stores would push the combined entity's sales of outdoor products up from about €100 million to €140 million a year, but the total would probably decline afterwards, due to store closures.

Kastadt has made substantial investments in the outdoor sector over the past decade, following its generally satisfactory development in the German market. Its efforts to be strong in this segment culminated in the opening of a large Karstadt Outdoor-Bike-Snow store in Munich, which eventually failed a few years ago.

The store was beuatiful, but suffered from a lack of customers. It was located outside the city center right next to Theresienwiese, the site of the annual Oktoberfest beer festival. Karstadt’s attempt to create an outdoor flagship store was serious, but it seems as if the Karstadt brand was not sufficiently attractive to bring shoppers from the department store’s generally prominent downtown locations to places that are away from busy city centers.