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DEPARTMENT STORES IN DECLINE? NOT BREUNINGER

BY SUSAN THORNE

Unlike many department stores, Breuninger says its glory days lie ahead. The company is undergoing an expansion that will take it to several major cities.

These are not propitious times for the retail sector in Germany, where consumer spending has slipped over the past decade and department stores are in retreat. But one department store that isn’t backing off is E. Breuninger.

The Stuttgart-based Breuninger fashion and lifestyle department store is engaged in a steady program of expansion that it says will eventually take it to several additional major German cities. Propelling that growth is a tradition of innovation that observers say has helped set it apart from the competition.

“The properties they run are exciting,” said Frank Emmerich, head of German retail at the Düsseldorf office of Cushman & Wakefield Healey & Baker. The company, he adds, is also acclaimed for its customer service — a conspicuous virtue in a country that is, as he puts it, notoriously “abysmal” in that field.

Breuninger was founded in 1881 with an express policy of delivering customer satisfaction. In the early 20th century, it was for a time the largest retail operation on the European continent. In the post-World War II recovery period, it was the first department store to install elevators and escalators.

Breuninger doesn’t just rest on its history, however. Thirty years ago, when out-of-town shopping became a trend, the company took the unusual step of developing a shopping center, Breuningerland Ludwigsburg, in the Stuttgart suburbs, anchoring it with its own store. In 1982 it opened another center, Breuningerland Sindelfingen, outside Stuttgart.

Then, in the early 1990s, Breuninger embarked on a program of expansion, growing from five stores to a total of 14 with last fall’s opening of a Nuremburg store. Additional stores will open in Frankfurt this year and in Leipzig next year. It has also refurbished both those shopping centers, at a cost of €200 million ($247 million). (The Ludwigsburg mall took home a Maxi Award for best center renovation at last year’s ICSC European Conference.)

Andreas Guldin, the company’s CFO, describes Breuninger as “neither big nor small in retailing terms” (total sales average €450 million a year) but the company is set on getting bigger; it plans to become a national presence by opening one or two stores per year in major German cities. As such, it says, it will bring a shopping experience to consumers across Germany that it believes is unparalleled by other chains.

Though Breuninger serves an upper-middle-to-upmarket demographic, it treats all its customers like royalty, some say.

Customer service is a high priority at Breuninger — unusual for Germany.

“They are perfect on the personal side, with a very well-trained, convincing sales team,” said Rainer P. Lademann, managing director at Hamburg-based Lademann & Partner, a consulting firm to the corporate and public sectors. “That is a competitive advantage which you cannot copy.” The Stuttgart store, for instance, has cafés, a restaurant, a hairdressing salon, a ticket center for concerts and sporting events, and a child-care facility that furnishes parents with beepers while they shop.

For VIP customers — big spenders and frequent shoppers — Breuninger is especially perfect. The Stuttgart flagship store has a custom-tailoring and alteration facility that can assemble custom-made suits from a selection of luxurious fabrics; it also offers in-store private shopping for preferred clients, including film stars and soccer players.

“This kind of service is offered in very few places outside Harrods in London,” said Susan Lewis, director of Breuninger’s special shopping services division. “It has become a strong feature since it was first offered 10 years ago, and it’s becoming stronger.”

Breuninger staff promote their stores and services to potential upmarket customers — “the kind of people who might be regular boutique shoppers but wouldn’t shop in a department store,” as Lewis puts it — in such venues as the VIP area at Stuttgart’s soccer arena. (The store sponsors the team). Breuninger’s customer credit card program is another marketing mainstay, used for most promotions and special offers; the 700,000 cardholders account for about 50 percent of sales and also provide a shopper database.

In American terms, Breuninger’s price point would fall somewhere between Nordstrom and Neiman Marcus, with customer service comparable to Nordstrom’s, says Thomas Holzmann, general manager of Breuninger’s real estate division. The primary focus of its 100,000 different merchandise items is branded fashion, with store areas dedicated to such labels as Armani, Hugo Boss and Polo Ralph Lauren; Breuninger’s private-label merchandise accounts for about one-third of sales. But, making things even more interesting, there is also an extensive perfumery, an in-house pastry shop, a bookshop and a sports equipment department.

Breuninger is a private company and does not reveal financial information, so it is difficult to assess the impact of Germany’s stagnant economy on its performance. Lademann opines that it’s no cakewalk, even for a company with this level of talent.

“They have a very strong concept, but the market for it has been reduced,” said Lademann. He points out that German consumer spending on personal goods has declined by about 1.5 percent per year since 1992, slumping from an average per capita amount of €1,073 in 1992 to €935 in 2002. If inflation is considered, he says, the spread is even larger.

Despite this gloom, Breuninger has factors in its favor. One of these, Lademann notes, is its geographic concentration in southern Germany; this is the most prosperous part of the country, with income levels some 5 to 10 percent higher than the national average.

“They have top locations where they have a critical mass within the sales area,” he said. “And their specialization on lifestyle and fashion is very strong, with emphasis on brands geared to specific target groups.”

All this helps cushion the chain from the worst of the slump, another observer agrees.

Store interiors are designed to excite shoppers and are stocked with such brands as Armani, Hugo Boss and Polo Ralph Lauren. For additional pampering, there is an extensive perfumery.

“I assume Breuninger is hurt by the economy, but with a midmarket customer, some of their shoppers will be wealthy enough not to be affected much, while others may buy only four suits a year instead of six,” said Cushman & Wakefield Healey & Baker’s Emmerich. “The German shopper at present is price-sensitive, hunting for bargains but also focusing on good quality,” he said. “That’s why they end up at Breuninger, where there are good prices, good brands and good quality, with a nice atmosphere.”

Emmerich has high praise for Breuninger’s interior design and decor. “I haven’t seen a textile department store like the brand-new flagship store in Nuremburg,” he said.

Germany’s retail sector tends to be conservative at both the consumer and managerial levels, and Breuninger’s most important weapon may be its willingness to think outside the box. Its corporate culture borrows from the United States, says Henning Hauser, the company’s financial officer for real estate; its management communicates with staff more closely than most German companies do, for example, holding monthly breakfast meetings to update employees.

Also innovative are Breuninger’s countercyclical investments in new properties when the market is depressed — “Right now is a good time,” Guldin said — and its attention to new ideas and products abroad. Breuninger had the first MAC cosmetic outlets in Germany, for instance.

Both Lademann and Emmerich consider Breuninger’s expansion plans generally feasible, though they note that acquiring a prime downtown site for a 161,500-square-foot (15,000-square-meter) store (the average size for Breuninger) is extremely difficult in German cities. Lademann speculates that Breuninger may be dependent on the development of new centers to find suitable locations, as it has done with the store to open soon at ECE Projektmanagement’s Main Taunus Center, in Salzbach.

At least the company can execute its expansion at its own pace. Being a private company, Guldin observes, it can grow as opportunities arise without the pressure to produce quarterly returns. “We’ve created a very good offer and think we’re strong enough to be a national player.”

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