Dear Reader,

As inflation started to bite last year and central banks reluctantly reacted by hiking interest rates, Germans began to wonder which companies would turn out to be ‘zombies’ that had been kept alive by cheap debt during the era of zero interest.

Few will be surprised to learn that the first member of the army of the undead to reveal itself is the department store chain Galeria.

After several rounds of brutal redundancies in recent years, the firm’s thinly staffed stores had started to resemble the deserted Monroeville Mall in the horror classic Dawn of the Dead.

The firm managed to stagger through the pandemic, kept alive by a €700 million loan from the government. But now it has filed for bankruptcy.

Plans released this week show that the company wants to close over 50 of its remaining 130 stores while slashing staff from a pre-Covid level of 28,000 down to 11,000.

Galeria is the result of the fusion of four major department stores over the past three decades, as a once proud industry has been pummeled by fierce competition from online retailers and suburban outlet stores.

When Galeria Kaufhof merged with Karstadt in 2019 there was just one left.

Interestingly though the company is allowed to manage its own insolvency in a process known as Insolvenz in Eigenverwaltung.

This allows billionaire owner Rene Benko to dictate the terms on which his debts are cut, argues the Süddeutsche Zeitung.

Benko (who is being investigated in his native Austria on suspicion of paying bribes) no longer owns most of the houses that the department stores are based in. By managing his own bankruptcy he can threaten to completely pull out of certain towns if local landlords don’t cut the rent, the newspaper states:

“This virtually legalises the blackmailing of the weak by the strong. With the creditors' meeting coming up at the end of March, he can demand: ‘Lower the rents or you're out.’”

According to the German press, Benko has barely invested a cent of his own money into the company since taking complete control in 2019. Instead, he has been able to rely on state support as local governments have panicked about what the closures would do to their inner cities.

Town majors fear that the buildings, many of which are windowless concrete blocks from the Witschaftswunder years of the 1950s and 1950s, will turn into decaying symbols of the death of the city centre.

Those mayors have desperately lobbied the government on Galeria’s behalf. Civil servants at the federal economy ministry, under CDU management in 2020, have since conceded that the €700 million bailout was “a political rescue, not an economic one.”

The new German government appears to have lost patience, though. With public money tight, there are more important investments to be made than keeping a business model from the 20th century on life support.

Which leaves the problem of what to do with the deserted stores dotted around the country’s city centres. There is hope: successful conversions after previous closures include an arts centre in Hamburg, a care home in Rendsburg, and a co-working space in Oldenburg .

The catch is that all these rebuilds were heavily subsidised. That might have been possible during the decade of easy money after the financial crisis. It will be much more expensive in an era in which federal debt obligations alone rose tenfold last year.

Add to that the fact that the closures are mainly hitting indebted regions like North Rhine-Westphalia and the situation doesn’t look any better.

The alternative is ripping them down and starting again. But even that is something that could take years in the current climate. Building costs have soared so spectacularly over the past 12 months that Germany’s largest landlord recently paused all new building projects until the end of the year.

The choice, depressingly, may well be between an oversized zombie sucking more money out of the public purse, or high streets turned into graveyards from the analogue era of consumerism.

There could be a silver lining though. Germany's business press have argued that Galeria’s sacked staff will be freed up to work in profitable parts of an economy that badly need workers. Perhaps there is life after death after all.

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