The owners of two of Europe’s leading department store retailers, Galeria Kaufhof and Karstadt, have agreed to merge the two chains in a bid to compete more effectively against e-commerce players.

Kaufhof, which has 96 stores, and Karstadt, which has 80, will join forces to create what they claim will be “a strong company.” The new entity will be 49.99% owned by Canada’s Hudson’s Bay Company (HBC), while retail estate business Signa Holding, the owner of Karstadt, will have the remainder.

The agreement also includes the sale of 50% of the European real estate portfolio of HBC to Signa. Karstadt CEO Stephan Fanderl will lead the new retail company, while Signa will manage the day-to-day operations of the combined business.

“This partnership is a wise and strategically sound decision,” says HBC CEO Helena Foulkes. “It creates the conditions to strengthen the business and to meet the challenges in German retail for both companies. Together we will focus on leveraging the opportunities in the market and develop our business models and adapt to the changing needs of customers.”

The strategic goal is to “make the retail business for the future”, which means more efficient processes, an even wider product range and new formats, including “powerful” online platforms.

The merger will create a leading omni-channel provider with 243 locations in European city centres and a broad e-commerce platform.

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“Through this joint venture, two strong companies have found an ideal solution to successfully position itself in the highly competitive German and European retail market,” adds Fanderl. “Now a phase that is characteried by hard work, major operational challenges and demanding market changes begins. Together, we can now better use the possibilities of digitalisation and the strengths of retail in city centre locations than ever before.”