HERTIE WAREN-UND KAUFHAUS GMBH History

Company History:

Hertie Waren- und Kaufhaus GmbH (HWK) heads one of Germany's largest department store groups. The history of HWK can be traced back to the firm of Garn-, Knopf, Posamentier, Weiss- und Wollwarengeschäft en gros und en detail Hermann Tietz, founded in March 1882 in Gera, Thuringia, by Hermann Tietz and his nephew Oskar Tietz, who was 24 years old at the time. Hermann Tietz provided the necessary capital for Oskar's venture as a linen and wool draper. It is also from Herman Tietz's name that the popular name for the stores, Hertie, derives. The first day's sales totaled 34.5 marks. Hermann Tietz had become familiar with new business methods in the United States and passed on what he had learnt to his nephew.

The basic concept gleaned from Hermann Tietz's observations and experience in the United States was to win the customer's long-term confidence by offering a range of goods that was both inexpensive and of high quality. In contrast to the prevailing principle of making large profits on a small turnover, the Tietzes aimed to make a small profit on a large turnover. To achieve this goal, new methods were required. Of particular importance among these was the system of selling at fixed prices. Since a department store had a high turnover compared with the low turnover of the traditional retail store, the department store owner could afford to sell goods at a relatively low profit margin. The Tietzes' business methods were remarkably successful, and by the second half of the 1890s it became necessary to expand the Gera department store.

The company grew rapidly, having opened 11 branches by the end of the 19th century in Gera, Weimar, Karlsruhe, Munich, Strasbourg (under German rule from 1870 until 1918), Munich, and Hamburg. It was, however, badly affected by an economic depression in 1901. Another store was opened in Munich in 1905, opposite the main railroad station. It was the first building in Germany to be specifically designed as a department store.

The company's successes in central, southern, and southwest Germany led it to establish further stores in Berlin as well. Three imposing department stores were constructed in the center of the imperial capital, one in Leipziger Strasse in 1900, another on the Alexanderplatz in 1905, and a third on the Frankfurter Allee in 1911.

During World War I Hertie became a war supplier on a very large scale. At first the company supplied blankets, campbeds, clothing, and provisions. Leather goods were transformed into army gear, and a printing works in one of the Berlin stores was converted into a saddlery. The company invested money from its deliveries to the army in specialist machinery to cater for military needs, and the stores themselves mounted extravagantly patriotic displays.

Throughout the war the company suffered from a lack of demand, from high levels of debt on loans it had recently taken out to build its new Leipziger Strasse store in Berlin, and from the collapse of the Pommersche Hypotheken-Aktienbank, which had given the company a 3 million mark mortgage. Goods became increasingly hard to find. Georg Tietz, one of Oskar's sons, traveled to Holland and to Switzerland to buy what he could, but supplies became scarcer and the bureaucratic channels he had to pass through increasingly difficult.

Oskar Tietz, as chairman of the German association of department stores, was involved with the German war companies and given the title of delegate for the acquisition of woolen wares and clothing by the Red Cross, a civilian post with a rank equivalent to major general and its own special uniform.

After 1918 Oskar Tietz succeeded in rapidly reestablishing the company's prewar position as the second largest department store in Germany after Karstadt. By the time he died in 1923, the group had 40 stores. It had a buying concern based in Berlin, with branches in Plauen, Chemnitz, Offenbach, and Elberfeld. It had formed a joint buying venture with the provincial stores of the firm Conitzer. The Tietz group also owned seven textile factories of its own, helping it to reduce costs in textile manufacturing. Its production operations in the manufacturing of linen, as well as clothing, were separated.

After the death of Oskar Tietz, the company acquired A. Jarndorf in Berlin, which had six department stores, including Kaufhaus des Westens, the so-called KaDeWe, in existence since 1907 and situated on the Tauentzeinstrasse, and to this day the flagship of the Hertie group. With a turnover of 128 million marks in December 1926 and 18,000 employees, the company had become the largest department store group in Europe. By 1932, the year of Hertie's 50th anniversary, the company had 19 of its own branches and 20 annexes, with 20,000 employees.

Despite the group's powerful growth, the worldwide Depression that began in 1929 coupled with the mass unemployment that followed in its wake led to a decline in the group's turnover of 46.6% between 1930 and 1933. This caused the company considerable financial difficulties.

Following the National Socialists' putsch on January 30, 1933, the situation worsened dramatically for the company, since Hertie, as a Jewish-owned company, was at the mercy of the new dictatorship's boycott measures from March 5, 1933. The banks refused to secure any more loans for the company. By the end of June, 1933, the group was on the point of bankruptcy, the banks demanding either the liquidation of the company or a complete restructuring. Fourteen thousand jobs, together with the numerous suppliers, were under threat. The Reich's minister for trade and commerce, Dr. Kurt Schmidt, was able to persuade Hitler of the necessity of setting Hertie back on its feet. Eleven million marks of credit were made available by the banking consortium which, via the Hertie Kaufhaus-Beteiligungs-GmbH, took a 60% share in the company. The banks appointed Georg Karg, Dr. Trabant von und zu der Tamm, and Wilhelm Hermsdorf to direct the company. In 1934 the Tietz family sold the shares it still held.

The banking consortium soon proposed to Georg Karg that he should take on the company as sole owner. Georg Karg had become a manager of the Charlottenburg branch of Jarndorf before it was acquired by the group, and since the time of the takeover he had risen rapidly through Hertie's ranks. In spite of three loss-making years for the company and debts of 129 million marks, from 1937 to 1938 Georg Karg gradually began to acquire two-thirds of the shares in the company from the banks, acquiring the remaining third at the beginning of World War II. The Tietz family, in the meantime, had left Germany.

During World War II the stores continued operating. Many of them, located in the center of large cities, were badly damaged by bombs. Some of the stores were taken over in part for use as military hospitals.

By the end of the war in 1945 only three of the ten Berlin stores still existed. Four-fifths of the group's real estate had either been destroyed or now lay in East Germany, outside the company's hands. Apart from the Berlin stores that remained, only the so-called Alsterhaus store in Hamburg and the stores in Munich, Stuttgart, and Karlsruhe remained for the company to control.

Georg Karg swiftly set about rebuilding his business. He began selling what goods he could acquire in provisionally reconstructed ground-floor stores and in rented shops. In 1948 he moved his headquarters from Berlin to Hamburg. His son Hans-Georg joined him in 1950 to help revive the Hertie business empire. Georg Karg's determination led to the company's recovery, and Hertie was restored as one of Germany's leading companies. Georg Karg kept his group's independence secure, in particular through remaining independent of any large banks. He also remained secretive about the company's activities.

In 1949 the Tietz heirs regained ownership of the stores in Munich, Stuttgart, and Karlsruhe in a private restitution settlement. The settlement also contained a rent based on the turnover of the three aforementioned stores as well as a provision for reinvestment until 1970.

Hertie then embarked upon a period of great expansion. In 1949 Hertie took over three stores, in Stuttgart, Wiesbaden, and Hamburg-Bergedorf, and in 1950 KaDeWe was re-opened, on two stories only. By 1990 KaDeWe, with 43,000 square meters of sales area, 2,811 employees, and turnover of DM508 million, was the largest Hertie department store. In 1951 an opening and two takeovers of stores in Neum&uuml#ter, Landshut, and Frankfurt-Höchst took place. Nineteen fifty-two saw the acquisition of a majority shareholding in Wertheim (department store founded in Stralsund in 1877); the founding of Bilka; the takeover of Hansa-AG (originally the Grand Bazar founded in 1900 in Frankfurt) with branches in Frankfurt-Zeil, Hanau, and Mannheim; and the takeover of two department stores in Berlin-Neuköln, as well as a new opening in Wuppertal.

The group underwent an important reconstruction in 1953. Georg Karg set up the Karg'sche Familienstiftung (Hertie Family Foundation). Its primary purpose was to protect the group's independence and to make it secure from outside shareholders. Its founder felt that all members of the family should earn their own living and be paid according to individual performance. He made the condition that the trustees should only receive allowances from the foundation, if they found in difficult circumstances not of their own making that prevented them from maintaining a standard of living appropriate to their station. Such allowances have never had to be granted. Ninety-eight percent of the shares of the Hertie parent company, HWK, were transferred to the family foundation. At the same time the foundation was tied to the company, both as the major shareholder in the Hertie Group and in terms of management of the group; it was stipulated that two family members must have seats on the seven-man board and that at least one family member must agree to all decisions of the board for them to be legally binding. Hans-Georg Karg was made chairman of the board for life.

Forty-two more department stores were opened before Georg Karg's death in 1972. The company's turnover, which had grown at an annual rate of more than 10%, reached more than DM5 billion in 1972 from the combined sales in the total of 101 branches.

During the four decades before Georg Karg's death, the Hertie Group had come to be nicknamed "the silent giant" because of Karg's discreet business manner. Georg Karg remained secretive about his business and out of the public eye.

In 1972 the Karg Family Foundation was renamed the Hertie Stiftung. The management of the company was passed on to Georg Karg's son Hans-Georg, who saw to the company's restructuring, bringing younger persons into the management. Faced with huge problems of inheritance tax that might have made it necessary to introduce outside shareholders into the group, in 1974 Hans-Georg Karg and his sister, Brigitte, Countess of Norman, decided to establish the Gemeinnüzige Stiftung zur Förderung von Wissenschaft, Erziehung, Volksund Berufsbildung, known as the Gemeinnützige Hertie-Stiftung or Public Benefit Hertie Foundation. Of the 98% of shares held by the Hertie Stiftung in the Hertie Group parent company, HWK, 97.5% were transferred to the Gemeinnützige Hertie-Stiftung. It was stipulated that the chairman of both entities should be the same person; Hans-Georg Karg became chairman of the two. The Hertie-Stiftung kept only 0.5% of the share capital of HWK, but the family foundation retained the majority voting rights, maintaining its controlling influence over all group decisions. The Gemeinnützige Hertie-Stiftung is limited to receiving and distributing company profits for charitable purposes. It sponsors scientific and social research and educational and vocational training. It is particularly committed to supporting research into multiple sclerosis.

In 1977 there was a further expansion in the management structure of the Hertie Group. Since 1981 a board consisting of several members has existed alongside the chairman of the board, bringing the company's structure closer in line with the other main German department store companies. The group's turnover amounted to DM6.1 billion in 1981.

Despite the difficulties suffered by department store groups in the 1980s, caused primarily by the increasing popularity of big supermarkets on the edges of towns, Hertie managed to maintain its prominent position. After turnover had declined to DM5.90 billion in 1985, DM5.62 billion in 1986, and DM5.57 billion in 1987, it began to rise again, to DM6.01 billion in 1988, and DM6.18 billion in 1989.

In the second half of the 1980s Hertie created or acquired a variety of subsidiaries in specialist areas, in particular in restaurants, groceries, electronics, and music. Le Buffet System-Gastronomie, founded by the Hertie group in 1986, had 72 restaurant outlets in 1990, 57 of them operating within Hertie stores. The company employed 2,281 employees in 1990 and had a turnover of DM191.7 million. In 1987 the group branched out into electronics, acquiring Schaulandt GmbH and Sch&uuml®ann Elektrohandelsgesellschaft mbH. Schaulandt GmbH specialized in entertainments electronics and had eight retail outlets in addition to its wholesale company in 1990. It employed 348 people and its turnover for that year was DM202.1 million. Sch&uuml®ann Elektrohandelsgesellschaft, with a network of 28 outlets in 1990, had a turnover of DM322.7 and employed 691 people. The year 1987 also saw the acquisition of 50% of WOM World of Music Produktionsund Verlags-GmbH, a music specialist. In 1990 it had 11 branches and a turnover of DM136.2 million. Hertie also established WOM World of Music Musikhandelsgesellschaft mbH in 1988 to establish specialist music shops within its stores.

NUG Optimus Lebensmittel-Einzelhandelsgesellschaft mbH was founded in 1988 by Hertie to sell groceries and confectionery within its department stores. In 1990 there were 62 grocery and 11 confectionery outlets. Employing 3,855 people, it had a turnover of DM704 million. The textile company

Wehmeyer GmbH & Co. KG was acquired by Hertie in 1988. In 1990 it had 19 outlets, employed 1,313 people, and recorded a turnover of DM258.8 million. By 1989 Hertie took a one-third share in Sono Centra Trading Limited, a joint buying company in Asia that it founded with Horten and Kaufring.

The reunification of East and West Germany brought a dramatic upsurge in sales for Hertie. By the end of 1991 Hertie had opened 11 stores in former East Germany employing 3,000 people with a turnover of DM400 million. The group's whole network comprised 267 branches, with 32,050 employees. With an increase in turnover of 9.6% in the first half of 1991, the Hertie group was set to continue the successful development of the previous year.

Principal Subsidiaries: Le Buffet System-Gastronomie und Dienstleistungs-GmbH; NUG Optimus Lebensmittel-Einzel-handelsgesellschaft mbH; Optimus Bank für Finanz-Service GmbH; Schaulandt GmbH; Sch&uuml®ann Elektrohandelsgesellschaft mbH; Sono Centra Trading Limited; Wehmeyer GmbH & Co. KG (75%); WOM World of Music Musikhandelsgesellschaft mbH; WOM World of Music Produktions- und Verlags-GmbH (50%); Autoreparaturwerkstatt Hahnstrasse-Niederrad GmbH; Bilka Verwaltungsgesellschaft mbH (98%); CBG Center-Betriebsgesellschaft mbH; Funny Paper Papierund Bürobedarfs-Vertriebsgesellschaft mbH; Hertie Center Verwaltungsgesellschaft mbH; Optimus Finanzdienstleistungs-Center GmbH; Optimus Versicherungs-Vermittlung GmbH; Optimus Waren-Vertriebsgesellschaft mbH; Sports World Sport and Freizeit Handelsgesellschaft mbH; Warenhaus Wertheim GmbH (99%); Wir Kinder Optimus SpielwarenVertriebsgesellschaft mbH.

Source: International Directory of Company Histories, Vol. 5. St. James Press, 1992.

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