The last 12 months have seen a string of insolvencies announced in the German fashion retail space – from high-profile cases such as Galeria Kaufhof and Peek & Cloppenburg to mid-size and smaller chains like Gerry Weber, Görtz, and Zapata. Textilwirtschaft reported in May 2023 that 35 fashion retailers had applied for insolvency so far in 2023.

The German insolvency regime offers retailers some attractive advantages. Retailers in insolvency can renegotiate or exit rental contracts and restructure and downsize their workforce at far lower cost, while also receiving a generous subsidy in the form of ‘Insolvenzgeld’. This presents a unique opportunity to transform a retailer.

And yet, two of the highest profile insolvencies of this latest wave are noticeable for the fact that this was their second insolvency in a relatively short period. Galeria Kaufhof declared insolvency in 2020 and 2022, Gerry Weber in 2019 and 2023.

When presented with an opportunity to make a true company transformation, whether out of insolvency or not, there are some key lessons that retailers should observe to maximize their chances of achieving a sustainable turnaround.

1. It’s not just cost

Most established offline and multi-channel fashion retailers in insolvency have seen a trend of falling revenue for years, which they blame on the rise of Amazon and co., the decline of the inner cities and other market factors. A classic approach to transformation takes a conservative view of future revenue by extrapolating that trend, defines the size of cost base that this revenue base case could fund, and then seeks to build a cost saving program to reach this target.

But if the declining revenue is not addressed, no amount of cost savings can bring a sustainable turnaround in performance. A sustainable turnaround requires the retailer to become better, not just cheaper. Retailers must identify the future sources of growth and outperformance, and ensure a transformation sets them up to excel in these areas. This starts with simplifying the business.

2. Make it simple

Simplicity in retailers doesn’t just save cost – it saves time and reduces distractions, allowing for better decision making, and ultimately increasing chances of successfully finding the right customer proposition to drive growth.

The classic advice to keep it simple comes too late for retailers in insolvency – the challenge is to return from the complexity that choked the business to a new simplicity.

There are pockets of complexity everywhere, but a good place to start in retailers is with subscale sales channels and markets. Retailers will often have online businesses in significantly more countries than their offline presence. On paper, each of these markets may deliver a positive incremental return, so closing them seems counter-intuitive at a time when every cent counts. However, each market requires reporting, discussion in internal meetings and top management attention. No business case will ever capture the cost of the CEO spending a small part of their day thinking about sales in a sub-scale market, but when those complexities mount, it distracts the whole business from its core customers and markets.

The same goes for sales approaches like concession, consignment or shop in shop – these can be excellent value drivers, but too often they are small-scale experiments that will not be a true source of growth in the future.

3. Stores portfolio must be strategic

The store portfolio is a classic example of the tendency to reduce costs without looking for sustainable improvement. Presented with the opportunity to exit leases at almost no cost, most retailers begin by taking their list of stores, ranking by some basic KPIs, like store EBITDA and revenue per square meter, and creating a closure list. Then the landlord negotiations begin. Unprofitable stores where the landlord will not move on rent are closed, and the result is a new portfolio with lower occupancy cost and no loss-making stores. This can provide a significant earnings boost and represents progress that might otherwise take years.

However, the above approach is also a big missed opportunity. Retailers hold on to stores that have become profitable through short-term rent reductions, but that do not fit the portfolio, because they are, for example, too large or in locations where the retailer’s core customers don’t shop. A heterogenous store portfolio is a huge complexity driver that impacts the product portfolio, store operations, logistics and supply chain and marketing approaches. Instead of focusing purely on cost and store EBITDA, retailers need to ensure that their store portfolio supports their strategic and operational priorities.

4. Not all digital is good digital

Digitalization has been the watchword, not just in retail but throughout the German economy, for over a decade. But not all digital capabilities are created equal. Our analysis shows that as online penetration grows, retailers’ profits shrink. The cost of serving customers anytime, anywhere, at any speed does not bring in enough profitable topline growth to pay for itself.

This is certainly no call to stop investing in digital capabilities, but investments must be focused and carefully considered. Our approach to Digital First Retail can be found here: Digital-first retail: Turning profit destruction into customer and shareholder value, Alexa Driansky (

Retalers may feel that – after COVID, the invasion of Ukraine, and then inflation – they are entitled to a few quiet years. But the wave of insolvencies is likely to continue for some time, and the need for sustainable, significant company transformations will only increase. Companies that observe the above learnings will put themselves in the best position possible to avoid slipping back into trouble within a few years.