Why Department Stores Keep Going Bankrupt: The Economics Behind the Collapse

Department stores have been filing for bankruptcy or insolvency protection on a recurring basis across the United States and Europe for more than a decade. The pattern is not a single event but a structural one: chains restructure, emerge smaller, and in several cases — most visibly Germany's Galeria Karstadt Kaufhof — fall into insolvency again within a few years.

A business model built on fixed costs

Trade credit insurer Allianz Trade notes that department stores occupy large leased footprints, with rent typically accounting for 5% to 15% of operating expenses for discretionary retailers. Those costs are largely fixed regardless of how many customers walk in. When the US retail research firm Allianz Trade examined the sector, it found that the US had already lost more than 56,000 discretionary retail stores — about 10% of total footprint — between 2008 and 2019, before the pandemic added further closures.

Consulting firm Ankura, in an analysis of the sector's long-term trajectory, states that department stores' share of US retail sales fell from 14.5% in 1990 to below 1.8% by 2024. Over roughly the same period, more than half of mall-based department store locations closed between 2017 and 2023, and sector employment dropped by more than 40% over two decades, according to the same analysis.

E-commerce took share faster than stores could adapt

Both Allianz Trade and Ankura point to online retail as the single biggest structural pressure on the sector. Allianz Trade's analysis found e-commerce growth accelerated to 17% in 2020 as pandemic lockdowns pushed shoppers online for goods that department stores previously sold in person. Ankura's report adds that department stores were "sluggish in adopting" digital sales channels, and that by the time many had built functioning e-commerce operations, they had largely lost their chance to lead the online market.

Building the infrastructure to compete online — fulfillment centers, returns processing, upgraded point-of-sale and inventory systems — required capital that many chains, already carrying debt from earlier buyouts or struggling with declining in-store sales, did not have available, per Ankura's assessment.

Debt from leveraged buyouts added a second burden

In the United States, several department store bankruptcies trace back to leveraged-buyout financing rather than retail operations alone. According to reporting by The Nation, hedge-fund manager Eddie Lampert's ESL Investments acquired Kmart in 2003 and merged it with Sears in 2005 using a leveraged buyout — financing the deal mainly through debt. ESL and affiliated entities later lent Sears roughly $2.6 billion, about half the company's total debt at the time, and collected an estimated $400 million in interest and fees, the outlet reported.

The Nation also reported that Lampert's hedge fund sold a cluster of Sears properties for $2.7 billion to Seritage Growth Properties, a real-estate company he chaired, after which Sears had to pay rent on stores it had previously owned outright. By the time Sears filed for bankruptcy in October 2018, the company reported $11.3 billion in liabilities and had lost about $5.8 billion over the preceding five years, closing more than 1,000 stores and eliminating roughly 175,000 jobs, according to the same report.

Galeria Karstadt Kaufhof: three insolvencies in four years

Germany's Galeria chain shows a similar dynamic repeating in a different market. According to trade publication ACROSS, the retailer filed for insolvency in 2020 because of pandemic-driven store closures, filed again in 2022 citing soaring inflation and energy costs linked to the war in Ukraine, and filed a third time in January 2024 after its then-parent company, Austrian property group Signa, failed to deliver a promised 200 million euros in financial support.

The January 2024 filing affected 92 department stores and more than 15,000 employees, ACROSS reported. Following earlier restructuring, about 40 locations had already closed after the 2022 insolvency, with a final 18 shutting in January 2024 alone.

Why the pattern repeats

The sources reviewed point to overlapping rather than single causes: large fixed real-estate and labor costs that do not shrink as fast as sales; slow or underfunded shifts to online retail; and, in several high-profile US cases, debt structures imposed by leveraged buyouts that left companies with little room to invest even if management wanted to modernize. Ankura frames the longer-term result as department stores going from 14.5% to under 1.8% of US retail sales since 1990 — a decline steep enough that each new insolvency tends to be a continuation of an existing trend rather than an isolated shock.

Galeria's repeated insolvencies illustrate that the pattern is not confined to the United States or to any single external shock: a pandemic, an energy crisis and a parent company's financial failure each triggered a separate filing for the same chain within four years.