Media Markt and Saturn: More stinginess would be great

When the Ceconomy shareholders meet for the digital general meeting of Europe’s largest electronics retailer on Wednesday morning, there should be disillusionment. The share price of the parent company of Media Markt and Saturn languishes at 2.60 euros. Recently, takeover rumors caused a stir, but their substance seems questionable. In any case, the British investment bank Barclays has left Ceconomy at “Underweight” with a target price of EUR 1.60 according to the latest quarterly figures. And the analysts at the rating agency Moody’s have now lowered their credit rating. The ratings downgrade reflects “the company’s weak operating margins, deteriorating credit metrics and limited free cash flow generation,” the rating agency said. In short: Ceconomy is still in crisis, even if company boss Karsten Wildberger sees it a little differently.

“Despite war and crisis: we delivered. we have grown We’ve made progress,” Wildberger will summarize on Wednesday morning. This emerges from his previously published speech manuscript for the Annual General Meeting.

The former E.On manager has been on board as CEO since mid-2021 and had already announced a “structural liberation” for Ceconomy last April. At that time, a protracted shareholder dispute had been settled. The founding family Kellerhals had taken a direct stake in Ceconomy. The deal should reduce the complexity in the group, it said. Duplicate management structures would be eliminated and decisions accelerated. Nevertheless, the past financial year was mixed.

Ceconomy was able to increase sales from 21.4 to 21.8 billion euros. The company benefited from a recovery in its stationary business, which had suffered badly from the corona pandemic. In addition, there was growth in the service business, for example with repair services, which increased the share of total sales by one percentage point to 6.2 percent. The bottom line is that Ceconomy earned 126 million euros, significantly less than in the previous year with 222 million euros. The profit margin is a homeopathic 0.6 percent – and urgently needs to increase to keep investors and financiers happy.

They worry that Ceconomy’s moves to improve operating margins “will be hampered by rising operating costs and weak consumer sentiment,” as Moody’s put it. But if the yields weaken, the costs should actually go down. Or true to the earlier Saturn advertising slogan: more stinginess would be awesome.

Will the Saturn brand disappear?

“We don’t lose sight of the issues of costs, profitability and liquidity,” asserted CEO Wildberger in his speech manuscript. Specifically, he wants to expand the online business, for example. Wildberger announces that the “next target” is an e-commerce share of 30 percent of total sales. Most recently, the share was 25 percent. Wildberger wants to expand the online marketplace offering with external providers and launch it in other countries, which will at the same time streamline its own range and reduce costly warehousing. Via the marketplace, “we are expanding our range without having to take the risk of the goods ourselves,” says Wildberger. “By the end of 2022 we already had around 900 resellers on our platform offering a total of 700,000 products.” Wildberger also sees potential in the retail media business, where brand manufacturers place product advertising in online shops or apps of the electronics chains for a fee.

Is that enough? Recently, rumors have surfaced again and again that Media Markt and Saturn could merge. The ‘merger’ would probably mean saying goodbye to the Saturn brand. The group has already taken the step abroad, where only Media Markt is competing for consumers. In the German home market, the two brands are gradually converging. Joint advertising campaigns are intended to leverage marketing synergies, and the range of products in all Media Markt and Saturn stores as well as in the online shops has recently been closely interlinked.

The profiles of the two brands are now almost indistinguishable, says a former high-ranking manager. A line and farewell to Saturn would therefore only be logical and the closure of numerous double locations would make economic sense. Up to 50 branches in Germany could be eliminated in the scenario, hundreds of jobs could be cut.

The ex-manager also considers it “currently” unlikely that this will happen. In the coming months it will probably come down to a few manageable cost-cutting measures. And the hope that the electronics business will pick up speed again. Sometime.

Also read:The important Christmas business was mixed for Europe’s largest electronics retailer. Sales are up, but earnings are crumbling. Now the group has to take countermeasures.