B2B Wholesale & Distribution in Germany: Insolvency.
In the ten years leading up to 2020, the German wholesale industry saw a decline of around 34,000 businesses, as reported by the Statistisches Bundesamt. So has the total number of companies in wholesale trade (excluding trade in motor vehicles) in Germany fallen continuously in recent years, most recently to around 135,000 in 2020. Farewell wholesaler?
This depressing trend has been exacerbated by a recent uptick in insolvencies among industrial wholesale and retail companies, with several prominent names filing for bankruptcy. One of the most striking examples of this phenomenon is the collapse of the Praktiker umbrella company in 2013. Another recent sample, Ludwig Leuchten GmbH.
As defined by German law, insolvency is the inability of a debtor to pay its debts to creditors. Companies, self-employed individuals, and private citizens who can no longer meet their payment obligations due to current or impending overindebtedness are required to file for insolvency protection.
Insolvency proceedings are not the end of a company, for a successful debt restructuring can save it. Let’s dig deeper.
Surviving Insolvency in Germany’s Industrial Wholesale Market
Praktiker was a household name in Germany, generating annual sales of around three billion euros and employing some 20,000 people. As the third-largest player in the market, the company accounted for 12% of total sales. Its bankruptcy left a noticeable void in the industry, though the brand itself lived on: in 2016, Christoph Kilz and Dirk Oschmann acquired the rights to the name. They opened a DIY online shop under praktiker.de, independent of the former company.
The last years brought very unusual events. A pandemic, logistic challenges and the first European war in 70 years. How did the German leaders respond? For example, in response to the economic crisis caused by the COVID-19 pandemic, the German Federal Cabinet approved a series of emergency laws on March 23, 2020. These laws, which passed through the Bundestag and Bundesrat quickly, granted temporary relief to companies experiencing economic difficulties by removing the obligation to report such challenges. But the question remains: have these changes impacted the number of insolvencies in the industrial wholesale segment in Germany? Where do we stand today in terms of defaults in this industry?
Insolvencies can happen for various reasons, including economic conditions, changes in the market, and company-specific issues. Additionally, internal problems such as management changes and difficulties in decision-making also contributed to the company’s financial troubles. Sometimes, management can also save the company, as in the case of Ludwig Leuchten GmbH, where according to the Wholesales Magazine elektrowirtschaft, a last-minute, assets-buy-out saved the company. The investor Fischer Group acquired the machines of the insolvent Ludwig Leuchten GmbH in an asset deal in February 2023.
What happens when a Distributor Files for Insolvency in Germany?
Besides Praktiker, another well-known example of a company that has recently filed for bankruptcy in the industrial wholesale segment in Germany is the book distributor KNV Group. Founded in 1825 and headquartered in Leipzig, KNV Group was one of the largest German book wholesalers and distributors.
Despite its long history and prestige as a reliable and reputable company, KNV filed for bankruptcy in 2019. The leading causes for KNV’s bankruptcy were the rapid decline of the traditional book market in Germany due to the rise of e-books and online retailers and the company’s heavy debt load.
Yet another example is Wollschläger, a family-owned Wholesaler that stopped operations in 2016. Wollschläger’s history, which began in 1937 in a garage in Danzig, ended that year. Despite surviving World War II, the Berlin Wall, and the 2009 crisis, it could not withstand insolvency.
You can read our four-part story here.
How fast can a Wholesaler become Insolvent?
B2B specialist wholesale companies usually need help to keep healthy profits due to thin operational margins and their inherent dependence on industrial vendors and valuable sales specialists. They constantly need to improve because of pricing pressures, missed sales opportunities and lost customers. Our examples show that this situation can quickly occur even in established companies. Yours too?
The speed at which a B2B wholesaler can become insolvent can vary depending on several factors. These include the company’s financial health before the insolvency, the severity of the economic problems the company is facing, and the actions taken by the company’s management and stakeholders to address the issues.
In some cases, a B2B wholesaler may become insolvent within months, while in others, it may take several years. Factors such as a sudden loss of key customers, inability to secure financing or a significant decrease in demand for their products can contribute to the speed of insolvency.
Early and successfully adopting technologies that improve margins is critical to avoid becoming insolvent. Think of e-commerce, dynamic pricing or artificial intelligence (AI). A B2B wholesaler in Germany must implement AI in sales to avoid becoming insolvent. Time is running out. Companies must now adapt to new technologies and strategies to prevent future financial difficulties.
How is B2B e-Commerce accelerating Bankruptcies in the Industrial Wholesale Segment in Germany?
In the wholesale industrial sector of Germany, the advent of B2B e-commerce is proving to be a formidable force, exerting pressure on traditional brick-and-mortar operations, and fuelling bankruptcies. The ease with which nimbler, online-only firms can now enter the market thanks to e-commerce platforms and online marketplaces is creating fierce competition for established B2B distributors.
As a result, wholesalers with physical point-of-sale locations and experienced sales staff are disadvantaged, with many struggling. This situation is particularly true for wholesale companies that have yet to fully embrace e-commerce and digitalization, as they work with declining sales, margins, or both. These companies require support navigating the new digital B2B sales landscape.
The competition and pressure on traditional specialist wholesaler businesses are leading to higher costs and lower profit margins, making it difficult for these companies to remain profitable. These circumstances result in a rising number of bankruptcies in the industrial wholesale segment in Germany as companies strive to adapt and compete in the e-commerce realm.
As B2B e-commerce continues to surge forward, it presents challenges and opportunities for companies operating in the industrial wholesale segment in Germany. On the one hand, the increased competition and pressure on traditional brick-and-mortar businesses can lead to a higher risk of bankruptcy. But on the other hand, the ability to automate business processes, increase efficiency, and improve customer service can help companies mitigate these risks.
Unfortunately, many companies in the industrial wholesale segment in Germany have yet to take advantage of these opportunities fully. As a result, they are struggling to compete and are facing rising costs and lower profit margins. This position makes it increasingly difficult for them to stay afloat, particularly considering the growing number of bankruptcies in recent years.
German Insolvency: B2B Wholesale & Distribution
In 2018, there were 31,848 bankruptcies in Germany. This number rose to 32,944 in 2019 and reached an all-time high of 37,817 in 2020. The manufacturing industry, for example, which accounts for over one-fifth of the country’s economic output, also feels the effects of this trend. Many companies are cutting production and laying off staff to survive.
It is worth noting that not all business sectors are affected equally by these trends. For example, the hospitality and retail sectors have been hit particularly hard by the COVID-19 pandemic, with a significant increase in bankruptcies in 2020. Meanwhile, the construction and manufacturing sectors have been less affected.
The number of bankruptcies in the industrial wholesale segment in Germany is also on the rise, and several well-known companies have filed for bankruptcy. The reasons for these insolvencies are complex and can include economic conditions, changes in the market, and company-specific issues. As such, businesses need to stay aware of the risks and take steps to mitigate them to avoid insolvency.