Below par

SOME say golf is a good walk ruined. Not Wolfgang Urban. The chief executive of KarstadtQuelle, a big German retailer, thinks more Germans will be seduced by the game—and will buy their gear from KarstadtQuelle. It is one of the ways in which he hopes to improve the company's currently miserable margins.

Retailing in Europe's biggest economy, with 82m mostly well-off people, may sound a doddle. It is not. Margins are thin, thanks to fierce price competition, a surfeit of selling-space and weak demand. Retail sales have scarcely budged since the fading of a post-unification surge in the mid-1990s (see chart), and they have fallen every month this year. According to one of Mr Urban's rivals, business has rarely been as bad since the second world war.

At Karstadt, the biggest department-store chain in Europe, sales in the first half of this year were 9.5% lower than in 2001. KarstadtQuelle, its parent, lost euro347m ($311m) in the first six months of the year, and its share price has fallen by 50% since the spring. To some extent, these troubles are temporary. Shoppers suspect retailers of using the introduction of the euro in January to mask price increases. Like Karstadt, Thomas Cook, a travel company of which KarstadtQuelle owns half, is in a suffering seasonal business.

KarstadtQuelle has, however, been struggling for more than a few months. Its exposure to Germany, where it makes 90% of its sales, has scarcely helped. Its bigger rival, Metro, where Mr Urban worked for 25 years, also has a troubled German department-store chain, Kaufhof, but it has been partly redeemed by its substantial cash-and-carry business, which operates in 23 countries.

Since becoming chief executive two years ago, Mr Urban has been firing off bright ideas for making money. The plan is to raise margins to 4% by next year: good by German standards, but only half the European norm. The firm is only now exploiting the stack of information—from customers' addresses to their taste in clothes—held by its department stores and two mail-order subsidiaries. The result—store cards, Karstadt-branded credit cards and direct marketing—may be old hat in America or Britain, but in Germany they are still near-novelties.

KarstadtQuelle has also been cutting costs, becoming stingier with its suppliers and shedding 7,000 jobs this year. Yet despite Germany's glut of retail space, it is still reluctant to close any shops. It has 189 department stores, the same as a year ago. Quite a few are in small towns and suburbs, and it owns almost all of them. Indeed, the value of its property portfolio exceeds its market capitalisation, suggesting that the shops could be put to better use. Karstadt is due to reveal plans for its smaller stores in November.

Some could become specialist shops rather than department stores. There is money to be made, Mr Urban believes, from more specialisation. Sport is a prime example. By 2005 KarstadtQuelle, already the market leader, expects to sell euro1.2 billion-worth of equipment and clothing, up from euro650m last year. The number of big, general sports shops, such as its flagship 6,000 square-metre store in central Hamburg, will rise to 35, from around 30 now. There will also be more shops with a narrower focus, including a total of 31 devoted to Mr Urban's beloved golf, hitherto an exclusive sport in Germany.

Eventually, KarstadtQuelle might open sports shops abroad. That would reduce its dependence on Germany. Home, though, is the key. The company expects not only to win a bigger share of the German sports-goods market—largely by taking over uncompetitive small firms—but also to fatten its margins, 2.3% last year, to 6% in 2005. However, cheaper competitors, including supermarkets and Tchibo, a coffee seller that also flogs cheap but presentable clothing and household goods, have their eye on the market too. Mr Urban's hope is that quality will count as much as price: in his shops, people will get advice that discounters cannot offer; and he reckons Karstadt's own label, Alex, will command a premium that cheaper rivals will not.

Juicy profits may be on offer in some plush niches, such as golf, assuming the market grows as Mr Urban hopes. In other areas—sports clothing worn as fashion, say—the German market may prove as tough as it has always been. Mr Urban will need luck as well as his experience and skill. It's a bit like golf, really: even well-hit balls can end up in the rough.