Hudson’s Bay announced a partnership with SIGNA, the owner of Germany’s Karstadt department stores—that involved it giving control of the European retail operations to signs and enter into both a retail and a real estate joint venture.

The partnership will also help Hudson’s Bay to deleverage further and will confirm the value of its European real estate. SIGNA is all set to act as a good real estate partner, given its similar expertise and interest in that area.

If approved by German authorities, the retail joint venture should have a strong position in German retail and produce improved financial results through efficiency gains. The retail joint venture theoretically should result in improved results with more efficient operations and the closure of some weaker stores.

The retail joint venture also offers Hudson’s Bay an escape route from managing its European operations while still retaining much of the upside of the European real estate. Real estate itself was the main reason for its acquisition of Galeria Kaufhof in 2015, although Hudson’s Bay believed that it could also improve Kaufhof’s retail performance.

That plan had gone a bit astray, as HBC Europe was becoming increasingly challenged, delivering -2.4% comparable store sales in 2017, followed by -6.6% comps in Q1 2018. A report also indicated that Kaufhof lost over $116 mn during the period, due to rising costs and declining traffic. Karstadt on the other hand has been a bit more successful in turning around its businesses, having posted a slight profit of $1.6 mn in 2017 – an improvement from a loss of $8.7 mn in 2016 and $65 mn in 2015—along with years of losses before that.