From jewish department store to the non-profit hertie foundation

It comes with a history that spans from the end of the 19th century to the present day. A story of the modest beginnings of a “yarn, button, trimmings, undergarments, and woollen goods store” in Gera, of the golden age of grand department stores, the Great Depression, reconstruction after the Second World War, and the German economic miracle, right up to the decline of department stores in the early 1970s. It is also a story of entrepreneurial personalities who had the courage, skill, and foresight to build an empire. And it is the history of political developments spanning more than 100 years, which brought two world wars and, with National Socialism and the GDR, two dictatorships on German soil. 

These threads are inseparable and have laid the foundation for an estate that generates the proceeds that have enabled the Hertie Foundation to meet its responsibilities as laid out by its founder Georg Karg since 1974. Since its founding, the foundation has spent more than 450 million Euros on its own projects or grants in the fields of multiple sclerosis, neurosciences, education, integration, democracy, and work-life balance. 

This commitment, which Georg Karg's current descendants continue with great conviction, is focused far into the future and yet rests on the foundations of the past. The Executive Board and Board of Trustees of the non-profit Hertie Foundation are aware of this. In view of the historical context, it is understandable that questions arise now and again about the origin of the name Hertie and the transfer of the company - founded by the Jewish Tietz family - to Georg Karg after 1933. 

However, the source material is very sparse, especially for the years 1933 to 1945. This was confirmed by a preliminary study commissioned by the non-profit Hertie Foundation in 2000. Many documents and files were destroyed or lost in the turmoil of the Second World War. Contemporary witnesses are no longer alive. A second preliminary study commissioned by the Karg Foundation in 2008 expects “at best a mosaic with many missing pieces.” 

The following is therefore a description of the history of the Hertie department stores up to the establishment of the non-profit Hertie Foundation to the extent possible against this background. 

The actual founder of the company was Oscar Tietz, who had joined his uncle's haberdashery, undergarments, and general merchandise store in Prenzlau as an apprentice at the age of 13. In 1882, at the age of just 23, his uncle Hermann Tietz gave him the capital to open his own store in Gera. This “yarn, button, trimmings, undergarment, and woollen goods store” became the nucleus of the later department store group and traded under the name Hermann Tietz in honour of its backer (the brand name HERTIE was later derived from HERmann TIEtz). 

The revolutionary thing about Oscar Tietz's store was the business model that later became the basis of all modern department stores: Prices were fixed and non-negotiable, the merchandise formed a collection and could not be made to order, customers had to pay immediately in cash and could not take credit, and finally, Tietz bought directly from manufacturers, bypassing wholesalers. As a result, the rapidly growing “Hermann Tietz Department Store” was unrivalled in terms of its prices. By the turn of the century, there were already 15 branches - in Weimar, Karlsruhe, Munich, Strasbourg, Stuttgart, Plauen, Hamburg, and Berlin. 

Encouraged by success and their experiences, Hermann and Oscar Tietz visited larger department stores in Europe and the USA and developed their own concept of a “people’s department store”, where even lower-income customers could buy all their everyday necessities, from furniture and toys to food and clothing. 

In 1900, they opened the magnificent store in Leipziger Strasse in Berlin, eclipsing anything previously known in the industry. By this time at the latest, the “Hermann Tietz” company had become a force to be reckoned with, a trading company with several thousand employees. 

The first economic crisis hit in 1901. The economy slowed down. Many smaller retailers now felt seriously threatened by the department stores. For this reason, the Prussian House of Representatives imposed special regulations and taxes. Competition among department stores - including Wertheim and Jandorf - also intensified. The Tietz family's response was growth. In 1917, in the middle of the First World War, the company was close to achieving sales of 100 million Reichsmarks. 

Oscar Tietz died in 1923. His sons Georg and Martin and their brother-in-law Hugo Zwillenberg took over the management of the company. In 1926, they acquired the business of their competitor A. Jandorf with six stores in Berlin, including KaDeWe. Among Jandorf's employees was a 38-year-old man who would later assume a leading role in this story: Georg Karg. 

After this takeover, just under 18,000 people worked for Hermann Tietz on almost 90,000 square meters of sales space. However, the strong growth was largely financed with loans. This came back to haunt them during the Great Depression starting in 1929: Between 1930 and 1933, the sales of the company, now called the “Deutscher Warenhaus-Konzern” (German Department Store Group), fell by 46.6 % due to the poor economic situation, mass unemployment, and the beginning of reprisals against Jewish merchants. The balance sheets showed losses for three successive years. 

At the beginning of 1933, Tietz was 85 million Reichsmarks in debt. This shortfall suited the National Socialists immediately after they seized power. They wanted to liquidate all department stores, claiming that they threatened smaller retailers. However, the Reichsminister of Commerce, Schmitt, argued that the department stores themselves were major clients of goods manufacturers and also major employers. The department stores should therefore be preserved and, in Tietz's case, be restructured and at the same time “aryanized”. 

In June 1933, the creditor banks, who were also under political pressure, made a demand of the Tietz family: liquidation or reorganization. A consortium of banks formed the “Hertie Kaufhaus Beteiligungs GmbH”, the first time the name Hertie appeared. They approved a reorganization loan of 11 million Reichsmarks and received a 60 percent stake in the Tietz company, which thus effectively belonged to the banks. 

The banks appointed Georg Karg, who had been head of the Jandorf branch in Berlin-Charlottenburg since 1914 and later chief textile buyer at Tietz, as managing director. This was no coincidence: Karg had made a name for himself as an exceptionally gifted businessman and, in 1931, had already been offered the role of Chairman of the Board of Management at the then struggling Karstadt AG, but had turned this down despite a considerable annual salary of 500,000 Reichsmarks. Later, when asked why he had been chosen, Georg Karg apparently replied: “ I was the only one far and wide who was safe from racial attacks.”   

From 1933 to 1936, Georg Karg was an employee of “Hermann Tietz & Co,” as the group was now called, acting on behalf of the majority shareholders, the banks. In 1933/1934, he conducted negotiations with the Tietz family on behalf of the banks. The family was under political pressure to leave the company and surrender their remaining shares. An agreement was reached for a settlement, with conflicting reports of the amount (RM 1.5 million or RM 12 million). The Tietz family then emigrated to the USA. Oscar Tietz's son-in-law, Hugo Zwillenberg, who also worked in the management of Hertie, remained in Germany, was arrested by the Gestapo in 1938, released after three weeks in the Sachsenhausen concentration camp and emigrated to the Netherlands. 

The reorganization of Hertie was arduous. Georg Karg dismissed a good third of the workforce, including all Jewish employees. But the economic recovery was very slow. The debt grew to 129 million Reichsmarks by 1936, according to Georg Karg himself. As a result, the banks had no great interest in their department store share in Hertie, especially since they were asked to be more involved in the armaments industry. In this situation, Georg Karg offered to take over Hertie from the banks. In a gradual process, they initially sold him 50% of Hertie for four million Reichsmarks and, four years later, the rest. Karg apparently raised half the money for the acquisition from his own resources and the other half from loans. 

Little is known about the Hertie department stores during the war years. Numerous stores were destroyed in the heavy Allied bombing raids. 

At the end of the war, Hertie lay in ruins along with the rest of Germany. 83% of the department stores were located in the Soviet-occupied zone and were therefore lost. Six stores remained, each of which was destroyed to different degrees. They included the KaDeWe in Berlin, which was completely gutted after a U.S. fighter plane crashed into the lobby in 1943. Outside Berlin, the “Alsterhaus” in Hamburg and the stores in Munich, Stuttgart, and Karlsruhe were still standing. 

In 1949, Georg Karg returned the latter three to the Tietz family, who claimed reparations after the end of the war, but immediately leased them from the family in return for a share of the sales. Working in makeshift offices and on the still intact ground floors of the department stores, Karg began selling goods again – if he was able find any. 

Now Karg's experience – he was 57 years old at the end of the war – and his talent for motivating employees paid off. His employees drove trucks, sometimes hundreds of kilometres, to factory owners. 

Karg used the proceeds to finance the reconstruction and expansion of his business. He took over a number of other stores from competitors, founded the retail chain “bilka” and, at the end of the 1950s, bought back the three stores that now belonged to the Tietz family at the market price at that time. From 1946 until his death in 1972, Georg Karg opened 42 new department stores. 

Business had already weakened by the early 1970s. Four large department store groups – Karstadt, Kaufhof, Horten, and Hertie – were competing for customers who now also had tempting alternatives in the form of mail-order catalogues and later large “greenfield” shopping centres. 

Into the 1980s, Hans-Georg Karg, Georg Karg's son, together with his team of managers fought for the future of Hertie; ultimately, a merger with Karstadt seemed the best option. In 1993, the non-profit Hertie Foundation, which owned the department store shares, sold Hertie to Karstadt. The larger stores were turned into Karstadt branches, the smaller ones into “Karstadt kompakt” stores and sold to a British financial investor in the summer of 2005. These 73 stores once again bore the name Hertie, but the venture was not successful. In July 2008, the company filed for bankruptcy and in May 2009 its creditors decided to close the department stores and headquarters in Essen.    

However, the name Hertie still lives on in the non-profit Hertie Foundation and some of its initiatives. Georg Karg had founded the Hertie Foundation in 1953 and contributed almost all the shares in his limited company. In 1974, the board of this foundation, including Hans-Georg Karg and his sister Brigitte Gräfin von Norman, established the “non-profit Hertie Foundation for the promotion of science, education, adult education, and vocational training”, investing 97.5% of the shares in Hertie Waren- und Kaufhaus GmbH. 

In the 40-plus years of its existence, the non-profit Hertie Foundation has initiated more than 40 projects and provided financial support to many more, in some cases substantial sums. The largest and best-known of these include the Hertie School of Governance in Berlin with over 500 students, the Hertie Institute for Clinical Brain Research in Tübingen, the START Foundation for young people with migration backgrounds, the “Jugend debattiert” (Young People Debate) student competition, the 'berufundfamilie' auditing and certification programme and, most recently, the German Integration Award. There is also a strong focus on social engagement, for example through support for MS patients and the commitment to Frankfurt as the foundation's hometown. 

Georg Karg was born on August 2, 1888 in Friedberg in der Neumark as the seventh of ten children of a textile manufacturer. When his father's company ran into difficulties, he had to leave school at the age of 15 with a secondary school certificate. He started working for the F.R. Knothe department store as an apprentice in the nearby town of Meseritz.  

From the beginning, it was clear that Karg had a talent for business and commerce and was an incredibly hard worker. At the age of 20, he decided to further his career in Berlin. Wertheim and Tietz both rejected his application, so he began as a textile salesman in one of Jandorf's six department stores. One year later, he had already been promoted to textile buyer, a position that was usually reserved for senior employees who were at least 35 to 40 years old. Four years later, Karg became managing director of the Charlottenburg department store, in charge of 600 employees. 

When Jandorf sold his department stores to the Tietz family in 1926, Georg Karg became Head Buyer for all textile purchases at Tietz. This made him the most important central buyer in the group and also one of the highest-paid department store managers in Germany. This may have contributed to his decision to turn down the offer to become Chairman of the Management Board of Karstadt in 1931. 

Throughout his life, Georg Karg was a reserved and rather quiet man. He lived entirely for his department stores, with a great sense of responsibility towards his employees and towards society as a whole. His memory was legendary – even after many years, he could still remember employees he had seen only once before – and people were in awe of his phenomenal skill in dealing with numbers. 

By today's standards, Georg Karg was a patriarch, but by the standards of his time, he was a caring, socially responsible company director who was open to new ideas. He never joined a party or association in his life. Those who knew him described him as apolitical and thoroughly pragmatic. He only once granted an interview to a journalist, which earned the company Hertie the nickname “the silent giant”. 

He himself once described his passion for department stores in the following words: “I wasn't actually born in a department store, but I did spend the rest of my life in them.” 

This history from the late 19th century to the present is based on relatively sparse source material. In November 2020, the board of the non-profit Hertie Foundation commissioned the Frankfurt-based Gesellschaft für Unternehmensgeschichte to conduct an academic review of the early history of the foundation's assets. The aim is to independently investigate how the Hermann Tietz oHG company, founded by the Jewish Tietz family, was aryanized in 1933 and subsequently came into the possession of Georg Karg, on whose life's work today's Hertie Foundation is based.

Press release on the commissioning of the study