With a string of high-profile bankruptcies and thousands of layoffs, the German retail sector is in upheaval as it struggles with the challenges of changing customer trends and online shopping.

The sector was prospering until just a few years ago, but over the last two years some of its oldest players have been forced to close or undergo deep restructuring in order to survive.

Last week, the iconic mail-order chain Neckermann, set up in 1950 and employing 2,500 people, filed for insolvency.

At the end of June, Schlecker, a family-run chain of drugstores present in almost every high street across the country, shut its doors for good with the loss of nearly 25,000 jobs.

The employees, mostly women with few or no qualifications, had already agreed to accept painful cuts in pay and conditions when Schlecker applied for protection from its creditors at the beginning of the year.

But even that was not enough and the employees now find themselves without a job and rapidly diminishing hopes of finding a new one.

"Over the past decade, a number of retailers groups have sought to remain competitive solely by slashing costs. But they have failed to optimise their range of products and services," said Joerg Funder, director of the IIHD institute for commerce and retail in Worms, western Germany.

The Karstadt chain of department stores also recently announced plans to axe 2,000 jobs, while there are rumours that 900 jobs are to be cut at another group, Metro.

While politicians have been up in arms over the fate of ailing German carmaker Opel at the hands of its US parent company General Motors, much less has been said about the massive layoffs and problems facing key retail groups.

"In Germany, politicians are primarily interested in major, export-orientated industries, such as the automobile and machine-tool sectors," said Christian Schmitz of the giant services-sector union Verdi.

Nevertheless, experts do not see the high-profile closures as being representative of the sector as a whole.

"Generally speaking, the retail sector in Germany is doing well. It is stable and we're projecting growth of 1.5 per cent in 2012," said Stefan Hertel, spokesman for the HDE retail federation.

And the Internet could also serve as a catalyst for growth, he suggested.

"E-commerce provides good development opportunities in Germany. We're forecasting sales in this sector of close to 30 billion euros ($US37 billion) this year, an increase of 13 per cent on last year," Hertel said.

In a bid to catch up in this area, Karstadt has earmarked a large chunk of its planned 400 million euros of investments for a complete overhaul of its Internet presence and online services, and is also developing a special smartphone app.

For the traditionally penny-pinching Germans, cut-price and discount stores were the long-time favourites in the retail sector. But an increasing number of consumers are now developing a taste for the luxury market and retailers have yet to fully exploit the potential here, experts say.

Karstadt's high-end retail business is a good earner, but it still only has two luxury department stores in Germany: the KaDeWe in Berlin and the Alsterhaus in Hamburg.

AFP