Karstadt has been hit by slowing sales

The company added that salaries would have to drop by at least 5% - or even by as much as 10%.

"But there is still the possibility of job cuts," company spokesman Joerg Howe told news agency Reuters.

The firm is currently in talks with unions over its shake-up - negotiations that are proving to be tough.

Karstadt needs to save 500m euros ($616m, �344m) by 2007, and plans to plans to sell 77 smaller department stores, 300 speciality shops and other assets.

The group has said it needs staff to back its overhaul or its financial backers could withdraw support for the business.

While the union Verdi has said it backs the restructuring proposals, it remains at odds with Karstadt over jobs losses. Under the retailer's plans up to 9,800 jobs could face the axe.

High hopes

In an effort to save staff, Verdi - which represents half of the company's 100,000 workers - has said employees are willing to give up holiday and Christmas bonuses.

However it remains opposed to wage cuts and longer working hours.

"I am very positive that we will be able to find agreement," Karstadt chief executive Christoph Achenbach told Bavarian radio as the two sides continued their talks.

"I feel that both sides are trying to find an agreement."

Meanwhile, the union said it had "high expectations" about the discussions.

Karstadt needs to win union support for its plans by Thursday to enable it to prepare for an extraordinary shareholder meeting at the end of October when a 500m euro rights offering is expected to be made.