It all began in the Mecklenburg city of Wismar. On 14 May 1881, the trained retail dealer Rudolph Karstadt opened his first shop. The "Clothing manufacture and retail shop Karstadt" consisted only of a truck load of products and the entrepreneurial courage of its founder. At that time Rudolph Karstadt had no idea that he was laying the foundation for the probably most successful career in German retail.

The young entrepreneur pursued a business model which was revolutionary for its time. Instead of the then common act of bargaining, Rudolph Karstadt introduced fixed but low prices and cash payment. This enabled him to make precise calculations. With the help of these guaranteed steady revenues the shrewd businessman from a Hanseatic town managed to get attractive purchasing terms from his suppliers. Only three years later Karstadt could open its first branch in Lübeck.

At the same time in the Westphalian city of Dülmen, Theodor Althoff took over the "Haberdashery, linen and woollen goods shop" from his widowed mother in 1885. He adopted Rudolf Karstadt's business strategy and ran his company successfully. Rudolph Karstadt's business was also going well, so that in 1906 - this was 25 years after the founding of the company - he owned a chain of 24 department stores throughout Northern Germany. In 1912 he opened the first big city department store in Germany, on Hamburg's Mönckebergstraße: The modern store in the Hanseatic town spoiled customers with a generous shopping area of 10,000 square metres.

Another important step was taken in 1920: The Rudolph Karstadt KG limited partnership went public. It then merged with Theodor Althoff's company the same year. At this point in time, they already owned 44 department stores between them. In 1929 Karstadt opened Europe's then most modern department store on Berlin's Hermannplatz. The company's proud result at its 50th anniversary was 89 stores with some 30,000 staff. However, the Great Depression did neither spare Germany nor Karstadt. The, until then, successful public limited company got into a deep financial crisis. A comprehensive reorganisation with the help of a bank consortium enabled the company to eventually overcome this low point.

On 15 December 1944 the company founder Rudolph Karstadt died in Schwerin at almost 89 years of age.
World War II presented Karstadt with a devastating result: 22 branches in the Soviet zone of occupation were lost through dispossession and more than 30 of the remaining 45 stores on the western side had fallen victim to the war.

An arduous reconstruction followed in the post war years. However, in 1956 Karstadt AG again had 49 flourishing stores. In 1963, Rudolph Karstadt AG was renamed to Karstadt AG. All stores - except for the Munich "Oberpollinger" - were from then on uniformly presented under the name of Karstadt. In 1969, Karstadt AG opened its head office in Essen. In the 1970s Karstadt developed new, future-oriented operating areas: The Essen-based company's re-orientation was characterised by its entry into the travel industry (NUR GmbH) and into mail order selling through its majority stake in Neckermann AG in 1977 as well as the opening of furniture and sports stores.

At the company's 100th anniversary in 1981, Karstadt AG had 155 department stores and some 75,000 staff.
After the German reunification Karstadt resumed stationary business in the east of the country and was represented in the former Centrum and Magnet department stores. Karstadt AG could also return to Wismar, the city where it had been founded.

In 1994, Karstadt acquired the complete authorised capital of Hertie Waren- und Kaufhaus GmbH. One year later, Karstadt took over 51 per cent of Euro-Lloyd Reisebüro GmbH. In 1999, the life's work of Rudolph Karstadt was completed: The merger of Karstadt AG and Schickedanz Handelswerte GmbH & Co. KG created a new trade and service giant in Europe: KarstadtQuelle AG. In 1996, Karstadt opened its successful Internet shopping portal.
In 2000, Karstadt Warenhaus AG took over the management of the department stores of the brands Karstadt, Hertie, Wertheim, KaDeWe, and Alsterhaus.

In 2006, the corporation was able to look back upon a successful company history of 125 years and reoriented the business based on its customers' needs and wishes. The company's more than 120 department stores and sport stores are in first-class city centre locations and are divided into four distribution units today: The Premium Group, the Karstadt department stores, the 'Karstadt sports' sport stores and the "Karstadt.de" online store. Under the motto "Schöner Shoppen in der Stadt - Karstadt" ("Better shopping in town - Karstadt") the company's distinct brand presentation has been realised since 2007.