When you think about the city of London, what comes to mind? For some it is the “West End shows”, for others it is Buckingham Palace” or “The Eye”. For many tourists, I suggest Harrods retail store is a “must visit”. In many ways, as well as being a retailer it tops the lists for many as an important place to tick on the box when visiting London. It is right up there with Madam Tussauds.
It might explain the longevity of its existence over the decades.
It provides us with an interesting retailer to assess in the present uncertain and uncomfortable times that we live in as a consequence of Covid.
While other Department Stores such as Debenhams and House of Fraser have either struggled or disappeared due to the shift away from “bricks and mortar” retailing to “e-tail” channels, Harrods has continued to bump along, encountering some problems and challenges along the way. In many ways it has overcome the decline of the Department store as a retail format. Based on a five acre site and one of the biggest Department stores in Europe, it has focused on a customer-centric approach (as argued by Amanda Hill, the Chief Marketing and Customer Officer). We will revisit this later in the blog.
Arguably it is the epitome of what we often refer to as a “heritage brand”. Essentially this term refers to something which has been around the scene for decades or centuries, maintains its core values and where people feel comfortable with it and trust the brand and its associations.
Harrods was established by Charles Henry Harrod in 1849 in London as a store which sold tea and groceries.
Its royal associations have been established by the many royal warrants it has held since 1910 – a clear signal of royal approval. This has arguably solidified its aspirational and “lifestyle” connotations, which in turn identify its value proposition.
Over the decades it has undergone some transformations and changes of ownership since it opened its doors in Knightsbridge in 1849.
For instance it was acquired by House of Fraser in 1959 and subsequently purchased by the Fayed Brothers in 1985.
It was purchased by the current owners: Qatar Holdings, the sovereign wealth fund of the State of Qatar in May 2010.
How has it responded to the challenges facing the retail sector in recent years?
The customer-centric approach (as mentioned earlier) follows the line that the “in-store experience” is central to the long-term success of Harrods. Arguably it has an advantage over similar Department stores in this respect. Many of its 80,000 daily visitors (pre-Covid) to its Knightsbridge site are tourists. This is further reflected in the fact that seventy per cent of its revenue derives from Asian and American shoppers.
Heritage brands have to remain relevant. This requires management to adapt proactively to changes in the marketplace. The worst crime of all is to bask in reflected glory and rely on “what worked before” as the basic principle for future developments.
How does Harrods stack up in this respect?
In late 2020 Harrods undertook a major transformation of its beauty section. It introduced a new format for the beauty category, which it called H Beauty in its Lakeside Shopping Centre location in Essex. This focuses on providing a strong “one-to-one” interactive experience for the discerning shopper. Features include “playtables”, where shoppers can try out brands, with relevant help from qualified staff. A champagne bar reinforces this image of aspiration and exclusivity.
Covid and lockdown restrictions have slowed down the process somewhat, but the underlying strategy emphasises the “experiential” nature of the experience. It has attracted many of the exclusive brands to the format and is directed towards the “aspirational” shopper. A by-product of this strategy is that it reduces the reliance of the tourists, who do not engender individual regular visits to the store.
Individual brands work in partnership with Harrods by training staff in the nuances and features of the respective brands.
In 2019 Harrods entered into a strategic partnership with Farfetch, the e-retailer. In particular it struck a deal with Farfetch Black and White Solutions. This division of Farfetch, as part of the agreement, deals with ecommerce management, operations, support, international logistics and technical support. In essence it allows Harrods to transfer such responsibilities to the partner and focus instead on its core competencies such as marketing and brand development.
All aspects of product and brand strategy as well as creative and editorial content online continue to be managed by Harrods. Farfetch also has entered into similar partnerships with Department Stores such as Harvey Nichols.
Arguably this provide Harrods with the scalability to expand its online operations without having to invest in developing such operations “in-house”.
The last year or so has also witnessed further development of its Knightsbridge site. This includes the addition of a men’s superbrand floor, the second stage of the development of its food halls and a new look toy store (as well as the new beauty hall mentioned earlier).
Amanda Hill argues that it does not apply a focused segmentation approach to its strategy. She argues that people have to view Harrods from a product perspective. This emphasises the importance of developing a collection of incredible niches, each part reflecting a distinctive product offering.
Harrods has steadfastly resisted the urge to engage in discounting in order to shift inventory. Many similar Department Stores have aggressively pursued this strategy in order to avoid the dangers of lack of business as a consequence of Covid. In the words of Amanda Hill, it has focused instead on “investing in a better environment, better experience and to keep on elevating its image”.
2019 witnessed the introduction of a new brand positioning strategy, featuring six different elements or “chapters”. This was labelled as “The Art of the Possible”. The first element addressed “The Art of Colour”. In 2019 it focused on the importance of managing colour in the context of its partnerships and in-store experiences. This featured aspects such as inviting shoppers to sign up for colour workshops and panel discussion. Clearly Covid has had an impact on this and other aspects of the positioning strategy.
More recently Harrods opened its first standalone site the United Kingdom in Shanghai, China. Located in the upmarket areas of Pudong, the site is called “The Residence” and in addition to its range of products and merchandise, it contains a bar and a tearoom. It targets the high end shopper and is by “invitation only”.
Arguably this is an explicit recognition further growth is likely to come from millennials in the south-east Asian region.
In summary Harrods has pursued a strategy of emphasising its corporate ethos and values but also recognising the importance of adapting to changing retail market conditions such as online shopping, digital marketing and the impact of Covid. In the latter case, it introduced an outlet shop on a short-term lease in the Westfield Shopping Centre in West London. This allowed it to shift excess inventory that built up during the first lockdown in 2020.
Notwithstanding these changes in strategy, Harrods anticipated a forty-five per cent decrease in annual sales by year end 2020.
The “hassle factor” still remains
- To what extent do you think the “heritage brand” characteristics has allowed Harrods to escape the worst effects from the threats to the High Street and Covid?
- Assess the strategy adopted by Harrods as it looks ahead over the next decade.
- In particular focus on the pros and cons of entering into strategic partnerships such as the Farfetch example.
- Put forward any recommendations as to how Harrods might improve its competitive position going forward.