Harrods sets out stall in China to chase growth
HARRODS will open its first store in China next year amid growing clamour for luxury goods from the country’s surging middle class.
The department store’s first standalone site outside Britain will open by the middle of next year and be located in Pudong, a district in Shanghai.
In an interview with The Daily Telegraph, Michael Ward, Harrods managing director, said after 10 years of investing in China it has responded to customer demands for a more permanent presence.
Mr Ward expects the site to be particularly popular among younger consumers.
Almost a third of Harrods’ customers in the country are millennials, consumers generally aged between 1981 and 1996. He said: “If you look at all of the reports, they say, quite categorically that all of the growth in the next five years is going to come from south-east Asia. And is going to come from millennials. So we’ve got to go after that. It’s very important that you follow the money. We see continued growth of China, but we see a need to be a more permanent resident in China.”
Called The Residence, the site will be limited to high-end private shoppers who will also have access to a bar and tea room on site and events hosted by luxury brands throughout the year.
The success of its flagship Knightsbridge store – responsible for the lion’s share of last year’s £2.1bn sales – is driven in large part by its popularity with rich Chinese shoppers visiting London.
A spokesman said: “Private shopping clients have consistently asked for a more permanent presence.”
As many retailers fret over sales and scramble to attract customers in the run-up to Christmas, Michael Ward, the managing director of Harrods, exudes a quiet confidence.
Stepping into his office atop the historic Knightsbridge department store, which spans more than a million square feet of shop floor space, Ward is in high spirits.
The 170-year-old luxury retailer has long sold out of tickets to its Christmas grotto, for which families must agree to spend a minimum of £2,000 to earn the privilege of meeting Father Christmas, and the building is now buzzing with customers.
It helps that by and large, Harrods’ visitors are not short on spare cash.
“They’re not waiting for the credit card bill to come through in January,” Ward says. “We very much target the most affluent. And we’ve been unapologetic about that.”
Harrods is nearing the completion of a renovation project costing nearly £300m that kicked off in 2017. The three-year overhaul has most recently seen the launch of a new beauty hall
– a space that allows customers to experiment with products without having to apply them, using so-called ‘magic’ mirrors, or browse from almost 97,000 lipsticks on sale.
It has also landed exclusive deals with luxury brands such as Clé De Peau, the Japanese skin care label that sells anti-ageing creams for £520, and Fueguia 1833, the Patagonian perfumery that charges up to £529 for a 100ml bottle of fragrance.
“We don’t do brands that just go down to Boots,” Ward says.
The beauty expansion has already had a significant dent on his own wallet. “My biggest pain in life is having to go down to the beauty halls for my two daughters,” he says.
Such are Ward’s ambitions for Harrods to become a major player in the beauty market that it has opened its first stand-alone store outside London dedicated to beauty. The outlet in the Lakeside shopping centre, Essex, is set to be followed by a second in Milton Keynes, with the potential for further shops over time.
Ward is using this opportunity to cash in on the burgeoning beauty market as rival department stores such as House of Fraser and Debenhams struggle to keep up with the demands of today’s fickle younger consumers.
Beauty is also seen as the entry point into luxury. The industry is now worth $532bn (£409bn) worldwide, with the UK the fourth largest market behind the US, China and Japan.
“With the demise of Debenhams and House of Fraser into really not very pleasant places to shop, it meant there was a massive gap … for the younger person to have really great quality beauty,” Ward says.
“Harrods is unbelievably well placed to take advantage of that.”
Ward thinks many struggling retailers largely have themselves to blame. “Unless you continue to reinvent yourself, you become boring and average,” he says.
“I don’t mean to be rude, but if I go into a shop on a high street, I think the only thing that they’re trained at is the great ability to turn in the opposite direction whenever you want attention.
“You know, I always used to invest in retail companies on the basis of why would I go and shop there? I don’t invest in retail business anymore.”
However, he believes online players should be paying their fair share of tax. Harrods’ Knightsbridge store alone will pay £17.1m this year in business rates, according to Altus Group, the property consultant. Retailers large and small claim the property tax is deeply unfair because it hits high street stores far harder than online players such as Amazon.
“There isn’t a level playing field,” the 63-year-old says. “Until there is a fundamental review of the business rates system, then I think that the high street is really doomed.”
Ward, who was brought in by Mohamed Al-fayed, the then owner, in 2006, believes Harrods’ success is largely due to its ability to understand what customers want. “We have always believed in a huge, big customer-centric approach,” he adds.
Money and wealth are hugely important to the success of Harrods – so much so that the retailer decided to ask families to commit to spending a minimum of £2,000 in order to visit Father Christmas. The policy sparked a backlash among visitors, many of whom had been visiting the grotto for years as a family tradition.
But Ward says it makes good business sense to limit the event to its most loyal customers. “I’m absolutely unapologetic,” he says. “If you’re really good customers, and you’ve got two lovely young children, why wouldn’t I provide them with the experience of a lifetime as opposed to giving it to somebody who I’ll never see again in my life? So I’m sorry, that’s life.”
Ward’s mantra to always follow the money means Harrods is now setting its sights on China, whose consumers make up its single largest customer group, with young millennials an increasingly important demographic. One in every £5 spent by Chinese visitors in London is at Harrods.
The company has invested in China for 10 years, hosting annual events and pop-up stores. Following demand for a permanent presence, it is preparing to
open its first store there by the middle of next year. The shop, designed in the style of a Japanese villa, will be dedicated to wealthy private clients.
Ward is now entering his 14th year in charge, during which time the store has operated under two owners: first Al-fayed and now Qatar’s sovereign wealth fund. He says he had a “great relationship” with Al-fayed, but both he and the current owners are happy with the store’s performance.
“They get their dividend cheque every year, they’re happy,” he says.
Payouts to the Gulf-based owners since 2010 have totalled £900m.
And it seems the quietly confident Ward has no plans to leave any time soon. “I think I’ve been chained very firmly to the desk,” he says.