In The CityWhy Harrods Is Doing Better Than Before the Pandemic
The luxury industry is booming. Just look at the latest figures from LVMH and Hermes. Or as Harrods Managing Director Michael Ward says in this week’s episode of In the City, observe the foot traffic in his storied London department store. While mid-market labels are feeling the squeeze, super-brands like Chanel and Dior are thriving, Ward explains. “The great thing about the luxury industry is it’s price insensitive,” he says. “The rich get richer, and that’s the world.”
Oh hi, is it so free?
Nice to meet you, high, Nice to meet you.
Good, thank you not bad.
So Moses and I have just hinted the luxury accessory part of Harold's and I don't know what to think other than all the ermes belts, all different colors hanging up. I know they've been and must have accessory. All the beautiful handbags, different sizes, different makes, different colors.
Okay, so the high ticket item for men at the moment seems to be watchers. So we're now walking through. We're walking past Valenciaga on our right and you're on our left.
Everyone shopping in here looks really happy.
Another thing I've noticed is you just can't get over the volume of stock.
That everything is available.
Every handbag make from the luxury houses is here. There's watches, there's diamonds, there's bracelets, there's air rings, there's food, there's chocolates. It's just vast.
It feels quite surreal just to know that, you know, this is a type of luxury, This is a type of extravagance that is not really accessible to the normal person. But every now and again you can get a little glimpse to it.
On the ground reporting there from our producers Lean Gerns and Moses and who traveled to hero It's this week. It's a tough job Dave nowadays to see for themselves what Heros does to actually maintain its reputation as a primer retailer and Knightsbridge, that's.
Right, one of the toughest gigs in journalism training around the fruit tools in harrod you know, I mean, Francine. What I find really fascinating about Harrod's is what it tells us about the broader market for luxury around the world, Britain's economy. I mean, it's such an iconic landmark in West London and it's just one shop after all, but it symbolizes so much in terms of the history of London as financial capitals where people come from all over the world to spend their money, and obviously all of that has been massively disrupted in recent years. So the future of Harold's in a way tells us a little bit perhaps about where London is headed.
I'm David Merritt and I'm Francine Laqua and this is.
In the City Bloomberg's podcast, connecting you to the conversations at the heart of the City of London.
This week conversation with The Herod's managing director of Michael Ward. We talk about the luxury market, the impact of the end of tax free shopping and makeup.
Michael tell us about the general landscape now for shopping in London and particularly luxury shopping.
I mean, the.
World's shopping has been disrupted and imaginably by the pandemic. Are we back to the where we're before or are we somewhere else now in terms of how people come and shop in your store.
I think there's two or three things in this, one of which is we are now back beyond twenty nineteen sales, and that's without the Chinese customer that used to represent about twenty five percent of our sales, and of course the loss of tax free shopping. So we've had many, many things to sort of fight again. So the first thing was to get back our local customers, and in doing that we invested in very high quality cuisine. So we've put in Tom Kerriage, We've put in Jason Atherton, We've put in Gordon Ramsey, We're put in Beyond Frans and who's the number six chef in the world. We've just signed up Massa who's going to top sushi chefs in New York, so making it a real destination for food. And then we allied that with health and wellness, and that's really given us a strong position with our local shopper, which is now representing the vast majority.
Of our sales.
Overall, house business.
Business is really good, but you have to run three times as quickly to get there. We have to do constant promotional activity to make it interesting for the customer.
They say.
Over Christmas we totally covered the store in Gingerbread to have Dior and a wonderful World of Dior, a cafe and a full exhibition. Then we went on to Kusama with Wheaton with a sixteen meter statue that was peering in and painting the store, and then we went straight into that with Laura Piano with a beautiful cashmere collection. So you just have to run all of the time to stay still.
When you say local shopper, does that mean transite living nearby or does that mean all of London as opposed to as opposed to you know, as you said, the Chinese tourists or people coming from India, it's.
A lot of people who've got second houses. So London's that sort of central hub that people feel safe. They come to London for business and they keep a house there, but they also come to us and buying the things that they can't find anywhere else in the world.
So what do they buy actually is it a and how do they buy? Do they shop through personal shopping assistance or do they actually come in store.
It's a combination of birth. So personal shopping is growing dramatically, but people still like that ability to just wander around and because we have such a secure building, it's one of the few paces that they can walk around without security or anyone else. What's happening at the moment is people are going to the superbrands, so that mid market brand is gradually getting more and more strain, and people are really pushing towards the Chanelle, the Deos, the hair Mares and the Wheatons.
So are you seeing that sort of growth in the spending of these individuals on those brands.
Absolutely, I mean you only have to follow the results of Wheaton and Hairmers. We've got spectacular growth. The great thing about the luxury industry is price insensitive, So if you'd invested in I think it's the two point five to five Chanell bag, you'd have outperformed the All Share index by fifty percent. So it's a great It really is a value for life.
And this, Michael, really goes to the difference between the have and the have nots, especially when there's you know, we talk about inflation and kind of the cost of living crisis. How many, if you'll get your top biggest vendors, how much do they make up in revenue? Are they really the ones that splash out?
We never give the figures, but the're vast majority. And to your point, the rich get richer and that's the world. And of course the other point that we've been benefited from this year is we have got a very strong presence with the Middle East in shopper and they've been the recipients at the other end of our energy crisis.
Is that the main region where visitors are coming now the Middle East. You mentioned China, The Chinese shoppers are not yet back in full, is that right?
Well, the biggest, biggest by volume at the moment is America. So we've had a lot of Americans straight after COVID coming into Europe. Paris doing particularly well, but fortunately because of rioting Parisians. They're starting to come to London from more frequently. Least has come back strongly, but not as strongly as it was prior to COVID. But China is still quite a large proportion of our sales, So about ten to eleven percent of our sales are still China.
Who spends the most test tourists.
The Americans very seldom spend money in Europe on high value items.
So and the.
Reason is the American department stores have got a much lower markup than the European department stores. So everything, even with that is more is cheaper in America than it is in Europe.
And even with the strong dollar, I mean, I guess how much has the pound played into this a bit as well? I mean it's rallied in recent months, but it's you know, after towards the end of last year, it was really on the floor.
Did that actually help you?
It does, and it doesn't because the brands tend to price across the whole of the world these days, so they'll adjust the prices in the UK to make sure that people are not sort of going backwards and forwards to.
Buy on price.
So Dave was looking around on your online store and he found a cool ring for a million Does that sell or does it just attract eyeballs to the.
Merrit's birthday is coming out. I was a bit tempted.
We would tend to sell us more through our personal shoppers and direct contact with the sales assistance in the store themselves, but no, we do sell at a distance million pound rings.
I mean, that's that is a new that's a new thing, isn't it if somebody's spending that much money without actually going into a store trying and on looking at it, that they're happy. We talked on this podcast about people buying houses or WhatsApp as well. I mean, this is the world we're in, isn't it that people will do these huge purchases and they're comfortable doing it entirely online.
But I think it's it's also security of the brand. When personally is on the phone, they've probably not the only thing that they've bought from us, so that this is a long term relationship that we've built over years. So buying a million pound or a two million pound item is not a big issue because they know we will honor whatever we need to do to make it right.
For them and if they don't like it, they can they can sell, they.
Can they can put it on e Bay. Is that allowed, Michael? You can't put stuff on a eBay that you bought from you.
I'm not sure that anybody would buy it over there.
When you look at the luxury brands that are doing really well, it's about collaborations but exclusive. It's that I know, ten fifteen pounds or Moss bag where you're on a waiting list for like two three years. It's that Chanel bag that everybody wants but you can't get hold of. How much of that exclusivity actually drives the connection with your customers. So the fact that they call their personal shopper and they say, I want this bag, no one can get it. Can you get it to me?
It's an element of that. But I think the whole industry that's sort of rarity in exclusivity is what makes this special. So, yes, how personal shoppers have got access to stock that other people won't get. But the luxury industry has been brilliant at two things, one of which it remains cool. So the collaborations are also with streetwear brands, so they're there for the younger Generation Z, but they also do the collaborations with the older people as well, so at both ends the spectrum, they're actually playing to that audience and it works so well in terms of desirability. And then we keep launching the Kusama collections and each one is targeted at a different age group and it's just spectacular how they continually engage in the population.
Are you pulling in the younger demographic into the store as well or is it slightly the older, wealthier clients who are still no.
No.
The gen Z, particularly the International gen Z, are the ones with money and they're the ones that will do particularly when when China starts to come back online. That's the reason we invested so much in beauty, because beauty is the first touch of a customer, so we usually get the exclusivity of products. So we were the first to launch Hermes, we were the first long Gucci were launching Prada. All of these builds the relationship with the customer, and because we have a CRM system that has eighty six percent of our customer's data, we can then move them from into small accessories, into bigger leather goods and then into apparel.
Does that happen organically or does a positioning of the store help with you know, how you browse and how you end up in certain parts of the department store.
Well, ours was never built as a department store. It was actually built as a block of flats. So it's not like any other department store that's got a journey. It's creation of rooms and that's something that gives us the ability to make each one of those rooms special.
I didn't realize it was a block of flats. So when was it converted into a department store?
After the nineteen twenties all of the leases were taken back, but I've got some wonderful photographs of estate agent's boards on the Brompton Roads selling mansion flats inherits.
And then there are the vaults, Dave, have you ever been? I've never been, Actually I have been invited in. It's my fault that I've never been. But there are vaults downstairs? Were you still do you still store gold for customers?
We have safety deposit boxes which we store whatever our customers well.
Such as how can we not follow up on that you need?
But if you're on my phone, but if you're in London, you've got a second house, you'll be wanting to keep all of your large quantitative jewelry there. People wanted just to keep their watches and things suit like that are there.
How's London doing, do you think, Michael, compared to other big financial and cultural capitals around the world. I mean, we've written a lot about Dubai's rise as a you know, particularly after COVID and with the war in Ukraine. I mean, are you seeing more competition for these these super elite shoppers to go elsewhere or that does London still have a special place.
I think London still has a special place, but unfortunately we're getting little on nurse support from government on it. The government is sort of almost art of moving away from the arts and taking funding away, so that creativity section we've got to be protect really very strongly. I think the secondary is well is. The loss of tax free shopping has been a major blur because if I'm an affluent person who wants to spend five million pounds on jewelry, then I can save million million pounds by going to Paris, so I'm going to go to Paris. It's a loss of tax free shopping and that diversion of money outside of the capital for art is a major issue that could hurt us in the future.
That will change.
Well, it was supposed to be in trust's budget, but that was swiftly reversed.
So does that how much have you lost in revenue because of that?
Well, it's difficult to really say how much we've lost in revenue because we've we had to pivot onto local customer But if I look in terms of the tax free shopping of the Americans and the Middle East in Paris, it's double that of what we're doing in the UK.
And any signs that the government might listen to to your I mean maybe are you logging them at all or your industry? Are they actually listening to what the retailers are saying.
We're constantly constantly lobbying, but it's getting it on their agenda and what we're actually saying to government is dirt change policy. But ask for an independent review because we think all of the calculations that they've made have been fundamentally flawed. So we want to put it to the Office of Budgetary Responsibility.
To give a view.
Why do you think they're not listening?
I think there are so many points that we try and engage government with at the moment, and they don't seem to listen to many. I mean, there isn't really a tourism strategy for London, whereas if you go to across the whole of Europe, it's now much better integrated across Europe and the whole of shingun So there's a number of areas where the government is just misdirected and not focusing.
I guess you know, we've had people on this podcast talk about this immedcient weeks that you know, maybe cutting the governments some slack. They've had a pretty tall order to kind of rescue the economy after the chaos of last Jane. You mentioned the trust budget, so they've been trying to kind of steady the shape, restore Britain's reputation to the bandwidth perhaps hasn't been there whilst the economy was looking so shaky. But things are looking a little better now, so perhaps might the outlook be a little bit rosier for the rest of this year than perhaps we thought?
I would hope, sir, But I think you know, Fred I work at them any slack. It's self inflicted wounds and the fact that everybody has to run three terms as fast now than they used to do.
So.
No, you've got to just get yourself in a structure that can make proper decisions. And you know, the UK can't lag behind the rest of Europe when it comes to having a really really strong tourism policy.
I mean, when I was growing up, it was a huge treat for me to come into the Harrod's toy department. That's what I used to love doing. You know, all the people demonstrating this unbelievable kid now used to buy anything. Mind you, it was all quite too expensive, but we used to actually goggle it at all. And then around the footl that those two areas you haven't mentioned so much. The margins are a lot smaller on selling lego or selling smoked salmon. Are you going to continue to have those departments which sort of pull in the crowds.
No, We've just refurbished the four food holes back to the standards that they were there in the eighteen seventies when they were originally built with the original tiles. We're investing more and more and more in food. In fact, it's one of our fastest growing categories. Everything in the store. We have an army of chefs in the basement who cook everything fresh every day and it's that sort of freshness, newness that are bringing more and more people in. So no, it's a very big area for us.
But how do you try I don't know if you track data, like people come in to buy a handbag and then get diverted to the food hall or do people come in to get a fish cake and then get diverted to your store?
Well, people, what do you do?
Can I never get diverted obviously, but I.
Think that But it's the building the relationship, and the food holds the relationship. So somebody will be coming in two or three times a week to buy their food, and on every occasion they'll divert into whether or not it's beauty because they need a pick up, or they'll go and browse fashion accessories. If you're spending two three thousand pounds, it tends to be more of a considered purchase that you've you've really thought about and glad to hear that, you know.
One of the things, obviously with Harrod's has been in the uniqueness of the venue, and they're in the location. You do have some concessions in some airports in various places around the world. I saw the one in dohaf any recently. Could you ever envisage opening another store somewhere, a full, full fledged store.
No, there's only one Harotz. And really being at the international capital of the world is London, you all of the crossroads allow you to have that putting it elsewhere, you know, bless me, you're in America at the moment. Just go next door into Bloomingdale's and have a look.
It's a disaster. I couldn't possibly que But what.
We've done is we've spent every year, we spend fifty to sixty million pounds, making it the most stunning emporium. And that's that's what makes it special. It is really the Palace of Knightsbridge.
And this is because you're also backed by Qatar, so at the moment money is limitless.
Well, we never have drawn a penny from Qatar. We generate everything ourselves.
Michael, who's your biggest competitors.
Our arrivals at the individuals stores themselves. But nobody has continued this investment to create this. As I say, it's just something that's special and unique, whether or not it be the food holes or whether or not you can walk in there and buy the most amazing diamonds from every one of the major jewelers in the world. It doesn't happen anywhere else.
And do you think all of those other competitive centers, And we've talked about Paris multiple times, do you think that the UK government and perhaps with the economic situation improving, do you think London's going to reassert itself. I think you just called it just now the capital of the world in some respects. Do you think that's going to continue for the full sillable future.
If we can start to get more investment back into the areas that we touched on earlier, such as making sure that our creative industries continue to rule the world and that we have this growth in the soft power, we have a stable environment which people come to. As I touched on earlier, the fact that Paris is constantly on problems is the biggest thing that drives particularly the Middle East and customer away from Paris and into London. So stability of law, great culture is really the key to making sure that London remains here.
Why do you worry about the creative industry? Is that Brexit related or is that just government funding.
It's government funding.
Do you think that the labor government would be better at taking care of the creative industries? Would that change?
I have to say I don't worry about a labor government because historically, whether it's labor or conservative, they tend to do broadly the same things, so that making big changes isn't something that government likes. So I think that it'll probably be a continuation.
Although they have, I mean, the labor opposition have talked about some of the arts funding.
Questions that you've raised.
I mean, maybe perhaps they might have a bit more of an open ear.
To some of these concerns.
We really hope that they have an open ear. But I think it's one that when you have some of the best creative industries in the world, that you would want to nurture and preserve rather than isolate.
Michael, how long is this scaffolding? Therefore, I think that it was Big Ben and our herods.
We finished the step up scaffolding at the beginning of November. We're replacing all of the facade lights with digital lights so that we'll be able to reduce our carbon footprint by twenty seven tons.
And are you going to have it. Are you having a big unveiling.
No, we'll think about doing something quite interesting because we can change all of the colors. Oh wow, multi colored herods, multi coolored herods.
It's a lots of revenue, but worth it for the planet.
Absolutely.
Michael Ward, thank you so much.
Thank you, thank you, thanks for listening to this week's in the City. We will be back next week.
But in the meantime, if you like our show, please head on over to Apple Podcasts or wherever you listen to podcasts and rate, review and subscribe.
This episode was hosted by Me.
David Merritt and me Frantin Lapua.
It was produced by Somersadi Moses Andam and Leane Gerens.
Additional editing by Blake Maples
And special thanks to Michael Ward and Sophie Green.
