Harrods sales, profits rose last year but retailer faces huge challenges today
2020 has proved to be “a significant challenge” for luxury store Harrods, but before the unprecedented events that began in March, the business posted rises in both sales and profits.
The Qatar Holding-owned company has filed its annual accounts with the UK’s Companies House and said that in the 12 months immediately preceding the onset of the pandemic (the year to February 1), its gross transaction value including VAT rose 4% to £2.2 billion.
Overall turnover for the business inched up only 0.3% to £870.8 million and operating profit rose a slim 0.6% to £203.3 million. But pre-tax profit jumped to £231.6 million from £211.4 million. And net profit rose to £191.4 million from £171.6 million.
The company continued to invest heavily in its Knightsbridge flagship with capital expenditure almost doubling.
While the results pointed to a gradual improvement at the company before the coronavirus crisis, since the reporting period ended it has faced conditions that have devastated its business.
The company has issued no figures for trading since its year-end, but recent events suggest times are tough. The company has reportedly just renegotiated the covenants of a £200 million syndicated loan to avoid breaching them next spring, and it earlier cut around 700 jobs that accounted for 14% of its workforce.
While store closures and other issues linked to the pandemic have hurt most UK retail businesses, the unique situation Harrods is in has caused it more problems than many. The company is heavily dependent on shopper traffic in central London and this has been weaker than almost anywhere else in the UK as office workers have continued to stay at home and the tourist trade has slowed down to a mere trickle. The most recent footfall report for central London showed traffic still down by more than half year-on-year.
Harrods usually sees a stream of visitors adding up to around 80,000 a day. It sells a much bigger percentage of its overall offer to visitors from abroad with Asian and American tourists accounting for around 70% of annual sales, according to MD Michael ward.
As must-visit destination for tourists from the US, China, Russia, the Middle East and more, it's well positioned to see a big upswing when things get back to normal, but Ward has previously said that this might not happen until 2022.
That said, this week’s news about Pfizer’s potential game-changing vaccine (with vaccine results from other companies likely to be released in the next few weeks), could bring the recovery date forward.
And the signs are that this would be a huge boost to Harrods. Once the Knightsbridge store reopened in June, early trading was encouraging, even though tourist arrivals in Britain remained historically low.
But for now, the challenges remain huge. The current lockdown in England, coming just before Christmas, won't be helping at all.
The company has been seeking to widen its business and several months ago opened the first of its new premium H Beauty stores at the Lakeside mall in Essex with another planned for Milton Keynes. But, like the London flagship, the Lakeside store is currently shut.
The retailer is also faced with the huge challenge of the current tax-free shopping system ending for non-EU shoppers from the New Year. Like many other brands and retailers in the luxury sector it's continuing to lobby the government to change its mind on this matter.
Yet in its accounts statement, it said that it has enough cash to see it through this period, although it issued no predictions.
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