Harrods says demand is bouncing back but the market is fundamentally changed
The boss of Harrods has said the business is bouncing back from the devastation caused by the coronavirus pandemic this year but that 2021 could be worse than expected due to changes to VAT-free shopping rules for tourists. And he also thinks Chinese shoppers will continue to buy more in their domestic market rather than focusing their spend abroad.
The luxury London department store hasn't only suffered from the enforced closure of its flagship caused by several lockdowns, but it's also suffering from the mere trickle of tourists now being seen in London given that a huge percentage of its sales go to affluent tourists usually.
Michael Ward told The Times newspaper that while he was “a hell of a lot happier than I was a week ago”, given that shops in England have now reopened, visitor traffic and takings remain much lower than a year ago.
That said, it seems that those who are going shopping are prepared to spend more and he said that on the opening day last week, those who turned up spent three times as much as usual, driving up the day’s sales by 24%.
“We don’t have tourists who just roam the food halls and say how gorgeous they are,” Ward said. “We have shoppers coming in to buy that beautiful Chanel bag.”
But there's no denying that this year has been tough for the company and next year could be difficult to given the government’s decision to scrap VAT-free shopping for non-EU visitors next month.
The Treasury aims to generate an extra £500 million a year in revenue but researchers have said the policy could actually end up costing over £3.5 billion a year as fewer tourist shoppers visit the UK and as jobs are cut as a result.
“The policy is fundamentally wrong. It’s a misguided attempt to save money because it assumes people will still come and shop here, but they won’t — they will go to France instead,” Ward told the newspaper.
Harrods has been making pre-tax profits of around £233 million annually for the last few years but 2020’s lockdowns have changed that and saw the firm forced to make 700 job cuts in the summer.
Ward has continued his discreet personal marketing drive where he can this year, but has managed only one trip to Asia to connect with the high-spending potential customers who have huge lifetime value for Harrods.
But the company this week opens The Residence, an invitation-only personal shopping hub in Shanghai. That comes as Ward said that “even pre-Covid, we always felt the Chinese tourist spend was going to go back into China. I think the shift in sales this year will be permanent.”
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