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It's Christmas everyday for luxury department stores

It’s the time of year when UK department stores quite literally shine, thanks to a flurry of festive lights and welcoming window displays in the build-up to 25 December, but recent trading results show the luxury segment has other reasons to be merry.

Fortnum & Mason’s (F&M) full-year results announcement on 30 November underlined the strength of the UK luxury department store – and it’s a tale of digital and bricks and mortar retailing combining.

Profit in the 12 months to the end of July was up by 26% year-on-year to £9.6 million off the back of a 12% growth in sales, which totalled £126 million. It was yet another example of a luxury department store outperforming the wider retail market, after Harrods, Selfridges and Harvey Nichols all reported strong annual figures.

From a digital perspective, the website – which was relaunched with the support of digital transformation consultancy Red Badger in 2015 – has opened up the premium brand to an international audience.

Online sales in the year increased by 21%, with the retailer saying international markets including Hong Kong, where sales jumped by a significant 55%, have driven its eCommerce success story. Thanks to the online platform, which is viewed by the business as a key marketing tool, F&M sold to 125 countries around the world during the financial year.

Emily Salter, retail analyst at business intelligence group GlobalData, says it is the sixth successive year of double-digit sales growth at the company.

“In a period marred by low consumer confidence, Fortnum’s results prove that there is still demand for luxury retail products and experiences,” she notes, adding that the retailer is well set for Christmas, with sales of loose-leaf tea and British biscuits both rising 21% as a result of demand for traditional British products.

Harrods

Meanwhile, at Harrods, profit after tax in the year to 3 February 2018 increased by 8.7% to £176.7 million, with gross sales up 9% to £2.1 billion.

According to an annual report statement filed on Companies House, Harrods has invested significantly in its luxury boutiques, and is planning to up that expenditure throughout 2018-19. There are no detailed plans around digital in the report, and Salter suggests Harrods can improve here to ensure it matches its competitors.

“Tourists are vital to Harrods’ continued growth, so the recent increased numbers of visitors to the UK due to the weak pound will have bolstered Harrods’ success during this period,” she explains.

“The retailer should ensure that it retains its international customers through improving its international delivery offer, as delivery currently costs a minimum of £20 per order. Harrods should take inspiration from Selfridges, which has launched a global delivery saver scheme for an annual cost of £40.”

Selfridges

GlobalData suggests Selfridges is actually leading the luxury pack, having recorded five consecutive years of record results and reported a circa £200 million increase in gross transaction value to £1.75 billion last year.

Sofie Willmott, senior retail analyst at GlobalData, notes: “An improved store environment along with an enhanced online proposition has encouraged consumers to spend, propelling sales even though Selfridges was up against strong comparatives in FY2016-17 which were helped by heightened tourism due to the weak pound.

“Selfridges’ operating profit rose marginally despite continued investment across the business into both physical and digital channels – both necessary to ensure it remains top of mind for both tourists and domestic shoppers alike.”

Some of the digital innovations fuelling Selfridges’ success of late include improvements to its Chinese language website, as well as the aforementioned delivery scheme which arguably will look attractive to customers and potentially tie in loyalty, considering the alternative £25 fee per order.

Willmott suggests this strategy “will have helped Selfridges to prolong its relationship with international customers originally shopping via stores”.

There’s no denying each of the UK luxury department stores are adept at in-store events – and Liberty and Dover Street Market receive honourable mentions here, too – but Selfridges has refreshed its strategy in this regard with the recent opening of The Designer Street Room, an extension to its menswear floor.

For launch, Instagram and online store @dotCOMME showcased an original collection of archive Walter van Beirendonck fashion lines, alongside Selfridges’ spring-summer 2019 collection. It marked the first in a series of what the retailer described as “digital-to-physical partnerships that will see the room host personal archives and shoppable retrospectives”.

Selfridge's Men's Designer Street Room
Selfridge's Men's Designer Street Room

Harvey Nichols

After a tough 2016-17, where refurbishment to its flagship Knightsbridge store hit profit and sales, Harvey Nichols reported top and bottom-line figures moved in an upwards direction for 2017-18.

In the last financial year to 31 March 2018, turnover grew 7.7% to £85.6 million and profit reached £2.21 million, according to Companies House records.

Digitally, Harvey Nichols has been making waves. Not only has it become the first department store chain to partner with and sell via online luxury marketplace Farfetch, but it has deployed some innovative technology of its own to bridge the gap between online and physical retailing that so many retailers bemoan.

The partnership with tech company Hero, for example, which enables online customers to have a direct interaction with in-store advisors to gain an understanding of availability and receive personal guidance, is a powerful proposition in the eyes of analysts.

Anusha Couttigane, principal analyst for fashion, EMEA, at Kantar Consulting, says: “When customers do eventually visit their local store, they can connect directly with the member of staff who has served them online.

“It forges an incredibly personal relationship that boosts conversion. Users of the service then go into the Harvey Nichols ‘Black Book’, so that staff can contact them when they are hosting relevant store events, which combines all of those best practices of forging a personal relationship, leveraging technology tools and combining them to maximise the potential of in-store events.”

Standing out from mid-market

The mid-market department store chain woes have been well documented, with House of Fraser being bought out of administration by Mike Ashley’s Sports Direct Group and closing stores. Debenhams is also reducing its property portfolio in light of changing consumer behaviours and challenging overheads, while John Lewis’s profit has plummeted year on year.

For Couttigane, there are three key areas where luxury department stores are excelling, which consequently have enabled them to retain relevance and compete against mid-market rivals. They are assortment, experience and relationship.

“A combination of these three strategies has helped players like Selfridges, Harvey Nichols and F&M to maximise reach, recruit new customers, retain footfall and boost dwell times when most other department stores are struggling with at least two, if not all, of these elements,” she argues.

“Crucially, they’re going well beyond translating the store experience to their websites, because they understand that the omnichannel shopper has arrived and they need to be delivering on all fronts and carrying that experience through all channels, not simply converting from one to the other."

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