Harrods Holdings

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Harrods Holdings

87-135 Brompton Rd.
Knightsbridge
London SWIX 7XL
United Kingdom
Telephone: ( +44) 20-7893-8524
Fax: ( + 44) 20-7225-6599
Web site: http://www.harrods.com

Private Company
Incorporated: 1889 as Harrod’s Stores Limited
Employees: 4,000
Sales: £486 million ($770 million) (2001 est.)
NAIC: 452110 Department Stores

Harrods Holdings represents one of the most prestigious names in shopping history, operating the famed Harrods department store at Knightsbridge, London. The seven-story, 111,000-square-meter building, which includes more than 74,000 square meters of selling space, features 330 departments—Harrods has a long-established reputation for selling “all things, for all people, everywhere.” The company also operates a fleet of 47 delivery trucks. The Knightsbridge store remains one of London’s biggest tourist attractions, receiving as many as 300,000 visitors per day. Beyond its flagship store, Harrods Holdings operates a number of in-store boutiques in other department stores, such as in the Takashimaya department store in Singapore. There are also Harrods shops in a number of airports, including in Heathrow Airport in London, the Hamburg and Frankfurt airports in Germany, and elsewhere. One of the latest additions to the company’s retail chain is a shop opened on the Queen Elizabeth II cruise ship operated by Cunard Line. Harrods Holdings also includes the Harrods Casinos online gambling venture; property development arm Harrods Estates; and a helicopter service, Air Harrods, which operates from London’s Stansted airport (the company was refused permission to add a heliport to its Knightsbridge store). Harrods Holdings is part of the financial empire owned by the controversial executive chairman Mohammed Al-Fayed, whose interests also include Punch magazine, the Fulham football (soccer) club, and the Ritz Hotel in London. A private company, Harrods has long been rumored to be investigating a public offering—a move that appeared more likely in 2002 as Al-Fayed was reportedly facing financial difficulties. The company sales, already hard hit following the hoof-and-mouth epidemic of early 2001, plunged further with the sharp drop-off in tourism after the September 11 terrorist attacks in the United States; nonetheless, the company posted nearly £500 million for the year.

Founding a Retailing Classic in the 19th Century

In 1849, wholesale tea merchant Charles Henry Harrod decided to enter the retail arena, taking a lease on a small grocery store in the village of Knightsbridge, near London (the village was later swallowed up by its neighbor). The Great Exhibition of 1851 brought about dramatic changes in the area, and Harrod’s business prospered. By 1853 he acquired the shop outright, giving it his own name, then began buying up a number of other shops in the neighborhood. Harrod also began expanding the range of goods offered at the store.

In the late 1850s, Harrod began to transition ownership of the store to his son, Charles Digby Harrod, selling it to him in installments. By 1861, the younger Harrod, then 20 years old, became the owner of the store. Charles Digby stepped up his father’s expansion of the store’s offerings, adding new “departments” selling furniture, perfume, china, and glassware. By 1867, Harrod had hired five employees to help sell the widening variety of goods featured at the store. By the beginning of the 1870s, the store’s payroll had jumped to 16 employees.

Harrod continued building up its range of goods; in 1874, after buying up two adjacent buildings, the store moved to larger quarters. By the end of that decade, the store boasted more than 100 employees. After the store was destroyed by fire in 1883, Harrod rebuilt and reopened a new, five-story building that was to form the core of one of London’s most popular landmarks. Two years later, the store’s founder, Charles Henry Harrod, died.

Charles Digby Harrod sold the store to a limited liability company in 1889, which then floated the company as Harrod’s Stores Limited. (Harrod died in 1905.) In 1891, the company took on a new managing director, Richard Burbidge, who became the driving force behind Harrod’s transformation into not merely one of the world’s largest department stores, but also a leading force in the U.K. retail industry.

Burbidge set out to expand the Knightsbridge store, purchasing the land surrounding the store to begin a dramatic expansion. At the turn of the century, Harrods—as it was now known—boasted 80 departments staffed by some 2,000 employees. Burbidge meanwhile transformed the nature of the goods sold at the store, moving to attract a more upscale trade. By the early years of the new century, Harrods was to become synonymous with the British upper class. Other additions during the decade included the construction of a ten-acre warehouse in 1894; the warehouse was later dressed up with a façade similar to the Knightsbridge store. That same year saw the first of what was later to become a U.K. Christmas tradition, the annual Harrods Winter Clearance sale. In 1898, Harrods installed the city’s first escalator, complete with attendants waiting at the next floor with glasses of brandy for customers overcome by the experience.

Harrods continued to expand the range of goods and departments featured at its store. The company’s motto became “Omnia Omnibus Ubique” (Everything for Everybody Everywhere). Among the most famous items sold by the store was an airplane, sold in 1917; the company also sold an alligator, as a gift to Noel Coward. The tradition of offering unusual items continued throughout the century: in the 1980s, the store sold a baby elephant as a gift for then U.S. President Ronald Reagan.

As the United Kingdom prepared for the outbreak of World War I, Harrods began to expand beyond its single store. In 1914, the company acquired retailer Dickins & Jones, on London’s Regent Street, founded in 1790. That acquisition proved the first of several, including Rackmans, based in Birmingham, which had begun as a drapery shop in 1851 before expanding into a regionally based chain of department stores; and DH Evans, founded in 1879. Another expansion move came with the company’s first attempt to export the Harrods name, when it set up a Harrods store in Buenos Aires, Argentina, in 1916. The two stores shared directors through World War II, but by the end of the war they had become separate companies, and by the 1960s, Harrods sold off the rest of its interest in the Argentinean store.

In the meantime, Harrods’ position among the United Kingdom’s upper crust was given an official seal when it received then-Queen Elizabeth’s warrant as supplier of china, glass, and “fancy” goods to the royal household in 1938. The warrant was promptly incorporated into Harrod’s trademark, as well as being posted outside its Knightsbridge store. In 1955 Harrods received another warrant from the new Queen as supplier of provisions and other household items; the following year, the Duke of Edinburgh gave the store the warrant as his outfitter.

Fighting over the Jewel in the Crown in the 20th Century

Having built up a retail network operating throughout the United Kingdom, Harrods itself was bought up by House of Fraser in 1959. That company had also been founded in 1849, by Hugh Fraser in Glasgow, Scotland. In the 1940s, the Fraser store, now led by another Hugh Fraser, began expanding, adding new stores. By the time Fraser went public in 1948, the company had built up a network of 15 House of Fraser stores. In 1953, House of Fraser made its first acquisition, of the Binns chain of retail stores.

The acquisition of Harrods by a Scottish company raised a considerable fuss in England; nonetheless, Harrods immediately became Fraser’s “jewel in the crown.” House of Fraser continued to expand during the 1960s, acquiring other retail chains, such as the Army & Navy chain, the Dingles retail chain, and other department stores. The Fraser family had used its retail holdings as a springboard to amassing a variety of other financial holdings, which were later placed into a holding company, Scottish Universal Investments(SUITS). SUITS also held 30 percent of House of Fraser.

The Harrods story turned sordid in the 1970s as others began to covet Fraser’s “jewel.” House of Fraser had entered a period of decline as shoppers began to avoid department stores in the 1970s. A new generation of Frasers had taken the helm since the mid-1960s—in the form of Sir Hugh Fraser, whose gambling debts had begun to eat away at his personal fortune. Fraser began selling off his shares in SUITS in order to pay off his debt; then sold off the rest of his stake to friend Roland “Tiny” Rowland, head of South African conglomerate Lonrho. Rowland had assured Fraser that his interest in SUITS was purely as an investment. Yet Rowland’s true purpose—that of a takeover of Harrods through gaining control of House of Fraser—was quickly revealed. A bitter battle ensued to keep Harrods from Rowlands hands, who had built up a 30 percent stake in House of Fraser.

Rowland was finally thwarted in the early 1980s when the British mergers and monopolies commission barred him from acquiring House of Fraser. Instead, Rowland sold his 30 percent of the company to friends Mohammed and Ali Al Fayed in 1984. Rowland claimed to have merely “parked” his shares with the Al Fayeds. Yet in 1985, the Fayed brothers reached an agreement with House of Fraser to acquire the outstanding 65 percent of the company, in a deal worth some £615 million. With full control of the company, the Fayeds delisted House of Fraser from the London stock exchange.

Rowland counterattacked in a campaign to smear the Fayeds, and even managed to convince friends in the British government to launch an investigation into the Fayeds’ finances. The report, completed in 1988, was left unpublished by the British government. The following year, however, Rowland managed to obtain a copy and promptly published it in one of his newspapers. Yet no criminal charges were ever brought against them, and the mere fact of battling Rowland won the Fayed brothers support among some members of the British government.

Company Perspectives:

All things are possible in a store that truly lives up to its founder’s enduring motto: “Everything for Everybody Everywhere.”

Investment in Harrods and other parts of the retail empire had fallen off under House of Fraser in the late 1970s and early 1980s. The Fayeds, however, turned that trend around; the Harrods “jewel” was given particular attention, as the company now spent nearly $400 million on renovations of the store, a program which included adding two additional floors of selling space and restoring the building’s original Edwardianperiod façade. Another change, meant to help the store reinforce its upscale image, was the institution of a customer dress code, banning ripped jeans and backpacks from the store. The result of these moves was a vast boost not only in sales, but also in the important sales-per-square-foot measure. By the mid-1990s, the Harrods Knightsbridge store had one of the highest sales per square foot in all of the United Kingdom.

Prestige Brand in the 21st Century

House of Fraser had begun a new attempt to export the Harrods’ brand during the takeover battle at the beginning of the 1980s, opening an in-store boutique in Japan’s Mitsukoshi department store in 1983. The Fayeds continued this move, leveraging the Harrods’ name with the opening of a number of duty-free airport stores, beginning with Frankfurt airport in 1986. Other airport boutique locations included London’s Heathrow airport, opened in 1990, and the airport at Hamburg, opened in 1993. In that year, also, Harrods opened an in-store boutique at the Takashimaya department store in Singapore.

Harrods emerged as the Fayeds primary interest in the 1990s. During the late 1980s, Fayed-led House of Fraser had begun to sell off a number of the company’s holdings, such as a group of ten department stores sold to Sellar Morris Properties in 1988 for £6.5 million, and another group of stores spun off a year later in a £6 million management buyout. Many of the company’s properties were converted to other uses—one such was the transformation of the Barkers department store in Kensington into a far smaller store; the freed-space was then leased out to another company. By the early 1990s, House of Fraser had cut out nearly half of its former retail empire. The company’s continued investment in its Harrods flagship began to drain on House of Fraser’s accounts, even as the company, already suffering from an increasingly “dowdy” image, was hit by a recession at the beginning of the decade.

In 1994, the Fayeds placed their entire holding in House of Fraser—excluding the Harrods store and boutiques—on the London Stock Exchange. The Fayeds reformed the company under the Harrods Ltd. name. Two years later, Harrods began preparing its own public listing, proposing to list up to 20 percent of the company’s shares, which would have valued the company at more than £2 billion. At the time, the company planned to invest the money raised in such an offering in stepping up the expansion of the Harrods name worldwide. The company also planned to convert Harrods’ warehouse, located next to the store, into a five-star hotel. Yet the plan to go public was put on hold, in part because the company’s financial advisors insisted that the controversial Fayed brothers would have to play a more distant role if they hoped for a successful public offering.

The suspension of the public offering also sidelined the company’s international expansion plans. The following year, Mohammed Al Fayed faced personal tragedy when his son Dodi was killed in a car accident in Paris with Princess Diana. Al Fayed was later to gain renewed controversy when he began raising a question of a conspiracy surrounding the accident. Meanwhile, the company faced a setback in Argentina, when it attempted to retrieve the Harrods brand name from the by now reportedly dilapidated Buenos Aires store. The lawsuit was rejected; yet the company took steps to protect its brand name in other Latin American markets.

Harrods Holdings by then included Fayed’s holdings of such properties as publishing group Liberty Media, which included Punch magazine, as well as Viva Radio, acquired in 1996; and the executive jet service Hunting Business Aviation, bought in 1995. In 1998, the Harrods name was placed on a new joint venture, Harrods Energy, with Thailand oil company PTT Exploration & Production.

Key Dates:

1849:: Charles Henry Harrod, a wholesale tea merchant, rents a small grocery store in Knightsbridge.
1853:: Harrod buys his store, which now operates under his name, and begins to acquire neighboring shops.
1861:: Harrod sells store to his son, Charles Digby Harrod, who begins expanding the range of merchandise.
1874:: Harrod buys two adjacent buildings and expands store.
1883:: Store burns down; Harrod rebuilds it as a far larger, five-story building.
1889:: Harrod sells store to a limited liability company which takes the company public as Harrod’s Stores Limited.
1891:: Richard Burbidge is hired as managing director and begins transformation of Harrods into London landmark.
1914:: Harrods acquires retailer Dickins & Jones.
1916:: Harrods store opens in Buenos Aires but later becomes independent from main store.
1938:: Harrods is awarded royal warrant from Queen Elizabeth.
1955:: Duke of Edinburgh awards Harrods warrant as his outfitter.
1959:: House of Fraser acquires Harrods.
1985:: Fayed brothers acquire House of Fraser in a takeover battle with Roland “Tiny” Rowlands.
1988:: House of Fraser begins to sell off a number of its department store assets.
1994:: Fayed brothers spin off House of Fraser as a public company, keeping only Harrods.
1996:: Harrods cancels plans for public listing.
2002:: Harrods announces its interest in opening a Harrods store in Chicago as part of a new international expansion campaign.

The company returned to the retail front with plans to launch an online shopping service in 1999. The following year, Harrods teamed up with Gaming Internet to launch Harrods Casino, with plans to extend the Harrods name on the Internet to travel and auction web sites. In 2000, also, Harrods reached an agreement with BskyB to begin broadcasting an interactive shopping program hosted by Harrods.

Meanwhile, the company opened a new Harrods boutique on the Queen Elizabeth II cruise ship, operated by Cunard Line, in 2000. Yet the company was severing ties with the British royal family as its warrants came up for review. In 2000, the Duke of Edinburgh announced that he was not renewing his warrant for Harrods; by the end of that year, the company had announced that it would not pursue renewals of its other royal warrants, which were due for review in 2001. At the end of 2000, the company removed the warrants from its store façade and redesigned its logo and other materials to accord with its new royalty-free status.

By the beginning of 2002, Harrods once again seemed to be preparing for a public listing. In February of that year, the company announced its interest in returning to an international expansion of the Harrods name, starting with the city of Chicago, where the company was negotiating to build a store on that city’s State Street. In April 2002, the possibility of listing appeared to take on force when journalists received a fax announcing Harrod’s intention to go public. Yet that fax was quickly revealed as an April Fool’s joke perpetrated by Mohammed Al Fayed himself.

Nonetheless, analysts had already begun to question the health of Fayed’s finances. The Harrods flagship had seen declining sales and profits at the turn of the millennium, especially in the wake of the September 11, 2001 attacks that had brought the company’s crucial tourist trade to a near standstill.

In order to finance its expansion, the company required fresh capital, if only to help the company pay off its mounting debt load. The question remained whether Al Fayed would be able to step back from a day-to-day operating role in order to ensure the success of an eventual public offering.

Principal Subsidiaries

Harrods Ltd; Harrods Casino; Harrods Estates; Air Harrods.

Principal Competitors

Arcadia Group Plc; Debenhams Plc; House of Fraser Plc; James Beattie Plc; Marks and Spencer Plc; N Brown Group Plc; New Look Plc; Next Plc; Otto Versand Gmbh & Co.; Selfridges Plc.