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Luxury department stores set to outpace sector

The top three luxury department stores, Harrods, Selfridges and Harvey Nichols, are expected to outpace other department store businesses in 2008, after bucking the trading trend over the past six years.

According to a report Verdict Research, the UK department store sector has enjoyed two consecutive years of growth driven by the luxury market last year. The report adds that the sector will have a third buoyant year in 2008.

While Marks & Spencer's recovery boosted the sector in 2006, in 2007 strong performances from premium operators has underpinned growth.

The luxury store trio, Harvey Nichols, Selfridges and Harrods, are all expected to grow profits by 6.8% this year, lower than the 11.3% figure achieved last year.

However this outpaces the 3.8% estimated growth levels of the rest of the sector which includes House of Fraser, Debenhams and John Lewis.

The market leaders, Marks & Spencer, John Lewis, Debenhams and House of Fraser all have extensive store opening plans in 2008 and this will ensure market growth. But Verdict also expects consumers to continue spending with the premium operators.

Verdict research lead retail analyst Maureen Hinton said: “As money becomes tighter, consumers are more selective about where they spend, and are more in need of a rewarding and indulgent shopping experience to lighten their mood. These retailers are creating a virtuous circle by investing in their stores and ensuring the store experience matches the aspirational status of the brands they stock.

"This not only differentiates them from the rest of the high street, and crucially from supermarkets’ burgeoning non-food offers, but also provides consumers with a pleasurable shopping experience that combines the convenience of having a comprehensive offer in one location with leisure and indulgence.”

Of the top ten department store retailers, Harrods recorded the biggest improvement in operating profit per sq ft by £30 per sq ft between 2005/06 and 2006/07.

Over the period Selfridges made an improvement of £16 per sq ft, achieved by making existing space more productive rather than opening new stores.

Apart from market share gains, profit densities have improved at all three of the department stores. Harrods, Selfridges and Harvey Nichols occupy three of the top five places for profit densities, alongside Marks & Spencer and John Lewis.

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