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Harvey Nichols in profits bounce back

Profits return but chief executive warns of drop in shopper spend for 2011

Harvey Nichols chief executive Joseph Wan has said the luxury department store group is set to return to its record pre-recession profit levels, but warned of a drop in shopper spend in 2011.

Wan told Drapers the business was on track to notch up profits of about £18m in the current year to March 31, 2011, in line with record levels achieved three years earlier in the year to March 29, 2008.

Wan said Harvey Nichols had, in its last year to March 31, 2010, recovered from its 40% slump in profit, incurred following the collapse of Lehman Brothers in October 2008 and the ensuing recession.

Profits for the last year were £14m, up from £10.4m the year before. Wan said Harvey Nichols had clawed back profits by “adapting to survive” by planning for reduced demand with strategies such as better stock control, leading to less discounting and improved margins. Turnover was flat during the year, which was attributed to the closure of the fourth floor in its London Knightsbridge store to introduce more accessible luxury price points.

Wan said Harvey Nichols, which also operates six regional UK stores and six more overseas, had continued to see strong trading in the current year since April, which he expected to continue until Christmas. However, he expected the spending outlook to be impacted in 2011, following the January increase in the VAT rate to 20% and the likely impact of public sector job cuts, set to be outlined by the Government in October.

“I am still very concerned about the medium-term outlook for the New Year when VAT will be increased and public sector cuts will bite,” he said.

However, Wan was confident that the business, which is owned by Hong Kong conglomerate Dickson Poon, would continue to ride out any turbulence in 2011 by continuing to drive the four key strands of its strategy. These include adding more accessibly-priced brands to its offer, launching an own-label offer to bolster margins, expanding its online offer and opening stores in emerging overseas markets.

Wan said: “I feel quietly confident that we have the right strategy to adapt to new market conditions and lower demand.”

However, he added: “What is affecting luxury retailers like us, is not the [public spending] cuts, but the gloomy situation in the market. In the luxury trade feel-good is very important. [Luxury shoppers] still have money but when everything is negative and dark, they will pick up just what they need and won’t be affected by impulse [buys].”

Harvey Nichols’ own-label offer will launch for autumn 10 with a range of menswear, formalwear, shirts, ties and leather goods. The offer will be expanded into other categories and Wan said he would consider contracting manufacturers to produce the range.

Harvey Nichols will also invest more than £1m over the next year to update its website and put additional stock online to attract more shoppers.

Wan would not be drawn on target markets for overseas store openings but said emerging markets would be a key focus.

The moves echo strategies employed by rival luxury department stores such as Harrods and Liberty to drive sales and profits. Harrods’ new owner, the investment arm of the Qatari royal family, is thought to be considering opening a store in Shanghai to cash in on the growing wealth in the country, and is also ramping up Harrods’ eponymous own-label offer. Liberty has signed a licensing deal with Italian menswear manufacturer Slowear for its own-label Liberty of London menswear range and is considering launching lower-priced ranges.

The luxury sector is also capitalising on a surge in spend by tourists, in particular those from China and India, and is working to promote London among tourists.

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