Having turned around department store Harvey Nichols once before, a seismic shift in the luxury landscape means its chief executive is looking to repeat the trick.
September 15, 2008 is a date etched into the mind of Harvey Nichols chief executive Joseph Wan. For Wan, the day Lehman Brothers bank collapsed signalled a fundamental shift in luxury retail.
“I knew that would have a catastrophic effect on everything,” says Wan with characteristic pragmatism.
Wan was in New York at the time. His first phone call was to head office, where he promptly cancelled all orders that had not yet been delivered and instructed his team to cut next season’s buy by 15%.
His second call was to his marketing director. Wan recounts the call: “I said: ‘Look, this has happened. The only way that we can try to achieve a healthy inventory level by the end of the season is to do as many in-store promotions as possible to shift stock’.”
Taking a hit
It marked the start of an unprecedented amount of promotional activity at the retailer’s iconic London Knightsbridge store and resulted in a 40% slump in profits to £10m in the year to March 31.
The event is one of only two derailments for the department store business – the other being September 11, 2001 – during an otherwise unblemished performance by Wan in his 17 years heading up Harvey Nichols.
Drafted in by Hong Kong-based group Dickson Concepts in 1992 to run Harvey Nichols after it was acquired from the Burton Group in 1991,
Wan’s initial term of office was set to be five years.
After achieving his plan to double profits and oversee an IPO in that time, Wan is now in the middle of his fourth five-year term and has turned the business from a single loss-making store into a profitable business with five stores in the UK and Republic of Ireland and seven more overseas.
Wan, an accountant by trade, is now in the middle of an evolution of the business. He believes the luxury sector must now adapt or die. “Any businesses which stand any chance of surviving this financial storm and still being able to grow are only those which can recognise that a substantial shift or change of landscape has happened,” he says.
Revealing to Drapers that since the fall in full-year profits to March 31 first-half trading is now ahead of expectations, Wan has turned things around by adopting a cautious approach to the department store’s buy and by reining in promotions to stabilise margins.
He is also working to broaden Harvey Nichols’ appeal to a new type of luxury shopper, who Wan feels has become much more “sophisticated”. Wan will open a fashion floor in the London
store in February dedicated to up-and-coming brands and exclusive diffusion lines. He is also in negotiations with US women’s footwear brand Steve Madden about being its exclusive UK retail partner.
An own-label fashion offer will hit stores in autumn 10 and Wan will increase Harvey Nichols’ online capability and continue expanding overseas. “I was already expecting that to gain market share Harvey Nichols would need to pay more attention to the younger market,” says Wan.
“Only 15 years ago a luxury consumer would dress themselves – the whole lot – in Donna Karan or Ralph Lauren or Escada. But today, luxury consumers are more confident and will pick and mix, taking no issue with mixing high street names like Abercrombie & Fitch or American Apparel with Chanel sunglasses and a Hermès bag.”
It’s a far cry from the Harvey Nichols Wan inherited. The business had been “swallowed up” by the Burton Group – a multi-fascia high street group – since 1985. Harvey Nichols did not feature on the group’s radar, says Wan.
“No wonder our offer was very confused previously. Customers couldn’t understand what Harvey Nichols stood for because it had upmarket brands, mid-market brands, high street brands. They tried to appeal to everyone and ended up appealing to no one.”
Quick to quash suggestions that his current strategy is arguably going back to the Burton way of merchandising the store, Wan says: “We’re not talking about going back to high street brands. If we see cute, new brands at lower price points than previously then we have no problem with bringing them in. I want the hottest things. Hottest doesn’t mean the most expensive. We’re broadening the customer base without diluting the brand values or brand equity.”
He believes that the total pool of consumption among luxury shoppers has shrunk and will continue to do so for at least five years. “It’s inevitable that the total consumption for luxury goods in the Western economies in the next five years will be less than previous to the Lehman Brothers collapse,” says Wan.
He adds that talk of green shoots in the economy is damaging and irrelevant. “We don’t talk about economic recovery at all. Forget about it, it’s nothing to do with economic recovery,” says Wan. “It’s a question of accepting that there has been such a change of the total landscape in luxury retailing and focusing our minds on evaluating what those changes are and how we shall adapt to those changes and move on.”
So will Wan be able to ensure that Harvey Nichols comes out of the recession unscathed? Answering with characteristic determination, he says: “Oh, I will. I’m confident that we will achieve a good success out of this and come out much stronger. I’m delivering the results, so that’s what’s giving me job satisfaction. I’m a happy man.”
Do you think the Government is doing enough to support UK retail?
No, absolutely not. All we know is whoever wins the next general election will be inheriting a total mess economically.
What are the key issues coming out of Westminster that are impacting the retail industry?
For the long-term benefit of the economy, I certainly don’t believe that increases in VAT will be beneficial to retailers. All these increases in business rates are very damaging too. Even the current London Mayor, Boris Johnson, wants to introduce further congestion charges. How can it help tourism? It will be very bad for all forms of retailing.
There are so many things that are harmful to businesses that I am at a loss for words to describe their nonsense.
You’ve been very vocal about the impact on wealthy shoppers of cracking down on non-domicile tax rules. The imposition of a non-domicile levy is no good for London, of that I’m convinced. The Government said it expects to raise £800m a year from this levy. I bet with my own money that they wouldn’t raise half of that and I wouldn’t be surprised it if it didn’t raise 10% of that.
Which party do you think will win the next election? I can see strengths and weaknesses in both of the main parties, but the tide is so strong that the Labour Government can’t win because of all the things they’ve done, and they don’t have the most charming of Prime Ministers. Speaking objectively, it looks like Labour will probably have to give up power.
1992 Chief executive, Harvey Nichols
1988 Group finance director, Dickson Concepts
1979 Various roles at KPMG London and in Hong Kong