Harrods, the prestigious luxury department store located in Knightsbridge, has successfully rebounded from the devastating impact of the Covid-19 pandemic. Despite facing ongoing challenges related to the global health crisis, the company has witnessed an impressive increase in its gross transaction value, which rose by 42.6% to £1.565 billion. Furthermore, the total turnover experienced a substantial growth of 35.5% to £581.9 million, as stated in the recently filed accounts at Companies House. This remarkable performance places Harrods on track to achieve sales of nearly £871 million this year, aligning with the levels seen before the pandemic struck. Nevertheless, the company’s profitability may be affected due to higher costs.
In the reporting period, Harrods was closed for a significantly shorter duration of 10 weeks, compared to the previous 52 weeks when it had to remain shut for 22 weeks. This extended period of operation, combined with a gradual recovery in trade during the final months, played a crucial role in boosting the overall turnover. Amidst these positive developments, the company managed to generate a profit after tax amounting to £41.7 million in the 2021/22 year. This marks a substantial improvement from the loss of £57.3 million incurred in the previous period. Similarly, the operating profit showcased a notable turnaround, rising to £55.5 million from a loss of £66.4 million.
While the pandemic continued to impact the business, resulting in periodic store closures and a decline in tourist footfall to the UK, Harrods effectively mitigated the adverse effects. The reduction in the number of Chinese shoppers, who previously constituted 23% of the total sales before the pandemic but accounted for only 15% last year, was compensated by an increase in Middle Eastern shoppers. Nonetheless, the elimination of the Retail Export Scheme following Brexit had a significant impact on Harrods. This scheme allowed tourists to claim back Value Added Tax (VAT) on luxury goods purchased in the UK. The full extent of this change remains uncertain, as tourist traffic has not yet returned to normal levels.
Moreover, the implications of Brexit have led to higher import costs for Harrods, with the potential for further increases in prices from suppliers. Additionally, Harrods faces the challenge of offering VAT-free shopping, which makes it 20% more expensive than shopping in Paris. The days of Chinese tour groups visiting the UK primarily for shopping purposes are now a thing of the past, posing a significant hurdle for Harrods in attracting Chinese tourists.
In spite of these challenges, Harrods has demonstrated remarkable resilience in the face of adversity, showcasing a strong recovery from the pandemic and a positive outlook for sales. However, the company will need to adapt its strategies to navigate the obstacles posed by Brexit and the changing dynamics of international tourism to maintain its position as a premier luxury shopping destination.
Useful Links:
1. Harrods Official Website
2. Companies House Official Website
