It's been a tough few years for luxury retailers. How did Harvey Nichols respond to the financial crisis?
I was in New York in September 2008 when Lehman collapsed. As soon as the news came out, I picked up the phone to my buying director and said, "We are on the brink of a financial tsunami. There will be a sharp decline in demand. Cancel everything you can." I wanted to avoid accumulating an inventory mountain. That was my instant reaction.
When I returned to London and saw the crisis unfold, I knew that the landscape for luxury branded goods in the Western world had changed for good. The good times of the previous decade were gone, never to return. Or, perhaps, they would return. But not for many years.
And so we brainstormed. We needed to adapt to this new world. We developed four pillars of growth to respond to the changed landscape and deliver sustainable, manageable growth.
And those are?
Firstly, to broaden the product range to attract new customers.
Before 2008, we were just relying on one kind of high end customer, very successfully I might add. But after the crash, we couldn't rely on that customer base for continued growth. The 'feel good' factor is very important in expensive goods. During the good times, when the economy is bullish, people like shopping, they splash out. Those wealthy customers are still there today. But when the whole economic outlook is gloomy, the 'feel good' factor is gone. It affects our business substantially.
Our customers used to come into the store without any particular item in mind, and leave with 12 bags. These customers will now only leave with two.
If you look at our OXO Tower restaurant. In 2007, we sold many bottles of fine wine. These vintage red wines each cost more than £1,000 - but we sold them all the time. After 2008, I could count on my fingers the number of these bottles we sold in the following 12 months.
This is why we had to broaden our range. We couldn't rely on existing products to ensure growth.
Second, I decided to develop an own-label programme.
We had been thinking about this for a long time. Even when i first arrived at Harvey Nichols. But timing wise, we are only just ready now.
In 1996 we were still just a one-store business. If I went to a high end manufacturer in Italy and asked for a line of luxury own-brand products, I couldn't even satisfy the minimum order with only a single store to distribute through. But now that we have multiple stores in multiple territories, we have reached the economies of scale necessary.
The third pillar is to continue to discover new markets overseas and open new stores under a licensing agreement.
I'll talk about that more later.
Lastly, we had to enhance our online capabilities.
We want to reach out to customers in remote areas who might find it inconvenient to visit our stores. One our UK online store is fully functioning and operating at a top notch level, we can then extend our online proposition to our overseas stores.
Our strategy is working. In the year ending March 2011, we have seen top-line growth of 5%, but bottom line growth of 20%.
Will online sales ever overtake high-street sales?
I cannot predict if our online business will eventually overtake the office business. But I do know this: Most of our customers continue to enjoy their shopping experience in our bricks and mortar stores. It's only their daughters and grand-daughters that really like to shop online. Our research has shown that even the technology-savvy generation is only buying luxury commodity-style products online - HD televisions etc. They are not buying very much in the fashion category if it costs over £200.
You have taken Harvey Nichols from a single store to a brand boasting 14 stores. Were you worried about devaluing the 'luxury' status of the brand?
It is always at the forefront of my mind to protect brand value. The key watchword for entering new markets is 'adaptation'. If you think you can enter a foreign market and remain unchanged, just because you're an established heritage brand in the UK, you are mistaken.
There are cultural shocks, new ways of thinking. You can't just place a clone of Harvey Nichols anywhere in the world. You must be flexible. Of course, this flexibility needs parameters - you must set a range. If you go beyond that range, you could dilute your brand value. But I'm not worried about brand dilution.
How do you target new territories? Are there specific criteria?
Finding the right country is always a challenge. We have to undertake a lot of research to ascertain whether there is a profit to be made. It is important to consider punitive tariffs- India still has a lot of import duties, for example - so we decided that the business model just was not there.
Then we have to look at the political climate. Is it stable? Can we predict a long-lasting and profitable presence in that territory?
The next issue is to check out references, speak to embassies and find out about local corporations that are in our line of business. They have to have a solid balance sheet and a passionate desire to get involved with high end retailing. Then we can start putting together a licensing model in that territory.
You've taken Harvey Nichols public and back under private ownership again. Why the change of heart?
When I joined Harvey Nichols in 1992, it was a one-store business, losing money, privately run. My initial strategy was to improve the business' corporate governance so we could qualify for a listing on the London Stock Exchange. We did this successfully and traded as a public company for seven years, from 1996 to 2003.
The reason we decided to take Harvey Nichols back under private ownership was twofold. In 1998, M&S reported the first drop in profits for a decade. In response, the fund managers downgraded the stock of all the clothing retailers across the board. We were downgraded despite our strong performance in that quarter. Then, after the financial crisis, the fund managers did it again. They downgraded all of the small cap companies. Harvey Nichols is of course a small cap company so we were devalued through no fault of our own.
At this point, we thought: Why should we continue to invest the time and money necessary to run a public company when we can't realise the true value of our stock?That was when we decided to delist.
What's the secret to effective leadership?
All business managers must understand one thing. A business is a living thing. It is evolving all the time. Many factors feed into that evolution: the economy; political change; societal impact. Your own customers are changing all the time. As a business owner, you mustn't just be prepared to adapt to this change, you must try and anticipate it.
Some businesses want to hire a consultant to find out who their customers are and what they want. That shows me that these businesses are not properly run. You should know what your customer wants; you should have anticipated it. And you shouldn't need an outsider to find this out for you. It should be in your business DNA.
At Harvey Nichols, we have to anticpate our customers' need or we are dead in the water. Our buyers are purchasing stock six to nine months ahead. We already have our winter fashions now. We have to rely on our own judgement to predict what our consumers will want in six month, a year from now.
What are your plans for the future?
I came to Harvey Nichols tasked with one purpose: to build it into a company capable of undertaking IPO. I came on a five-year contract. Last year was my fourth consecutive five-year contract. I have since agreed to stay on another term - till 2014, but after that, I will have the freedom to take on other opportunities.