Financial Information of Harrods Limited - Research Paper Example

Information Harrods Research Introduction This report analyses the financial information of Harrods Ltd, a London based luxury, high-end retailer. The research objective of this study is to assess the financial operations of the firm in order to find out how efficient it has been in its business. This report includes a brief evaluation of the various financial data of the company for the last five years. The report also investigates into the close competitors of the company in the market, making a performance appraisal for all the competitors for that last five years. Graphs illustrated and explained in the report gives a clear idea about the position of Harrods in the market as compared to its competitors. Secondary research is conducted using credible industry sources such as Market Researech.com, Hoover’s, Harrods website, and other online database. Company Overview Harrods is a luxurious, high-end retailer, founded in London in 1834 and possess a rich heritage and history that makes them the world’s most famous department store (Harrods). The department store is situated on Brompton Road in Knightsbridge, London, England, being the one of the largest department stores in the world (store occupying 4.5acre and selling space over one million square feet across over 330 departments). As Mahoney points out, Harrods is the second-biggest store and offering an extensive section of products, a world-class shopping experience and greater customer service. The Harrods brand also stands for other business undertaken by the company which includes Harrods Bank, Harrods Aviation, Air Harrods and Harrods Estates. The Harrods group of companies holds its motto “Omnia Omnibus Ubique – All things for All People Everywhere” (Harrods). Though operating only in London, it has become an international retail icon with superior brand responsiveness among global consumers. History shows that the firm has gone beyond being a high-quality branded store and product designer to a fashionable society, a status icon for celebrities and commoners equally. The store faces about 300,000 customers visiting during peak days, and has a workforce of 5000 employees from more than fifty different countries. The Harrods Ltd. was sold to Qatar Holding LLC for $ 2.2 billion in 2010. The products sold through the firm’s brand ranges across women’s and men’s wear, children’s products and toys, wine and spirits, kitchen products and appliances, beauty products, bags, and accessories. Company process Revenue: - The lion’s part of Harrods’ revenues comes from its luxury retail division operating at Knightsbridge location. The rest come from the divisions at Heathrow and Gatwick airports and from its four subsidiaries, namely, Harrods Bank, Harrods Aviation, Air Harrods and Harrods Estates. Cost: - The Costs of the company include (i) Costs of Goods Sold, (ii) Marketing and Advertising, and (iii) Other Operating Costs. The costs of goods sold include purchase of inventory, storing costs, store construction and maintenance, transportation and shipment, and other administrative expenses. The marketing and advertising costs include all the expenses incurred by the company with regard to the promotional purpose through print or audiovisual media. And other operating costs include all other expenses borne by the business while functioning. Financial Analysis Nicolini, Papaioannou, Rasheed & Subject report that on peak days Harrods receives over 300,000 customers and during sale events, the firm takes in about $1.813 million every hour. Since the firm possesses strong brand awareness in the UK market, it does not give importance to funding on traditional methods of brand advertising or using print or news media as their public association can take the role of buzzing about the firm. Though not affected by the recent meltdown in financial markets, financial analysts forecast its future impacts on the consumer behavior and ultimately on the market. As Graham reports, the Managing director of Harrods, Michael Ward, estimated the firm to generate sales of about $1.55 billion during the year, when it was undertaken by the Qatar Holdings LLC. Consequently, as Kuo noted down, the Harrods Ltd. gained a profit of 39% for the first year under the new owner Qatar Holdings, with its sales going above $1.6 billion for the first time in its history; the firm experienced its profits rising to $167.69 million during the year to the end of January 2011. The following graph shows the operations of the firm in terms of Turnover and Gross Profit Margin. Graph 1: Turnover and Gross Profit (Harrods Ltd) Graph 2: Net Worth and Profit Before Tax (Harrods) The Graph1 shows the analysis between Harrods’ Turnover and Gross profit for the last five financial years ending in 2011. From the figures it is evident that with a slow start, the turnover and gross profit margin has been going steadily upwards. The last two years showed higher rates of increase in the turnover from $719,200,000 in 2009 to $719,200,000 in 2010, and rising to its all-time highest $719,200,000 in 2011. The Graph 2 shows the comparison of Net Worth and the Profit before tax for Harrods during the last five financial years. A company’s Net Worth is calculated as Shareholders Funds minus Intangible Assets, and is used to evaluate the financial efficiency of the firm. As expected, the firm had a slowdown in 2008, its net worth falling into $724,780,000. However, the efficient administration from the top level management could sustain the net worth rate from moving further downwards, but upwards by $17,670,000 into $742,450,000 in 2009. From there on, it was steadily going upwards until it experienced a sudden leap in 2001. Competitive market While having a long footed heritage in the retail industry, the Harrods Ltd also have to face strong competitors in the market. London being one of the luxury destinations, a firm has to be fit enough to survive in the market. The company’s five most competitive firms in the market are Arcadia Group Limited, Burberry Group plc, Field & Trek (UK) Ltd, House of Fraser Limited, and Figleaves Global Trading Ltd. When compared to Horrods Ltd, the financial year ending 2008 was completely hard for Arcadia Group Ltd. As Parson reports, the financial statements of the firm showed a 6.1% drop in operating profits, with a heavy fall from $ 454.32 million to $ 426.44 million during the year 12 months year ending in August 2008. Moreover, the sales of the company reduced by 0.6% and the turnover by 1.8%, the pre-tax profits for the whole year being $292.61million, which were $308.56million in 2007. Likewise, the Burberry Group Plc, one of the prime competitors of Harrods, was founded in 1856 by Thomas Burberry. Even when having EV/EBITDA ratio for the next 12 months is 9.71, it is likely to have a reduced consumer loyalty towards the brand. House of Fraser Ltd is a premium department store group having more over 60 stores across UK, and has been a strong competitor to the Harrods. The company was established in Glasgow in 1849, and has been growing steadily over the time. The following graph is a comparison of Harrods Ltd with its competitors in the retail market. It will analyze the differences in the operational efficiency of those firms. These graphs compare the financial position of Harrods with Arcadia Group Limited, Burberry Group plc, Field & Trek (UK) Ltd, House of Fraser Limited, and Figleaves Global Trading Ltd. Graph 3: Net Worth The above graph gives an analysis of Net worth comparison between Harrods and its competitors. Even though Harrods faced a slight downward movement in 2008, it did not affect the operational efficiency of the business. It was seen recovering from the slowdown and progressively moving upwards. By 2009, it was able to regain its older position and during the following years, Harrods experienced higher degrees of increase in its Net worth. Considering the other firms, the Burberry Group Plc stands closer to the firm, with a slightly higher net worth value and Arcadia Group Ltd with a much higher net worth value. The Harrods would probably concentrate only on Burberry on matters of increasing profitability as they are close competitors for the firm. On the other hand, firms like House of Fraser, and Field & Trek have been doing poorly on Net worth. And so, Harrods would gives less importance to such firms. Furthermore, these companies are analyzed with their Current Ratio for the last five years. The current ratio is a popular financial ratio used to test a company's liquidity. A complete and precise Current Ratio analysis can help to find out the weaknesses in the financial position of a business, as it represents the current working capital position of the company. It is calculated deriving the proportion of current assets available to cover current liabilities. Current Ratio Graph 4: Current Ratio Analysis The current ratio analysis enables to find out the working capital position of the companies. From the graph it is evident that Harrods has been, except in 2008, effectively handling its Assets and Liabilities thereby maintaining an appropriate rate of working capital. Looking at the last three years, we find that the company managed to balance its working capital without much fluctuation. The only firm, other than Harrods, that could handle the working capital effectively was Burberry. Other competitors like, Figleaves and Arcadia are seen fighting hard to maintain an adequate working capital in order to carry out the business smoothly. All the above graphs show that Harrods experienced a lag in 2008, but was not lagged back, instead have been progressively moving upwards. And the most competitive force that Harrods has been facing is Burberry Group plc, which follows at a very close pace with the company in the market. It was efficient in managing its business by adopting adequate and timely strategies, while operating in a relatively high competitive market. Recommendations The research also included a SWOT analysis of Harrods in order to find out the external economic factors which can influence the company’s position and financial performance in the future. As Harrods has been for a long time functioning without expanding, there is greater chances for the firm to expand to other countries like America. The great strength for the firm in its growth is their ability to maintain unique brand culture for the consumers. It is important for the firm to determine the impacts of global economic crisis on the consumer shopping behavior together with understanding the competitor loyalties as well as their strengths and weaknesses. The financial reports of Harrods showed that during the first quarter of 2011, the firm experienced an increase of 40% in sales to the Chinese consumers when compared to the previous year. Therefore it is advisable for the firm to give some more attention to the products that meet the expectations of the Chinese customers. In the same way, the firm sees profit rising 10-20% in Islamic fashion after the firm was undertaken by Qatar Holding LLC. So, there is going to be a greater customer support from the Islamic countries, which the firm should be able to convert into sales. Moreover, the proposal to expand Harrods retail store to Shanghai’s Bund, China, is expected to be a big move for the company as it would be its first retailer store outside the U.K. As anticipated by the experts, the general consumer confidence went down by the end of 2008 (Data 360). In order to avoid such future chances for dropping in the consumers’ retail spending, Harrods should make sure that all customer expectations are satisfied and loyalty is developed. Conclusion In recent years, some retail channels of Harrods, such as women’s clothing and luxury apparel stores have been modernized as preferred purveyor for reorganized categories, creating a significantly positive outlook for the firm. Therefore, Harrods should adopt the same aptitude to concentrate on other channels like, men’s clothing, jewels, and gadget stores which would give a high node to its sustainability in the market. However, the firm is likely to face the competitive threat that how long its consumers would remain loyal when there are other luxury retailers emerging into the market offering superior services. In the same way, the faltering economy is anticipated to cause impacts on the success of the business. At this juncture, the firm strongly believes that its comfortable consumers are flexible luxury trendsetters and modernizers whose buying behavior would continue being constant in spite of the economic crisis. . Works Cited Company Check. “Harrods Limited.” (2011). Web. 15 December 2011. Data 360. “Consumer confidence, present situation and expectations indices.” (n.d). Web. 15 December 2011. Graham, Rachel. “Harrods Sales to Exceed 1 Billion Pounds This Year, Times Says.” Blooberg. (19 December 2010). Web. 15 December 2011. Harrods. “Quick facts.” (2011). Web. 15 December 2011. Mahoney, Tom. The Great Merchants: The Stories of Twenty Famous Retail Operations and the People who made them great. USA: Harper, 1955. Print. Nicolini, Marie, Papaioannou, Agapious, Rasheed, Zeenat & Subject, Stacey. “Bringing Harrods from London to Boston: A global market viability research study.” (2008):1-83. Kuo, Patricia. “Harrods profit rose 39% to 108 million pounds, Sunday Times says.” (23 October 2011). Web. 15 December 2011. Parsons, Russell. “Arcadia reports 6.1% drop in profits.” Marketing Week. (21 October 2008). Web. 15 December 2011. Read More