LONDON — The colorful, controversial and at times comical 25-year reign of Mohamed Al Fayed at Harrods has come to a close — he’s sold the store.
This story first appeared in the May 10, 2010 issue of WWD. Subscribe Today.
With no successor in sight, Al Fayed over the weekend revealed he’s sold the Knightsbridge institution and its related businesses to Qatar Holding. The investment company linked to the royal family of the Gulf state is said to have paid 1.5 billion pounds, or $2.22 billion at current exchange, including about 600 million pounds, or $888 million, in property-backed debt.
Al Fayed’s banker Ken Costa, the chairman of Lazard International who brokered the deal, said the 81-year-old Al Fayed had decided to retire and spend more time with his children and grandchildren.
“Qatar Holding was specifically chosen by the [Al Fayed Family] Trust as they had both the vision and financial capacity to support the long-term successful growth of Harrods,” Costa said.
Al Fayed, known to his staff as “The Chairman,” will assume the new title of honorary chairman. Qatar Holding, which called the acquisition a “landmark transaction,” said current management would remain in place.
Michael Ward will remain managing director, and an industry source close to Qatar Holding stressed there would be “no lurches in strategy. This is a financial transaction.”
Ahmad Mohamed Al-Sayed, managing director and chief executive officer of Qatar Holding, called Harrods a “unique company that combines an iconic luxury brand and one of the most prestigious retail properties in the world with best-in-class financial metrics.”
Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, Qatar’s prime minister and chairman of Qatar Holding, said, “Our latest acquisition forms part of our effort to realize the vision of His Highness the Emir, and His Highness the Crown Prince, of the State of Qatar. Harrods generates good and stable returns as a business, it will add much value to our international portfolio of investments.”
Principals of Qatar Holdings were in London over the weekend, touring the floors with Al Fayed and hanging Qatar’s flag inside the store. “Harrods is a unique asset for them,” said one person familiar with the deal. “They usually don’t chase trophies.”
Qatar Holding LLC is the strategic and direct investment arm of Qatar Investment Authority. Harrods isn’t the first British retail firm the group has invested in — it also has a stake in U.K. food retailer J. Sainsbury plc. Other investments include Barclays plc, Credit Suisse Group, Qatar Exchange, Qatar Telecom, Qatar National Bank, London Stock Exchange and Lagardere SCA. Credit Suisse advised the company on the Harrods deal.
Industry sources said the sale solved a big problem for father of five Al Fayed, who had no obvious successor. “He’d never have taken the company public because he couldn’t give up control — and there were no heirs,” said one former employee.
None of Al Fayed’s four living children — his son Dodi died in the 1997 car crash that killed Princess Diana — is involved in the day-to-day operations of the family business.
It was clear, too, that Al Fayed was slowing down. Late last year he injured his leg after falling in the snow near his home in Gstaad, Switzerland, underwent a subsequent knee operation, and failed to make it back to the store for the first day of the January sales on Dec. 26 — a major day on the store’s calendar.
The sale announcement came six weeks after Harrods scotched rumors Al Fayed was looking to dispose of the store following reports of an unsolicited bid for the company from a Qatar-based investor. “Talks between Harrods and Qatar Holding had been on-off for a while, and at the time Al Fayed was genuine about there not being a sale. But Qatar sweetened the offer,” said a source close to Harrods.
Another source close to Harrods said Al Fayed wasn’t looking to sell the store. “It was Costa, with his very deep connections in Qatar, who did the matchmaking on this one,” this person said. A source who had worked with Al Fayed added the deal was too good to refuse: “He’s a trader by instinct, and everything is for sale — if the price is right.”
Last month, Fayed told The Sunday Times of London that he planned to own the business for the rest of his life, and when he died he hoped to be entombed in a mausoleum on the roof of the store — a wish he’s expressed repeatedly over the last two decades. “It’s a pyramid for me, a monument,” he told the British paper. “It is the best department store in the world.”
Al Fayed’s other assets include Fulham Football Club and the Ritz Hotel in Paris, and a spokeswoman for Al Fayed said neither is for sale.
However speculation is bound to mount over the future of those properties, and in particular the storied 159-room Ritz hotel in Paris, a magnet for fashion people and events. Persistent rumors that the hotel, established in 1898, is on the block have been fueled by its dire need for renovation as rival hotel operators in Paris spruce up or build new luxury palaces.
The Harrods sale won’t be the only one making headlines in the London retail sector this year. After months of speculation, BlueGem Capital Partners LLP has finally confirmed it is in talks to buy Liberty.
BlueGem is valuing Liberty at about 32 million pounds, or $47.4 million, and said any offer would come after the proposed sale of Liberty’s property. Liberty also confirmed on Friday it had received another approach from a third party — which its board had already rejected.
Analysts said the Harrods sale price — roughly twice the store’s annual gross transactions value, or the commission the store earns from leased departments plus direct sales, of 751.7 million pounds, or $1.11 billion — is in line with the sector average.
The latest figures available for the store were filed to Companies’ House, the official register of U.K. businesses, in August 2009, and refer to the year ending Jan. 31, 2009.
In the 12-month period, Harrods’ net profits fell 19.4 percent to 27.4 million pounds, or $40.6 million, partly due to exceptional items, such as repairs to the store’s facade. It reported a 6.2 percent rise in direct turnover to 464 million pounds, or $687 million, up from 437 million pounds, or $647 million, in the previous year.
One analyst who requested anonymity calculated that Qatar Holding paid a 44 percent premium to acquire Harrods, reflecting “a strong brand name and management control.”
The analyst added: “Qatar Holding did not get this asset on the cheap. Although the store’s profitability is rather low, more can be extracted from this business. Harrods is a very strong franchise, particularly with tourists and Middle Eastern customers, and I wouldn’t be surprised if the new owners expanded abroad. I think you’ll see fairly decent growth going forward,” the analyst said.
Harrods principals confirmed over the weekend that international expansion, into regions including China, was in the cards.
Al Fayed purchased the store in 1985 for 615 million pounds, when it was still part of the House of Fraser group. According to the Retail Price Index, the money Al Fayed paid then would have been roughly equivalent to 1.4 billion pounds, or $2.1 billion, today, giving him a 100 million pound, or $148 million, premium.
Lazard’s Costa said Al Fayed wanted to ensure that the Harrods team he built up “would be encouraged to develop the foundations that he has laid. Of paramount importance to Mohamed Al Fayed was to ensure that the Harrods staff would find in QH an owner who would be supportive of their efforts to maintain the traditions of Harrods.”
It’s no secret that Harrods has had a strong tradition of revolving door management, due mostly to the chairman’s autocratic style (see sidebar).
Last year, former Gucci Group executive James McArthur left his post as chief executive officer of Harrods less than a year after starting his role. Martha Wikstrom was also managing director of the store for a period, staying there for less than two years.
It’s only recently that Al Fayed has begun to let the top brass shine — such as Marigay McKee, the store’s fashion and beauty director, who’s transformed both of those divisions.
“Fayed realized how much value she’s adding to the store, so she’s allowed to have a profile,” said one former employee. “And the sadness in the past was that a lot of good people went for the wrong reasons.”
In fashion, McKee has spearheaded a string of initiatives including the creation of International Designer Room on the store’s first floor, which launched last September. It showcases 40 labels including RM by Roland Mouret, Prada, Balmain, Lanvin, Balenciaga and Chloé.
An extension to that room is in the works for spring 2011, although the details have not been confirmed. McKee is also lassoing new talent with an on-line initiative known as Harrods Launches, which showcases emerging Britain-based designers, and sells some of those collections in-store.
According to sources, the store will also have an exclusive on the Tom Ford women’s line when it launches. Harrods’ Tom Ford business is currently about 7 million pounds, or $10.4 million, split between fragrances, men’s wear and sunglasses.
Although Al Fayed may have a unique management style, there is no doubt he’s made Harrods a better store during his 25 years at the helm. Since Al Fayed bought Harrods, the Egyptian retailer has spent an estimated 400 million pounds, or $592 million at current exchange, to transform what was a staid, tired store into an unapologetically opulent retail experience.
“When I first joined Harrod’s, they were still selling Tampax, toilet paper and notions. It had this kind of faded elegance. But Mohamed did an amazing job really adding some luster to what was kind of tired old department store,” observed Terron Schaefer, Saks Fifth Avenue’s group senior vice president of creative marketing and marketing director of Harrods from 1986 to 1990. “Their motto was ‘everything for everybody, everywhere,’” Schaefer added. “When I was in the store last February thinking about skiing, I was just overwhelmed by the selection of sporting goods — skis, skiwear, boots, hiking, camping, whatever sport you were remotely interested in. It’s an enormous selection at a wide variety of price points. I was always overwhelmed by the selection of cheeses, meats, vegetables and fruit, and everyday they would change the fish display. But the thing I most loved about working there were the windows. There are 72 windows around the perimeter of the store and you can get the handle on anything going on inside.
“I am quite surprised Mohamed sold it. He always used to say he was going to die in Harrods and would be buried under its dome.”
“Mohamed has done a great job creating a store of discovery,” said Andrew Jennings, Harrods’ general manager in the early Nineties, and formerly group managing director of Woolworths South Africa. “It’s a very exciting emporium, a phenomenal tourist attraction, and he put much talent into that store. A few weeks ago, I was in the store, visiting men’s wear. It’s a world-class men’s division. There’s everything a gentleman could want, whether he wants classic, modern or contemporary styles. All the brands are there. And the food business is very unique. It’s a niche specialty business.”
“He invested in it and made it a London phenomenon, and he has incredible attention to detail, which means the service is world-class. And I cannot stress enough that there is no price resistance at the store,” said one former employee.
One of his many innovations was to install the glittering, cartoonish Egyptian hall and escalator at a cost of 20 million pounds, or $29.6 million, which is decorated with busts of Tutankhamun-like figures at each floor. Al Fayed opened the hall by donning an Egyptian head dress and robes.
Famously, the store has also acted as a shrine to Al Fayed’s late son Dodi and Princess Diana. Two memorials to the late couple are on show in the store — a bronze statue of them dancing, which stands near to one of the store’s entrances, and a shrine on the lower ground floor made up of photos of the couple and some of their possessions surrounded by candles.
Aside from these quirks, Al Fayed ploughed his funds into updating Harrods’ retail space. Last year, the store’s 50,000-square-foot men’s wear department underwent a 9 million pound, or $13.3 million, makeover, as did Harrods’ homewares area. During Al Fayed’s tenure, an Urban Retreat spa launched on the store’s fifth floor, along with a new cosmetics hall and a marble-walled accessories department.
He made the opening of the Harrods January sale a photo opportunity, inviting celebrities from Eva Longoria Parker to Mischa Barton to Elizabeth Hurley to open it.
He also expanded the Harrods concept outside of the Knightsbridge store. In 2006, he opened 102, a posh delicatessen and convenience store opposite the Knightsbridge flagship, and there are Harrods concessions in four of Heathrow Airport’s terminals.
Al Fayed has introduced Harrods branded businesses to capitalize on the store’s name, including a bank, real estate services, and a helicopter charter company, all of which were included in the sale to Qatar Holding.
Yet despite constant speculation he would open more flagships — in everywhere from Dubai to Chicago — Al Fayed never made the move of exporting the Harrods concept abroad.
His tenure as owner of Harrods has also not been without controversy. Many upper-crust Brits refused to enter its doors after Al Fayed bought the store, and the negative feelings toward him only grew with his outspoken campaign to prove the deaths of his son Dodi and Princess Diana were murder ordered, he claimed, by the British royal family because the couple was about to be married. Numerous investigations into their deaths have never uncovered any evidence of that, and found they died in a tragic high-speed car accident.
Harrods also lost its long-held royal warrants that had been displayed on the store’s facade. When Al Fayed had to remove them, he replaced them with the Arab crest.
In the Eighties, he battled with the late British businessman Roland “Tiny” Rowland for ownership of the store in one of the most vituperative and colorful takeover battles and feuds in British business history. Al Fayed accused Rowland of campaigning against him in the Observer newspaper, which Rowland then owned, and Rowland had the British government’s Department of Trade and Industry launch an investigation into Al Fayed and his activities. No action was taken as part of the investigation — though it did find Al Fayed and his brother Ali misrepresented the extent of their wealth when they bid for House of Fraser. It was never determined where the Al Fayeds actually got the funds to buy the company. Rowland and Al Fayed eventually reconciled in 1993.
The Harrods transaction dovetails with Qatar’s ambitions to become a leading shopping and lifestyle destination, said Malik Awan, a Doha-based retail consultant with 25 years’ experience in the Middle East region, citing such attractions as Lusail City, Cultural Village and The Pearl Qatar, a Riviera-style marina ringed with luxury shops.
While he declined to give names, Awan noted that Qatari investors have recently shown interest in major international luxury brands “including one of America’s high-end department stores.”
According to Awan, who has headed operations for Harvey Nichols and Saks Fifth Avenue in Saudi Arabia, the ambiance and product offering at Harrods is well suited to Arab tastes, particularly its famous food halls. To wit: He said he could see smaller units of Harrods, in the 400,000- to 750,000-square-foot range, working well in the region.
Awan said no fewer than eight shopping malls are currently under development in Qatar, including one that is five miles long, as developers aim to capitalize on an oil and gas rich emirate with one of the highest GDPs per capita in the world. He said sales productivity in luxury boutiques ranges from $1,300 to $2,100 a square foot, and noted that most retailers reported increases in excess of 20 percent in the first quarter, following robust growth last year despite the global financial downturn.