Byline: James Fallon

LONDON — Dickson Concepts Ltd. has already proven it can turn around a major department store operation through the successful growth of its Harvey Nichols unit here. If Dickson’s deal to take over Barneys Inc. goes through, and the store is operated in a manner similar to Harvey Nichols, the suppliers and staff of Barneys will be faced with a tough new regime.
Dickson bought Harvey Nichols in October 1991 for 53.6 million pounds and has since increased its sales area by 20 percent, added more leased departments, cutback on nonessential staff, opened another store in Leeds, England, added new restaurants and demanded tough contractual terms from suppliers.
Through this overall strategy, Dickson has been able to boost the company’s profitability sevenfold, recording pretax profits of 12.14 million pounds in the year ended March 29. Sales have leaped more than 200 percent to 114.25 million pounds.
“The key in running a store like Harvey Nichols is how good is the merchandise, how good is the shop floor, how good are the buyers and how good are your deliveries,” said Joseph Wan, managing director of Harvey Nichols and the person credited for much of the success of the store.
Sources have speculated that Wan could be tapped to head Barneys if Dickson is successful in buying the ailing U.S. retailer.
“Harvey Nichols is a great business going forward,” said Richard Hyman, chairman of retail consulting firm Verdict Research Ltd. “They have made it into a brand. It’s an entity more than the products they sell.”
When Wan took over as managing director of Harvey Nichols in August 1992, the Knightsbridge store was like a dowager trying to hide her wrinkles with a bit of makeup.
Harvey Nichols was founded by Benjamin Harvey in 1813 as a linen shop. He bequeathed it to his daughter upon his death in 1820, provided she go into partnership with Colonel Nichols. In 1919, the British department store group Debenhams bought it, and in the Twenties it became known as a fashion leader.
Debenhams was acquired by The Burton Group, a mass-market retailer of women’s and men’s wear, in 1985. Harvey Nichols catered primarily to the local ladies of Knightsbridge, who preferred its smaller size to that of its larger rival, tourist-oriented Harrods.
Burton invested little in Harvey Nichols for the first few years of its ownership, as it focused on expanding its mass-market chains. In July 1988, it recruited American Richard Maney from Lord & Taylor to boost the store’s performance. Maney remodeled the store’s designer floor by adding in-store shops for such designers as Calvin Klein, Donna Karan, Ralph Lauren and Claude Montana. He also improved its systems and initiated plans to add a fifth-floor food hall.
When the British recession of the late Eighties began taking its toll on Burton, it decided to get rid of the upmarket Harvey Nichols, which didn’t fit in with its mass-market specialist and department store operations.
Maney’s moves had raised the store’s fashion profile — by the early Nineties it was London’s largest retailer of American designers — and improved its performance, but it still was operating at a small loss. Dickson Concepts, which at that time was relatively unknown in the West, apart from its S.T. Dupont accessories chain, was the winning bidder. Wan was Dickson’s group finance director in Hong Kong and helped negotiate the takeover of Harvey Nichols.
Dickson moved rapidly to turn around Harvey Nichols, located on Sloane Street down the road from Harrods. Less than six months after completing its takeover, it announced plans for a multimillion pound investment program to boost the store’s selling space 15 percent by getting rid of offices in the building and adding the food hall.
Dickson stepped up modernization of the store’s information systems, including new merchandising and financial packages and an Electronic Data Interchange system with its major suppliers. It also opened a small Harvey Nichols store in Hong Kong selling the store’s private label women’s wear. Wan, who assumed the helm of Harvey Nichols as part of a management restructuring, accelerated these moves.
In the six years since it bought the store, Dickson has invested about $22.4 million (14 million pounds) in expanding and modernizing its seven floors and in new systems.
“The space when I came was not being well utilized,” Wan said in an interview in his office up the street from the store. “At that time there was only 120,000 square feet of selling area with administrative offices inside. So the offices were moved out, which released a lot of space for retailing. That has contributed to significant increases in sales.”
The store’s selling area has increased to about 155,000 square feet out of a gross internal floor space of 225,000 square feet. This year, Harvey Nichols added more men’s wear selling space to its lower ground floor and also completed the first phase of its refurbishment of the ground floor perfumery and accessories departments.
The store now has sales per square foot of about $1,120 (700 pounds), Wan said. This is second among London department stores only to Mitsukoshi at $1,632 (1,020 pounds), according to British retail consultants Corporate Intelligence Group.
Almost as important to the retailer’s turnaround has been the cost-cutting program that Wan instituted.
“Previously there were whole buying teams for women’s wear, men’s wear, home furnishings and accessories,” he said. “The first study I conducted was on the home furnishings area, and I realized the team we had was too heavy. So I got rid of the team and converted home furnishings into a concession (leased department). That enabled us to cut overheads and improve our product offering.”
He continued the process throughout the store’s management and merchandise mix. The buying and merchandising team for the Harvey Nichols stores in London and Leeds now totals only 40 people, and their salaries are tiny compared with those of their U.S. counterparts. The highest-paid director, Wan, had wages of $431,612 (269,758 pounds) last year, while the next-highest salary was only $132,000 (82,500 pounds).
As for the merchandise mix, leased departments in apparel, accessories and home furnishings now account for about 40 percent of the London store’s sales. They are about 30 percent of sales in Leeds, although Wan said this percentage will gradually increase over time. A typical contract for leased space is three years.
“We are comfortable with the split at 60-40,” he said. “We believe that will enable us to increase our sales per square foot at a constant 10 percent rate a year. Our annual ritual is always to identify the poorest performing 20 percent of our brands. We carry more than 100, and that enables us to focus sharply on the bottom 20. They then are on notice that 12 months from then they will either be kicked out, if they do nothing, or we can work with them to improve their performance.
“You would be surprised once someone is notified they are on a hit list how their performance grows. And that is a constant process for us because there will always be a bottom 20 percent. We are in a lucky position because there always is a long queue of brands that want to come into our store, and the new ones are always better than the old in terms of performance targets because we have higher bargaining power to insist on better terms.”
The process applies even to the store’s contractual services like cleaning.
“What they are very hard on is in the negotiation of a contract, even down to their suppliers,” one observer said. “Dickson Poon is very hard-nosed in that regard. You have to hand it to them, because it gives them a guaranteed return on sales. That focus on the contract goes to everything they do. But that means that looking at the merchandise mix and who are the right suppliers and designers for the store aren’t high upon their list. It’s the contract terms that matter.”
The new Leeds store is a perfect example of Wan’s tough bargaining. Harvey Nichols identified several possible cities for its first store outside London and opted for Leeds for a variety of reasons, including the fact that it has a population of 1.8 million people. But one of the main reasons was the fact that it got the site on two 125-year leases at a peppercorn rent and a 15-year lease of an area for a second entrance for a rent of only $40,000 (25,000 pounds) a year. However, some analysts claim the store’s location isn’t ideal, even though it has performed up to expectations.
“It isn’t an ideal shape, and it gives the impression the merchandise is a bit crammed in,” one observer said. “Nor are the sight lines wonderful; you can’t see across the sales floors. It’s a compromise, as it inevitably had to be, because it was already an existing site. They went for that rather than building a store from the ground up, which would have cost a lot more.”
Analysts also contend that major challenges lie ahead for Harvey Nichols, 49 percent of which was floated on the London Stock Exchange earlier this year. The shares were offered at $4.32 (2.70 pounds) and recently stood at about $4.43 (2.77 pounds) after reaching a 52-week high of $5.97 (3.73 pounds).
The main hurdle is whether the retailer can maintain its impressive growth rate of the last few years, especially as such rivals as Harrods and Selfridges complete multimillion dollar remodeling programs aimed at boosting their fashion profiles.
“They are going to have to work hard to sustain their business,” one analyst source said.
Retail analysts were disappointed by the store’s yearend results and were concerned by the $1.6 million (1 million pound) opening costs for the Leeds store and the Oxo Tower restaurant. Wan claims the disappointment stemmed from a misunderstanding at the time of the public offering. To help justify the offer price, the retailer’s advisers, Morgan Stanley and HSBC James Capel, began informing prospective investors that it would have 34 percent to 35 percent growth over the next few years.
However, Wan contends such a target was never in the management’s head.
“We believe we can deliver a minimum of 25 percent per annum growth over the next two years and that is what we’ve always said,” he said. “The market was disappointed with our results because it was looking for 34 to 35 percent versus our expected 25 percent.”
Sales growth was actually 26.6 percent, to 114.2 million pounds from 90.2 million pounds, the previous year.
Most of the future growth will come from opening new stores and restaurants and from imposing tougher terms on suppliers and leased departments. Even Wan acknowledges there’s almost no more space to be had in the Knightsbridge store.
Harvey Nichols plans to open two more stores outside London over the next few years and has identified Glasgow or Edinburgh as one site and Manchester or Newcastle as the other. These two stores will be larger than the Leeds unit.
“We believe we have timed our expansion projects very well,” Wan said. “We believe that 12 to 18 months is a reasonable gap between the opening of a new store or restaurant and the announcement of the next one. So that gives a clear timetable, and we are under no pressure to accelerate that.”
The retailer also is considering opening stores outside the U.K., despite the poor performance of its initial venture into Hong Kong shortly after Dickson Concepts bought it. While Wan dismisses any idea of a Harvey Nichols in Paris or New York, he said it certainly would look at overseas markets once its four British stores are completed.
“We already have received approaches from overseas markets exploring the possibility of operating or building a Harvey Nichols through a franchise or a license,” he said. “We now are holding discussions, and if they mature then it would be totally risk-free. We’d only be there to oversee that the standards match those of Harvey Nichols in the U.K.”
“When you have a brand name, the only sensible way to expand is into overseas markets,” he added. “But we would consider only emerging markets where there is little or no competition and where we could do it with a local partner who knows that market.”
Meanwhile, Wan is working hard to get even better performances from its existing stores by installing a new daily stock management and sales performance analysis system.
“A lot of missed opportunity in retailing is in stock-out,” Wan said. “If we can capture those missed sales, then we can increase our sales by 10 percent to 20 percent.”
Observers say Wan is likely to bring the same analytical approach to Barneys if he is picked as its head. While competitors and analysts claim he’ll have his work cut out for him, they also believe he’ll succeed in the long run despite the differences between Harvey Nichols and Barneys.
Wan isn’t worried about Barneys just yet, even though he’s been involved in negotiating the deal. Asked if he’s packed his bags for New York yet, he replied, “No, no offer has been discussed. I’m extremely happy here at Harvey Nichols.”

load comments
blog comments powered by Disqus