Introduction
This report aims at introducing a strategic development plan for Harrods department store to enhance its global competitive advantage by market development means. This case study is concentrated on one of the most successful department stores. Harrods department store was established in London in 1849 by Charles Henry Harrods. Since then, it has developed from a small store selling several items to a large multistoried luxury retail facility. According to the official website of the enterprise, it “is one of the world’s few single-site department stores, occupying a prime five-acre site along the Brompton Road” (Our locations, 2017, par. 1). The company has established itself as a competitive luxury brand heavily relying on celebrity endorsement, brand recognition, and an outstanding level of service.
A well-defined and evaluated strategy allows for achieving business goals that match a company’s current needs with its opportunities. In the organizational context of Harrods, strategy is very important for the company; it is built on such values as exceeding performance excellence and building trust with stakeholders through continuous improvement (Harrods government statement for Harrods Limited, no date). These principles guide its strategy toward maintaining a competitive advantage by diversifying its product range and growing target market (Ajagunna, 2019; Greve, 2021). Harrods’ strategy is a stability corporate strategy due to its reliance on brand recognition; business strategy is product differentiation and customer service improvement (Strategy, 2022). Harrods’ strategy is to integrate technologies, marketing, and brand reputation to maintain its competitive advantage at the functional level. In this report, Harrods’ strategic position will be analyzed, a strategic development option proposed and validated to ensure that the company enhances its competitive advantage using its strengths and opportunities.
Analyzing the Strategic Position of Harrods
To analyze the company’s strategic position at the center of this case study, one should establish and review the factors that form its external and internal environment. For that purpose, micro and micro-environments in which Harrods functions will be analyzed in this section of the report. Using such models as PESTEL, Porter’s Five Forces, capability model, SWOT analysis, and stakeholder analysis, this chapter will identify the strategic position of Harrods department store and its perspectives for its strategic development.
PESTEL Analysis
Figure 1. PESTEL Analysis of Harrods.
Figure 1 demonstrates the six spheres of macro-environment that influence Harrods’ strategic position. Firstly, at the political level, the influence of such factors as Brexit, British policies, global trade regulations, and tax policies have a medium level of impact on Harrods’ strategic position. In particular, the political situation in the United Kingdom has a major impact on the company’s customer flow and performance. The trade regulations related to the UK’s leaving of the EU might negatively influence the profit-making of Harrods. Indeed, according to Hughes (2019), the implications of Brexit might have monetary outcomes for the luxury industry in the UK, with losses reaching up to 6.8 billion pounds annually, as well as for Harrods in particular.
Experts state that with Brexit, the inconsistency between the policies and rule of trade in the European Union and the United Kingdom might cause companies to manage businesses (Brexit: What you need to know about the UK leaving the EU, 2020). However, since the taxation policies are unlikely to change soon, the functioning of the luxury industry in the United Kingdom will not be threatened by this factor. Nonetheless, the negative influences might be mitigated because the agreement between the EU and the UK implies free 90-day trips to the country from Europe (Brexit: What you need to know about the UK leaving the EU, 2020). Thus, the customers will have free access to luxury services and products, which will not have significant harm to Harrods’ performance.
Secondly, at the level of the economic sphere, the factors that might have a medium impact on Harrods include global economic trends, currency exchange rate, cost of labor and living, consumer buying capability. According to Chen et al. (2021), the economic implications of the Coronavirus epidemic have necessitated luxury brands investing in the development of digital means of operations to reach their customers, which has allowed for maintaining profit-making during the lockdown. As for the currency exchange rate, Brexit has negatively impacted the pound’s value, which might harm the economic situation in the country (How much did the pound drop after Brexit, 2020). The lower the value of the pound, the lower the cost of living, and the less likely people might be to purchase luxurious items. Nonetheless, Amaro (2020) suggests that Brexit has a positive impact due to the possibility of increasing prices according to economic trends. Moreover, a drop in the pound has attracted customers from China and the Middle East to the UK’s luxury industry, which regulates the negative impact of other economic factors and sets them at a medium level.
Thirdly, since Harrods is particularly reliant on the flow of customers from its target market, there is a high level of impact of social factors. Indeed, with the significant shifts in the political and economic domains, there is a change in consumer buying behavior and lifestyle, which predetermines the alteration in purchasing. According to Francis (2020), the Coronavirus epidemic has had a significant negative impact on luxury brands, although Harrods collaborated with digital platforms to navigate the situation. Overall, the COVID-19 pandemic has had a disruptive impact on customer behavior, shifting people toward online purchasing and saving due to instability. Due to the lockdown, Harrods significantly reduced the number of its employees (Hanbury, 2020). Therefore, the social factors have a very high level of impact on the competitive advantage and strategic position of Harrods.
Fourthly, the technological sphere includes such factors as innovation, technological advancement, the development of e-commerce, and the issues of cyber security that have a high level of impact on Harrods. In particular, Hon et al. (2020) state that “although Harrods are well-known and occupying the leading position amongst all the department stores, without any improvement and adaptation, it will be fallen shortly” (p. 44). Such a prediction is based on the trend of essential digitalization necessary for contemporary companies to survive (Jin and Shin, 2020). With the outbreak of COVID-19, Harrods was forced to collaborate with its competitor Farfetch to integrate digital technologies to maintain its sales level (Branco, 2021). Moreover, during the lockdown, Harrods had to be closed for the first time in its 170-year history, which has hurt the company’s performance (Hamill-Stewart, 2020). With limited experience in online shopping and increased competition online compared to offline, Harrods is particularly dependent on technological trends. With the transition to online, it competes with department stores and the online shops of the original brands, which imposes a high level of impact on its strategic position.
Fifthly, the environmental domain involves the shift toward a green economy and a set of governmental restrictions regulating economic performance in the country. According to Brydges, Retamal, and Hanlon (2020), sustainability issues have become more relevant in the era of COVID-19, which necessitates the adjustment of fashion and luxury retail industries toward emerging trends. With the growing danger of COVID-19 spread, the government of the UK closed the unessential sectors of the economy to protect the population from the health risks associated with social interaction (Prime Minister announces national lockdown, 2021). It caused a shortage in Harrods’ employees and ultimate sales, which was a disruptive factor for its performance (James, 2020). Therefore, environmental issues have a very high relevance for Harrods’ strategic position.
Finally, some issues in the legal sphere have a high level of impact on Harrods’ strategic development. They include labor and employment laws that directly impact the human resource management at Harrods with ultimate impact on its performance in the industry. According to Adams et al. (2021), the employment law has changed under the influence of COVID-19 to regulate social distancing. With the uncertainty of the lockdown duration, companies that closed, including Harrods, reduce the number of employees to balance their costs (Lawri, 2021). Thus, the legal sphere has a high influence on Harrods. Therefore, it is essential to incorporate the implications of this analysis for the development of a new development strategy for Harrods.
Porter’s Five Forces
Figure 2. Porter’s Five Forces for Harrods.
As Figure 2 demonstrates, the five forces of the external environment that might impact the strategic position of Harrods include the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes, and the threat of existing rivals. Firstly, the threat of new entrants is evaluated as of low influence due to the reputation of Harrods as a reputable department store with a long history. Indeed, history, brand recognition, and an exceptional British heritage embedded in Harrods attract loyal customers (Loh, 2020). Thus, new entrants are unlikely to compete with Harrods in providing the same kind of experience.
Secondly, the bargaining power of suppliers is considered to be of a medium level of influence due to the contemporary economic instability worldwide. According to experts, the latest trends in the global economy caused by Coronavirus make suppliers more influential (Pickup, 2021). Indeed, the management of Harrods considers that “from now on, the supply chain must be more about agility, to cope with volatility and uncertainty, and less about being lean” (Pickup, 2021, para. 4). Thus, due to the increasing dependence of the department store on its suppliers, Harrods might face a moderate to a high level of bargaining power of suppliers.
Thirdly, the bargaining power of buyers might be assumed as a medium influencer of the strategic position of Harrods since the target market consists of wealthy customers ready to pay for luxurious products. According to Richards-Carpenter (2017), there are two types of customers at Harrods, namely the wealthy and the “customers who buy luxury as a reward to themselves or when they can afford it” (p. 60). In both cases, the buyers prefer value and class, which does not imply their high bargaining interest but sets it on a medium level.
Fourthly, the threat of substitutes is low due to the experiences that customers seek when visiting Harrods department stores. Indeed, according to Javornik et al. (2021), the use of augmented reality branded details, and the implications of heritage, make Harrods a unique retail facility, the experience at which is often prioritized over the mere purchase of a product. Nonetheless, there is a low risk of substitutes obstructing the performance of the department store due to the hectic economic situation, which might shift consumer preferences to discount stores.
Finally, the threat of existing rivals is evaluated as a high level of influence. Indeed, Harrods currently functions in the same market with competitors have a significant opportunity to obtain customers and increase their competitive advantage over Harrods. In particular, Farfetch, Selfridges, and others operating both inside the UK and abroad provide similar products and customer service (Schmitt, Rossi and Bensoussan, 2022). For example, Farfetch is particularly influential in the digital world of luxury retailing, which is a considerable threat to Harrods regarding its entry to the online market. Thus, since there is high competition in London and other tourist destinations globally, Harrods should consider enhancing its market presence to ensure its competitive advantage over the existing rivals.
Capability Model
Figure 3. Capability Model for Harrods.
Figure 3 represents a capability model for Harrods within its major spheres of expertise. According to Gurbaxani and Dunkle (2019), a capability model allows for identifying all the areas in which an organization can detect potential improvements or strengths that might be used for further strategic development. In the case of Harrods, there are multiple spheres in which the company might use its expertise for further development.
In particular, its marketing strategies have been reliant on celebrity endorsement and personality advertising, which is a powerful tool in reaching the target market of wealthy people (Wixson, 2021). Moreover, the department store can deliver exceptional customer service due to the integration of branded details, such as interior design and branded bags, and integration of in-store experiences (Perry, Kent and Bonetti, 2019). Moreover, the company initiates training of its employees according to the highest standards to ensure exceptional service (Mogaji, 2021). Similarly, its experience in brand development has contributed to Harrods’ consistent competitive advantage and a flow of customers. Finally, Harrods continuously works on the diversification f its products range to satisfy customers and enlarge their population. Thus, it is important for Harrods to utilize these capabilities as strengths when implementing the newly developed strategy.
SWOT Analysis
Figure 4. SWOT Analysis for Harrods.
Figure 4 structurally demonstrates the distribution of the factors in both micro-and macro-environment that predetermine Harrods’ performance at present and might be relevant in the future. In particular, the positive external factors contribute to such opportunities as expanding the company abroad, integrating digitalization and online sales into Harrods’ strategy. Indeed, research shows that the population of consumers of luxury products from China spends an increasing amount of money globally, with over £110 billion spent in 2019 (Lau and Zipser, 2019). Moreover, according to Liu, Perry, and Gadzinski (2019), the luxury industry is developing fast in China, obtaining more growth opportunities in recent years and promising continuous development in the future. Thus, it might be a valuable developmental opportunity for Harrods to open a new department store in China to gain a global presence and enhance its competitive advantage. It might be paired with the integration of digitalization and online sales, which are the areas for growth for Harrods.
The strengths of Harrods are its internal positive features, which include the availability of a loyal customer base of a wealthy population who are ready to pay for the quality and class of products offered by Harrods. Moreover, as the analysis of macro-and micro-environment shows, brand recognition, growing product range, and continuous development of exceptional customer experience at Harrods make it a strong competitor in the industry. However, among the weaknesses that Harrods is characterized by, one that should be addressed is the reliance on the domestic environment due to one-store structure. Harrods’ dependence on the UK’s regulations has disrupted its performance during COVID-19 and limits its customer reach due to the connectedness to London. To eliminate this weakness, the company should consider expanding its facilities abroad. Another weakness is the lack of branded products sold in the store, implying that Harrods does not produce any branded product but only sells other brands’ items (Strategy, 2022). It might hinder its competitive advantage over rivals in the future.
As for the threats which constitute the external negative factors include strong competition with existing rivals, COVID-19 implications, growth of e-commerce, and an unstable economy in the UK. Since Harrods does not have a well-developed e-commerce model and does not actively use online sales for its operations, it might lose to its rivals. Moreover, the instability in the economic field imposes threats to the profitability and longevity of the business. All of these issues weaken the competitive position of Harrods and necessitate integrating its opportunities and strengths to minimize the risks.
Stakeholder Analysis
Figure 5. Stakeholder Analysis for Harrods.
As Figure 5 demonstrates, many stakeholders are involved with Harrods. According to Connor et al. (2018), stakeholders might be a significant risk factor for a company if their interests and level of power are under-addressed by organizational strategies and actions. Firstly, the stakeholders with a high level of power and a low level of interest include management, government, and customers. The strategy that Harrods follows concerning these stakeholders is the one that helps keep them satisfied with the department store’s performance. The stakeholders with a high level of power and a high level of interest are the owners and suppliers, the strategy with whom to engage and influence. Furthermore, competitors and community constitute a segment of stakeholders with a low level of power and a low level of interest, which is why they are monitored in terms of Harrods’ strategy toward them. Finally, employees are the stakeholders with a high level of interest but a low level of power. Harrods’ strategy here is to keep them informed about the operations and organizational strategy.
Thus, the analysis of Harrods’ current strategic position allows for evaluating it as a positive strategy that allows the company to navigate the difficulties in its external environment to continue functioning competitively. Given the number of strengths, opportunities, manageable risks in the external environment, and its agility in using its capabilities, Harrods can achieve its competitive advantage. The long brand history, reputation, and growth opportunities serve as a basis for the encouraged concentration of the organization on survival. The organization’s priorities, as informed by stakeholder analysis, include customers, managers, owners, and suppliers. Therefore, a new strategy developed based on the analyses is to open a new department store in China. Given the growth of luxury spending in the country and the growing customer base within the prospective target market of Harrods, the organization should expand abroad (Lau and Zipser, 2019; Liu, Perry, and Gadzinski, 2019). It will allow the company to enhance its global market presence, increase the number of customers, and solidify its competitive advantage. Thus, the new strategy will meet organizational expectations of increasing customer base and ensuring undisrupted operations.
Strategic Choices for Harrods
This section is designed to identify the strategic position of Harrods using the strategic clock model and outline the suggested strategic development option for the company. The section discovers the current position and the benefits of the proposed strategy to open a new Harrods department store in China and its fit in the overall organizational strategy. Furthermore, it discusses the strategy feasibility, acceptability, and suitability to the organization given its current strategic position.
Maintaining and Achieving a Competitive Advantage
To identify how a strategy is reflected in the company’s overall development, one should determine its current position in the strategic clock and validate a new strategy as beneficial.
Figure 6 demonstrates that differentiation strategy is at the highest point of perceived value to the customer and a high price level, which is the case for Harrods. Indeed, the differentiation strategy entails providing customers with unique products for a higher price to ensure their exceptional experience with the brand (Desmichel and Kocher, 2020). In this regard, the company should remain at the same spot in the strategic clock since this strategy gains high profits and has established a reputable brand name that competes successfully with its rivals. However, it is important to diversify and expand the number of stores and the target market demographics to solidify the global presence.
Directions and Methods for Strategy Development
The direction in developing the new strategy is market development that should be based on the latest trends in the target market. In particular, Rethel (2018) states that Asian markets experience a wave of financialization, implying a growth in the demand for luxurious goods. Rovai (2018) claims that the “Chinese market has its own socio-cultural norms and its luxury and fashion purchasing habits seemingly in constant evolution” (p. 116). Therefore, Harrods must develop its market in China to win the growing customer base before the entry of its rivals in the evolving market.
As for the method Harrods should employ when implementing its new strategy, it should be an internal development approach. Since the company is owned by Qatar and is supported by its wealth fund, it is assumed that there are necessary resources that might be allocated from within the company to ensure the successful implementation of the new strategy (Bottar, 2021). Moreover, according to Antoniades, Al-Jassim, and Gharatkar (2021), Qatar’s investment in the luxury business has been profitable. Thus, the company might utilize its capabilities, experience, ownership advantages, and market growth opportunities to implement the proposed strategy.
Success Criteria in Relation to Strategy
Figure 7. New Strategy Success Criteria.
The strategy is acceptable since it meets the needs of consumers for Asia and the world traveling to China satisfies the expectations of its owners and management in terms of obtaining a competitive advantage and steady flow of profit (Figure 7). The strategy is suitable for the current position of the company. It is validated by the new strategies’ ability to eliminate the threat of competition, which strengthens Harrods’ position in terms of its dependence on Brexit issues and the UK’s market concentration. Finally, the new strategy is feasible since it is based on competencies in marketing, talent management, brand development, and resource availability.
Managing and Implementing Strategic Change
This section overviews possible barriers and facilitators of change implementation with the change management steps necessary to integrate the proposed strategy. It integrates the Force-Field analysis to identify the distribution of facilitators and obstacles. In addition, this section contains the discussion of using Kotter’s Eight-Step change management approach to outline the stages of strategy integration. The management style, proper actions, and precautions are reviewed to demonstrate how the strategy will be monitored and implemented.
Figure 8 demonstrates that the barriers to the change implementation might include the difference in language between the Chinese market and London-based managers. Moreover, the relocation to China might impose challenges and the expected opposition to the change in the organization. However, these barriers or resisting factors might be mitigated by referring to such facilitators as seeing expanding to China as a promotion opportunity, enhanced cultural diversity, and overall company development. This change should be of an incremental type to ensure that the preparation, implementation, and proper adjustment and correction are made to ensure the endeavor’s success (Patel and Husairi, 2018). The leadership style that will help implement the strategy is situational leadership which allows for integrating change at multiple levels starting from the management of the company (Ferdianto, Tobing, and Barokah, 2019). It will also allow for addressing the issues related to the incremental nature of the change.
Figure 9. The Strategic Management Style.
Figure 9 demonstrates that the education-based and communication-centered strategy management style will obtain the most successful results. Through the integration of new employees into the process of working through education and continuous support and guidance with the help of communication, the new strategy will be implemented properly (Ogalo, 2020). Moreover, an important element of such a complex management style would be using technologies to facilitate communication and control. Thus, the development of the strategy will heavily rely on people, including managers, employees, and change managers, with a significant contribution to finance and technology.
While all the steps in Kotter’s change management model are significant, it is relevant to highlight that it might be the most challenging to communicate the change vision and empower employees. These considerations are informed by the results of the Force-Field analysis, which demonstrated the importance of employee engagement for strategy success. Thus, to ensure that the opening of a new department store is successful, the decision-makers at Harrods should engage the people in the process.
Conclusion and Recommendations
Conclusion
In summation, this report has presented the results of the analysis of Harrods’ strategic position and its perspectives for further strategic development, given its current situation and capabilities. The company is in a relatively positive strategic position employing a differentiation strategy as a successful luxurious brand offering value to its wealthy customers. However, the instability in the external environment, internal weaknesses, and rivalry threats impose danger on Harrods’ competitive advantage. Thus, it is important to develop its market by opening a new store in China, relying on the growing luxury market in this country. The strategy is feasible, acceptable, and suitable for the organization to implement incremental change through internal development.
Recommendations
The recommendations that might be relevant to implementing the suggested strategy might include re-evaluating the strategy achievement during the implementation to adjust goals. Furthermore, using the contingency theory might be beneficial to improve the decisions and ensure that the strategy is consistently advantageous for the company (Shao, 2019). In the future, the company might consider further market development in other countries with a noticeable luxury market growth.
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