Summary Harrods Department Store, 8th May 2010) mainly selling

Summary

This report provides an analysis and evaluation of Harrods Ltd and their potential future changes to their PESTLE marketing environment. Methods of analysis include trend analysis as well as graphs and diagrams. All the external sources can be found in the references and ‘graphs and diagrams’ section of the report. Results from my findings shows that because Harrods is such a large business, they are always on the front of controversy and PESTLE environment issues. They are constantly facing legal issues such as discrimination due to the high volume of employees they have. Recommendations discussed include:

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Moving into new markets 
Re-evaluate current productivity 
Analyse their key cost areas 
Consider different pricing methods 
Introducing IT into their research

These recommendations highlight the future changes that Harrods could implement into their business in order to improve future profitability, maintain the steady flow of sales and expand into new markets. These changes all link to the PESTLE analysis. 

Introduction 

This report will be focusing on Harrods Ltd, the worlds largest luxury department store. Located in Knightsbridge, London; the store was established in 1849 (BBC News, History of Harrods Department Store, 8th May 2010) mainly selling tea and groceries in a single room. Since then, they have expanded and now have around seven floors and 330 departments spreading across more than a million square foot (BBC News, History of Harrods Department Store, 8th May 2010). 

Harrods attracts an estimate of 15 million (BBC News, History of Harrods Department Store, 8th May 2010) customers each year offering everything from perfumes and medicines to clothing and food. The store was owned by an Egypt-born family, but was later sold to a Qatari royal for £1.5bn (The Telegraph, Harrods Shoppers ‘are buying into terror’, Robert Mendick, 12th October 2014); who since have invested and changed the appearance of the store. 

In 2016, Harrods made £247.6m cash and £1023.2m net worth (Company Check UK, Harrods Group Limited, 2017), and has continued to increase their profits and sales. The purpose of this report is to investigate the future changes in the PESTLE marketing environments of Harrods and will also be explaining how the PESTLE analysis can have an effect on the profits and financial profile of the company. There will also be recommendations for how Harrods could improve its future choices in order to benefit the Company.  

Methodology

This chapter of the report discusses the research methods used in the analysis of Harrods PESTLE marketing environment. There are various strategies and procedures in identifying sources for information on the impact of PESTLE and how it can influence future changes to the businesses profitability. The method of research used: data collection, validation of the sources, data reliability, description of the study, analysis of the gathered data. 

The report was utilised using secondary data, the data has already been published and used before however, because this data is online, it means that the information is more current, and allows the validity of the report to be more accurate and credible for the audience. The secondary research includes:

Charts and diagrams 
Periodicals and Journals 
Government publications 
Academic publications 
Articles (News, Magazines, Independent sources)

With using secondary, there is the risk of the data not been credible reliable for use in the report. Without knowing the true source of the data, there is no means in telling whether the data is accurate or classed as been ‘fake news’. 

Results –
 Political Factors 

Harrods attracts an international custom and so tourists are willing to travel long distances to shop in the department store. The initial journey to get to the store isn’t always easy, (for some countries i.e. China) they have to use a Visa in order to enter the country. This can create a poor customer experience. Harrods therefore worked with the Government to arrange a store based customs officer. This enables tourists without a Visa to avoid queueing at the airport, and instead obtain one direct from the store. By introducing this system it enhances Harrods already high customer service. Because of the direct flow of customers, instant money is been spent.

? Moving into new markets and countries would enable Harrods to target new customers through research and marketing. By improving their market strategy they are able to create new revenues at a minimal cost. Although expanding into new markets can be risky, it would mean that the Company would be creating new product ranges and expanding based on their research. 

The UK’s business rates system recently changed resulting in Harrods paying higher rates. This has hit Harrods particularly hard compared to other high street stores as their property is worth £12m, this increases their rate by 43% (Evening Standard, London is The World’s Retail…, Michael Ward, 6th March 2017). The money paid by businesses is used to improve infrastructure. This political change results in all business in the area paying higher rates due to the high value of their properties. This puts a high burdening cost on those businesses. However, the positive is the reinvestment is improving the area from the increased revenues. 

? Harrods should examine their key cost areas and manage their expenses more effectively, to increase future profits. Each department (330) generates a different level of profit. Harrods would need to become more cost effective and ensure each department achieve a minimum profit level. Harrods could look at wether they are getting the best deal from their suppliers. Due to their luxury brand status, Harrods are in a position to negotiate better terms with their suppliers. 

Economic Factors 

Harrods is owned by Qatar Holding, a sovereign wealth fund (The Guardian, Harrods Pays Qatari Owners …, Zoe Wood, 30th October 2014). In 2014 Harrods had a profitable year which saw a growth and profit surge, this was due to millions been invested by the Qatari owners in attempts to re-energise the store and improve its appearance (a new escalator and grand hall decor). Immediately an increase in wealthy tourists travelling to the store to was evident, this investment not only changed but benefited the store and their concessions as well. By the end of the financial year, Harrods dividend was at a record of £118m, this is almost double of the £68.6m in previous years (The Guardian, Harrods Pays Qatari Owners …, Zoe Wood, 30th October 2014). Not only has this investment resulted in more profits but it has meant that their demand and supply has increased as well. Due to this new customer loyalty, Harrods will continue to flourish in the foreseeable future.

? Harrods should consider different pricing methods. (LearnMarketing.Net, N.D.) Harrods pricing can change on a regular basis, it may mean that they can increase or lower their prices without causing any risk to their sales. They cannot lower their prices too much, otherwise this compromises the brands integrity. There are different pricing methods that the business could consider, such as: Up-selling and Cross-selling. 

Harrods has international concessions that sell some of their smaller products. Economic factors can have an impact on what happens to the stability of these stores. Harrods currently has a concession in Johannesburg, South Africa, which has been running for 159 years (Reuters, After 159 years, ‘Harrods of South Africa…, Olivia Kumwenda-Mtambo, 27th July 2017). However, there was an economic slump, which meant that the store had to close, this slump was due to a recession and also competition from online retailers.

? Harrods could consider expanding their current market internationally and look into  countries which are financially stable. Immediately expanding into a new market can be difficult, so Harrods would need to review their current services to see if they would suit that particular market. Harrods could use their social media to access demand for specific products. Harrods has an international customer base allowing them to make informed business judgements into where they can expand and gain new customers with reduced risk.
Social Factors 

With over 9000 employees (Independent, Harrods Restaurant Workers Win Battle…, Rachel Roberts, 20th January 2017) from kitchen staff to directors, it is key that Harrods respect their staff to make sure they are happy and fulfilled. They have over 23 different restaurants (BBC News, History of Harrods Department Store, 8th May 2010) from; Ice cream parlours, Chinese restaurants, American cuisine to British Heritage. Common to restaurants are service charges, this charge is typically around 10% (Independent, Harrods Restaurant Workers Win Battle…, Rachel Roberts, 20th January 2017) and goes directly to the employees. Harrods recently had an issue when their kitchen and waiting staff were told that they would no longer receive this charge. The Harrods service charge was originally 12.5% (with the employees receiving a portion) but has now been reduced down to 10%, which the staff will now receive. (Independent, Harrods Restaurant Workers Win Battle…, Rachel Roberts, 20th January 2017). This affected the staff members physical and mental health as it was reduction in income. For employees on minimum wage in London it can be difficult to have a financially stable life. Without this additional income, the employees can be demotivated giving customers a negative experience.

? This concession results in staff productivity increasing and the customer service will improve. Harrods could start to conduct staff performance reviews identifying key issues, building skills and keeping them motivated. Harrods could also reward their staff with incentives i.e. money value or a weekend getaways, which in turn would improve their productivity. Allocating more time for the staff to take breaks, have incentives and feel rewarded means that throughout the day a high customer service would be maintained. Staff are the heart of the company and when they are productive and customers are happy, then profits continue to surge and rise. 

Harrods could target their customers to gain not only recognition but to develop their brand; using customers opinions. Harrods targets a wide variety of customers from different age ranges, however, they have less youths shopping in store. To change this, Harrods used The Vogue Festival to target the youth audience (Campaign, Harrods To Target Youth Audience…,  Matthew Chapman, 11th March 2014), this unique festival is where some of the biggest names in the fashion come to display their trends and engage with younger audiences. By using connections such as this, it makes them stand out from other stores. With the youth consumers now in their demographic, this hosts a new range of future prospects for the store.

? Working closely with festivals in the future, results in the business building stronger connections with their youth customers. Social media keeps customers loyal to the brand. Harrods needs to be more proactive with their word of mouth, they typically target their customers through their app (Harrods Media, 2017) and online presence so introducing new forms of marketing is very beneficial. This word of mouth can be established by Harrods using its employees to verbally promote the business. It is important that the business appeals to a wide range of customer profiles. 

Technological Factors 

Technology is evolving at an ever faster pace. Harrods has had to adapt to this change to not only make their profits increase but to create new marketing strategies. Recently, Harrods introduced face-detecting ads in their store, which profile customers based on what they see (The Drum, Harrods To Use Face-Detecting Tech…, Natalie Mortimer, 8th October 2015). Located near their famous escalators, these moving ads gather information on customers to see who is viewing which campaign and how engaged customers are. This type of technology is relatively new, however, they are not the only brand to use this in store i.e. Tesco also implemented this. This change prepares them for the future. Harrods have no choice but to adapt changing technology; these changes can help businesses progress and become more successful.

? With the new IT, Harrods needs to have the right organisation, processes and leadership (Li. Z.S, Jain. K.A, 2011, Handbook of Face Recognition, London, Springer) skills in order for them to sustain performance. The new technology means that they now have to develop their IT skills. The business needs to understand the system so that they can use it effectively. The employees require leadership to utilise the new technology. 

Digital marketing targets customers directly on their mobile phones and computers. Through direct targeting you then find yourself looking through their website and purchasing items. Because Harrods sells products to consumers from all over the world, they have to use a marketing strategy that engages customers digitally. Harrods Media (Harrods Media, 2017) is a campaign strategy for brands through a variety of multi-channel points. There are risks and creative opportunities associated with moving to digital marketing, however, it generates data and enables analytics. Through social media, Harrods can broadcast messages about their products and business. A downside to this is the negativity online. Having an app shows a level of creativity and that the company is IT literate.

? Employees cost a lot of money to train and their wage costs is a major business expense. By reducing staff costs, they will be more profitable in the future. An example would using tablets to locate products. This is more efficient for customers to get a faster customer service. With this technology, Harrods would reduce the customer support times. Reducing staff in the long term means more money to spend on other areas.

Legal Factors 

As the first initial customer contact, the employees are very important in the brand appearance. Harrods have a dress code which over the years has changed to fit their brand. Their female employees are to be ‘timeless, sophisticated and elegant’, whilst men need to be ‘smart, sophisticated, and debonair’. (DailyMail, Why You Need To Be Exceptionally Well-Heeled…, Martin Delgado, 11th October 2009). The dress code is to ensure that employees always look presentable and give the right corporate image. Recently a sales assistant in the HMV section lost her job over her refusal to wear full makeup (The Guardian, Harrods ‘Ladies Code’ Drives Out…, Caroline Davis, 1st July 2011). The employees are supported by the Employment Law as employers are allowed to impose dress codes for their staff. The employers have to show a good reason as to why they have the dress code.

? Harrods could review their current Anti-discrimination policy (ExpertHR, How to Prevent Discrimination In The Workplace, N.D.), this policy makes it clear to the employees the types of behaviours that are tolerated within the workplace. They could review their policy to see what they could change and improve to avoid these situations. Harrods could introduce a training program to identify when discrimination can occur. A way they could reduce discrimination claims would be to overview their current uniform to suit a wider range of employees whilst still keeping it professional.

Harrods has over 9000 employees (BBC News, History of Harrods Department Store, 8th May 2010), which means that discrimination is always an issue. No business wants to be known for discrimination as it can tarnish their reputation. In January, Harrods was involved in discrimination by a black woman applying for one of their roles. Whilst been interviewed for the job, she was told that she must chemically straighten her naturally curly hair as it was not professional (The Telegraph, Black Woman Told To Straighten Hair…, Harry Yorke, 25th January 2017). More allegations were made because some employees refused to wear 4-inch heels for work, as they find this was causing health issues. (DailyMail, Why You Need To Be Exceptionally Well-Heeled…, Martin Delgado, 11th October 2009). Although this hasn’t quite disrupted the profit cycle, it may have a future affect as to how the business is seen particularly by minority groups. 

? Discrimination should rarely occur when an applicant is advised of the dress requirements at the interview stage. A way for Harrods to further avoid claims, could be for them to adopt a more relaxed dress code for certain periods throughout the year e.g. Summer. Harrods could allow their staff to wear a more comfortable uniform. Harrods needs to understand why they have a certain dress code in place, the benefits and any potential discrimination.  By changing the dress code to suit more people the business would appear more diverse and accepting of different cultures. 

Environmental Factors 

Harrods have used their own delivery system for many years. The Mayor of London has recently triggered the Capital’s Emergency Air Quality Alert due to the high pollution in London (Express, Diesel Car Emissions…, Luke John Smith, 2nd October 2017). The main cause of the harmful pollution is the amount of diesel and petrol transport in London, this impacted Harrods due to the vehicles they were using. Instead they have re-introduced electric vehicles. The new vehicle is a Nissan e-NV200 (IPWEA, The Iconic Retailer Harrods Of London…, Intouch, 20th April 2017), this was based on the original vehicle they used but with new technology and a modified drive. “The e-NV200 has a range of 170km from a 360 volt Lithium-lon battery with seven or four-hour recharge time” (IPWEA, The Iconic Retailer Harrods Of London…, Intouch, 20th April 2017). This will create a sustainable future, improves the Company’s image and helps to bring down their costs. 

? Harrods could make their business more environmentally friendly, (Huffpost, 7 Smart Ways To Make Your Business…, Nadia Griezans, 23rd October 2017) reducing pollution. This attracts new custom and opportunities for the brand. Harrods could potentially save lots of money by cutting down on everyday resources They could reduce the amount of water usage and introduce solar panels. These changes can be expensive short term investments but save money in the longer terms. Recycling is a cheap effective way to introduce environmentally friendly practices. 

EMEX is an energy management show that connects all energy users with leading experts (EMEX London, 2017). This show allows businesses to help control energy costs, gain industry insights, source innovations and share knowledge. Harrods attended a show in London (PRNewswire, UK Businesses Unite To Boost UK Energy Efficiency…, EMEX, 15th November 2017) in order to increase their energy efficiency and reduce their operational costs. Harrods uses a lot of energy and so they need to manage their energy consumption in order for them to avoid increases in prices on their products and services.

? Harrods could become more energy efficient to increase profits (NHF, 7 Ways Of How Becoming More Energy Efficient…, Dr Denise Baden, N.D.). Investors and brands love energy efficient businesses, not only does this make them look good but it allows them to save money in the process and be environmentally friendly. Changes could include; Turning off appliances which are not in use, change to energy efficient lighting. The employees play a large part in energy consumption, Harrods could have regular staff meetings to make them aware of how to reduce energy usage.

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