Behind the demise of Harrolds: A cautionary tale or singular case?

Despite the owners “pouring everything into the business”, Melbourne luxury retailer Harrolds entered liquidation last month after failing to overcome a slew of unfavourable conditions and setbacks.

The downfall of the almost 40-year-old business raises the question of whether this is a sign of things to come as retailers struggle to compete with the increasing e-commerce capabilities and convenience of retail goliaths on the global market, or whether it is a case of Harrolds facing a ‘perfect storm’ of challenges on multiple fronts.

Tough times

“We’ve poured everything into it, given it every opportunity and it got to the point where it just couldn’t work,” Ross Poulakis, Harrolds Group’s managing director, told Inside Retail.

Retailers in Australia and globally have been navigating a turbulent economic climate while still experiencing repercussions from the Covid-19 pandemic lockdowns.

“It’s not a case of what has been the final straw; post-Covid has been extremely challenging,” Poulakis said.

“I’m not the only retailer who’s going to sit there and say it has been challenging. There’s many businesses that have gone under, bigger businesses. Locally, the recovery has not been there and when we were allowed to reopen during shutdown periods, that was effectively like being closed,” he continued, referring to Melbourne’s pandemic policies.

“I’ve grown up in Melbourne and seeing Collins Street like a ghost town, it’s never recovered. Office vacancy rates in Melbourne are the highest in Apac and that’s the fact that we’ve been told by Colliers,” he added, before questioning what the local, state and federal governments are doing about this.

“Retailers and hospitality vendors need people in the city to be able to trade. How are you meant to sustain a business to move forward? We’re not the only ones that aren’t performing, we’re just one of the many businesses that unfortunately don’t have the big chequebook behind us to get through the period, like our competitors,” he said.

“The Covid restrictions imposed in Melbourne were our greatest problem, we had two years of pretty much no trade and no foot traffic in the city,” Poulakis said, adding that, “installation of bike lanes, out of nowhere, popped up all around the city and killed our traffic flow.”

“I had clients tell me they refuse to shop in the city now,” Poulakis said. They told him it was “easier to drive to Chadstone, valet the car and go shopping” than to navigate public transport.

Increased interest rates also played a massive part in the business’s downfall, he said.

SMB Advisory was appointed liquidator of Harrolds Group and placed its four entities  – Harrolds Logistics, JTP Sydney, Harrolds Femme and Nelson River International – into liquidation at the start of October.

Earlier this year, it was reported that Harrolds’ Melbourne and Sydney stores would be relocated as part of the business’s plan to return to sustainable profit, however, the business remained plagued by difficulties in the retail sector. It reportedly owed creditors $12 million at the time of liquidation, according to 9News, citing a statement from SMB Advisory.

Nick Gray, retail and brand specialist and founder of I Got You Consultancy told Inside Retail that while there’s been a noticeable shift towards online shopping, “in luxury, customers still treasure the in-store experience — the emotional and tactile elements are absolutely crucial”.

“The market continues to be challenged with striking a balance between the convenience of digital shopping and the sensory richness of in-person engagement, which high-end luxury shoppers value when making buying decisions,” Gray said.

Notably, Harrolds was a latecomer to e-commerce, only launching an online shopping site in 2020. It officially closed the site a number of months ago, Poulakis said. But if the business had a more robust digital presence, it may have been able to offset the decline in foot traffic to its CBD stores.

“Foot traffic in city centres has dropped along with a more cautious approach to spending currently, but those who have invested in omnichannel strategies seem to be keeping up with the changes,” Gray said.

Make or break

Harrolds was an aspirational brand that aimed to provide Australian shoppers with a retail experience they didn’t have before it was established – one that resembled Harrods in London.

“Harrolds achieved that for a long period of time,” Poulakis said, calling the retailer a victim of its own success.

In particular, he believes Harrolds succeeded in introducing many luxury brands to the Australian market, such as Saint Laurent, Givenchy, and Alexander McQueen, but then lost business when they saw an opportunity to open their own stores or e-commerce sites.

“Brands coming in direct to the market off the back of the success that we had with them, that always plays havoc on my mind,” he said.

Ultimately, Gray believes several issues contributed to Harrolds’ downfall – being late to the market with e-commerce, declining CBD foot traffic and external pressures.

“The luxury retailers that are thriving have managed to find that sweet spot between their digital and physical offerings,” Gray said.

Investing in expensive leases in CBD locations made sense for Harrolds in a pre-pandemic world, but the decline in foot traffic during the lockdowns made the business vulnerable and diminished its profit margins.

High operational costs, combined with what Poulakis described as “unfavourable government policies” likely added significant strain.

“Harrolds had a rich in-store experience, but in a world where convenience and omnichannel flexibility are becoming standard, it simply wasn’t enough,” Gray said.

“Within the luxury space, purchases in-store well outweigh online with only approximately 5 per cent of luxury shoppers completing their entire journey exclusively online.”

Nevertheless, he believes the brands that will lead the way in Australia’s luxury market are “those that understand the psychology behind luxury shopping and can create a holistic journey that speaks to both the emotional and practical needs of their clientele”.

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