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UK Retail & Loyalty Review: Harrod’s a Winner

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Visitors to England usually have an easy to predict list of “must see” destinations during their stay. After coping with the adjustment to a different time zone, most are off to see Buckingham Palace, Big Ben, and the London Eye. With cultural needs somewhat satisfied, a bevy of High Street merchants are on the “shopping” list including Burberry’s, Fortnum & Mason, Harrods and Marks & Spencer, to name a few.

In these challenging economic times, one might assume that these big names might be viewed almost as touristic destinations with discounters being given the nod for actual purchases. That is not necessarily the case as the retail phenomena in the UK seems to favour the high and low ends of the market with only those mired in the middle encountering difficulty.

The grocery price war underway seems to reflect the trend as Asda; Wal-Mart’s European subsidiary is prospering while perennial market leader Tesco is seeking to re-establish its position by offering double points for the first time ever as part of its Club Card rewards program.

There appears to be a significant change in the UK Retail Fashion Market. Similar to the grocery retail sector, consumers are seeking bargains and the trend is for the low-price retailers (e.g. Primark, George at Asda, H&M) to enjoy growth in revenues, the middle-market retailers (e.g. Next, M&S) suffering a decline in sales whilst the high-end market is performing well with the likes of Hackett, Hugo Boss and Harrods showing significant results.

Over the past decade one of the most enduring trends on the UK high street has been price deflation. Fast and inexpensive fashion has become a fact of life for consumers used to being able to grab the latest looks at throwaway prices. The rise of value fashion has seen some of the biggest success stories of recent years with the likes of Primark, New Look and the supermarkets establishing cut-price clothing offers.

Retailers have been working with ever tighter margins to keep pace with the intense competition on price. But the global financial crisis has skewed a lot of the economic dynamics that made the rise of the value retailer possible, and now manufacturers, brands, retailers and consumers are all feeling an unprecedented pressure on finances.

The dramatic changes in the value of currencies, most notably the weakness of the sterling against the dollar and the euro, have meant that in the space of just a few months, suppliers and retailers have seen the cost of buying product (retailers typically buy in dollars from the Far East) rise significantly.

In this sector, Harrod’s posted surprisingly strong results as the Knightsbridge retailer owned by Mohamed Al Fayed said sales grew by 9% to hit a record £751.7m in the year to January 31.  For Loyalty Marketers, the news was good as well as the retailer commented that “take up of its loyalty card scheme had been strong over the period“.

Customer centric marketing combined with capital expenditure of £24m during the year were just a few aspects of Harrods’ secret to success. The fact that Harrod’s credits the loyalty scheme as a contributor to its recent success  tells us that Loyalty works among affluent shoppers as well as the mid-market. There is a similar case in the US, as Niemen Marcus continues to promote its “In Circle” program, generally rated as one of the best structured in the North American retail sector.

In other retail loyalty news, Debenhams withdrew from the Nectar Coalition Programme in 2008 as the relationship had failed to deliver an acceptable ROI for the leading UK department store.  I would suggest that Debenhams may have enjoyed greater success from the Nectar relationship if they had focused their Loyalty activities on Nectar rather than confusing customers by also offering their own Store Card Programme.

Nectar has now recruited House of Fraser and Next as new partners although points are only earned for online purchases. Marks and Spencer also operate a Loyalty scheme for their private label cardholders but also fail to recognise and thank other ‘loyal’ customers that prefer to pay cash or use another form of payment.

Across Europe there are numerous Fashion Retailer Storecard programmes offering rewards for consumers using high APR (average 19.9%) cards but seemingly ignoring the ‘invisible customer’ who may be a more valuable consumer.

It seems that Loyalty works with the affluent sector as in any other but, unlike the grocery market; Fashion Retailers are failing to create effective Customer Management strategies and only use Loyalty as a promotional tactic.

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