Some companies are synonymous with London retailing. Harrods [IRDX RHAR] is a magnet for overseas visitors to the capital and during the recent slump in the value of the pound its ecommerce site saw an increase too. Simon Finch, Director of Distribution, Harrods explains how it handled demand as part of a wider business transformation plan.
Harrods has been making home deliveries since it opened in 1849 and some people still receive their weekly groceries from the department store in a similar fashion to their parents and grandparents. Customers today still have the option of telephoning the store to place an order and, of course, they can use harrods.com or have items purchased in store delivered to their home, hotel or plane.
Harrods.com delivers over 300,000 orders a year with more than 30% of them shipped internationally. Harrods has seen an increase in international parcel deliveries of more than 100% since the Brexit decision, according to its Director of Distribution Simon Finch. The impact on the pound has also been a key factor in the growth of international orders, especially from the US and the Middle East. Finch explains that orders can be placed for delivery to 70 countries via the ecommerce site but to 230 countries when orders are placed in the Knightsbridge store. Harrods.com operates with global pricing, multiple currencies and duty payments.
This sudden growth has brought challenges around the company’s capability and physical capacity to handle order volumes. Some of the issues were alleviated quickly with the size of its consolidation centre and packing area in Knightsbridge doubling in six weeks. This was through a combination of additional people, packing benches, warehouse locations and racking as well as extra capacity booked with carriers. Harrods has been delivering at a level that wasn’t expected until peak 2017. This boost in orders highlighted the need for a complete transformation of the supply chain.
This is being carried out as part of a wider programme of omnichannel change but, as Finch points out, “it’s not about driving efficiency and scale and churning things out through an automated solution.”
Harrods has a high level of service for all of its customers. It expects every experience to be exceptional whether the customer is buying a sandwich for lunch or furniture for their new home and having it delivered and installed. “What exceptional service means is different in different situations,” he explains. “It’s about understanding that exceptional service is required always and needs to be appropriate to that interaction.”
The scale and the range of what Harrods delivers is enormous, explains Finch and that “adds to the fun of it,” even before factoring in a transformation plan.
Finch’s team could be handling a weekly food delivery in London one minute and then transferring their skills to shipping multiple containers for a house or hotel overseas. Harrods’ interior design studio, for example, offers a complete service from design and sourcing products through to managing builders, stocking fridges and having a butler ready to open champagne when the customer walks in. And this service is available around the world.
Harrods understands that brand and reputation are critical but can be eroded quickly if it doesn’t deliver the right experience for customers. “It was crucial that we invested in understanding what the supply chain needed for the future,” says Finch so a review of the business was carried out during 2016. This encompassed gaining an understanding of the customer and what the experience needed be like, the position from which the business was currently operating and what Harrods should be like in the future. Working backwards from that story line it had a clearer idea of the capabilities it would need in order to deliver that vision and put an operational plan in place. “Having a clear vision of the customer experience was crucial in determining the future business operating model,” says Finch.
In order to deliver this vision, eight areas were identified and these capability pillars make up the objectives for Harrods’ future operation:
- Store – One view of stock is needed since a certain percentage of online orders are fulfilled from stock held on the 1m sq ft shop floor. (Although the aim is to fulfil 90% of online orders from the DC.) The store also needs to work in partnership with other channels to ensure that multiple fulfilment routes can be quickly and reliably utilised to enhance the customer experience.
- Commercial Models – A core set of commercial models that are applied consistently is required so that full end-to-end cost can be measured and understood. Some of the relationships with brands were established 50 years ago.
- Brands – Harrods stocks more than 500 fashion brands in store alone but siloed operation means relationships with brands are not aligned across channels. There is also no real visibility of performance.
- Range – Structured and segmented range across all channels and utilisation of best in class analytics are required, along with a reduced ‘tail’ and continuous clearance of non-movers via defined channels.
- Supply Chain – Another aspect of the business which needs to operate outside of silos with formally segmented operating models, ensuring all product flow options are fit for purpose and flexible for the future. A rule-based approach, driving standardisation wherever possible to free up capacity for targeted exception management.
- Inventory – This needs to be managed centrally and deployed where required with merchandisers working across channels rather than in silos. Class leading product visibility across the business, enabling reduced working capital, increase availability and improved customer experience.
- Omnichannel – Harrods needs to offer a seamless, luxury experience across all channels and geographies with structure, capability and capacity in place to support planned growth efficiently.
- Organisation – The business needs to move away from channel-specific silos to a matrix structure, aligning product, channel and customer with KPIs, objectives and incentives that break down silos and align business goals.
Finch sees organisation as the biggest challenge since channels compete with each other as the company operates in silos with organisation KPIs and objects not aligned across channels.
In January 2017, Harrods started work on its transformation, with the board having approved the plan and the necessary investment in December. Work being carried out over the next two years includes a phased increase in size to its DC which will increase by 20,000sq ft from its current size of 370,000sq ft.
A further 50,000sq ft will be added in 2018 to meet the additional warehousing and fulfilment needs as its online business grows. Online has been growing at 40-50% in recent years but post-Brexit this has risen to 80% growth with international becoming 30% of its online business. Harrods.com is also replatforming in the first half of this year with IBM WebSphere and IBM Sterling Order Management.
“Retail supply chain is building the capability to deliver what the new website will require,” says Finch. “We’ve been running in parallel with our replatforming programme, our retail supply chain review and supply chain transformation so when we launch the website and see that growth continue, we have the core capabilities to deliver it. Harrods.com is driving growth and supply chain transformation is making sure we can deliver that growth and at the right level for our customers”.
The first of the supply chain capabilities will be online in time for peak 2017.