LONDON, United Kingdom — Like many luxury retailers, Harrods is grappling with a serious problem: how to shift the unprecedented volume of excess inventory that has piled up after almost three months of forced closure without damaging its brand equity.

The solution? Harrods Outlet, a new pop-up store at London’s Westfield White City shopping mall that the retailer will use to house this year’s Harrods summer sale.

Shopping malls are losing tenants as the Covid-19 pandemic takes its toll on the retail sector, and the Harrods outlet will take the place of a recently shuttered Debenhams.

It’s an unusual move for a store like Harrods, which is known for catering to the wealthy and has shied away from expanding its retail footprint beyond its iconic Knightsbridge flagship, save for a handful of airport concessions selling tourist merch. But faced with large amounts of unsold product and the likelihood of continued social distancing measures, the department store had to get creative, said Managing Director Michael Ward.

“We couldn't really have a sale in the store… That isn’t socially responsible for us to do,” said Ward, who noted that during sale periods the retailer typically attracts tens of thousands of shoppers in store. “The question was: how could we protect customers; how could we protect staff?”

There’s also the matter of how to hold what will likely be the biggest sale in the history of Harrods and still protect the retailer’s precious brand image.

The 80,000-square-foot Harrods Outlet will open its doors in July, selling discounted Spring/Summer merchandise, which will also be available online. Designed for social distancing, the open-plan duplex space will feature three-meter-wide walkways. For now, the outlet is temporary. “But we will have to see how this works out as we go towards Christmas, because obviously we will be faced with the same issue in January,” said Ward.

Meanwhile, the Knightsbridge flagship will largely focus on new, full-price products.

How to dispose of excess inventory in a way that won’t dilute brand equity is a challenge that luxury retailers faced long before the pandemic. But the prolonged store closures and dampened consumer demand caused by Covid-19 have significantly exacerbated the problem.

While e-commerce has allowed some businesses to continue trading, digital sales volumes have not been remotely close to covering in-store losses. Harrods does not disclose digital sales revenue, but Ward noted that the store’s personal shopping team has been continuing to serve its top clients over the telephone during the closure.

Harrods’ status as a top tourist destination and ability to woo the wealthy has kept sales relatively buoyant over the past decade, as many luxury department stores have suffered, with turnover hitting £869 million for the 12 months ending February 2019, its tenth consecutive year of growth.

But Harrods depends heavily on overseas shoppers, especially visiting Chinese consumers, and the impact of radically reduced travel will have serious consequences for the retailer this year.

Said Ward: “The run up to the end of the year is going to be really tough.”

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