Plain sailing. As you would perhaps expect of someone who works

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1 October/November 2005 CRUISE LINE FOCUS Harding Brothers Plain sailing After two years of high-profile contract gains, Harding Brothers is gearing up for its next phase of development, navigating uncharted waters far from its UK base. By Rebecca Mann As you would perhaps expect of someone who works for a marine retailer, Harding Brothers Director Harold Gittelmon is buoyant. Beyond buoyant, in fact. As he gives this writer an exclusive guided tour of P&O Cruises luxury behemoth Aurora at its dock in Southampton he is brimming with enthusiasm, information and optimism about the entire Harding portfolio. And why shouldn t he be? It s been a year of smooth sailing for Harding. In January the company began a new, key, three-year concession with US company Silversea Cruises. And in September Harding further strengthened its US presence by clinching the onboard retailing contract for luxury cruise line Crystal. That concession gain is just the latest footnote in the new chapter written by Harding following investment in 2003 from venture capital business Eclipse Investment Partners. Eclipse s founders Gittelmon and Richard Goldstein subsequently became full-time working directors in the Harding business. Since then, other commercial triumphs have included the ground-breaking QM2 concession, which included Hermès debut stand-alone cruise outlet. Harding s profile was further boosted within the travel retail business when in May 2004 former BAA Retail Director and industry pioneer Barry Gibson assumed the role of Chairman of its board of directors. The Moodie Report: Can you give me a general overview of the year-to-date in retail terms? Given the progress made and the contract gains, you must surely be a happy man? Harold Gittelmon: I am a very happy man. Things really do become easier with each business win, because there are so many synergies and economies and the business benefits are there to be demonstrated. Our market share in the UK is now over 90%. That means of course that the most exciting growth opportunities are now elsewhere mainly in the US. Crystal Cruises formerly operated its retail on an in-house basis. What prompted it to give the contract to Harding? Within the cruise lines themselves, this [in-house/concessionaire issue] is something that is often debated. Take Carnival Corp, for example. It owns both Princess which handles its retail itself and P&O, which uses Harding. It comes down to a return-on-overheads argument really. We have a huge team in Bristol: eight or nine buyers, area managers, HR, schedulers, a training department and so on. It s an enormous infrastructure aimed at getting the right people and the right merchandise to the right ship at the right port. For a cruise liner to do all that The Moodie Report 181

2 CRUISE LINE FOCUS Harding Brothers October/November 2005 itself it would have to be persuaded that its return on the capital tied up in all that stock is justified. And remember, they do not consider themselves to be natural or experienced cruise line retailers per se; they are cruise line operators, which is quite a different skill. Harnessing the Trinity to create retail fit for a Queen According to Harding Brothers Director Harold Gittelmon, it was the company s achievements onboard the QM2 that really broke the mould in terms of onboard retailing for cruise ships and led directly to the Crystal Cruises contract. So why was that operation so important? It all comes down to the power of the Trinity. It was the first time a triangle of relationships was established between brand, operator and cruise line, confirms Gittelmon. For example, Hermès had never been onboard a cruise ship before, and suddenly it had a stand-alone store. Good Morning America was broadcast from just outside it on the inaugural cruise. Harding, Cunard and Hermès sat down together and worked out the economic model: who was going to pay for the shop fit, what kind of passengers we would be getting, how we would co-brand it, and so on. Hermès then created a QM2 scarf, which in its culture is huge news. And for Cunard that kudos really matters. Chopard also created a very expensive QM2 watch. Gittelmon explains: If the brand buys in at a high enough level, and understands the benefits of the brand exposure, then you get the co-operation to assist you in the vagaries of your economic model versus that of, say, an airport. It helps everything you re usually battling with, and things become much more co-operative. It s a real validation; the QM2 put us on the map. And let s not lose sight of the fact that our revenues onboard her are the highest of any ship in the Carnival fleet. [Cunard, along with P&O and Princess Cruises, is owned by Carnival.] He concludes: So the brands are now much more interested in what cruise lines have to offer, and the cruise lines appreciate that it can give the total onboard experience a real lift, if the quality and level of the retail matches everything else. Therefore if they can push the percentage of sales which we pay as rent to the point where we are making them much more than they would have on their own (taking into account slow-moving stock lines and all the other overheads), then frankly they are better off in economic terms delegating that to somebody. That company has all the infrastructure in place already, infrastructure which is effectively paid for by a dozen customers rather than just by them. The argument in favour of retaining an in-house operation is really about brand custodianship. Unless you are absolutely certain that your concessionaire is going to live up to your brand values, and deliver something which is completely consistent with the rest of the cruise offering, you should be the custodian of your own brand. But it s a very specialised industry. People underestimate the logistical and infrastructure difficulties of operating in this business. Duty free operators think How much more difficult can it be to stand on a cruise ship and sell, compared with, say, Luton Airport? Actually, it s all the difference in the world. And that s why the [cruise ship] market has concentrated down to so few players, namely us and Starboard. How are your contracts structured? As you know, with airports there has been something of a move away from the MAG as the be-all and end-all. It varies. It often has an element of guaranteed minimum; it often doesn t. Cruise line retailing is nowhere near as developed as airports, but it will converge over time. We pay one blended percentage of turnover rather than per category. One of the main benefits Barry [Gibson] has brought to the business is he s been able to educate some of the cruise lines about the way duty free retailing has evolved to make sure that, as involved landlord and tenant and customer, ultimately everyone is getting what they re looking for. You make it sound as though your landlords, the cruise lines, are very involved. Is that in a good way? In an understandable way; they have an important say in our retail offer. Having a tuxedo available doesn t necessarily justify the return on space and capital, but if a customer loses his luggage, as can happen on a fly-drive, he will want that option. 182 The Moodie Report

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CRUISE LINE FOCUS Harding Brothers October/November 2005 We also have to carry a lot of confectionery lines, film, batteries and so on which don t themselves produce any kind of real [financial]

4 CRUISE LINE FOCUS Harding Brothers October/November 2005 We also have to carry a lot of confectionery lines, film, batteries and so on which don t themselves produce any kind of real [financial] return, but we are measured on passenger satisfaction and revenue. In some instances one can excuse the other. For instance, on the inaugural QM2 cruise, we took more money than has ever been taken on a cruise before During that cruise, we put an incredible number of Dollars into Cunard s till, yet our passenger satisfaction levels were not that high because people queued to get into the shops. For three or four hours, in some cases. We couldn t throw more people at that situation to alleviate the queues, because our staffing levels are completely dictated by cabin availability. You re also constrained by relatively limited stock rooms, so your replenishment cycle is another issue. Your retail offer is incredibly broad everything from headache tablets to Hermès. How difficult is it to prioritise and do justice to such a vast and varied product portfolio? It s very difficult, but bringing in Barry and Alyson [Reilly, ex-wdf, whose consultancy has since been completed] has done a lot to help us, as has our new stock management system, which brought some science to what was a kind of intuitive trading. But it s difficult on a number of levels. For instance, if you look at the fashion/clothing element, the age profile changes dramatically on ships that have children during the school holidays, and then go back to a more mature audience. The next issue is that to a large extent, if you exclude the Baltics, cruise ships try to stay in the sunshine. So in November on the Aurora, in the Caribbean, you are not looking to buy the autumn/winter stock of any brands that we do business with. Itinerary influences everything. You re always trying to make the offer relevant to that shop and that passenger base. Of course, a lot depends on space and layout; some ships have more than others. But even if the space is tiny, you ve still got to carry the right brands of headache tablet, washing powder and so forth. But you are only going to make a living onboard if you sell jewellery, Gittlemon: "An airport has around 60 seconds to grab a passenger's attention. We might have passengers for 103 days. clothing and watches too. And you try to merchandise it in a way that doesn t look totally higgledy-piggledy. We are quite strong in the stories we try to tell within our retail merchandising offer, but the smaller the space you have to work with, the harder that becomes. Are you happy with your penetration and conversion rates? Very few passengers don t come to see the shops; by definition on a sea day you can t get off, so as a passenger you are filling up your time. We therefore become part of the entertainment, and you ve got to bring retail theatre into this environment otherwise you are hopelessly lost. So there are two important things. One is our daily promotion, which we advertise heavily around the ship. It could be a three-for-two perfume offer, a dress ring, something from Bijoux Terner, and so on. Our buyers work very hard to make those interesting and innovative. Because, however lovely the shops, they are fixed and they are merchandised and once you ve been in twice you ve basically seen what we have to offer. There s a small degree of rotation, but that s it. On the other hand, we have time on our side. I reckon a retailer in an airport has about 60 seconds to grab a passenger s attention. On a round-the-world cruise we might have passengers for 103 days. It s never less than three days; the average I reckon is about 14. So we have a long time to talk to our customers, and that actually drives my recruitment policy. In terms of sales staff, it s not about the aggressive hard sell, it s about making conversation and bonding with the travelling public. I employ people who can show a great deal of patience. Most jewellery sales are not the first try on: they re the fourth, fifth or sixth. At the airport it may be about speed of transaction; for us it s about speed of rapport. And ultimately, a large element of the cruise experience is shopping. In every port passengers are overwhelmed with retail opportunities. How can Harding compete with that sort of strong domestic competition? 184 The Moodie Report

CRUISE LINE FOCUS Harding Brothers October/November 2005 piece of jewellery. The money is onboard; the challenge is to find the merchandise to appeal to it.

5 CRUISE LINE FOCUS Harding Brothers October/November 2005 piece of jewellery. The money is onboard; the challenge is to find the merchandise to appeal to it. A Chopard onboard boutique: The money is onboard: the challenge is to find the merchandise to appeal to it It is a real challenge, but this is where onboard relations become absolutely critical. We make sure passengers know that if they buy onboard and then change their mind, we can exchange or refund at any time. We also emphasise that they know an item is authentic if they ve bought it onboard. Carnival estimates that 10% of what their customers spend on a cruise is spent on the ship in retail. And it knows it ll never get [that spend] beyond 15%, because part of the fun and the experience is sailing into the far corners of the world and buying what s on offer there. What is the optimum price and product offer onboard? Or does it vary too much to generalise? It varies hugely. Before the cruise starts we get a breakdown of the passenger profile, and we plan accordingly. For example, we recently had an anniversary cruise with P&O, so we knew there would be 396 couples celebrating an anniversary onboard. We knew to aim for jewellery, and we did lots of linked promotions and lectures. Other than promotions, we also do trunk shows. They are a vital part of our business, particularly in the US. For first-time cruisers, we ll focus on logo, because everyone wants to come away with a souvenir. Regular cruisers, by contrast, have already got their Aurora mug and will be interested in other stuff. How easy is it to cater for the luxury end of the business? Obviously such passengers have more money, but are they easy to part from it? It s an interesting challenge. We recently set up a trunk show vendor programme in the US. Regarding jewellery that will be bought onboard Silversea and now Crystal, you have to know the hot US designers. Bring one of them on, and the amounts you sell can be phenomenal. It s not uncommon for a Silversea cruise to sell a US$70,000 That said, our business model is about taking a relatively small amount from each passenger each day: what we call PPD. That s why Bijoux Terner works fantastically well onboard P&O, probably accounting for 10% of sales. We even have a shop onboard the QE2. There are some passengers you just can t take 80 or US$80 from in one transaction, but eight times ten is no problem at all. Basically, we cover every price range. Tell me about Harding s Spa Division. How important is it, in terms of service, image and profit? It is very important in terms of service, image and fostering good onboard relationships. We've invested hugely in it over the past few years... and opened our own training academy. However, it is not an important profit driver yet. It doesn t have the critical mass; it needs to grow in the US in order to achieve that. So it doesn t lose money, but it doesn t yet make the return on capital justified by the effort, investment and infrastructure. But at this stage it is still a relatively small business, nowhere near the size of the retail. Tell me about your initial priorities for the Crystal Cruises contract, which starts in November. It s all about evolution, not revolution, onboard Crystal. There will be two main drivers. We ve got a fantastic logo brand and merchandise developer and we think a lot of innovative work can be done there. Second, we think the jewellery offering can take a few more brands, particularly within the watches sector, which is poor. What excites you most about the future? Which opportunities are you most eager to exploit? What s next for Harding? The growth in our business comes two ways: from existing customers buying or commissioning new ships, or from winning new customers. We ve had a very successful two years. We ve won what we ve tendered for we re on 40 ships so far. There are things we ve got our eye on. We chat to all of our current and potential customers all of the time. I do a lot of air miles to ensure that our profile in the industry remains high. The challenge as we grow in size is to retain our entrepreneurial feel, and our can-do mentality. 186 The Moodie Report

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