Harvey Nichols’ latest full-year figures show a business struggling to keep up with its competitors.

As former chief executive Stacey Cartwright becomes deputy chairman, Harvey Nichols’ most recent accounts highlight the challenges facing commercial director Daniela Rinaldi and finance director Manju Malhotra as they step up to become co-chief operating officers.

Retail Week Prospect’s analysis of the retailer’s sales and profit margins show an under-pressure business, which is overly reliant on its costly London flagship.

Heavily dependent on Knightsbridge flagship

Harvey Nichols’ Knightsbridge flagship is clearly the jewel in the crown, but a major refurbishment programme to keep it there has been seriously impacting its performance.

That said, despite a 6.4% slide in sales to £79.5m, the Knightsbridge store still accounted for well over 40% of group sales in the year to end of March 2017. But sales at the flagship peaked at nearly £95m in 2013/14.

The group’s other retail subsidiaries comprise three full-line department stores in Edinburgh, Leeds and Manchester (its regional stores), two small-format stores in Birmingham and Bristol, a specialist beauty format, which trades as Beauty Bazaar, and its ecommerce business, Harveynichols.com.

A highly profitable standalone restaurant business – Oxo Tower – is also part of the group.

Profits on downward trend

Profits at Knightsbridge have also been on a sharp downward trend over the past three years, reflecting significantly increased investment in refurbishment and falling sales as a result of the disruption to trading the overhaul is causing.

The Knightsbridge store had been by far the most profitable component of the business, with net margins in double digits until a couple of years ago. But it was only marginally profitable in 2016/17.

Big disparity in sales densities

Underlining the importance of the Knightsbridge store, sales densities are also much higher here.

While the reduction in sales meant that sales per sq ft at the flagship fell to £680/sq ft in 2016/17, this compared to £400/sq ft across the three provincial department stores and just £220/sq ft at the two small-format stores.

There was some excitement in the sector when Harvey Nichols launched its new Beauty Bazaar fascia in 2012, but six years on the store in Liverpool One remains the sole example of this innovative format.

Sales have continued to grow robustly, but having made it into the black – just – in 2015/16, this subsidiary was also substantially loss-making again over the most recent year.

Online sales growing, but still modest

Online sales provided a much-needed bright spot in a challenging 2016/17 financial year, growing 25.2% to £16.6m, although the online share of the group total remained relatively modest at less than 9%.

Other formats are loss-making

Meanwhile, increased investment in its multichannel platform has taken its toll on profitability, with Harvey Nichols’ online business posting a pre-tax loss of £3m over the difficult 2016/17 financial year.

Attempts to reduce the group’s dependence on the flagship by establishing a series of provincial stores have, on the whole, proved costly diversions, and all of its smaller subsidiaries were firmly in the red last year.

Harvey Nichols’ three full-line department stores in Edinburgh, Leeds and Manchester contributed combined sales of £59.3m in 2016/17 (+1.0%), but its regional stores have been loss-making over the past two years.

Meanwhile, the smaller-format stores at Birmingham and Bristol have yet to achieve profitability.

While sales across these stores rose 5.6% to £14.6m in 2016/17, bolstered by the opening of a high-profile new store in Birmingham in the first half of the previous year, pre-tax losses increased to £3.9m.

With all of its other retail formats substantially loss-making, the Knightsbridge flagship just managed to break even.

While these figures underline the challenges facing Harvey Nichols going forward, they also put into context the issues at Debenhams and House of Fraser, given the high proportion of provincial, under-invested stores across their estates.