Qatar's Harrods Purchase May Boost U.K. Retail Investment

Qatar Holding LLC’s 1.5 billion-pound ($2.2 billion) purchase of Harrods Ltd. may herald more investment in the industry as foreign buyers take advantage of a consumer-spending revival and a falling pound.

Qatar’s agreement on May 8 to buy London’s best-known store from the family trust of Mohamed Al-Fayed is the biggest deal in U.K. retailing since the 11.1 billion-pound takeover of Alliance Boots Plc in 2007, Bloomberg data show. There were about $1 billion of transactions in all of 2009.

“Harrods is an important landmark on the London and British retail scene,” said Armando Branchini, vice president of Milan-based consulting firm Intercorporate. “The Qatari fund’s investment will stimulate the entire system.”

Foreign investors are expanding in the U.K. as retail spending recovers after the worst recession on record drove unemployment to a 16-year high. Best Buy Co. said last month it plans to open as many as 150 stores in the country while Wal- Mart Stores Inc.’s Asda chain will extend its Living stores to 150 outlets within five years and add supermarkets.

The Harrods sale follows an announcement this month by Liberty Plc, the 135-year-old U.K. luxury retailer, that it received approaches from BlueGem Capital Partners LLP and an unidentified third party. Other upscale stores in London owned by non-U.K. investors include Harvey Nichols Group Plc, controlled by Hong Kong entrepreneur Dickson Poon. Selfridges Plc was bought by Canadian billionaire Galen Weston.

‘Monument’

“I can assure you that Qatar Holding will do their best to upgrade this monument to make it even greater and better for the tourism and also for the British people,” Qatari Prime Minister Sheikh Hamad Bin Jasim Bin Jaber Al-Thani told reporters at the luxury store yesterday.

“The Qataris have a real interest in furthering their interest in the U.K., as well as other areas,” said Ken Costa, chairman of Lazard International, in a telephone interview. Lazard & Co. advised the Al-Fayed family trust on the sale. Credit Suisse Group advised Qatar.

The purchase may spark speculation that Qatar will boost investment in other U.K. retailers. In addition to its stake in Songbird Estates Plc, which controls more than half the buildings in Canary Wharf, Qatar is the biggest shareholder in the J Sainsbury Plc supermarket chain. Tom Parker, a Sainsbury spokesman, declined to comment when contacted by Bloomberg News.

Sainsbury Stake

Sainsbury shares have declined 42 percent since Qatar dropped a bid in 2007 as demands by the chain’s pension fund made it too expensive. The stock rose 10 pence, or 3.2 percent, to 322.9 pence as of 10:45 a.m. in London, less than the 4.9 percent gain in the FTSE 100 Index. Qatar has a 26 percent stake in Sainsbury, which has a market value of 6 billion pounds.

For Sainsbury, “it may be a time for some new owners to come in to develop the business,” said Greg Hodge, an analyst at Planet Retail in London. “There is still potential there, it’s just not being exerted right now. Perhaps a move towards private ownership and new capital coming in would be a breath of fresh air.”

The Qatar fund has added to its purchases as stock markets tumbled. Sovereign wealth funds in Asia, Europe, the Middle East and Africa increased assets by 19 percent in the nine months through September 2009, according to a survey of 12 clients by State Street Corp., the world’s third-largest custody bank.

Pound’s Decline

Making the U.K. more enticing is the pound’s 9.2 percent decline from its 2010 high against the U.S. dollar. Sterling has fallen about 4.9 percent against major currencies, Bloomberg Correlation-Weighted Currency Indexes show, as concern about the undecided outcome of the U.K. election deterred investors.

The FTSE 350 General Retail Index has fallen 4.7 percent this year, outpacing a 1.6 percent drop in the FTSE 100 index.

“For anyone that’s looking to invest in U.K. retail from a foreign perspective, it’s a great time,” said Planet Retail’s Hodge. “From a U.K. perspective, if all your money is in the U.K., why not sell up now and look for prospective buyers?”

Al-Fayed had owned Harrods since 1985. The landmark store in Knightsbridge, which opened in 1849, counted Sigmund Freud and Oscar Wilde among customers, and sells goods from Christian Dior fashions to gold bars.

Harrods has more than 1 million square feet (90,000 square meters) of selling space and its flagship store is located in one of the world’s most expensive areas of real estate.

Harrods is “the sort of asset people would have expected them to have bought,” said Andy Wade, a retail analyst at Numis Securities in London. “It’s an iconic asset, a trophy asset, it’s an asset with a property angle.”

Al-Fayed Retires

Al-Fayed will retire. He will become honorary chairman of Harrods, Qatar Holding Chief Executive Officer Ahmad M. Al Sayed said. The Egyptian-born businessman also owns west London’s Fulham Football Club. His other interests in the U.K. include a VIP helicopter-charter service and private banking. His son, Dodi, was killed with Princess Diana in 1997 in a car crash.

Harrods has devoted clientele and attracts tourists from around the world who come to gawk at the food selection and sample its teas.

“Every time we’re in London we always go to Harrods, especially at Christmas,” said Felicia Darell, a 37-year-old civil servant from Paris, while shopping yesterday at the store. “We come for the food hall and the atmosphere. I hope it stays just the way it is.”

Still, the Qataris may need to increase investment to keep attracting customers and keep the selection fresh, said Intercorporate’s Branchini.

“Department stores and retailers need to keep innovating to pique the interest of the end consumer,” he said. While Al Fayed did a good job maintaining the store, he didn’t invest in “innovation. The new owner will.”

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net; Brett Foley in London at bfoley8@bloomberg.net; Andrew Roberts in Paris at aroberts36@bloomberg.net.

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