Premium/luxury operators are driving growth in the £14.7bn UK department store says a new report. The sector returned to growth in 2006 following two years of decline, and has not only sustained this trend for the second consecutive year in 2007, but is likely to outperform in 2008. Though Marks & Spencer’s recovery was a major factor in the return to growth in 2006, it is the high end operators that have been the main drivers in 2007.

According to Verdict Research, the top three luxury department store operators, Harrods, Selfridges and Harvey Nichols, have collectively outpaced the overall department store sector by a significant margin for the past six years and have been instrumental in sustaining its growth in 2007.

The UK department store market contracted in 2004 and 2005 as a result of a weak performance from market leader Marks & Spencer combined with the exit of struggling players, in particular the Allders chain. Since then the sector has enjoyed two consecutive years of growth and Verdict Research expects it to enjoy a third in 2008. While it is Marks & Spencer’s recovery that was a major factor in boosting the sector in 2006, in 2007 strong performances from premium operators has underpinned its growth.

Of the top ten department store retailers, Harrods recorded the biggest improvement in operating profit per sq ft between 2005/06 and 2006/07 with a rise of £30 per sq ft, followed by Selfridges with an improvement of £16 per sq ft. This has been achieved by making existing space more productive rather than opening new stores.

“These retailers are creating a virtuous circle by investing in their stores and ensuring the store experience matches the aspirational status of the brands they stock”, says Maureen Hinton, lead retail analyst at Verdict Research. “This not only differentiates them from the rest of the high street, and crucially from supermarkets’ burgeoning non-food offers, but also provides consumers with a pleasurable shopping experience that combines the convenience of having a comprehensive offer in one location with leisure and indulgence.”