Clarks, the iconic British shoe brand , may have its days numbered as a family business. After staying at the helm for 195 years, the Clarks, who own 84.8% of the company, are ready to hand over control to LionRock Capital, a Hong Kong-based venture capital fund.
Its managers have committed to injecting 100 million pounds (111.7 million euros) to try to float a business that had already been making water before the commercial bump generated by the pandemic.
Founded in 1825 by brothers James and Cyrus Clark in the small town of Street, south-west Britain, the firm has been under the command of a traditional , discreet family line with Quaker roots for almost two centuries .
Despite the international expansion and growth of the company, the Clarks never moved the headquarters and their hometown benefited for years from the shoemaker’s prosperity. At least until 2006, when production was completely delocalized.
Today, its offices are still on the street, but the vast majority of its products come from Vietnam, Cambodia, India and China.
The difficult situation in which the company finds itself has been leaving a trace on the streets of Street.
Among the most recent examples is the robotic-assisted plant the Clarks tried to return to production with on British soil in 2017. It was closed less than two years later for failing to meet targets.
The same fate befell the Shoe Museum last year, where Clarks had been exhibiting relics for 70 years, such as James and Cyrus’ first creation: slippers made from scraps left over from their sheepskin rug business.
But the firm’s challenges are too great to allow for sentimentality. “Clarks is in survival mode,” says Nicholas Found, Senior Analyst for Retail Week, a publication specializing in the UK retail industry. “Their profits before taxes have been falling for five consecutive years .So this problem expands beyond the pandemic,” explains the expert by phone.
The footwear brand had a turnover of 1,469 million pounds (1,640 million euros) last year, which represented an annual fall of 4.6%, according to the Statista portal.
The end result was losses of 83 million pounds (93 million euros), more than double the red numbers of 31 million pounds that they showed from the accounts of the previous year.
The company announced 900 layoffs around the world last May, in addition to another 170 made in December 2019. Although the firm insists that there will be no “immediate” closures of premises and that its employees will continue to receive their salaries , has already opened a consultation period, the first step towards a collective redundancy, with its 4,000 employees in the UK.
For Found, the Clarks case is a good example of the challenges faced by “old-school” British brands, which include the emergence of e-commerce and the dilemma of whether to maintain their traditional stores. Internet sales are gaining ground in the United Kingdom and before the pandemic they accounted for 20% of the total, according to the United Kingdom’s Office for National Statistics.
With the confinement, they reached 32.8% and now they are around 26%. This and the rise of teleworking are accelerating the crisis that the British high street was already experiencing, which between January and August 2020 suffered the destruction of almost 125,000 jobs, according to the Center for Retail Research.
A situation that led another icon, the department store chain Marks & Spencer, to register its first half of losses this year since its IPO in 1926.
“What the covid-19 has done is to test the accounts of results to the point where these historic businesses are fighting for their lives, ”says Found.
One of the main drawbacks, according to the expert, is the excess of establishments, with a surplus of 20%, according to a study by Retail Week and the consulting firm Alvarez & Marsal. Fixed costs such as renting the premises are another heavy burden.
It is not surprising that LionRock Capital has made the signing of an agreement with Clarks creditors to lower the rent of its stores in the United Kingdom and Ireland as a condition of the operation.
The proposal includes that the price is no longer fixed and is calculated according to the billing of each establishment, reducing to zero in 60 of its 320 stores. An “absolute necessity,” Philip de Klerk, the company’s acting chief financial officer, said in a press release.
This company voluntary agreement (CVA), a kind of pre-bankruptcy for creditors, must be approved in December by 75% of them.
Renters are a long way from reaching the 26% needed to block it, according to the British business premises association, the British Property Federation (BPF), which accuses the shoe brand of abusing this legal mechanism.
“The owners are the only creditors that will be affected by the CVA of Clarks, since they represent a small percentage of the vote and cannot influence the result,” lamented in an email Melanie Leech, chief executive of the BPF.
Criticisms also come from the labor sector. Gareth Lowe, regional head of the Unite union, lamented in the publication This is Money that the Clarks received “lavish dividends” of 13.4 million pounds during two years in which the company added losses of 114.2 million. “This calls into question the corporate priorities of the Clarks,” he said.
The firm is confident that the entry of LionRock Capital will serve to “revitalize” the brand and “position it for future sustainable growth in the long term,” it said in a press release.
The Hong Kong fund has stakes in Didi, known as the “Chinese Uber,” Inter Milan and Hailo, another taxi app. According to LionRock Capital founder Daniel Tseung, the investment “will not only strengthen Clarks’ position as one of the world’s most recognized brands, but will also allow expansion into key emerging markets.”
The Clarks, who together with the other shareholders will vote in December for LionRock Capital to be the majority shareholder, will continue to have a stake in the business, although the percentage has not yet been made public.
Currently, the company that created the Wallabees boots and moccasins has 10,000 employees in more than 100 markets, including Spain, where there are 34 stores that, according to the company, will not be affected by the operation.