Clarks has decided to invest in a European distribution center within the European Union to protect the company from any future duties and tariff regimes following the U.K.'s planned exit from the European Union.
Also, because of the trade tensions between the U.S. and China, the British company has stepped up its investments in Asia and other growth markets to reduce its strong reliance on the U.S. and U.K. markets. It plans, for example, to set up pop-up shops in China for Cloudsteppers, an athleisure-oriented sub-brand of the group.
The Asia-Pacific region was the only one to show improved sales and profits in the first half of Clarks' financial year, ended on Aug. 4. At constant exchange rates, the turnover went up by 9.6 percent and the net profit rose by 11.6 percent. Currency-neutral sales fell by 3.6 percent in the Americas and by 4.4 percent in Europe, excluding the factory outlet business.
Commenting on the situation in the U.K., Clarks' management mentioned continued uncertainty around Brexit and clear evidence that consumer spending is shifting away from traditional categories like footwear and apparel into travel and experience items like Netflix and Amazon Prime, triggering discounting. However, Clarks' average selling prices grew marginally in the country. The pound's devaluation led to a margin erosion of six percentage points during the spring/summer season.
In the European mainland, Clarks' wholesale and franchise partners reported lower sell-out rates during the period, but the brand's focus on key accounts such as Karstadt, Kaufhof and El Corte Inglés proved successful. The company's operations in the region managed to improved profits, except for the online business including Amazon's marketplace.
In the Americas, Clarks performed particularly well with DSW and other shoe retail chains. It was the number-one brand of women's casual and dress shoes at wholesale in the U.S. by the end of June, with its market share rising by 0.4 percentage points to 4.8 percent. Its market share in the men's market grew at a similar rate, reaching 4.2 percent.
Clarks' retail sales in the U.S. declined at its physical stores, some of which have been closed. Even online, its sales of spring/summer products were down by 5 percent from a year ago. The company has identified only 46 stores in the U.S. that have the highest potential for higher sales.
Growth is accelerating in the Asia-Pacific region. During the first half, China delivered 32 percent higher profits and the online business in the country jumped by 132 percent, thanks in part to a strategic partnership with Tmall. To penetrate the Japanese online market, Clarks has decided to partner with Lacondo in the country.
Declining retail sales in India have led the company to launch an “India product for India” initiative. Strong results were recorded during the first half at Clarks' Turkish subsidiary, but the company is evaluating its options in the country following the recent deep devaluation of the Turkish lira and the U.S. sanctions.
Globally, including its joint venture in India, the group's turnover dropped by 1.8 percent to £676.3 million (€764.6m-$869.3m) in the first half, with declines of 0.9 percent in volume and 1.5 percent in average selling prices, due in particular to a higher mix of wholesale revenues in the Americas.
Including impairment charges taken for about 150 expensive or unprofitable stores in the U.K. and the U.S., Clarks reported a net loss of £25.1 million (€28.4m-$32.3m) for the first half, down from a restated loss of £28.7 million in the year-ago period. Excluding currency effects and extraordinary items, it had a higher-than-expected adjusted operating loss of £9.5 million (€10.7m-$12.2m) for the period, although it was better than the £10.7 million loss recorded for the first half of last year.