The new management of C&J Clark (Clarks), led by Mike Shearwood, is not standing still. It is deploying new initiatives to improve sales and profits after a difficult financial year in which the company incurred a net loss on lower sales for several reasons, including a general uncertainty in the footwear market, the U.S. tax reform and the devaluation of the British pound.
It is launching a new segmented brand strategy with constant innovation under which it is putting out new products more frequently and targeting them at different groups of consumers, ensuring that they are properly distributed to them. Capitalizing on new customer and consumer insight capabilities, it has developed seven sub-brands: Clarks, Kids, School, Bostonian, Originals, Cloudsteppers and Unstructured.
Going forward, Clarks is developing a “strategic sales planning capability,” with the roll-out of standardized systems to support improved financial planning, product line management and operational demand planning over the next three years. The idea is to introduce products at retail at the right time and at the right location.
It is working on the development of an improved e-commerce platform with a higher reach in the European region and the launch by 2019 of new directly operated websites in the Americas and Asia-Pacific regions. In the U.K., one of the aims is to obtain full visibility and availability over a single inventory this year to fulfill orders placed online from the company's distribution center in Street or from Clarks' individual stores.
The company is also launching an improved business-to-business platform to work more closely with its wholesale partners. Meanwhile, Clarks has introduced a new retail format, called Pure, intended to attract a new generation of consumers. It has been tested in the U.K. and the test is now being extended to 25 locations around the world.
The company is also proceeding with the modernization of its information technology platforms under the management of a newly appointed chief information officer, Guy Mason, who has worked with Sainsbury and TNT.
On the sourcing front, it is creating a single sourcing hub in Singapore, with a leaner sourcing structure. At the same time, as we have previously reported, Clarks is soon going to start to produce shoes at a new highly automated Morelight production facility at its head office in Street. It plans to fully test its capabilities in the course of this year.
These and other new programs are based on the development of a “continues improvement mindset,” says Clarks in its recently released annual report. The establishment of this new company culture should be facilitated by changes that were made last year in 36.5 percent of the 70 top management positions.
In the past financial year, ended Feb. 3, the company's underlying operating earnings declined by 29.0 percent to £45.2 million (€51.2m-$61.2m), and they went down to £29.3 million (€33.2m-$39.7m) after a negative currency impact of £10.9 million (€12.4m-$14.8m).
The devaluation of the pound against the U.S. dollar that followed the Brexit vote in 2016 began to seriously affect Clarks after the foreign currency hedging process previously put in place turned into low gear in the second half of last year. According to the management, Clarks delivered profits that were modestly ahead of expectations on an underlying basis.
Operating earnings before amortization (Ebitda) grew by 5.6 percent to £97.5 million (€110.5m-$132.0m) for the year. Free cash flow rose by 34.1 percent and net debt declined by 79.6 percent.
Still, Clarks had to report a net loss for the year of £31.3 million (€35.5m-$42.4m), compared with net earnings of £26.5 million in the prior financial year. Without the tax reform introduced in the U.S. at the end of 2017, Clarks would have reported a net profit for last year. On an adjusted basis, the net profit declined by 22.2 percent to £12.3 million (€13.9m-$16.7m).
The company's total turnover declined by 6.9 percent to £1,539.9 million (€1,745.7m-$2,085.3m) in the past year, with a drop of 6.0 percent in constant currencies. While the total number of pairs shipped declined by 9 percent, average selling prices were raised by 4 percent, thanks especially to fewer promotions.
Combining the U.K. and Ireland with the rest of Europe, the net turnover declined by 7.9 percent to £722.8 million (€819.4m-$978.8m), but the average price per pair increased by 6.6 percent to £32.55. Customer traffic declined by 8.4 percent at the company's full-price stores and the volumes sold in its outlets fell by 10 percent, but this was partly offset by higher sales and average prices for Clarks' e-commerce operations.
The gross margin improved by 2.1 percentage points in Europe, where the company managed to sell 65 percent of all shoes at full price, but the realized net profit declined by 9.3 percent to £351.4 million (€398.4m-$475.9m). Wholesale volumes were down by 21 percent in Europe, due in part to the bankruptcies of Brantano and Jones Bootmaker in the U.K.
Progress was made on several fronts, however, including reductions of 12 percent in year-end inventories and 6 percent in the number of days when Clarks' European stores were offering discounts, after a major stock clearance program conducted in the previous years. The company reached a new record in back-to-school sales in the U.K.
Clarks' performance in the Americas improved sharply in the past year. The company's profit in the region rose by 72 percent in spite of difficult market conditions, including a significant decrease in mall traffic and the hurricanes in the southeastern part of the U.S. These factors and lower close-out sales contributed to an overall sales decline in terms of pounds sterling of 2.2 percent to £639.8 million (€725.3m-$866.4m) on 4.6 percent lower deliveries of 20.7 million pairs. The region delivered positive cash flow for the first time in more than five years.
The wholesale business contributed most of the improvement in profitability in the U.S., due to operational efficiencies, driven by clearly defined key performance indicators that allowed the sales team to be better informed and prepared to drive at-once sales throughout the selling period.
At the retail level, sales and profits declined at the company's stores in the Americas while the company closed under-performing units and negotiated reductions in rental fees. On the other hand, Clarks' relatively young e-commerce business in the region recorded increases of 15 percent in volume, 11 percent in net turnover and 18.6 percent in profits.
Sales were flat in Asia-Pacific at £180.6 million (€204.7m-$244.6m), although the number of pairs sold in the region fell by 6.0 percent to 4.7 million, with its business in China and India stabilizing. In China, Belle International and other smaller customers shifted from department stores to shopping malls, but digital sales continued to grow strongly, especially in China, India and Japan.
Clarks claimed a successful execution of its Black Friday and Cyber Monday online promotions in the U.S. and the Single's Day promotion in China, where the English brand outperformed a key European competitor, Ecco, for the first time.
The company has established a central hub for the Asia-Pacific region in Singapore. While investing in e-commerce, Clarks wants to continue to expand its presence across the region through franchised stores. It opened 48 new ones last year, while closing others, ending up with 492 locations in the region at the end of the last financial year.
Globally, the number of Clarks shops was down for the year to a total of 1,514, or 62 fewer than at the end of the previous year. The number of company-owned stores declined by 60 to 870. The net number of franchised stores and international partnership stores remained largely unchanged at 114 and 530, respectively.