C&J Clark (Clarks) reported a further decline in its turnover for the first half of its financial year, ended on Aug. 3. Sales fell by 3.5 percent to £649.2 million (€755.7m-$842,9m), with a drop of 5.9 percent in local currencies, due to lower wholesale revenues and lower retail sales at full price, partly offset by strong growth in the digital channel. Volumes and average selling prices were down by 5.3 percent and 0.4 percent, respectively. On a same-store basis, retail sales were off by 7 percent. On an adjusted basis, revenues declined by 3.5 percent.
However, the company managed to reduce its operating loss to £11.0 million (€12.8m-$14.3m) from £28.2 million in the year-ago period, and the operating loss was close to only £300,000 (€349,000-$389,000) on an adjusted basis. Net losses also declined to £11.7 million (€13.6m-$15.2m) from £25.2 million, aided by lower extraordinary charges.
The company operated 46 fewer stores in the U.K. and the U.S. during the period, representing less than 6 percent of its big retail network in the two countries, with seven of them becoming franchises or licensed stores. Clarks will keep its store portfolio under review.
In terms of local currencies, Clarks' sales declined by 7.2 percent in Europe, by 0.6 percent in the Americas and by 18.7 percent in Asia during the first half. Operating results improved marginally in the Americas, but they declined in Europe and Asia.
In the U.K. and Ireland, the company's retail turnover fell by 13 percent, including a drop of 7 percent on a same-store basis, partly due to a 12.6 percent decline in store traffic. On the other hand, the digital channel returned to growth, rising by 13.8 percent with an increase of 22 percent in the conversion rate.
In the European mainland, market conditions remained challenging in Germany, France and Spain, Clarks said, due to lower sell-out rates at key wholesale partners. However, higher deliveries and cost savings helped operating profits to record an increase of 19 percent.
Regional profits went up by 27 percent in the Americas, thanks largely to a 7.0 percent increase in the wholesale channel. In the women's casual and dress market, Clarks grew by 5.1 percent in the segment against a decline of 5.1 percent in the market.
Operating earnings rose slightly in the company's retail business in the Americas, despite a 9 percent drop in same-store sales in the full-price retail channel. Factory outlets performed better. In the wholesale channel, regional sales and profits improved by 15 percent and 55 percent, respectively.
In the Asia-Pacific region, the operating margin declined by 2.91 percentage points because of the loss of a major wholesale partner in China, but the brand's sales on the digital front grew by 38.7 percent thanks to a strong partnership with Tmall.
Clarks also reported on distribution challenges in Japan, Thailand and the Middle East. Sales have stabilized in India, where the company still has a joint venture.
Stella David, the new chairwoman of the company, said she expects Clarks to post a modest improvement in operating profit for the full financial year if Brexit and the tariff dispute between the U.S. and China have no material impact on the group's operations.
Clarks' new management sees potential ahead
Clarks is exploring new avenues for a resumption in the growth of its sales and profits under the management of Giorgio Presca, the former head of Geox who was made chief executive on March 11. McKinsey has helped to formulate a detailed transformation program.
In commenting on the lackluster results for the first half of the company's financial year, ended on Aug. 3, Presca indicated that the development of new products with a more contemporary approach that appeal to customers will be one of the priorities, and the company is working on this for its autumn/winter 2020/21 collection.
In going through the company's archives, Presca said he discovered a collaboration that Clarks had in the 1950s with the sister of Salvatore Ferragamo on a range of women's shoes, building a parallel with the kind of top-end collaborations that Clarks is currently entertaining with its Originals line. This indicates what “we can build on to reposition the brand back to where it belongs,” he said.
Presca said he felt that the current product range is “very confusing,” with similar styles of the same color with different prices displayed close to each other. He also said that the men's range is too concentrated on formal shoes and doesn't sufficiently address the more contemporary lifestyle “redefined by athleisure.” The redefinition of the product range might help the company to justify higher price points that would lead to better margins and offset the negative impact of Brexit, he added.
On the marketing side, Presca proposes a shift in the budget to “rebuilding the brand rather than using it to drive volume as at present.” The change will start to appear in the fourth quarter of this year with a new advertising campaign featuring testimonials for men and women. Clarks also has some plans for next year's celebration of the 70th anniversary of the Desert Boot.
To help deliver on these priorities, Presca has reshaped the sales structure of the company, appointing another Italian manager, Massimo Barzaghi, a former “chief markets officer” for Ferragamo, as chief commercial officer. Barzaghi previously worked in sales management for the Marzotto Group, Briko and Benetton.
Following Barzaghi's appointment, the previous presidents of Clarks for Europe and Asia, Ben Fletcher and Jack Quinlan, have left the company and are not going to be replaced. Clarks also reported the retirement of Antony Perillo, chief supply chain officer, after 13 years with the company, but didn't say whether he is going to be replaced.
As previously reported, Clarks has decided to accelerate the commissioning of a third-party warehouse on the European continent, located in Germany, to mitigate the effect of Brexit. It has also reduced sourcing in China in view of the increased U.S. duties on footwear imported from that country, predicting that only half a million pairs will be imported from China by 2021. The volumes ordered from China for spring/summer 2020 will be 55 percent lower than they were for the corresponding 2019 season, and they will be 90 percent lower for the subsequent season.
Clarks will have to decide what to do in China, where a key wholesale partner has decided to get out of the retail business, while the market is moving from department stores to mono-brand stores in shopping malls. It may appoint a new distributor or take control over the business.