Clarks has told the trade union that represent Elefanten’s employees that it will likely have to shut down all the company’s operations as the German-based manufacturer of high-end children’s shoes that it took over in 2001 continues to lose money. Discussions held with half a dozen potential takeover candidates for the business in its present state since the beginning of 2004 have yielded no satisfactory results. Kaufhof, the German department store chain, and Ara, parent company of Legero, have been mentioned among the candidates.

Company officials indicate that the British company is prepared to pay off any outstanding debt and the related layoff charges, instead of placing the company in bankruptcy proceedings. The unconfirmed speculation at this stage is that Elefanten may then be sold at a later stage to another company as a brand, without its extensive production facilities in Europe. Officially, Clarks says it has appointed Ernst & Young to manage a period of consultation with the Workers Council of Elefanten and other relevant groups to determine the future. Meanwhile, all development work for the Spring/Summer 2005 season has been suspended. Customer orders relating to the Fall/Winter 2004 collection will be fulfilled normally.

Clarks points out that it has invested a lot of time and about €40 million into Elefanten since its takeover three years ago, improving its cost base, product manufacturing and design, but adverse German demographic trends and continuing high costs, combined with the difficult German economy, have prevented Elefanten to become financially viable.

In the past year, Elefanten sold about 4.3 million pairs of shoes worth €85 million. The present staff includes 250 employees in Germany, none of whom are any longer involved in manufacturing, plus 350 at Elefanten’s factory in Portugal and 200 at another one in Slovakia. In the past few years Clarks has shut down the majority of its own manufacturing operations in the UK and Portugal and transferred the production to the Far East to decrease costs and improve flexibility in terms of styling.

Elefanten had 1,209 employees when Clarks bought the company from Freudenberg in March 2001 for the equivalent of €36 million, with no debt. The company had sales of €86 million in 2000, but Tim Parker, the former CEO of Clarks who engineered the takeover, projected a 40-50 percent sales increase for the brand in due course. Stefan Krug, the executive appointed as Elefanten’s CEO shortly after the acquisition, has now left the company and has been replaced by a Clarks executive, Robin Beecham.