Clarks' annual report shows that the past financial year, ended on Feb. 2, was particularly tough for a number of reasons including the negative currency effects of Brexit and declining customer traffic in the U.K. and the U.S., where pure digital retail players are taking market share away from traditional shops.
The company's operating profit before extraordinary items fell by 33.4 percent to £30.1 million (€34.3m-$38.3m), with directly operated stores faring the worst. The group's net losses increased to £82.9 million (€94.5m-$105.5m) from £31.3 million in the previous year after various charges including a write-off of £49.8 million (€56.8m-$63.4m) for the reorganization of its retail operations in the U.K. and the U.S.
An additional charge of £7.1 million (€8.1m-$9.0m) was taken for the closure of a short-lived manufacturing operation in England and of the company's Turkish subsidiary.
The group's sales declined last year by 4.6 percent in pounds sterling and by 4.5 percent in local currencies, going down to £1,468.8 million (€1,674.8m-$1,869.5m) excluding Clarks' joint venture in India.
The biggest drop took place in Europe, a segment which now comprises the U.K. and the rest of the continent, where revenues fell by 7.7 percent to £667.3 million (€760.7m-$849.3m), with a drop in volume of 9.0 percent to 20.2 million pairs. Online sales continued to represent only 8.1 percent of the total turnover in the region, and their profits fell by 13.7 percent, but they started to improve after the introduction of a new Hybris platform for an enhanced consumer experience. Higher sales and margins were recorded in factory outlets.
The wholesale segment grew marginally to 21.1 percent of revenues in the region. Clarks wants to continue to push it, particularly in key markets such as the U.K., Germany, France and Spain, improving segmentation while focusing on key accounts and pure e-tailers. It has already moved in this direction by raising prices on its Desert Boot and taking the Originals line away from mainstream retailers and reserving it for about 100 premium accounts.
Last year, the company closed 18 loss-making stores in the U.K. and Ireland, where customer traffic declined by a further 6.2 percent and the divisional gross margin fell by 4.3 percentage points. The staff payroll was consequently reduced by 6.4 percent.
In the rest of Europe, wholesale revenues declined by 6 percent. Volumes fell by 11.7 percent, but average prices went up by 2.5 percent. On the other hand, Clarks generated 12 percent higher sales with digital retailers like Amazon, Zalando, Sarenza, Boozt and Eubowie.
In the Americas, Clarks' turnover declined by 5.1 percent to £606.9 million (€692.0m-$772.5m), with a drop of 3.1 percent in local currencies, despite an increase of 2.5 percent in volume to 21.2 million pairs. Regional profits improved by 5 percent, however, thanks to lower overhead costs.
In particular, brick-and-mortar retail sales declined by 15.6 percent in the Americas, due to ongoing store closures and to a drop in comparable store sales of 9 percent. While the wholesale segment grew by 2.2 percent to 56.2 percent of the turnover, driven by the Clarks Collection and Cloudsteppers, the digital channel's contribution declined to 18.5 percent because of the difficult implementation of a new e-commerce platform in April and stronger promotions. Sales at factory outlets went down, but positive signs have come from initial trials for a new format in which key styles are presented at the front of the store.
Sales in Asia-Pacific increased by 2.9 percent to £185.8 million (€211.8m-$236.5m), rising by 1.1 percent in constant currencies and remaining flat at 4.8 million pairs in terms of volume. While the digital channel rose to represent 16.8 percent of sales in the region, the wholesale channel declined to 66.7 percent of the turnover.
The brand's growth in China was affected by a change in the relationship with a major wholesale client in Beijing, but the brand performed well on the internet, particularly on Tmall's Singles Day. As Clarks pointed out, the country's market is shifting from department stores to shopping malls and hybrid digital/physical stores, and the company says it wants to participate fully in this development.
For Clarks, the digital channel grew by 36 percent in the region last year, delivering 20 percent higher profits and performing particularly well in China, India and Japan. The company sees it developing also in Southeast Asia, where it has installed a new management and signed up a new distributor in Indonesia.
The company opened five new directly operated stores and closed some others in the Asia-Pacific region, doubling retail profits. Sales through factory outlets increased by 10.6 percent. Clarks wants to open more franchised stores and concessions in the region, and it has started to do so in Indonesia.
Clarks' business in the Middle East was affected by volatile market conditions that led to high inventories and aggressive discounting.