CCC Shoes & Bags, the fast-growing Polish-based shoe retail chain, and the German-based Hamm-Reno Group announced their signature on Nov. 24 of a wide-reaching strategic agreement that could end up with CCC obtaining control of the HR Group at a later stage. The deal is subject to several conditions including the endorsement of anti-trust authorities in Germany and Austria.

CCC claims that the combination of the two groups will form Europe's largest buyer of branded footwear in their market segment, excluding the athletic brands, complementing their operations strongly. CCC has quickly become the biggest shoe retailer in Eastern/Central Europe with a total of 1,181 stores and e-commerce websites in 23 countries, and it recently bought a 70 percent stake in the Swiss Karl Vögele shoe retail group. Aside from its strong wholesale business, the HR Group is the second-largest shoe retailer in Germany with 288 Reno stores in the country, plus 38 in Austria and 17 in Switzerland.

As part of the new agreement between the two big shoe retailers, the HR Group will take over CCC's German subsidiary, which operates nearly 100 CCC stores in the country. Many of them are losing money, partly because of strong competition with the likes of Deichmann, the largest shoe retailer in Germany and Europe. HR plans to close some of them and to convert others to its Reno format.

At the same time, CCC will acquire more than 30 percent of the HR Group's shares and related voting rights. It will take over 19.59 percent of the shares from Flo, the big Turkish shoe manufacturer and retailer previously called Ziylan, which invested in the German-based group in 2016. Flo will cease to be a shareholder.

CCC will also acquire 12.33 percent of the HR Group's shares from Capiton, the German investment company that took over its control at the same time of Ziylan's investment. Furthermore, as part of the transaction, CCC and Capiton will have a call and put option under which CCC will be entitled to obtain 51.76 percent of HR Group's shares, representing Capiton's remaining interest in the company, in two stages at a later unspecified date.

The final purchase price of the whole transaction will be determined at the time of its closing. Meanwhile, the HR Group has agreed to grant loans of up to €41.5 million to cover the costs related to the shutdown of some of CCC's German stores and the cost of integrating the remaining operations.

On top of these financial deals, CCC and the HR Group have signed an agreement to cooperate in the sourcing of private label products for their autumn/winter 2019/20 collections and those of the subsequent two seasons.

According to CCC, the HR Group achieved a gross margin of 40 percent and an Ebitda margin of 4.5 percent on net sales of €370.3 million in its latest financial year, ended on Sept. 30, and it is planning to raise its Ebitda by more than 30 percent in the course of the current financial year.

The 130-year-old HR Group has gone through a major reorganization in the last couple of years, closing more than 100 stores in Germany and rebranding others as Reno. About 10 percent of its sales are now online.

Including its wholesale business, which consists in supplying footwear for about 2,090 stores operated by big retailers like Metro or Tesco, the HR Group's gross sales at the retail level amount to around €500 million, with a total annual volume of around 15 million pairs.

CCC has forecast that its sales will reach more than €1.2 billion this year. Its latest financial results are not yet available, but the company has indicated that its sales grew by around 15 percent in the first ten months of 2018.