Clarks is set to have a new majority owner to enable it take forward its digital transformation plans – subject to shareholder approval for the transaction and for a CVA that changes the way that its shops pay rent.
LionRock Capital is to invest £100m in the business in return for a majority stake, while the Clark family will remain a key shareholder. The backing, says the 195-year-old footwear manufacturer and retailer, will help it to expand into China and Asia Pacific while also taking forward a customer-focused digital strategy.
The investment, however, depends on shareholder approval of the transaction and of plans to introduce a CVA (company voluntary agreement). The CVA proposals include rent reductions – including not paying any rent at all for 60 of its 320 shops in the UK and Republic of Ireland – and a move towards turnover-based rent. A shareholder vote is scheduled for December.
Philip de Klerk, interim chief financial officer at Clarks, a Top150 retailer in RXUK Top500 research, says the plan comes out of “absolute necessity” at a time when the Covid-19 pandemic has changed the way that shoppers buy. He said: "Like many businesses in our sector, the impact of the Covid-19 pandemic and the current economic uncertainty has created a tough retail environment. The investment from LionRock Capital and the restructuring of our retail footprint, combined with the ongoing support from our existing lenders and our focus on cash management and cost control, will provide funding for the company’s seasonal working capital needs and its transformation strategy.
“In order to address the permanent shift in structural shopping behaviour as a result of the Covid-19 pandemic, the CVA is being launched out of absolute necessity.” He added: “It is important to stress that we are not announcing the closure of any stores today, and employees and suppliers will continue to be paid.”
Gavin Maher, partner at business adviser Deloitte, said Clarks’ UK business had seen weaker consumer confidence and reduced footfall at a time when UK retailer is already under pressure. “In the midst of Clarks undertaking its transformation plan, Covid-19 exacerbated these challenges, with working capital and turnover significantly impacted, placing acute liquidity pressure on the group.
“The turnover rent model better aligns the risk and reward of trading during these uncertain times and the CVA, together with the proposed investment from LionRock, provides a stable platform upon which the management’s transformation strategy can be delivered. It is important to stress that no stores will close immediately, and employees and suppliers will continue to be paid.
Irene Pedder, chair of the Clark Family Shareholder Council, said: “For nearly two hundred years, Clarks has pioneered a culture of innovation and craftsmanship, growing to become one of the world’s most loved and respected footwear brands. The impact of the ongoing Covid-19 crisis has resulted in necessary steps being taken to safeguard the future of the Clarks brand, business and its people. We remain invested in Clarks’ long-term growth and will remain committed shareholders to help steward this iconic company into its third century, while protecting the strong values and brand heritage Clarks is known for.”
Clarks announced its Made to Last strategy in May, with the loss of hundreds of jobs as the company, founded in 1825, reshapes itself for a future in which digital and social play a greater part.
Clarks chief executive Giorgio Presca said at the latest update: “Our strategy is designed to put the consumer at the heart of everything we do through a focus on brand segmentation and revitalising our brand communications, digital experience and product design to create consumer desire. The challenges to our business brought on by Covid-19 have meant that we need more resources and investment in order to fully deliver this strategy and safeguard the future of our business. The new partnership with LionRock Capital will provide this as well as the expertise to grow the Clarks brand in China, which remains a primary opportunity. Our people, partners and customers remain our top priority and we are committed to building a relevant, accessible and desirable brand that reflects the way consumers live their lives.”