Clarks posted a dip in full-year profits and sales this morning in its first full year under boss Mike Shearwood.

Mike Shearwood aims to turn around Clarks

Mike Shearwood

Pre-tax profits slipped from £22.2m to £19.7m in the year to February 3, while sales fell slightly from £1.65bn to £1.53bn. The retailer made a loss after tax because of the new US tax regime intended to promote American production, but would have made a profit had it not been for those reforms.  

More interesting than the numbers though is the detailed overview of the new strategy that Clarks has given, including better customer insight, digital initiatives, supply chain improvements and a decision, following a review, to retain nearly all of its stores.

The famous business, which was without a management team for a year before ex-Karen Millen boss Shearwood came on board in September 2016, has suffered falling profits and flatlining sales for at least five years.

“Last year was about recovering and rebasing and stabilising the business, which has put us in a position to grow”

Mike Shearwood, Clarks

Shearwood termed the last year “a transitional phase”, and said that his team had “significantly reduced” the number of discount days in the retailer’s calendar and so improved margin and begun to rebuild price integrity and brand equity.

In the Americas, where Clarks made £693m over the year, the retailer recovered from operational issues which affected its performance during the prior year. And net borrowings shrank from £133.7m – or 22% of equity – to £27.3m – just 5% of equity.

But Brexit headwinds, which Clarks struggled to offset, and President Donald Trump’s tax reforms damaged the group’s profitability at home and abroad, and Clarks’ new strategy did not have enough time to make a material impact on the year. In the current year, the retailer says, it should begin to take effect. 

“Last year was about recovering and rebasing and stabilising the business, which has put us in a position to grow,” Shearwood tells Retail Week. 

Sub-brand strategy

One of the key priorities on his to-do list is building consumer and customer insight capacity. That, Shearwood says, will improve focus on making products that customers want to buy.  

“We are putting the customer right at the front of the business,” Shearwood says. “We are asking people what they want and then using that information to make products they want to buy. 

“Marketing for us is about understanding the consumer, not persuading them to buy a product – that’s a shift in mindset.”

Establishing a detailed picture of the customer might seem basic for a global business, but Shearwood says: “You can only move from the position you are in. We haven’t invested in digital experience as we should have done.”

Building up customer insight capabilities should allow Clarks to improve performance. The retailer is pursuing a sub-brand strategy because of the differences in how various countries and consumer groups perceive the brand. 

“We are the largest non-sports footwear brand in the world. We need to leverage that” 

Mike Shearwood, Clarks

“The perception of Clarks is different in every market around the world because the product offer is so wide,” says Shearwood. 

“That is why we are going down the sub-brand route. It is not about trying to make the same product desirable to everyone, it is about selling a broader range of product to more targeted markets and consumer bases.” 

Previous management, he says, “tried to focus on selling more to the same customers… the only way you can do that is by discounting”. 

He explains that, for example, the Originals sub-brand, under which Desert Boots sit, sells well in Asia and the US but under-indexes in the UK. 

One category which Clarks believes it could expand globally is athleisure.  

“We haven’t capitalised on our potential for selling athleisure product,” Shearwood says. “We know how to make really comfortable athleisure shoes. Our tri-genic range [described as ‘inspired by sport but designed for lifestyle’]  is flying.

“Right now, 80% of the sportswear market is dominated by five players. In the traditional footwear market there are 200 players who have 80%. 

“We are the largest non-sports footwear brand in the world. We need to leverage that. Our scale gives us firepower to compete with those brands, especially in the digital space. We can move into their space easier than they can move into ours.” 

Operational improvement

Another strand of product improvement is to ensure that the retailer is selling climatically appropriate footwear in all locations at all times. If Clarks can solve that conundrum, it will be ahead of most fashion retailers, which list the weather as the bane of their lives.

“We force markdown in our business by having inappropriate product for the weather,” says Shearwood. “We want to implement seasonless trade and have climatically appropriate footwear ready to go into any market at any time.”

That involves a huge supply chain shift with the operating model required to ‘flow’ product into retail channels at the right time and in the right locations.

To support that, Clarks is creating a single sourcing hub in Singapore to create a leaner model, and is analysing its distribution network to make sure inventory is held in a way that allows it to be directed into various markets in the most cost-efficient way.  

“Clarks has decided to maintain its cover of around 530 stores nationwide, choosing to renew ‘a lot’ of leases and close just six stores”

Improving product and range and making sure the right product is in the right place at the right time is just half the battle, however. The other side of the equation is how Clarks sells that product.

The retailer conducted a UK store portfolio review just after Shearwood joined and, he says, has decided to maintain its cover of around 530 stores nationwide, choosing to renew ‘a lot’ of leases and close just six stores.

The retailer is, however, making over those stores with its new-format Pure model. It has now been introduced in 25 UK stores, 50 Asian branches and 10 American shops.

The business believes that stores still work for it – despite an 8.4% drop in footfall over the year, the proportion of store sales in Europe grew from 52.6% to 53.4%.

What’s more, its dominance in the school shoes market in Britain dictates a local store presence as parents often like a store associate to measure their children’s feet. This coverage can also ensure that Clarks’ click-and-collect offer sits at the top of the market. 

Digital capabilities

Clarks is also developing its digital capabilities by improving its ecommerce platform in existing digital markets and launching more sites in other markets over the next two years.

The improvements have been made following insight work into customers’ online experiences, and lessons learned have been built into the latest ecommerce platform upgrade.

To do that, Clarks has taken its IT in-house and appointed Guy Mason from Sainsbury’s as chief information officer.

“Clarks expects that it will take five years to complete the transition onto a modern and competitive IT platform”

The business has charged him with remedying its “historic underinvestment in IT systems” by moving onto the latest operating system, which will deliver better reporting and analytical capability at a competitive price.

However, the scale of the digital challenge is huge – Clarks expects that it will take five years to complete the transition onto a modern and competitive IT platform.

Shearwood is pursuing a logical strategy, especially on digital and logistical capabilities. But Clarks’ historic underinvestment in these areas still leaves it vulnerable to more agile players.

The business will take time to fix, and financial improvement needs to come sooner rather than later – chief executives are not allowed too many “transitional years” in markets such as this.