Landlords of shoe brand Clarks have approved a plan which will allow the struggling chain to pay no rent on many of its stores, as part of a rescue of the 195-year-old company.
Clarks said that 90 per cent of its creditors, which include landlords, have voted for its proposed company voluntary arrangement (CVA), a form of administration.
It clears a major hurdle for the 195-year-old retailer, which was rescued in a £100 million investment by Hong Kong-based private equity giant LionRock Capital earlier this month.
Philip de Klerk, Clarks’ interim chief executive said: ‘I am very pleased that the CVA was approved today. This is a significant step towards the formation of our new partnership with LionRock Capital.’
Clarks will stop paying rent on 60 of its stores and will switch to a revenue-based rent for the other 260 stores
A Clarks Desert Boot advert in the 1980s. More than ten million of the boot were made after Nathan Clark came up with the idea while serving as an officer in the Royal Army Service Corps
The deal still needs approval from shareholders before LionRock can take a majority stake in the business.
Deloitte partner Gavin Maher, who has worked on the CVA, said: ‘The approval of the CVA is an important milestone for Clarks, enabling the business to move forward.
‘The CVA, together with the proposed investment from LionRock, will provide a stable platform upon which the management’s transformation strategy can be delivered.’
Earlier this month, Clarks said that the CVA would allow it to continue paying staff, and that no jobs would be lost.
A man walks past a Clarks shoe shop in West London (file picture)
All 320 stores will remain open, but rent will be slashed to zero on 60 of them.
The rest of the shops will pay rent that is calculated by the amount of cash that the shop takes in.
The chain’s struggles are in stark contrast to the founding family, who have raked in £176.5 million in dividends in the last ten years.
Family shareholders of Clarks shoes were paid £13.4 million of dividends over two years as the company racked up losses of £114.2 million.
The most recent payout of £6.5m came in the year to February 2019 – ahead of 170 job cuts announced in December.
A further 900 redundancies were announced in May 2020, and earlier this month bosses put the jobs of all 4,000 of its shop staff on notice.
Unions representing Clarks’ shop workers lashed out at the payments. Unite’s Gareth Lowe said: ‘The lavish dividends being paid out by Clarks to the founding family, at a time of transformational change for the workforce, are unacceptable.
‘This calls into question Clarks’ corporate priorities and will only cause this iconic brand reputational damage that so easily could have been avoided.’
Retail expert Andrew Busby added: ‘The morality of Clarks paying dividends when they’re cutting jobs and making a loss – it doesn’t do them any favours.
‘The pandemic has made us a lot more sensitive to companies misbehaving, whether it’s paying dividends when cutting jobs, or sustainability issues.’
Dozens of companies have struggled to stay open during the pandemic. Earlier this week, Peacocks and Jaeger entered administration.
Other firms such as Pizza Express, Revolution Bars and Pizza Hut have all turned to CVAs to help them get out of trouble.
There is still a 28-day period during which Clarks’ CVA can be challenged.
But the news was met with concern from landlord associations.
Melanie Leech, the chief executive of the British Property Federation, accused Clarks of exploiting the Government’s eviction moratorium, and said the landlords had been left helpless.
She said: ‘The Clarks CVA exemplifies everything that is wrong with UK insolvency legislation.
‘Far from being treated as valuable economic partners with an interest in the ongoing success of Clarks, individual property owners were not given any meaningful opportunity to engage, on behalf of the savers and pensioners they represent, before the CVA was launched and yet they are the only class of creditor being asked to permanently and irrevocably write down what they are owed. And, this decision has been voted through by parties that are largely unaffected by the CVA.’
Katherine Campbell, a lawyer at Reed Smith, said that it would be a ‘huge understatement’ to say that the CVA was bad news for landlords.
She added: ‘In truth, it is a sign that their worst fears are being realised. Today’s CVA demonstrates that New Look’s previous success in shifting to a revenue-based rent, even at a time of diminished consumer demand, was not a bad dream, but a dawning new reality.
‘It seems inevitable that Clarks will not be the last retailer to demand a transformation in how its rent is calculated, and it may not be possible to hold back the tide.’
Clarks, one of the UK’s oldest shoe shops, was established in Street, Somerset, in 1825 when Quakers Cyrus and James Clark moved from making rugs out of sheepskin to footwear by using the off cuts to produce slippers.
A Clarks shoe advert from the 1970s. The Somerset-based company has operated since 1825
More than 22,000 Clarks styles have been produced since, and the chain is perhaps best known for its Desert Boot made of calf suede leather.
More than ten million of the boot were made after Nathan Clark came up with the idea while serving as an officer in the Royal Army Service Corps in Burma during the Second World War in 1941.
They have since been worn by the likes of Liam Gallagher, Bob Dylan, Robbie Williams and even Tony Blair.
It enjoyed a boom in the 2000s as sales of the boots soared and had pre-tax profits of more than £100million.
But the company has been hit in recent years by the decline of the high street which has intensified in recent months thanks to the lockdown that closed all its stores between late March and July.
The business relocated the bulk of its production to Asia in 2005 and shut its last remaining British plant in 2006.