Recently, I found myself in Clarks shopping for children’s shoes. This wasn’t my first visit; in fact, I’m sure most people have visited the well-known high street retailer at least once in their lives.
But this time, I found myself looking at the shop through a business lens – and several things impressed me.
First, the shop looked great. It was well-lit, the walls were adorned with compelling and professional images, and the products were laid out in a presentable and easy-to-navigate way.
The staff were excellent; each member was good with kids and was attentive and helpful. As a result, they were able to upsell products without the need to be pushy or rely on gimmicks.
They also had small tablets for kids to play on; clearly, they understood that a happy (or quiet) child means happy parents – and happy parents are more likely to stay longer and spend more.
They also had instruments to measure kids’ feet – perhaps unnecessary, but this undoubtedly left parents and children confident in the shoes they were buying.
Most importantly of all, the products looked smart and, although I’m no expert, seemed well-made. They also seemed quite expensive, and while I don’t doubt the quality, they were very small shoes.
The overall impression which I walked away with was that Clarks has tapped into a lucrative market.
High-quality shoes seem to be something which families are willing to spend significant amounts of money on, and everything the company does is geared towards justifying that higher price tag.
I also assumed that the margins on their products must be quite high – and this left me wondering how successful the business behind this honed sales system was.
And so it was, like a data geek, I logged in to my Red Flag Alert Account to see if Clarks was as successful on paper as the customer experience suggested…
Read all about it
Before logging on, I decided to see what the media was saying about Clarks.
A Google search revealed that not all was well; the company was closing its new Somerset-based factory after just two years in operation. Furthermore, the article revealed a change in top management following complaints over the Chief Executive’s conduct.
Other reports showed that the company had been experiencing difficulties long before this set back, including reportedly asked for discounts on rent from landlords after a period of weak trading.
Armed with this background information, I logged into Red Flag Alert and found that the company was rated bronze.
At Red Flag Alert, we describe a bronze-rated company as:
“Companies will be in acceptable health. They may not have published accounts or are a newly formed, but nothing significantly detrimental is known. Where financials are present, gearing may be higher than normal, or liquidity may be lower than ideal. The financial trend may be down, and there may be some history of legal notices. Considered to be a fair trade risk and open credit is recommended”.
This means that while the business is not in trouble, it certainly isn’t delivering the kind of robust results that a gold or silver rated company would.
Here’s an overview of what Red Flag Alert said about the company’s financial status:
- Turnover down: £935m in 2016 to £820m in 2018
- Pre-tax profit down: 111m in 2016 to -3m in 2018
- Large interest charge in 2018: suggests notable debt
- Net worth reduced: £363m in 2016 to £235 in 2018
- Gearing: within acceptable limits but the direction of travel isn’t healthy
- Dividends: the last dividend had to be funded from distributable reserves
* As of 26 August 2019
I could see that shareholder equity as a proportion of total assets was decreasing, suggesting that the business was being funded more and more by debt.
What does the future hold for Clarks?
This information allows us to gain a better picture of Clarks’ position. While it is not enough to predict the company’s future, it does enable us to ask some informed questions:
- What has driven profit reductions?
- What is the plan to repay debt?
- What is the cost of restructuring?
- How exposed are they to macroeconomic factors?
The company’s new accounts will be released on 31st October, and it will be interesting to see what is reported. While the business is not weak, there are some worrying trends that need to be monitored.
Monitoring as an Enabler of Growth
Companies use Red Flag Alert’s up-to-date and in-depth data to monitor companies they deal with, helping them manage risk and grow their business. When applied consistently, taking proactive steps to monitor businesses can have a real impact on an organisation’s financial performance.
Business monitoring can reveal new sales prospects, opportunities within your existing client base and threats to you or your clients’ supply chains. Here’s some different examples of situations in which it can help:
Clients that experience a significant change in circumstances — such as an increase in revenue, expansion into a new market, or a reduction in profitability — are likely to need help to deal with this change. If you notice these changes early on, you can offer your services to help as soon as they might need them.
Sales teams powered by Red Flag Alert’s data can filter through all the businesses in the UK to reveal new targets. Once you have discovered these new targets, you can add them to your sales list for prospecting. This kind of targeted lead generation can help your sales team become more efficient.
Monitoring to Avoid Risk
Monitoring existing clients — and the companies they deal with — is one way to ensure you know about potential dangers on the horizon.
Monitoring will alert you if the financial health of one of your clients is deteriorating. This will allow you to put provisions in place to ensure the risk is mitigated.
Clients Doing Well
Depending on the service your business offers, a successful client could also be a cause for concern. For example, improved liquidity could be a problem for businesses that offer short-term financial support.
Failures Causing a Domino Effect
When a large company fails, suppliers and companies that rely on the business are also likely to struggle. This can set off a domino effect of business failures as companies going into liquidation struggle to pay creditors.
Spotting when one of your clients is at risk due to the liquidation of a client further up the supply chain could allow your company to take early action and reduce risk.
Access to the Most Relevant Information
Monitoring allows departments to share opportunities based on data with other departments. For example, marketing could spot an opportunity — such as a client opening a new office — and pass on this information to relevant people in sales.
For a free consultation about how you can use Red Flag Alert’s data for business monitoring, get in touch with Richard West on 0344 412 6699 or firstname.lastname@example.org.