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House of Cards: The Fragile World of Clintons

House of Cards: The Fragile World of Clintons

The precarious financial position of high street stalwart Clintons was bolstered somewhat last month after a pre-agreed deal with its existing US owners bought it out of administration, safeguarding 2,500 jobs. However, the card and gift retailer remains on shaky ground and is still a long way off from returning to profitability.

So what’s gone wrong at Clintons? We take a look at the history of its troubles and how the warning signs have been there for a while.

A Decade of Trouble

Clintons has been a staple on the UK high street for over 40 years, with nearly 400 shops at its peak. But in 2012, after a period of financial difficulties, it entered administration and was acquired by American Greetings. This move managed to save most of its stores, alongside a full rebrand and refurbishment.

It rebranded from Clinton Cards to Clintons, as part of a refocus away from just greeting cards to encompass the full gift and stationery experience. The hope was to modernise and move forward, but recovery for the brand has not been forthcoming.

Short-Term Debt, Long-Term Problems

Since then, Clintons has crawled along, funded by short-term debt but hampered by declining turnover. Despite the appointment of a promising new chief executive, Eddie Shepherd, losses for 2018 still stood at £14.2m (down from £19.4m in 2017). 

An inconsistent strategy of cost cutting and acquisitions hasn’t helped. All of this has led to a current ratio of just 0.48, a liquidity ratio of 0.14, and very poor gearing. 

The problems have come to a head again at the end of last year, with annual accounts, due to be filed in October, delayed as the retailer sought a company voluntary agreement (CVA) to cut rents and close up to 66 stores. However, when it failed to win support from landlords for this proposition, its American owners had to come to the rescue.

“The pre-pack administration deal will secure jobs for the group’s entire workforce and mean all its stores continue to trade, but wipes out tens of millions of pounds of debts owed to suppliers”, reports The Guardian. Ninety-seven UK unsecured creditors stand to lose £74.8m.

The Weiss family also injected £20 million into the business last year, and offered an £11.4 million loan note to be used as required.

Competition is Rife

While Chief Executive Eddie Shepherd said that the deal will “kickstart a new chapter” for the business and blamed its problems on issues such as business rates, consumer confidence and lack of clarity around taxation of online retailing, competitors on the high street and online have proved that the right business model can still exist for card retailing.

Card Factory has seen growth in sales and relatively stable profit levels by positioning itself as a cheaper high street alternative and expanding its reach as a supplier to other major retailers such as Aldi and Matalan. However, despite these efforts, Card Factory is still not immune from high street troubles: it recently issued a profit warning after a turbulent Christmas trading period.

At the other end of the high street, Cards Galore has focused on establishing its presence in central London for the “just-in-time” shoppers. This has allowed it to charge higher prices that Clintons simply can’t get away with, since its town centre and shopping centre locations are often close to cheaper competitors such as supermarkets.

While Clintons does have an online presence, the name of the game there in recent years has been an increasing drive towards personalisation of cards. Competitors such as Moonpig, Funky Pigeon and new start-ups including Papier offer a more innovative and personalised product than Clintons, often at similar prices.

Red Flag Alert Can Help You Manage Risk

As we’ve seen, while the Clintons rescue plan is good for jobs, it’s going to cost its suppliers dearly. Red Flag Alert is a business intelligence solution that can help you spot when a company is in trouble as soon as possible, so that you can take steps to protect yourself from the possibility of incurring bad debt.

Red Flag Alert provides real-time business data on 6.5 million UK businesses to help you make an accurate assessment of the health of a business. Our software was built by Begbies Traynor, one of the UK’s leading insolvency practitioners and experts when it comes to evaluating risk. It considers 114 data points to arrive at a health rating using our established algorithm. This algorithm can show one, two or three red flags to indicate levels of financial distress, giving you unique insight and time to decide on a course of action before it’s too late.

Red Flag Alert goes the extra mile in evaluating risk for our customers. We not only have the best algorithm to analyse and assess risk factors, but we also have experts collating, analysing and digesting data to generate financial health ratings that accurately predict insolvency. Our analysts noted that Clintons faced a continuation of difficult market conditions, in part due to lower volumes of sales and inflationary pressures.

To find out more about how Red Flag Alert can help you spot when companies may be a trading risk, get in touch with Richard West on richard.west@redflagalert.com or 0344 412 6699.

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