Clarks: Made to Last

by Mark Palmer

  The board agreed that it was no longer possible to keep open Redgate 2, a Clarks closing factory in Street, or Isca, the company’s Exmouth factory, which produced women’s shoes. Both were phased out in 1988. Nevertheless, there was still no overall policy to stop production in Clarks factories. In fact, some – known internally as Centres of Excellence – were expanding. St Peters added an additional 66,000 sq ft of production capacity to its existing unit, at a cost of £6 million, but never managed to live up to the expectations that followed such a big investment, producing 300,000 fewer pairs than anticipated. St Peters, at one time spoken of in the same breath as the successful Bushacre factory in Weston-super-Mare and the Plymouth factories, closed in 1995.

  Closures led to a greater reliance on buying in, something the company had been doing quietly – perhaps too quietly – since the early 1960s. In fact, back in 1975, the men’s division had appointed a manager to oversee the importing of formal shoes from Italy, canvas shoes from Korea and slippers from other manufacturers in the UK. By 1990, a third of all shoes – around 6.5 million – sold by Clarks were bought in, mainly from other manufacturers in the UK, Brazil, Portugal, Italy, South Korea and Taiwan. One factory in Italy was producing 600,000 pairs of men’s formal shoes for Clarks each year alone. Another Italian company was sourcing shoes from Romania and the Ukraine. Added to that list of supply countries were Spain, France, Hungary, Greece and Hong Kong. At that time, resourcing managers were organised geographically, with one person typically responsible for three or four countries, and Clarks had three offshore offices for this purpose – in Portugal, Taiwan and Hong Kong.

  The experience in Portugal was different – or at least it became different. Clarks had seen how German footwear companies such as Ara and Elefanten had pioneered factories near Oporto, following the lead taken by Ecco and Mephisto. With labour costs lower than in the UK and with the Portuguese government encouraging inward investment after it joined the European Union in 1985, there was a strong argument for Clarks setting up a factory on a greenfield site in Portugal, but the board was not prepared to release the necessary capital or increase its borrowings in order to do so. Instead, in 1986, closer links were forged with Pinto de Oliveira, a shoemaking company which was already supplying 8,000 leather uppers to the Bushacre factory at an annual saving of £600,000 a year. This led to a joint venture – with each party having 50 per cent equity – through the formation of a new company called Pintosomerset Limitada, operating from a 14,000 sq ft factory at Arouca, a hilly farming area about 40 miles north of Oporto.

  Two years later, when both Pinto de Oliveira and Clarks needed more capacity, Clarks opted to build a second factory for the sole use of Pinto de Oliveira and K Shoes – and did so to a roll of drums. At a ceremony on 3 December 1988, Mario Soares, Portugal’s president, officially opened the new plant at Castelo de Paiva, to the east of Oporto, and a period of training began, with the aim of supplying 30,000 pairs of uppers a week for the factories at St Peters, Barnstaple, Bushacre and K Shoes in Kendal. By June 1990, the factory was employing 600 people, of whom 85 per cent were women and 95 per cent were under the age of 25.

  This was a big commitment for Clarks – and for Portugal. Certainly the powers that be in Portugal must have assumed that Clarks was in Portugal for the long haul. Clarks employees learned Portuguese, the local Portuguese learned English – and the mayor of Castelo de Paiva, Anteiro Gaspargas, clearly had high hopes of an enduring relationship with C. & J. Clark, announcing during a visit in the summer of 1990:

  Clarks came to our region at an important time. Before the factory was built there was work here, but not enough. Many people travelled to Oporto, or even moved abroad to find jobs, but now, since the factory opened, more industry has been attracted to the area, bringing prosperity to what was a very agricultural part of Portugal.

  The Clarks general manager in Portugal, Alf Turner, recognised the company’s responsibilities towards the region and its people. Speaking to the Courier, he said:

  It is important for us to convince all of our employees as well as the community in general that we are serious and committed to our business in Portugal and that in the long run, both they and Clarks will benefit as a result of our work here.

  But the Portuguese adventure failed to last. By 2001, it was over and Clarks was sourcing shoes made more cheaply elsewhere, notably from Vietnam.

  Back home, by 1989 there had been ten further factory closures and it became clear that a new factory system was needed if young people were to be recruited in the way their parents and grandparents had been during Clarks earlier years. Piecework had helped workers earn good money, but there was a Dickensian whiff about it, encouraging output rather than quality. In its place, in 1989, Factory 2000 was launched and billed as a whole new system that introduced a flat rate of pay and concentrated more on quality than speed. It aimed to get the product right first time, with minimum waste – a leaner operation to compete more favourably with foreign competition.

  Martin Peakman, Factory 2000’s project manager, assured employees that the new system would be ‘rewarding’, referring to both pay and working conditions. Something similar, known as the Toyota Sewing System, was introduced at K Shoes; this came from Japan, where the car colossus Toyota revolutionised the way it cut and stitched the leather seats on quality models. K Shoes discovered the Japanese system through its association with the US Shoe Corporation in Cincinnati and adapted it to its own factories in Kendal. One of its core principles was a move towards self-managed teams of four or five people producing an entire upper, with machinery reorganised into a horseshoe configuration.

  ‘Factory 2000 encouraged people to work in teams, but it turned out to be more expensive and did not improve the quality enough,’ says Paul Harris, who from 1988 to 1995 was in charge of the Barnstaple factory, where 20,000 pairs of women’s casuals were made each week. As Harris explains:

  It was a desperate move in reaction to the recruitment pressures and the quality pressures, but it was not a magic formula. There was no disguising that manufacturing was becoming very difficult. We were fighting the tide and people sensed that more factories would close, but we also knew that the family had invested so much in those communities. And in any case, buying in shoes from abroad was not as easy as it sounds. Resourcing was not a tap you could turn on overnight.

  Nor was restoring order between shareholders and the board. Tindale again stressed in January 1990 that a public quotation would be ‘fairer to the majority of shareholders’, but everyone knew that since it required a 75 per cent majority, it would never be achieved given the distribution of shares among key family members. Twelve months later, after the company bought in 561,007 ordinary shares at a price of 180 pence per share, Tindale changed his tune. In the Annual Reports and Accounts for the year ending 31 January 1991 he said:

  The success of the buy-in dealt in large measure with the shareholders’ requests for liquidity, and market and general trading conditions would in any event prevent a successful share flotation in the near future. In view of the strongly held and expressed views of a substantial minority of shareholders, your Board has decided to postpone indefinitely moves to float the company and the existing method of twice-yearly opportunities to sell and buy shares will be continued.

  Tindale also informed shareholders that Lord & Farmer was to close, with most of its shops reverting to either Clarks or K Shoes, and he warned that Ravel was experiencing turbulence. Looking ahead, he warned that things would become ‘very tough indeed’ for C. & J. Clark Ltd.

  He was right – but he would not be around to witness it. By the summer of 1991, he had resigned, a decision taken in part because he was not in the best of health, although those close to him intimated that he was ground down by the wrangling between the board and shareholders, demoralised by the recession and fearful for the future of shoe manufacturing in Britain. He wanted out.

  Before his departure, a group of family shareholders
including Caroline Pym, Lance Clark, Caroline Gould, Harriet Hall, Nathan Clark and Roger and Sibella Pedder wrote a joint letter to Tindale telling him that it was

  … in the interests of the management, employees and shareholders of C. & J. Clark that it remains a private family company … your successor should be someone who has the support of the majority of shareholders.

  It went further, leaving him with a plan for the future, which they wished him to recommend to the board prior to his departure.

  The proposal has the full support of ourselves and our Family shareholdings, representing an effective majority of the shareholding in C. & J. Clark. If required we will vote to support them at a shareholders meeting.

  It was a radical plan. The proposal called for Lance Clark to be appointed chairman on 26 April 1991 at the Annual General Meeting; Roger Pedder would become vice chairman and John Clothier would be given ‘full support’ as chief executive, subject to achieving certain fiscal goals by 1993 – ‘a profit after interest representing 20 per cent of capital employed’. There were eleven points in total. Under the heading ‘Policy’ it said, with no apparent irony: ‘There is no intention behind these changes to interfere with operational management of the company.’

  A record of Tindale’s response does not exist. But this audacious manoeuvre came to nothing. Instead, headhunters were deployed to find a successor to Tindale from outside Clarks and they identified Walter Dickson as the man for the job.

  Dickson, who was of Scottish descent, might not have known one end of a shoe from another, but he was well versed in the vagaries of working for a family firm with a long history and proud tradition. He was known as ‘the man from Mars’. And for good reason, since he had worked for the American-owned confectionery company for 25 years, joining in 1962 from Procter & Gamble as national sales manager and ending up as president of Mars Europe. Along the way, he was variously sales director and then managing director of Pedigree Pet Foods, a subsidiary of Mars, and managing director of Mars Confectionery.

  11

  Peering over the precipice

  WALTER DICKSON arrived in Street in July 1991, just a few weeks after Harrods opened a children’s shoe department run by Clarks. The Courier of that month reported breathlessly on the Harrods story, running it as a page-one splash. ‘We had Diana Ross and Rod Stewart – and the Sultan of Brunei is a good customer. But there is room for ordinary people,’ said Angela Holmes, the manager of the Harrods branch.

  ‘Change at the top,’ announcing Dickson’s arrival, featured on page five and contained an interview with the new chairman by Ian Ritchie, head of public relations, who did not take long in getting to the heart of the ownership issue.

  ‘Mars is a family company. So is C. & J. Clark. What are your views on the contrast between a family and public company?’

  ‘The family business structure is not bedevilled by the short-termism forced on business by the City,’ replied Dickson. He went on:

  That particular feature was a hallmark at Mars and it seems to me that CJC has the same attitude in terms of time horizons … There is a marked determination to maintain quality at Clarks … Although there are differences between family and public companies, both business structures have got to answer to an outside audience … The difference is that the institutional shareholders are more faceless and uninvolved than are the shareholders in Mars and Clarks. Therefore there is more direct linkage with the shareholding community of a private family company than there is in a public company.

  And when that ‘direct linkage’ turns toxic it is not long before the board is brought to its knees. Just as football managers forever resort to the cliché about how ‘at the end of the day it’s all about results’, it must have been evident to Dickson that only returning the company to sustained profitability – with a healthy dividend paid to shareholders – would keep the peace.

  It was never going to be easy when substantial family shareholders continued to agitate in the background.

  ‘The family became a board outside the board and that was always my gripe,’ says Malcolm Cotton. ‘It meant there were two boards trying to run the company. It was a hopeless situation and it became clear that something major had to change.’

  Lance’s cousin Richard, one of Bancroft’s sons, was about to join the board, and he too had grave reservations about the way the company was being driven, about its range and quality of shoes and about its reluctance to implement the repeated recommendations made by management consultants. Richard had done his own sums and worked out that 25 per cent of profits from 1981 to 1991 had come from selling off assets, such as defunct factories and other properties or disused factories, rather than from the sale of shoes.

  One asset sold was a Henry Moore sculpture that Clarks had bought in 1981 for £150,000. In an article composed for the Village Album, a mainly Quaker group that met (and still meets) once a year, and where members read out essays or poems, Ralph Clark recalled how the company had written to Moore asking if the artist might contemplate disposing of ‘any rejects’. Moore replied some months later, apologising for having temporarily mislaid the letter and saying that he had no ‘rejects’, but would be happy to discuss matters further. As Ralph wrote:

  The meeting duly took place at his fascinating studio in Hertfordshire, when it was politely made clear that it was not so much a matter of whether we wanted a piece but rather whether Mr Moore thought we were fit people to have one … the frail and modest 81-year-old artist turned out to be a formidable salesman.

  Moore visited Street to inspect the site outside Netherleigh, the original home of James Clark, where it was proposed the sculpture – called Sheep Piece – would stand. Moore made approving noises. Clarks would take the work on trial while a price was agreed. Ralph described how two lorries carrying five tons of bronze arrived and the sculpture was assembled on site. Moore then arrived and wanted his creation to be moved six feet to the left.

  Sheep Piece appeared to some to depict two sheep fornicating – or at least one sheep climbing on the back of another. According to Ralph’s essay, the reception was mixed, with some local councillors describing it as ‘obscene’. Several months later, Moore telephoned Street to say that a Japanese company had also expressed an interest in the sculpture. Ralph recalled:

  Could we please make up our minds? A nice large and round sum was mentioned. Many discussions took place and finally it was decided to buy – it was, after all, an investment … I only hope, if ever we have to sell, that the buyer has somewhere to put the piece, but if he does, he will not have half the fun we had buying ours.

  The Henry Moore sculpture was sold to PepsiCo in 1991 for around £2.1 million and taken to the American company’s sculpture park in Purchase, New York, where it remains today, alongside two other works by Moore.

  ‘I was sad to see it go,’ says Richard Clark. ‘But it didn’t surprise me, because it was another way of propping up the profits. What did bother me was hearing people say that Clarks was selling off the family silver.’

  What bothered Richard even more was the idea of floating the company and selling it to new owners. This was an over-my-dead-body option for him and for many other members of the family. Caroline Gould, an architect, whose mother, Eleanor, was Bancroft Clark’s sister, was one such disaffected director. From 1987, she had been Stephen Clark’s alternate on the board, but when he stood down in 1990 she replaced him in her own right. Gould explains:

  The celebrated sculptor Henry Moore visited Street in 1979 to discuss the purchase by Clarks of his sculpture Sheep Piece. Left to right: Bancroft Clark, Daniel Clark, Ralph Clark and Henry Moore.

  When Daniel was chairman the board was anything but collegiate and this continued after Walter Dickson took over. He was a great talker, but there was little evidence he was bringing the executive together … there was a lot of working behind the scenes from all sides.

  Dickson put in place a new management structure of C. & J. Clark Ltd, which took effe
ct on 1 February 1992. Its main thrust was that the existing subsidiaries, including Clarks Shoes and K Shoes, were replaced by a single company, Clarks International Ltd, with its own executive board.

  ‘The new structure is charged with the management of the strategic and tactical whole,’ said Dickson in his first Annual Reports and Accounts. ‘Our aim is to become a world class business in terms of product quality, operational efficiency and, as a consequence, in profitability.’

  New structures had become something of an abiding theme, normally accompanied by upbeat forecasts for the future. On this occasion, it was John Clothier, the chief executive, who told the Courier that this latest new dawn ‘represents a real opportunity to transform our business performance and [to] give all of us a truly exciting prospect for the future’.

  Certainly, the reshuffled hierarchy had a simpler format. There were five main divisions: brands, under Malcolm Cotton; retail, under David Lockyer; overseas, under Patrick Farmer, who joined the main board in 1990; personnel, under Kevin Crumplin; and finance, under Alan Mackay. Clothier made it clear that transforming the business would not ‘fall into our lap’ and that ‘many difficulties were on the way’. He was proved right on both counts – but the difficulties were of a kind he might never have envisaged.

  The environment in which Clarks was operating was not encouraging. Footwear in the UK was in the doldrums, with the market broadly static between 1986 and 1989 and then falling in 1990 and 1991. Out of all consumer spending, that on shoes accounted for 1.23 per cent in 1983, but had dropped to 0.98 per cent by the time Dickson began his part-time, non-executive chairmanship of Clarks. In real terms, spending on footwear fell 4.5 per cent in 1991.

  Verdict, a market research group specialising in retail, predicted that even if there were a recovery in the economy it would make little difference to the footwear industry, where the three biggest players were the British Shoe Corporation with an 18.3 per cent share, Clarks with 8 per cent and Marks & Spencer with 5.9 per cent. Footwear prices, said Verdict, had risen at about two-thirds of the rate of retail prices as a whole. It warned that either prices or volumes would have to increase, or else ‘a number of companies will cease to function’.