M&A

Will the shoe fit?

Li Ning takes control of UK shoemaker Clarks

Clarks-w

Can Li Ning turn it around?

The fashion industry is filled with comeback stories. Mom jeans, tie-dye clothes and bum bags (or fanny packs, in US parlance) have all made a return over the years.

And just when investors were ready to write off Li Ning, the eponymous sportswear brand founded by the gold medal-winning Olympic gymnast, the label has re-emerged as hip once again.

A few years back its market value had dropped to below HK$10 billion ($1.28 billion) but this week it was trading at nearly HK$130 billion. Some of its sports shoes have become collectors’ items and the brand even showcased its trendier looks via an eight-minute video runway show broadcast at a socially-distanced Paris Fashion Week last year.

The turnaround wasn’t without a great deal of stress and hard work. After three consecutive years of losses, the company, backed by private equity group TPG Capital and Singapore sovereign wealth fund GIC, restructured its business, cleared out inventory built up by third-party distributors and closed thousands of underperforming retail outlets. To appeal to young consumers, it also updated its designs to incorporate more streetwear.

Li Ning now wants to replicate the success of its own revamp with Clarks, the aging UK shoe brand that has faded from fashionability.

According to a filing made to the Hong Kong stock exchange last week, Viva China, the sports talent agency founded and controlled by Li, has agreed to pay £51 million ($70 million) for 51% of LionRock Capital, the private equity firm. The investment will give Viva China control of Clarks when LionRock’s £100 million takeover (announced in November last year) is completed. Given that the former gymnast is also LionRock’s non-executive chairman, it suggests Li is firmly behind the connected transaction.

Founded in 1825 by the Clark brothers, the footwear brand has long been known for making high-quality and comfortable shoes. Maintaining its traditions, the British label has been based in the same village in southwestern England’s Somerset for nearly two centuries. However, the venerable shoemaker hasn’t kept up with changes in fashion.

“The styles of its shoes 10 years ago and the current styles are more or less the same. Their styles are always classic but not fashionable. It is no surprise that the brand was abandoned by young shoppers,” one Chinese consumer told Huxiu, a news portal.

Having reported a loss of £83 million in 2019, Clarks was then hit hard by the pandemic. It had to cut 900 jobs last May from a global workforce of 13,000.

In recent years Chinese sportswear labels have been diversifying beyond their flagship brands, making purchases overseas. Anta owns the Italian brand Fila, as well as Japan’s Descente. It also has an investment in the Finnish company Amer, which owns multiple brands like Salomon snowboards and Mavic bicycle wheels. Similarly, Xtep controls a portfolio that includes hiking brand Merrell, Hush Puppies and Saucony.

Nor is Clarks the only fading brand Li Ning has invested in. The deal follows another acquisition last May that saw the sportswear maker buying a controlling stake of Hong Kong casualwear retailer Bossini, a cheap ‘fast fashion’ brand which has also fallen out of favour with consumers in recent years.

Industry observers reckon that the acquisitions reflect the renewed confidence of Li Ning himself and a sense that his company’s new mojo could help restore these two struggling brands and, like his sportswear firm, rekindle former glories.

Li Ning, the listed entity, is not directly involved in the Clarks investment (but Viva China owns a 16% stake in the Hong Kong-listed firm). However, Beijing Youth Daily believes that the sportswear maker can still help the British label to expand its sales network in China, especially via e-commerce channels. The Clarks acquisition could also be important as Li Ning tries to grow outside China. “Clarks’ 1,400 stores around the world are an important starting point in the globalisation of Li Ning’s brand. The rejuvenation of the Li Ning brand, too, will greatly help Clarks and the transformation of the old-school brand to appeal to younger consumers,” was Huxiu’s bullish verdict.


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