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Damian Scarlett

Cloggs’ managing director explains how a change in strategy towards both bricks and clicks is driving significant growth for the footwear retailer

Damian Scarlett, managing director of footwear etailer Cloggs.co.uk, is eating his own words.

In 2008, when he joined the then little-known etail business from young fashion chain Bank, where he was managing director for five years, Scarlett swore that pure-play etail was Cloggs’ raison d’être and that a standalone retail expansion strategy was out of the question.

The retailer had always operated a store out of the Birmingham Bullring shopping centre but Scarlett said it was a bit of an “embarrassment” and vowed to focus on internet retail.

Fast-forward a year and he is standing outside a new unit at the Bullring having closed the “embarrassment” down, showing off the Cloggs concept store - a branded footwear store offering in-store internet terminals alongside real-life sales assistants, which since opening in September has averaged sales of £75,000 a week.

Cloggs, which has been nominated for Best Specialist and Best Multi-channel retailer at the Drapers Etail Awards later this month, is something of a sleeping giant in the world of footwear etail and Scarlett predicts sales of £17.5m and operating profits of £1.75m for 2011 after the etailer had a “phenomenal Christmas” with sales up 100% year on year.

He plans to open eight more of these internet terminal stores in key shopping centres across the UK in the coming months and it is obvious that this U-turn in strategy is about more than wanting to bolt on a second revenue stream.

Scarlett aims to make Cloggs the leading operator in the “branded fashion and health footwear market”, but straddling two different sectors, rather than focusing on one niche, could be harder than he realises. However, Scarlett insists this is where the growth lies.

“There is an opportunity to make more money selling footwear online. Schuh is very good and Office do a good job but there is more market share out there as people have dropped out. Wellbeing footwear is a growth market.”

Sense of well being

With ‘well-being’ footwear Scarlett is referencing cult brands such as MBT, Crocs and FitFlop, which have been cash cows for Cloggs over the past year. Scarlett predicts Cloggs will take £3m on FitFlop alone in the UK next year.

The well-being offer sits alongside 50 young fashion brands on Cloggs’ website including Ugg Australia - according to Scarlett “the perfect brand, with high volume and high price” - and Timberland, Dr Martens and Converse.

“I have a lot of respect for Cloggs,” says Colin Temple, managing director of footwear retailer Schuh. “I was surprised when it went into retail because to operate a couple of stores is a pain. But buying for pure-play online has its problems when it comes to anticipating growth - with stores you have inventory which helps you predict what will happen. I wouldn’t dismiss their young fashion and well-being strategy but they are two distinct parts of the market.”

Scarlett plans to raise the brand profile of Cloggs by opening more standalone stores - he intends to capitalise on cash-strapped landlords by negotiating good terms on property. He also aims to use the bricks and clicks strategy to get around the rules that some brands have when it comes to supplying pure-play etailers.

For example, he claims Adidas Originals will only supply three pure-play etailers in one sector, but he hopes to bring the brand on board for autumn10.

“The owners of Cloggs, [brothers] Nick and Chris Thomas, had given up on certain brands before I joined,” he says. “I knew the right person to call at Adidas, Nike, Henleys and Superdry to bring them on board. The business wasn’t a fashion business [before I joined].”

Cloggs is a family business with ambition, run by Chris and Nick Thomas, who run finance and marketing respectively, and Scarlett was hired for two reasons - his knowledge of the branded young fashion sector and his experience in deal-making, after leading the sale of Bank to JD Sports Fashion in December 2007.

Alongside the standalone retail drive, the main focus for Cloggs in 2010 is getting enough stock of the brands it already sells due to credit limits with brands, and securing new funding for the business to finance growth. The business is more ambitious than its cash flow will allow. “Cloggs has exploded but the biggest barrier to growth is having enough cash to buy repeat stock. We need to invest more in stock and then we’ll deliver 100% growth next year,” says Scarlett.

“We are cash positive but suppliers are always asking: ‘Do you really need this [much] product’? They are nervous because we’ve grown so quickly. Sales of Ugg have grown 100% year on year but our credit limit with Ugg hasn’t and the world around us has got worse. “

Scarlett anticipates that Cloggs will be Europe’s number one footwear etailer and become “the Zappos of Europe”.

Zappos, the US branded footwear giant, was bought out by etailer Amazon last year as Amazon almost simultaneously launched standalone footwear website Javari to serve the branded footwear market in the UK. The etail footwear market is becoming increasingly competitive but Scarlett says he is ready for it.

In order to grow and inject the necessary cash into the business, Cloggs has appointed corporate finance firm Livingstone Partners to help secure £1m of funding.

Scarlett says: “We don’t need cash in terms of infrastructure, we need the cash to invest in stock. If we stood still as a business we could treble our sales just by minding our market share. We could just trade like that and grow slower, but we’d rather seize the opportunity for growth now.”

Q&A

Which has been your best-selling style so far this autumn?

The FitFlop Mukluk boot in black has been our bestseller for autumn 09 - it’s outsold Ugg. This time last year we sold lots of classic Uggs, but this year we are selling a wider spread of styles from Ugg.

What has been your proudest career achievement?

Growing [young fashion chain Bank] to the success it was. Cloggs will outgrow it, but at the moment my greatest achievement is being part of the team that built Bank from a two-store chain to what it was when I left [49 stores] yet maintaining its culture while we did it. Turnover grew from £3m to more than £60m.

What is the best-selling brand you have worked on?

The best-selling brand I’ve ever been involved with was Bench back in 2005, which helped us secure the growth of the Bank business, and today it would have to be Ugg.

Where do you like to shop?

I tend to shop online or I’ll wander down to the Bullring [in Birmingham]. I’ll shop pretty much in any high street store; I’m not a great shopper and I’m not fussy.

How many hits does the Cloggs website get each week?

Customer traffic to the site is fairly consistent, with 20,000 visits per day. The average transaction value is £90 in the autumn.

Who do you consider to be Cloggs’ main competitors?

Schuh has launched a new site and [Amazon-owned] Javari has launched in the UK. Sites coming out of Europe such as Spartoo and Sarenza are key competitors.

CV

2008 Managing director, Cloggs

2003 Managing director, Bank

2000 Company accountant, Bank

1996 Accountant, J Cookson Company

1993 Trainee accountant

 

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