UK’s largest shoe manufacturer with a strong focus on comfort and service


Investment valuations

For the year ended 30 September 2020
Investment valuations 5.8 35,0* 15.0* 71.0*

*Adjusted for additional investments made post year end

Hotter Shoes buys, manufactures and sells a range of footwear with differentiation through uncompromising focus on comfort and fit. It sells to customers, largely in the age profile of 50+ across the UK and US primarily through direct sales.

Hotter traded successfully as a direct to consumer business for many years from its formation in the 1980s. Between 2010 and 2016 Hotter achieved growth by developing a range of over 110 retail shops in the UK. This development reduced focus on the direct to consumer channels and required a significant increase in the number and variety of product styles on offer as well as significant infrastructure and working capital. In the very challenging UK retail environment of recent years Hotter was forced to seek to widen its target demographic by discounting products not designed for younger consumers.

The emergence of the Covid-19 pandemic in March resulted in the closure of the retail estate of 82 locations and the reliance on the direct to consumer channels to generate the cash necessary for survival. The pandemic resulted in the necessity of Hotter entering into a Company Voluntary Arrangement (“CVA”) which concluded in August 2020 with the permanent closure of 59 shops (72% of the estate) and significant head office simplification resulting in material cost savings. 

In early 2019 Ian Watson was recruited as CEO to implement a turnaround strategy. The strategy is founded on the digitisation of the business and comprises four key elements:

  1. Align brand and product
    1. differentiated product focussing on uncompromising comfort and fit within a structured range that meets our customers’ needs; and
    2. unique technology solutions reinforcing our excellence in comfort and fit.  
  2. Optimal route to the consumer
    1. focus on own direct to consumer channels supported by technology and strategic fitting centres to ensure optimised customer experience; and 
    2. partnership with third parties where appropriate.  
  3. Drive to best cost
    1. optimised and resilient supply chain; and 
    2. build / buy flexibility to ensure product range is unconstrained.
  4. People, process and systems
    1. customer facing and key internal processes optimised; and
    2. investment in key skills delivering customer and commercial benefit.

Hotter now has its targeted operating model in place.  

In October, delayed by Covid-19 related supply chain issues, primarily in India, Hotter launched its first new product range comprising its “freesole”, “cushion +” and “stability +” ranges. These ranges, which will be further developed in the significantly enhanced spring / summer range to be launched in Q1 2021, helped the continued growth of the direct to consumer business, particularly in the UK.

  Mar Apr May Jun Jul Aug Sep Oct Nov
% of sales through direct channels 64 97 95 91 74 78 67 85 95
Uk direct YOY sales growth % 13 12 13 12 1 6 8 20 56*

* impacted by timing of Black Friday weekend. Estimated to be +30% YOY growth adjusting for greater impact of Black Friday period sales in November reporting period than last year

Hotter’s direct channels have generated cash throughout the period from March 2020. Hotter’s net debt has increased from £15 million in March 2020 to £18 million in September 2020 reflecting cash utilisation prior to the closure of retail sites and CVA related costs (net of Electra’s £2 million investment). Hotter’s new operating model is significantly less working capital intensive than previously.

The direct channels that will drive future growth, have performed strongly throughout this year and, combined with significantly improved product and focused marketing give confidence in the future prospects of Hotter.
The simplification of the Hotter operating model implemented in 2020 gives the business an efficient and profitable base on which to build. The table below illustrates the impact of the operating model changes in pro-forma performance for the year to January 2020.

  Actual year to Jan 20 as reported Actual year to Jan 20 terminated activities Actual year to Jan 20 central cost removed Pro-froma year to Jan 20 continuing business
Sales (£million) 85.5 (25.0) - 60.5
EBITDA (£million) 4.3 0.4 0.7 5.4

The direct channel growth achieved in 2020 indicates an opportunity for Hotter to grow profitability above the pro-forma levels for the year to January 2020. The EBITDA growth ranges illustrated below are based on growth in direct channels of the illustrated percentages with retail (retained stores only) and wholesale unchanged.

  Year to Jan 20 as reported Year to Jan 20 continuing Direct channel growth
10.0% 15.0% 20.0%
Sales (£million) 85.5 60.5 64.6 66.7 68.8
EBITDA (£million) 4.3 5.4 7.3 8.3 9.2

During continued Covid-19 disruption to Hotter’s remaining retail operations we estimate that a 10% reduction in demand from 2019 levels would reduce EBITDA contribution by approximately £0.5 million (Q1: £0.10 million, Q2: £0.15 million, Q3: £0.13 million, Q4: £0.12 million).  

Hotter has contingency plans in place to mitigate the potential supply chain interruption from a “no-deal” Brexit. There should not be a significant ongoing cost impact for Hotter. 

The above indicates the opportunity for Hotter to develop further as a highly profitable growth business serving its existing, growing, target customer demographic in the UK and US. With infrastructure in place that allows replication of its direct to consumer sales channels in other international markets or targeting other customer segments that require focus on comfort and fit (e.g. occupations requiring significant periods on foot), there are many opportunities for future transformational growth.

Note: portfolio company data other than at period ends is unaudited and based on management information subjected to internal verification



Ian Watson


Based on multiple earnings



January 2014