French Connection will collapse without fresh investments
In this article (5)
Without securing an imminent financial lifeline, ailing UK-headquartered fashion chain French Connection is likely to collapse. The Retail Gazette reports the company has warned that if urgent funding is not secured its cash resources will be eroded within the next couple of months. Like most retail chains entering administration or bankruptcy – or likely to – French Connection was in trouble well before Covid-19 destroyed the brick-and-mortar retail sector this year.
For the 12 months to January 31 last year, the company’s operating loss almost tripled, from £3.8 million (US$4.97 million) in 2018 to £9.3 million ($12.2 million). It did, however, record an underlying profit, a somewhat modest £100,000 which was a stark contrast to the previous year’s £2.1 million loss.
With falling sales – both at home and in markets like Asia and Australia – French Connection has been reducing its store network for years. Founder and CEO Stephen Marks has been seeking a buyer for the company since mid-2018 while in the meantime trying to right-size the business.
This week the company said that having agreed to new payment terms with suppliers, negotiated rent relief with landlords, and reduced its factory orders as the Covid-19 crisis impacted its sales, the company was confident of securing funding to survive.
Online sales during the last six weeks have been up 44 percent in both the UK and the US. But Sofie Willmott, lead retail analyst at GlobalData, says the online channel accounted for only around a quarter of revenue prior to Covid-19. “In addition, online revenue fell 8.1 percent to the end of January, highlighting that its strong digital performance is coming from a low base and is not as impressive as it first appears.”
French Connection said in a statement reported by Retail Gazette: “In the light of the company’s current cash position and the continued expected weak trading environment, we have been inactive discussions with a number of potential funding partners.”
“This process is proceeding well and we are making good progress on due diligence and agreeing on terms.”
“In addition, online revenue fell 8.1 percent to the end of January, highlighting that its strong digital performance is coming from a low base and is not as impressive as it first appears.”
French Connection – once internationally famous for printing its initials FCUK on its t-shirts – has fallen from consumer favor since its heyday. In September 2016, Sarah Johns, of GlobalData predecessor Verdict Retail, observed of the brand: “The FCUK branding on selected lines is outdated, collections can be hit-and-miss while upper-mid and premium price points make it difficult for shoppers to justify paying full price for items when similar styles and quality can be found elsewhere for less.”
Those comments followed the company reporting a first-half loss of £7.9 million.
“The clothing and footwear retailer is struggling to compete with the likes of H&M, Zara, Topshop, Asos and Coast due to its inability to communicate clear brand identity and gain a loyal customer following.”
Nearly four years on, little has changed. Today, Willmott described French Connection’s prospects as “bleak”.
“French Connection’s brand desirability has continued to dwindle as designs lack originality, and therefore struggle to excite shoppers or justify premium price points. With its close competitor Reiss far outperforming (pre-Covid-19) and French Connection failing to find a buyer, after being for sale for a significant period of time, it raises the question once again whether French Connection can rebuild relevance as it will fail in the post-Covid-19 market if a product, pricing, and branding remain unchanged.”
Questions & Answers
Q.How long has French Connection been attempting to find a buyer for the company?
How long has French Connection been attempting to find a buyer for the company?
Founder and CEO Stephen Marks has been seeking a buyer for French Connection since mid-2018. This effort has continued while the company simultaneously tried to right-size its business operations during this period.
Q.What measures has French Connection taken to improve its financial position recently?
What measures has French Connection taken to improve its financial position recently?
The company has agreed new payment terms with suppliers and negotiated rent relief with landlords. It has also reduced factory orders as the Covid-19 crisis impacted sales, hoping these steps will secure funding to survive.
Q.Why does an analyst suggest French Connection's recent online sales growth is not as impressive as it seems?
Why does an analyst suggest French Connection's recent online sales growth is not as impressive as it seems?
Sofie Willmott notes that online sales only accounted for around a quarter of revenue before Covid-19. Also, online revenue fell 8.1 percent to the end of January, indicating the recent growth is from a low base.
Q.What issues have been identified as contributors to French Connection's declining popularity?
What issues have been identified as contributors to French Connection's declining popularity?
The FCUK branding is considered outdated, collections are inconsistent, and premium prices are hard to justify against competitors. The brand also struggles with a clear identity and gaining a loyal customer following.
Reader pulse
Can French Connection regain relevance?
22,256 votes so far