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French Connection in ‘downward spiral’

French Connection continues its downward spiral.

The UK-headquartered fashion retailer has reported first half group revenue of just £69.2 million and an underlying operating loss of £7.9 million – though this is flat on the first half 2015-16 year, so not worsening. 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 a clear brand identity and gain a loyal customer following.

The FCUK branding on selected lines is outdated, collections can be hit-and-miss while upper mid and premium price points make it difficult for shoppers to justify paying full price for items when similar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 for less elsewhere.

Despite this, UK/European retail like-for-likes did rise during the period, attributing the better performance to the success of the spring 2016 collection. While product has become more design-led, which will have attracted attention and enticed customers, the main reason behind this improved performance was the ongoing store rationalisation strategy. Five underperforming locations were closed in the period, which bolsters the performance at remaining stores and leaves a stronger portfolio. Moreover, beating last year’s 10.7 per cent like-for-like sales decline was hardly a challenge and should not be taken as a solid sign that it is on the path to recovery.

CEO Stephen Marks may not be able to keep the business in a net cash position for much longer –  closing the period with net cash of £7.7 million, half that of last year, and down from £22.3 million in the first half of 2013-14. The business requires a serious cash injection to prevent further periods of tumbling topline sales, profit losses and disappointed shareholders calling for a management overhaul.

A revised strategy which prioritises investment in product lines, product cost reduction and brand differentiation is also desperately needed. In the areas French Connection has invested, financial returns have ensued.

Customer engagement on social media has contributed to half of UK/EU eCommerce coming from a mobile or tablet and eCommerce sales have grown 4.2 per cent – weak compared to the wider online market, but an improvement on last year’s decline and signals product desirability has risen and driven traffic.

Sarah Johns is an analyst with Verdict Retail.

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