French Connection buckles under tough competition

UK high street fashion retailer French Connection has posted its fifth consecutive annual operating loss as it fails to withstand pressure from fleeter-footed rivals chains.

The dismal overall performance – which masked some positive moves during the trading year – have led to calls from one major shareholder for the business to be broken up.

French Connection group revenue was down 6.7 per cent year-on-year to £153.2 million, largely attributable to a difficult first half for its wholesale and licensing divisions. Retail revenue fell 4.9 per cent to £87.9 million for the year. The company lost £5.3 million, compared with £3.5 million after write-downs and extraordinary items.

The closure of nine loss-making stores helped reduce the trading loss by 21.3 per cent year-on-year, and boosted like-for-like sales.

Plans to shutter a further eighth stores in the current trading year should improve that figure further, but, as one analyst pointed out, market conditions will become more challenging in 2017.

“French Connection must redefine and better communicate its brand identity in order to win back shoppers lured away by rivals such as Zara, Asos and Topshop – which all undercut on price, outperform on fashionability and have a clear differentiated offer,” said Charlotte Pearce, associate retail analyst with GlobalData.

“Gaining a greater understanding of its target customers and regaining relevance will be pivotal to drive appeal among lapsed shoppers. While French Connection often makes small steps in the right direction, its overall progress remains slow. With competition intensifying, it is a tall order for French Connection to become a go-to destination on the high street, so seeking out third party distribution opportunities via department store concessions and online pure-plays must be the prevailing strategy going forward,” said Pearce.

On the positive side, shoppers appear to have greeted the more recent French Connection ranges with more enthusiasm, but given the improved like-for-like sales are based on weak comparatives, Pearce expected stronger growth.

She said that investment in range expansion via its new activewear offer was a positive move, enabling the retailer to drive up spend among its loyal, albeit small, customer base.

“However, the real challenge is changing consumer perception.”

Meanwhile, Liad Meidar of major shareholder Gateway, described the French Connection board as “a mockery of modern corporate governance”. He believes that if the company was broken up it would be worth about £100 million.

French Connection’s share price fell to just 35 pence after the results were announced – a far cry from the  £5 of its peak when its notorious FCUK branding campaign was appealing to the masses.

Not everyone is pessimistic about the brand’s future, however. Sports Direct chief Mike Ashley has just bought an 11 per cent stake.

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