French Connection Group (FCCN)


Another painful year for French Connection

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High end high street is recipe for pain As expected, French Connection's full year profits are lower than expected due to losses in its UK and European retail division. The recovery the Thrifty 30 bought into is on hold. High-end, high-street is suffering.The headlines aren't all bad though, the fashion brand's wholesale and licensing activities hauled the group into profit, and its £32m cash balance remains intact even after what chairman and ceo Stephen Marks describes as the worst season in his 40 years of retailing. The bifurcation of profit, retail is losing money, is worrying though because, by remaining profitable overall, French Connection gives the impression it has time to muddle through until retailing picks up. That may be true, but only if the wholesale and licensing arms keep growing and retail at least stabilises - last year retail operating losses increased from £1.6m to £8.2m, which is why group profits declined. The full-year results statement includes the promise of a review of French Connection's retail operations so perhaps Marks recognises that he can't afford to wait until the economy turns around, which would be convenient as cutting costs is tricky. Most of French Connection's leases are long-term so shutting stores would be expensive. At least the company recognises it must act to reduce the burden of the minority of leases that expire soon. Six are up for renewal in the new year and eight the year after, although not necessarily the ones most in need of renegotiation. Marks hopes to negotiate a better deal when leases expire or he will close uneconomic stores when they do. His other measures look plucky, but I wonder how much effect they will have. He wants less discounting, and shorter sales periods, but admits one of the factors behind eroding margins is increased price transparency because of the Internet. That seems to be an irreversible change in the market, that customers can more easily shop around for similar items, and by resolutely charging full-price French Connection might as well throw its silks into the wind. It's also introducing an exclusive women's range to its stores and ecommerce channels, and a selection of homewares. This is going to be one of the tougher decisions I face when reviewing the company when it publishes its imminent annual report. I'm inclined to keep the shares in the Thrifty 30 out of respect for Marks, who's brought the company back from the brink before, and of course because the shares are very cheap. A lot will depend on the impact of the leases on the company's financial strength, something I failed to factor into my initial analysis.


If FCUK continues to fight in the comodity zone of high street fashion they will loose. Others can do it cheaper. The FCUK brand used to be a USP but that has erroded over the years (they are not iconic like Levi's, for example). They need a new draw to pull in buyers. Exclusive tie-ins with highly respected designers are getting more common but there is still room for some fresh marketing ideas along these lines.

Chances are they will slash their staffing and run shops close to the bone. It can work for a while and prop up margins but staff loyalty and productivity suffers in the medium term. This can be a real problem because top retail staff are not a comodity and are getting harder to find since wages in the sector have been flat for a decade (falling in real terms). Believe it or not, having a store turnover of over £1m+ when your average sale is sub £50 does take skill. When the good staff leave, turnover drops like a store.

.... I meant "stone", of course :)

..... and since when does "commodity" have one "m"...... tut, tut, it must be Friday...

Don't be too hard on yourself. We don't check spelling in the comments. And dropping like a store seems apposite to me :-)

Thanks Bob. Good insights as always. And you’re right I’ve formerly labelled French Connection iconic, and it was, kind of, for a while, but it’s a misty-eyed to believe it still is. So that leaves it fighting the discounters. Especially while pennies are tight. By trying to keep prices high and maintain its reputation for higher fashion it must be trying to last out until people are willing to spend more freely again or until it can grab the public imagination with another FCUK-like stunt. The former could be a long time coming and the latter might never come. Because of the length of its leases it doesn’t really have much choice though. Presumably it would be more expensive to close the stores than run them at a loss…

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