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March 10, 2020

French Connection reports FY loss, sales continue to fall

UK-based retailer French Connection has reported a loss for the full financial year, fuelled by an 11.4% drop in sales.

By Hannah Abdulla

UK-based retailer French Connection has reported a loss for the full financial year, fuelled by an 11.4% drop in sales.

The brand, which shelved plans for a sale of the business in January, attributed an 11.4% drop in revenues to GBP119.9m (US$156.2m) for the year ending 31 January 2020 to the planned closure of stores and the “difficult” retail trading environment in the UK.

It also said, while it had made good progress in the first part of the year, performance during the second half had been considerably worse than expected, particularly in the fourth quarter in the UK reflecting the continued difficult trading conditions and a shift in the phasing of wholesale deliveries to customers into the New Year.

Encouragingly, it added, the strong sales growth it had seen recently in the US wholesale business had continued but sales had in part been adversely impacted by additional import duties.

The company reported an underlying loss for the year of GBP2.9m, compared to an underlying profit of GBP0.8m last year. The loss, French Connection said, reflects the poor result in the UK, which was partially offset by the improvement in the US and despite the significant cost of the additional import duties imposed there since the beginning of September.

Following its decision to drop plans for the sale of the business earlier this year, the retailer is instead looking at a turnaround by right-sizing its store portfolio, investing online, and working to grow its wholesale business, particularly in the US.

“The performance this year has not been as anticipated and we are not being assisted by the continued difficult trading conditions in the UK and also uncertainty as to the impact of Covid-19 coronavirus, both due to the spread of the infection to further territories and the potential impact on our supply chain,” said Stephen Marks, chairman and CEO. “We are monitoring this situation closely and will take whatever actions are necessary to manage any delays that may arise.

“I am, however, pleased with the continued good performance of the wholesale business in the USA and we have good forward order banks in the UK to be delivered during the first half of the year. Initial reaction to the winter ranges has been good. The consistent performance of the licensing business will continue and will be strengthened by the new collections. The trading landscape in the UK is unlikely to improve in the short term and this has a potential impact on both the retail and wholesale businesses. Against this background, we are working hard to ensure we are operating as efficiently and cost-effectively as possible while working closely with all our trading partners to maximize business with them.

“We have a lot to do to return the business to the positive progress we had been making prior to this year but I am confident we are well-positioned to achieve this. “

Commenting on the results, Chloe Collins, senior retail analyst at GlobalData, said: “As expected, French Connection had a disappointing FY2019/20…Though the net closure of 15 locations is partly responsible, leaving its store estate at 81 branches, like-for-like sales also slipped as the year progressed, from 1.4% growth in H1, proving that the retailer failed to drive footfall and retain loyalty over the crucial Christmas period. In comparison with competitor Reiss, which released an impressive set of results…French Connection’s brand desirability has dwindled in recent years, as its designs lack originality and therefore struggle to excite shoppers or justify their premium price points. With the retailer announcing in January that it is no longer up for sale, its owners must now act fast to turn around the business, with reinvention of its ranges a priority to regain relevance.

“Though French Connection states that one of its strategic priorities is further rightsizing its bricks-and-mortar estate, this will prove a challenge as its average lease length is now two and a half years, with only two locations so far planned to close in FY2020/21. It should instead focus on investing in its standalone stores with longer lease commitments. French Connection is right to focus on US expansion…To support its wholesale partners and maximise this potential, it must increase brand awareness by ramping up social media marketing and collaborating with local influencers and celebrities. Online must also be a priority for French Connection, as e-commerce revenue fell by 8.1% during the period, with its website still missing key loyalty drivers such as a delivery saver scheme, free next day delivery over a minimum spend, and a ‘buy now, pay later’ service such as Klarna or Clearpay.”

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