French Connection: ‘It’s all about product’

French Connection founder Stephen Marks must have greeted last week’s snowfall with a sharp sense of irony.

Unseasonably warm weather late last year prompted one profit warning in November and then, after a second just a fortnight ago, chilly conditions returned as the launch of new season lines neared.

“Trading could get worse,” muses Marks, who combines the roles of chief executive and chairman at the retailer. “We didn’t have snow like this in February last year, just as we’re about to put our spring range out.”

But Marks, who has confronted difficult trading conditions on numerous occasions during his retail career, will bring to bear the strengths that have served him in the past and that made him his fortune from retail.

To many people Marks, who still has a 42% interest in the business, is synonymous with French Connection, a brand that celebrates its 40th birthday this year. And Marks remains as intimately involved as he was at the beginning.

The retailer’s style is closely controlled by Marks, who gives the go-ahead – or the chop – to all the product. “I’m like the fashion editor, I see everything,” he says.

A colleague says he is “very particular about his likes and dislikes, but it’s right to have the same handwriting across the products and to have somebody that can guide that through”.

But French Connection’s core UK and Europe retail business has been underperforming. Like-for-like sales plunged 9.5% during the third quarter, as shoppers shunned winter warmers, and group profit before tax in the period fell by £1.8m.

At the start of this month expectations were cut again and group profits are likely to come in at £4.7m.

French Connection’s UK retail division is expected to post a £9m loss for the year, against a £1.6m loss the previous year, according to house broker Numis Securities.

Numis analyst Andy Wade observed in a note to clients: “While French Connection is undoubtedly operating in a highly competitive space, the performance of the UK retail division is becoming increasingly concerning and a clear turnaround strategy must be a priority.”

But after four decades in charge, Marks is confident in French Connection’s fundamental appeal. “I’ve been in this business for a long time and it has had its ups and downs,” he says. “But it’s about having the right product.”

He is certain that the product is right, a view reinforced by the fact that wholesale deliveries in the second half of the last financial year were up and orders for the spring/summer season ahead of the comparable previous period. Similarly, international operations performed strongly.

Marks says: “We don’t feel particularly under pressure but let’s face it, the last four months of the year have been bloody awful.

“We’re not satisfied with our performance and we’re looking at everything to make it better but we don’t make knee-jerk reactions. We’re in a business where we have already produced next winter’s collections, but we will react and make the best of it.”

Warming up

He points to trends he has observed online as further evidence of the appeal of his product. “The initial reaction to [the spring/summer collection] from website sales has been good,” he says. “I refer to the internet because a lot of shoppers are choosing to buy online and stay out of the cold rather than going to the shops. It is all about having a great product.”

And he sees some wider reasons to be cheerful. “In 2012, we have the Olympics and the Diamond Jubilee, so there is a lot going on,” he says.

“We would hope that the second half of the year will improve.”

But with an average garment price tag of about £100 is it perhaps, as consumers feel the pinch in their pockets, that French Connection’s clothes are too expensive?

Marks clearly believes in the value for money of his product. “If you want a nice garment that has an individual style, is well made and it doesn’t fall to pieces, then you come to us,” he says. “Our ethic has always been to produce something individual so she [the shopper] feels great wearing it.”

Marks would not talk in depth on how he plans to breathe new life into the UK business. However, he confirmed that a planned store refit will go ahead this year, although he remained tight-lipped on the details.

And there will be additions to the product mix. In April, French Connection will launch a homewares range online and in 10 of its larger stores. It is the first French Connection brand foray into the category, although the group did launch into homewares “many moons ago” with Nicole Farhi.

Describing the development of the range, he says: “We’ve got to give the shopper something interesting. They’ve got to like it in order to live with it.

“The sense of style is the same as with our fashion arm and it has got to have something about it that makes people want to pay for it.”

“I think too many cooks spoil the broth,” says Marks. “This is all about showing a sense of style. You need to have a particular feel to the product. Someone once said, fashion fades but style is eternal, and I think that is right.”

The setbacks are disappointing for Marks, following extensive restructuring over recent years which it was thought would put the business back on the front foot.

There was extensive restructuring from 2009. The international network was rationalised, including the closure of stores in Japan and the US. And in 2010 the upmarket Nicole Farhi business was sold.

Marks said at the time of revealing the findings of a strategic review in 2010: “We have had to make some tough decisions, but our exit from the Japanese market, the reduction of our US retail presence and the sale of Nicole Farhi, together with a reduction in our overhead base, leaves us with a continuing business that we expect will be both profitable and cash generative, even in the current difficult economic environment.”

The changes left French Connection with 128 company-run shops in its core UK and Europe market, an extensive international network using franchise and licensing models and a wholesale arm.

There have been other changes too in recent years. The famous – or infamous – FCUK advertising was given a lower profile and new campaigns were introduced, notably The Man and The Woman ads which won marketing awards. And the retailer continued with eye-grabbing initiatives in its stores, such as its branding of its Christmas and January Sale offers.

Common theme

Although the eponymous brand is the powerhouse of the business, accounting for more than 90% of sales, the group has other strings to its bow. It operates multichannel business Toast, the Great Plains business that wholesales to multi-brand retailers, and YMC, a contemporary brand that at present has two London stores and wholesale base.

What runs through them all is the focus on product. It is that which Marks clearly believes can sustain shopper appetite despite a chilly beginning to the new year.

As Marks sets out once again to improve French Connection’s performance, he knows he is in a stronger position than many other retailers who have suffered in recent months.

While the pressure caused some retailers to collapse, French Connection has a strong balance sheet that puts it in a good position to ride out turbulence.

French Connection may be turning 40, but initiatives under way, such as the move into homewares, show that Marks sees it as a youthful business still with plenty of opportunity to come.