French Connection returning to glory?

French Connection returning to glory?

A couple of weeks ago French Connection posted a 2.4% decrease in group revenues dropping to £58.1M for the first half of the year, continuing their “hot-streak” of declining profitability experienced since the 90s glory days of the (at the time) groundbreaking “fcuk” branding. Whilst there are multiple factors for this it can largely be attributed to a disconnect between product strategy and pricing architecture.

Despite the varying product and ongoing drop in revenues Stephen Marks, Founder, chairman and CEO, remains adamant that the business is on target to return to black before the end of the year. Marks cites strong wholesale performance and stability of licence income as key drivers for change whilst simultaneously taking a small (but well deserved) jab at the tough UK retail conditions facing the industry.

Whilst my fingers are crossed for French Connection’s return to glory, one might fear that Marks forecast is slightly rose-tinted when looking at the results and share price over the last few years

Whilst this disconnect is reflected in the share price it’s worthwhile exploring what the data says, the Mallzee Insights data bank has tens of millions of customer opinions on French Connection.

Firstly, this graph illustrates how French Connection products performed with consumers since 2016 using the Mallzee Performance Score (MPS), which is the percentage of total positive interactions on a product, compared with the average performance of retailers in the UK market.

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As we can see, the French Connection brand hasn’t performed well with consumers , over the last 3 years, and it continues to underperform compared to the UK fashion market overall. Although, in fairness, we can see that they’ve dramatically closed the gap over the last few months, lending credibility to the current optimism and a return to profitability in the coming quarters.

They have however been here before, in 2017 French Connection’s early trading period was looking good relative to 2016, backed by higher margins on full-price sales. Sadly this didn’t last and the improving balance sheet was eroded by going too aggressive on their markdowns during the winter sale period which subsequently resulted in a 0.5% gross margin reduction for the year.

Therefore as we once again approach Black Friday and the winter sales period, the businesses discounting strategy will need to improve on previous performance.

It’s painfully clear these crucial periods not only present a massive opportunity, both in terms of shifting less desirable stock but also in using the increased store footfall to drive additional sales of full-price products.

The graphs below outline the average markdown levels and the percentage of stock on discount at French Connection over the last two years, again compared to the industry averages.

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We can see that the level of markdown is, in fact, steeper than the rest of the high street whilst the percentage of their products offered at a discount is far higher than their competitors. In a nutshell - with a lack of product market fit on so many lines French Connection discount deeper and across more lines than the industry average.

What now? It seems public opinion on their products is, in fact, swinging in the right direction and the company is now in the unique position of having the opportunity to turn their fortunes around. The success of their upcoming ranges and the adoption of a more robust discounting strategy will be crucial if they are finally to turn the tide and return the retailer to its formerglory and make FCUK a UK wardrobe staple again.

Mallzee Insights helps retailers improve profitability through product testing, our unique approach to data collection helps brands and retailers understand what’s going to work for their audience before they commit to large stock orders, in turn driving gross margin improvement of between 3-6%. With over 3m products tested to date and over 500m customer opinions on them Mallzee Insights is the largest database of consumer fashion opinion in the UK.

Richard Magnusson

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