As profitability improves the retailer is eyeing expansion in emerging markets.

Connecting the dots

  • Founded 1972
  • Chairman and chief executive Stephen Marks
  • Number of company-owned stores in UK & Europe 128
  • Sales Up 7% to £102.8m, six months to July 31, 2011
  • Pre-tax profit £700,000, six months to July 31, 2011, £200,000 in 2010
  • UK/Europe retail like-for-like growth Up 4.6%
  • UK/Europe operating result (£3.7m), (£1.9m) in 2010

Fashion group French Connection signalled an approaching new phase of growth last week, when the retailer reported improving profitability in its first half.

After a difficult few years and restructuring, including the disposal of the Nicole Farhi business and closure of stores in the US and Japan, French Connection is once again looking to the future rather than battling with problems of the present.

The results show the retailer making progress on all main fronts, although challenges remain – particularly at the core UK and Europe retail division, which accounts for 53% of group sales.

Like-for-likes rose 4.6% and sales increased 5% to £54.3m, although at operating contribution level there was a drag at the division of £3.7m compared with £1.9m last time.

However, the retailer maintains that the performance is indicative of general market conditions and higher business costs, such as commodity prices and rents, which have  not all been passed on to shoppers.

French Connection insists it will not “chase short-term gains that could come from increasing discounting” and, although it will take some time, it is confident its strategy will bear fruit in the longer term.

It is a view backed up by evidence that the retailer’s fashions remain in demand from its wholesale division, which delivered a 19% sales rise to £20.3m in the UK and Europe. Forward orders for winter 11 and summer 12 “showed good growth” which, the retailer says, reflects the strength of the brand.

And demand for French Connection’s styles are at the root of
confidence about the opportunity to expand overseas. The potential of emerging markets such as China, India, Russia and Turkey have been highlighted, often adopting franchising and licensing models. “Working with a joint venture partner or licensee removes a lot of the risk,” says finance director Roy Naismith.

He adds that there is potential for eight stores in Russia over three years, while in China – where there are 19 at present – the intention is to open another 25.

French Connection has no debt and holds £30.9m of cash, which Naismith says put it in a strong position during restructuring.

Now, with essential surgery out of the way, he is optimistic despite expressing the obligatory caution about trading and economic conditions. Naismith says: “We’re now at the stage of talking about being back on a growth path.”

For almost 40 years since its founding by the mercurial Stephen Marks – who remains its guiding spirit as chairman and chief executive and still holds more than 40% of the shares – French Connection has been a staple on high streets. Now it is as likely to be in Beijing or Istanbul as it is in Birmingham or Ipswich.