The founder of French Connection has shrugged off pressure from an activist shareholder to surrender his dual role as chairman and chief executive of the retailer as it continues to nurse heavy losses.
The company’s chief operating officer, Neil Williams, said any change to Stephen Marks’s responsibilities would run the risk of derailing its turnaround plan. “Stephen is inherent to this business,” he said. “We are in the middle of a turnaround and it would be destabilising to change the situation.”
Williams’s comments came as the retailer reported a pre-tax loss of £7.9m for the six months to 31 July, which was unchanged from a year ago. Sales at established stores were up 6.5% but trading at its wholesale arm was dire, with sales tumbling nearly 17% as department store buyers stocked up cautiously after its ranges sold badly in 2015. French Connection closed five loss-making stores during the period and plans to shut another five in the coming months.
Gatemore Capital Management, a US hedge fund that has built an 8% stake, thinks better corporate governance would improve French Connection’s financial performance. The retailer is in its fifth loss-making year and Liad Meidar, a managing partner at Gatemore, said it was time to “rip off the Band-Aid”.
Meidar believes the company should shut nearly half its stores over the next two years, leaving it with about 30. “The turnaround plan has not gone far enough,” he said. “Corporate governance is a continuing issue and this needs to be improved across all levels if we are to see meaningful change.”
Marks, who founded the business in 1972, owns a near 42% stake. Williams said Gatemore’s concerns had not been echoed by other shareholders.
The analyst Sarah Johns of Verdict Retail said French Connection was struggling to compete with the likes of H&M, Zara, Topshop and Asos: “The FCUK branding on selected lines is outdated, collections can be hit-and-miss while upper-mid and premium price points make it difficult for shoppers to justify paying full price when similar styles and quality can be found for less elsewhere.”
Johns said store sales only looked stronger because it had closed loss-making outlets and its performance a year ago had been so dire. She also pointed to its dwindling cash reserves, which have fallen from £22.3m three years ago to £7.7m.
“The business requires a serious cash injection to prevent further periods of tumbling top-line sales, profit losses and disappointed shareholders,” she said. “A revised strategy which prioritises investment in product lines, product cost reduction and brand differentiation is desperately needed.”