Fashion is
our Business
Fashion
Fashion is a fast paced and evolutionary business requiring constant creative drive and leadership as we strive to keep ahead of customer expectations, and it is this very volatility that creates the excitement which draws people into this most dynamic of businesses.
At the heart of our business is a passion for the clothes.
The fashion game can be a tough one however, after 40 years in the business French Connection is now one of the most recognised fashion brands on the high street with a global reach, operating in over 30 countries, with more than 1,000 stockists and with total worldwide retail sales of branded product of over £400 million, either directly, through wholesale or arising from licensing arrangements.
Fashion continues to develop as tastes, trends and reach become increasingly global, creating further opportunities for our business to expand its inspiration and market place. There are many geographic opportunities available to us for expansion and within existing markets we look to diversify our channels of distribution to cover retail, wholesale, licensing, and e-commerce. In addition we apply our experience and expertise to nurture and develop fledgling brands.
Fashion and style
In 1972, when French Connection was conceived, we set out to create well-designed, stylish clothing that appealed to a broad market. Staying true to that intention, French Connection has since become synonymous with fashion and style and it remains our prime goal to create and maintain brand credibility and distinctiveness in an ever-more crowded market place.
Driven by innovation and change, the brand’s strength lies in balancing new and exciting ideas with consistent delivery of quality and affordability, with design being the bedrock around which the business and operations revolve. We work hard to sustain the vision and attitude that French Connection has developed over the years by cementing firmly in the minds of all who work with us that we have a worthy and credible tradition of successfully matching product, image and context with a company culture that nurtures talent and thus ensures longevity. In a world of “fast fashion” we are proud of our commitment to quality, design and the creative process.
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Business aims and operations
With a passionate focus on fashion underpinning the business our aim is to generate increased shareholder value through the retail and wholesale of fashion products and the extension of our brands into other lucrative markets through licensing. We continually assess markets and relationships for new opportunities to broaden our customer reach. We also have a thriving online business with our website attracting 1,000,000 unique visits per month, and a mail order business that continues to blossom contributing high margin profitability as well as diversifying our distribution channels.
We design, produce and distribute branded fashion clothing for men and women from our business premises in London, New York, Paris, Hong Kong and Toronto. We operate retail stores and concessions in the UK, Ireland, Europe, US and Canada and also operate highly successful e-commerce businesses in each of those territories. Further, we wholesale our products to retailers operating in over 30 countries around the world and have licensed partners operating French Connection stores across Asia, Australia and the Middle East. Other branded products, such as toiletries, shoes and eyewear, are produced under licence and are available across the world from our licensees.
We support the French Connection brand with advertising which, like everything we do, is designed to capture the spirit of the brand and show off our beautiful clothes.
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Principal risks
Our success depends on our ability to produce ranges of garments which attract customers. Whilst we seek to achieve this and be as operationally flexible as possible, the nature of fashion means that it is not always possible to predict customers' reactions to each season's new ranges. Our customers' propensity to spend on clothing is impacted by their personal financial situation and other macro economic factors which impact the total size of the retail markets in which we operate. We have been able to mitigate this somewhat by developing our wholesale and licensing businesses which provide a more stable and predictable income stream. We consider that as a small operator at the upper end of the middle market the impact on our business of macro-economic elements is considerably smaller than the impact of the success of our designers in producing attractive products.
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Brands
Our principal brand is French Connection which accounts for over 90% of the Group’s revenues.
Our other brands include:
TOAST: a range of beautifully crafted ladies’ and men’s clothing and supplier of unique homeware, available on-line, through mail order and in a growing number of branded stores;
Great Plains: a fashion basics range produced in-house and supplied at wholesale to multi-brand retailers mainly in the UK; and
YMC: a fledgling edgy contemporary fashion brand for men and women with two stores in London and a growing wholesale base.
Each brand targets a different audience and has achieved high levels of recognition for style and design reflecting the creative passion and skill poured into the design and manufacture of their products.
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French Connection
The French Connection brand operates in the fashion-orientated high street retail market offering a fashion-forward range of quality products at affordable prices. Our customers, typically aged 18-35, appreciate that the brand is at the leading edge of high street fashion and offers quality and style in its products. We design ranges of products for both men and women from underwear to outerwear, casual wear to suits, denim, accessories and children’s wear.
Our design teams are based in London and we arrange for the products to be manufactured in specialist facilities in Europe and Asia. The Group retails garments through a network of retail stores on high streets and in shopping malls across the UK, Ireland and North America and through concessions within selected department stores such as House of Fraser and John Lewis. We also operate highly successful e-commerce sites through which our products are available for home delivery in the UK, Ireland, Europe and North America.
The full range of products is also offered for sale at wholesale through our showrooms in London, New York, Paris and Hong Kong to selected customers operating department stores, multi-brand fashion stores or e-commerce sites around the world.
To further extend retail distribution we have granted franchises and licences to quality retailers allowing them to operate French Connection branded retail stores in
the UK, Middle East, Asia and Australia. These customers are supplied through our wholesale channels in the UK and Hong Kong. Our licensees in Hong Kong and China are 50% joint venture businesses operated in conjunction with our local partners.
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Brand extensions
Our globally recognised French Connection and fcuk brands have been extended successfully into complimentary licensed products including men's and women's toiletries and fragrances, shoes, watches, jewellery and eyewear which together generate another major profit stream for the Group: licence income. Our toiletries licencees in the UK have produced a hugely successful range of products for both men and women which are sold exclusively by Boots. In 2010, the Group entered into a licence with a subsidiary of Li & Fung in the US to supply clothing products to the Sears department stores under the brand "UK Style by French Connection".
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Worldwide retail and wholesale operations
| Region |
Location |
Territories |
Retail operations |
Wholesale customers |
Brands |
UK/
Europe |
London
Paris |
UK, Ireland, Europe |
Retail stores and concessions,
e-commerce |
Department stores, multi-brand stores, franchise operators. |
French Connection, Great Plains, Toast, YMC. |
| North America |
New York |
USA |
Retail stores, e-commerce |
Department stores, multi-brand stores. |
French Connection, YMC. |
| Toronto |
Canada |
Retail stores, e-commerce |
Multi-brand stores. |
French Connection. |
| Rest of World |
Hong Kong |
Hong Kong, China |
Retail stores and concessions through joint ventures |
|
French Connection. |
| Australia, Asia, India, South Africa etc. |
|
Brand licensees, department stores |
French Connection. |
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Management of the business
Founded by Chairman and Chief Executive Stephen Marks, French Connection’s long history of success has been based on design quality and innovative fashion, supported by a strong market presence resulting in one of the most highly recognised and respected clothing brands in the UK and across the world. The senior management seek to ensure that our products are presented for sale in contemporary surroundings by knowledgeable and friendly staff who are in-tune with our customers. We recognise that our products are the core element of our business and that our ability to produce fashionable clothes matching our customers’ expectation has been, and continues to be, the key to our continued success.
We seek to ensure that our resources are deployed in the most effective and efficient manner to support the elements of the business which have a direct impact on trading. Design and production of the ranges and maintenance of our retail operating standards are paramount for all our business managers who are given broad responsibility for their area of operations.
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Management of risks
Each year the brands produce two main ranges of fashions and the success of each of these is largely dependent on the ability of our designers to reflect attractively the emerging trends in fashion. We utilise a mix of experience and fresh thinking in our design studios under the consistent guidance of the senior management to ensure continuity of the brand attitudes.
Like all retailers we are susceptible to volatility in the propensity of consumers to spend, which is affected by macro-economic issues. The design process and our retail businesses in particular have a significant proportion of fixed costs giving rise to operational gearing. In the retail business, since all of our outlets are occupied under leases, we are subject to upward-only rent reviews which have recently seen cost increases well ahead of general inflation.
Our brands and the way they are perceived in their respective markets is very important to us. We are therefore very protective of the brands and work to ensure that they are presented in appropriate ways and that they are not misused. In our markets a main driver for brand perception is the products themselves and therefore our reputational risk is closely linked to our sales success.
As a wholesaler we also face the risk of default from our customers and manage this through active relationship management with our customers by our dedicated customer accounts team. Our experience of bad debts has been very low over many years due to this close management. We also insure certain debt risks, mainly on overseas debts.
The Group maintains significant sterling cash balances throughout the year and we are conscious to manage the Group’s working capital effectively.
The principal treasury risks to the Group arise from exchange rate and interest rate fluctuations. The Board has approved policies for managing these risks, which are reviewed on a regular basis, including the use of financial instruments, principally forward foreign exchange contracts. No transactions of a speculative nature are undertaken.
The most significant exposure to foreign exchange fluctuations relates to purchases made in foreign currencies, principally the Hong Kong Dollar and Euro. The Group’s policy is to reduce substantially the risk associated with purchases denominated in currencies other than Sterling by using forward fixed rate currency purchase contracts. There has been no change since the year end to the major treasury risks faced by the Group or the Group’s approach to the management of these risks.
The Group is dependent on reliable IT systems for managing and controlling its business and for providing efficiency and speed in the supply chain. The Group’s IT function oversees all the systems and has policies and procedures to protect the software, hardware and data and to prevent unauthorised access to the systems.
The Group’s approach to the management of risks is further discussed in the Corporate Governance Report below.
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Key Performance Indicators
The Board considers that the key performance indicators for the businesses are:
- year-on-year comparison of retail sales on a same-store basis and excluding any periods of significantly different discounting activity, known as like-for-like sales growth;
- total sales achieved in the wholesale channels;
- gross margin by division;
- net operating contribution by division, being gross profit of the division, less the direct costs of the divisional operation; and
- net operating margin by division, being the operating profit before financing as a percentage of revenue.
Each of the above is discussed in more detail in the Business Review.
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Growth and development plans
The Group has been substantially reorganised over the last 18 months resulting in divestitures of loss making businesses and closures as described in the Business Review. The result of the reorganisation has been to improve the trading results such that the Group is both profitable and cash generative and we retain a comfortable level of working capital.
The senior management team is now focused on increasing sales volumes while maintaining or improving margins in order to achieve a net operating margin in excess of 10% which would be considered more typical of the sector. In the retail business our aim is to improve sales densities in our existing portfolio which will be evidenced by our key performance indicator of growth in our like-for-like sales. In our wholesale business we aim to improve volumes with both existing wholesale customers and through recruiting new outlets, reported through the growth in total wholesale turnover. Along with this we aim to carefully control stock levels, margins and overheads. We will also continue to expand our e-commerce operations, including our popular Facebook page, and other forms of connecting with our customers. Our key performance indicators in this area are the sales, gross margins and net operating margins reported for each business segment. We will continue to work to nurture and develop a number of our younger brands, and are very excited about their prospects as they continue to grow. Further, we aim to extend the reach of the French Connection brand through additional licensing in new product segments and territories and to support and nurture our existing licensees for further growth, the result of which will be seen in increases in licence royalty income.
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