May 19, 2020
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French Connection faces cash crunch, e-tail surges, Europe reopening begins

May 19, 2020

French connection didn't have much cheerful news to deliver on Tuesday when it released a trading update and also shared details of its financial position. In fact, the company said that “without securing additional funding and should the current Covid-impacted trading levels continue, [its] cash resources will eventually be eroded in the coming months”.

French Connection

Not that it expects a doomsday scenario in which it completely runs out of cash to actually happen. It has been “in active discussions with a number of potential funding partners,” and the board “is confident of raising sufficient funds to support the business until the return of trading levels that are able to support the ongoing operations”. It said the process “is proceeding well and we are making good progress on due diligence and agreeing terms”.

The need to raise the extra cash comes as the retailer, which had already been struggling before the coronavirus crisis, continues to do so. It had delivered an update on March 24 – just as the lockdown began – and its shops and concessions have remained closed since that date with no physical sales happening as a result. 

However, on the plus side, it has been able to operate its own websites in both the UK and US with sales up 44% over the last six weeks, while continuing to supply a few of the predominantly online wholesale customers that are still trading. 

Of course, this e-tail boost still makes up just a small proportion of its overall business, although it also said it’s “starting to see a small increase in activity in Europe as countries begin to open up”.

It’s understandable that it has been taking a number of actions to conserve cash and reduce costs given the significant reduction in sales, together with the delayed payments from many of its wholesale customers, particularly in the US. 

It’s in “ongoing and generally constructive discussions with many of our key stakeholders,” about conserving cash, it explained. These include speaking to all suppliers to confirm extending payment terms and discounts; to landlords with a view to agreeing rent holidays or deferred payments; to factories to manage the supply of future goods to match current requirements while reducing quantities to reflect the expected lower level of trade for the rest of the year; and rescheduling payments to HMRC, the UK tax authority.

However, it also highlighted difficulties that have been mentioned by a large number of other businesses. While it has “attempted to participate in as many of the government's support initiatives as is possible” and is using the Job Retention Scheme for furloughed staff and rates relief for the store portfolio, it has “proved very challenging for us, in line with other retailers, to access any other government funds”. This is due to “the tight qualification constraints that have been imposed and to date we have been unable to access any further funding from these schemes”.

For now, it’s hoping that it can get its stores open soon and has been developing plans for a safe environment when this happens. “Given the UK government's recent update regarding the potential phased reopening of stores from 1 June, we are planning to open up in an orderly manner to ensure everything required is in place,” the company said. “We look forward to returning to more normal levels of trade as the situation evolves, although we do not expect this for some time to come.”

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