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Retail fear as French Connection feels chill
Hugo Duncan, Evening Standard12 Nov 2007
Fashion chain French Connection today became the first clothes retailer to issue a profits warning in the wake of the summer slowdown, sparking fears of a grim Christmas on the High Street.
It said profits will tumble this year after a dismal performance in August and October as shoppers stayed away from its stores. Profits last year were £4 million against £12.2 million and £33.7 million the previous two years. Analysts had forecast between £5.1 million and £7.6 million.
French Connection said: "While we expect to report a profit for the year, our ability to achieve the same level as last year depends on an improvement in general retail environment in the UK over the next three months."
Like-for-like sales fell 3% in the first 14 weeks of the second half. The firm added: "In line with the general fashion retail market, over-all sales in both August and October were lower than expected and our experiences are causing us to be more cautious about the general consumer environment for the last quarter and into next year."
Wet summer weather kept people off the High Street while mild temperatures in October dampened demand for winter clothes. French Connection shares today fell 8½p to 132p.
The grim news came amid signs other retailers are dealing better with the tougher conditions and lack of consumer confidence. The London Retail Consortium said shops in the capital took 11% more money in October than in the same month last year.
But many shoppers were tempted into stores by special offers, and analysts warned tougher times are ahead. Helen Dickinson, head of retail at KPMG said: "Many of those that have outperformed the market are reliant on a high degree of promotional activity to drive footfall and sales. It is early days in the context of the crucial Christmas trading period and retailers in the capital will be hoping the trend of the past month continues."
Higher interest rates and below-inflation pay rises have left many households short of spare cash to spend in the shops. The number of people going shopping fell last month but those that did venture out spent more money. Stores were given a boost by an influx of visitors from the Middle East and Europe although there were fewer Americans as a result of the weak dollar. Sterling has surged to 26-year highs against the greenback in recent days. The pound was today down 0.62 cents at $2.0848.
LRC director Kevin Hawkins said: "The sharp slowdown in sales growth in the UK as a whole has yet to have its full impact in London, which has been boosted by the spending power of shoppers visiting from the rest of the UK and overseas."
However, he warned it was just a matter of time before High Streets in London also felt the pain.
Accountancy Deloitte today said shoppers are expected to spend record amounts this Christmas despite the impact of higher interest rates and the Northern Rock crisis. It said the average Briton will spend £706 on presents, going out, food and drink, up 7% on last year.
Reader views (2)
I stopped shopping at French Connection some years ago because of their crude and tacky logos. Who wants to be associated with that brand? I think they have lost a lot of sales as a result. A real own goal.
- Sarah N., London, 12/11/2007 14:15
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I think the problem with French Connection is more to do with the tacky promotional name that they have been using for years. Even young people in my family find it out of place now, and I for one am glad.
- David Kitemaker-Hall, London, UK, 12/11/2007 13:53
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