French Connection’s products are being better received by the market following the hiring of a new design team, evidenced by a rise in like-by-like sales of 6.5% in the UK and Europe and concessions growth of 13.9%, according to Gatemore Capital Management, an activist investor with 8% in the retailer.
Nonetheless, with over four years of consecutive losses, the retailers’ turnaround has not gone far enough: the rate of store closures needs to increase and margins need to be improved.
Chairman and CEO Stephen Marks has claimed he has accelerated its store closure programme; however, Gatemore disagrees. The retailer plans to close ten stores this year, while it closed 13 stores the previous year. Gatemore highlights French Connection is targeting 40 stores by 2020, but it believes this should be more aggressive and closer to 30 stores by 2018.
Liad Meidar, managing partner of Gatemore Capital Management, said: “Management has been peeling away at store closures, but we believe it is time to rip off the Band-Aid. The turnaround plan has not gone far enough. Gross margins have not improved enough on the retail and wholesale level. We have been pointing out the gross margin problem for over a year and this issue is only set to continue: the weakness of Sterling will create more headwind for margins over the next year as the cost of making clothing increases.
“But change needs to start at the top. Corporate governance is a continuing issue and this needs to be improved across all levels if we are to see meaningful change.”
Gatemore Capital Management, which invests directly on behalf of UK pension funds and private clients, is seeking changes to the French Connection board to improve governance at all levels. It is also calling for the founder, Stephen Marks, to surrender his joint role of chairman and chief executive.