French Connection

Thursday, 24th January 2008

I really do not intend this blog for comments on individual companies — it is not what I do any more, and I am unlikely to do it particularly well without spending more time on it than I can spare, but Richard Beddard's recent post on French Connection sparked off a few more general thoughts.

I think every analyst that covered the company asked them about the dangers of dependence on a single brand. The answer I got (from Finance Director Roy Naismith) was that the shock value of the word would not fade.

It is clear now that this was a serious mistake, and the fact that so many people asked the question at the time suggests that the company did get it badly wrong rather than making an understandable error. There are, to my mind, two possible explanations:

  1. wishful thinking: the directors did not want to acknowledge the possibility that the FCUK brand would weaken, or,
  2. short-termism: there was an unwillingness to risk losing opportunities to make the best of FCUK while it remained strong, in order to put the company in a better position if it weakened.
Personally, I think it was a mixture of the two. Very few companies (or investors, for that matter...) face up to long term problem until they have turned into short term problems.

So, what would I have liked them to do? Develop other brands. They could have decoupled French Connection from FCUK (as M & S eventually did with St Michael). Nicole Farhi could have been expanded: this would have brought it down-market from its current positioning, but it could have been kept at a premium to FCUK for a considerable time. Great Plains and Toast could have been expanded as well.

I am not sure which combination of these (and other )possibilities would have worked best, but any would have left them less vulnerable to the inevitable reliance of a single brand whose eventual weakening was foreseeable. The company said its strength was good design (rather than just branding), and that claimed strength could have been exploited better with multiple brands.

None of this helps much over deciding whether to buy or sell the shares (I would be reluctant without a convincing, fresh, turnaround plan). What it does show is how weak brands can be. There was no single event that weakened the brand, nothing in particular went wrong: it just ran out of steam.