French Connection is warning of potential cash flow issues to come.
The London-based apparel and accessories retailer said on Tuesday that it has been in “active discussions” with a number of funding partners as it looks to come up with additional cash while stores remain shut due to the coronavirus crisis. If French Connection cannot secure these funds, the company warned that it will run out of money.
“Without securing additional funding and should the current [COVID-19]-impacted trading levels continue, the company’s cash resources will eventually be eroded in the coming months,” French Connection stated in a release.
Due to coronavirus-induced store closures, French Connection said its sales have been “significantly reduced” — despite a 44% increase in U.K. and U.S. e-commerce sales over the past six weeks. The company also noted “a small increase” in activity in some European countries that have begun to loosen restrictions. It said it is “look[ing] forward to returning to more normal levels of trade as the situation evolves” but does not expect that “for some time to come.”
Grappling with lower sales and delayed payments from wholesale partners, French Connection has taken a number of steps to conserve cash and reduce costs during the coronavirus crisis. The company is talking with suppliers to extend payment terms and discounts, working with its factories to reduce quantities for the rest of the year and negotiating with landlords to either defer or forgo rent for the closure period.
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French Connection is also utilizing the U.K. government’s support programs, including its furlough scheme (wherein furloughed employees are paid 80% of their salaries by the government). The U.K. has announced plans to begin to a phased reopening of shops on June 1. French Connection said that it is developing plans to allow its stores to reopen “safely and in line with all government guidance” beginning June 1.
It’s not just French Connection that has been hurt by the coronavirus. Retailers across the board have seen sliding sales due to store closures and decreased discretionary spend, with several British fashion purveyors — such as Debenhams and Oasis & Warehouse — going into administration. Further, the British economy has been slammed by the coronavirus crisis. For the first three months of 2020, the country’s gross domestic product shrank by 2%, marking the largest decline since the 2008 financial crisis. This month, the Bank of England forecasted that the U.K.’s economy could shrink by roughly 30% in the first half of the year if lockdown measures remain in place through June. While it predicted a recovery in the second half, the central bank expects that the economy will slump 14% by the end of the year and could see its sharpest downturn since 1706.