Stephen Marks, the chief executive of French Connection, has warned of the damaging impact on retailers of landlords demanding "upward-only" rent reviews and has asked the Government to look again at the law, as the fashion group posted a sharp uplift in profits despite its UK retail operation continuing to struggle.
French Connection's UK and Europe retail business made a loss of £1.6m for the year to 31 January in a "difficult market", which Mr Marks said had not been helped by upward-only five-year rent reviews on several of its stores that it typically signs for 15-year leases.
He said: "One minute a store is profitable, the next it is not. It [rent up for review] normally goes up by around 20 per cent. I actually think it is something the Government should look at and if you asked every retailer in the country they would say the same." French Connection faced a rent review on 12 of its 74 UK stores last year.
Upward-only rent reviews – which date back to the Landlord and Tenant Act of 1954 and typically apply to leases of five years or longer – are a long-standing gripe of retailers. Landlords also condemn the same legislation for giving tenants the right to renew a lease automatically, when they could easily find a better-performing tenant.
Mr Marks made his comments on retail property as French Connection grew its pre-tax profits more than nine-fold to £7.3m in 2010/11, compared with £0.7m the previous year.
The rise was driven by a major restructuring that saw the fashion group sell its Nicole Farhi brand to the private equity firm OpenGate Capital for £5m, exit its operations in Japan and close several loss-making retail stores in the US and Europe. But French Connection helped itself by growing gross margin by 50 basis points to 52 per cent and delivering a strong wholesale performance, including at its licenced partners in Hong Kong, China and India.
Mr Marks said: "French Connection is one of the few English companies that is a global brand – and that is very powerful." Total revenues rose by 2 per cent to £205m over the year. While French Connection does not expect a "significant improvement" in the performance of its UK and European operation this year, Mr Marks hopes that consumers will spend more in the second half after the scale of the Government's spending cuts becomes apparent.Reuse content