Sources: Francesca’s Has a Liquidity Problem

Vendors are complaining that women’s specialty chain Francesca’s isn’t paying its bills.

One credit specialist said word surfaced in November that the chain was slow in paying invoices. But market sources have confirmed that some vendors haven’t been paid for many months. A few haven’t been paid for close to a year. Two vendors told Sourcing Journal they are still getting orders from Francesca’s but have had to hold back on shipments due to nonpayment. In addition, vendors who are no longer receiving factoring approval are also said to be holding back on orders.

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Many of those impacted are smaller companies that can’t afford to not get paid. Because they are largely unfactored, they take on the risk alone each time they ship an order. One vendor in this position told Sourcing Journal that it won’t be shipping a new order to Francesca’s that’s already been made, even though it remains responsible for paying its supplier.

Because smaller vendors aren’t getting paid, they’re often the first to get wind that something might be amiss on the liquidity front. Vendor stories range from promises by someone high up at Francesca’s that payment would be made promptly only to be reneged, as well as the changing of vendor invoice terms from 30 days to 90 days by the retailer, followed by no payment at all long after the 120-day mark has passed. The vendors said many overdue accounts are in the $100,000-plus range. Somewhat surprisingly, Francesca’s merchants are calling them to find out when they can expect the next shipment, even though they’re aware the vendors are still awaiting payment for previous deliveries.

“Francesca’s highly values our vendor partnerships. We are working through some short-term changes with select vendors. Francesca’s business is strong and we look forward to a fruitful 2024,” the retailer said in a statement.

A former retail executive said the vendor complaints are normal occurrences for a retailer that’s facing liquidity constraints. “Retailers tend to pay their critical vendors first. There are certain goods that they must have to achieve their business plan,” this person said.

This former retail executive was also quick to emphasize that “just because the retailer may have had a tough 2023 doesn’t mean it is going out of business. It might still have decent free cash flow.” For publicly-traded retailers, comparable-store sales remain the key metric used to gauge how well it’s doing. That’s harder to determine for privately-held firms such as Francesca’s. And credit sources said the retailer hasn’t been forthcoming in providing up-to-date financial information.

One thing that did seem concerning for this retail executive was the steep discounts on the Francesca’s website. The retailer is currently holding a warehouse clearance sale with apparel priced at $12.98 and under, dresses at $9.98, accessories $4.98 and under, and jewelry, also $4.98 and under. Some items appear to be priced below cost. A Sandra Plaid Ruffle Hem Mini Skirt, once offered at $54, was priced at $4.98, or 91 percent off of the suggested retail price. A Riley Square Neck Velvet Body Suit was $4.98, marked 90 percent off of the suggested price of $50. Many of the 429 clearance items are now sold out or in limited supply. But the Melanie Flutter Sleeve Mini Dress in either Burgundy or Black remains available in select sizes for $9.98, representing an 82 percent discount to its original asking price of $56. The item previously had been marked down to $34.98 prior to its current selling price.

Those give-away prices seem to suggest that the retailer is concerned about getting the “cash and not worrying about margins,” the retail executive said.

Moreover, most of the 472 items under the category “New” are already discounted 25 to 50 percent off retail list price, with a few jewelry and other nonapparel items still at full asking price.

Adding to the retailer’s woes, it filed a report with the Attorney General of Maine last September that its site had been hacked. The retailer first experienced a potential network disruption in January 2023, hired third-party data security specialists and was able to confirm in August that certain customer files were compromised.

A notice from the Console and Associates law firm dated Sept. 28, 2023, indicates that Francesca’s operates 467 stores across 45 states, and an e-commerce site that has 20 million visitors each year. It also said that Francesca’s “employs more than 3,400 people and generates approximately $407 million in annual revenue.”

Francesca’s was founded in 1999 as a specialty retailer selling women’s apparel and accessories and began trading publicly on the Nasdaq Global Select Market in July 2011. The specialty chain at one point operated 700 mall-based stores, selling a colorful variety of moderately-priced apparel, accessories, footwear, beauty and home goods. Following the initial phase of the pandemic in 2020 that saw nonessential stores temporarily shuttered, the company joined a list of fashion retailers on bankruptcy watch that included Tailored Brands, J. Jill and Ascena Retail Group.

By December 2020, Francesca’s was operating under Chapter 11 bankruptcy court protection. The filing was done to accomplish a sale of the company to TerraMar Capital. It had 558 boutiques in operation at the time, although it previously said it would close 140 shops.

Francesca’s CEO Andrew Clarke said at the time: “We are confident that we will emerge from this process as a stronger company poised to drive growth by exploring new brand avenues, expanding our e-commerce channels, and providing our customers with the latest fashion options and treasure hunt experiences they know and love us for.”

By February 2021, Francesca’s was sold for $18 million to Francesca’s Acquisition LLC, an affiliate of TerraMar Capital LLC,  Tiger Capital LLC and SB360 Capital Group LLC. Another 97 doors were trimmed, leaving it with 461 locations across 45 states. Under the purchase agreement, TerraMar agreed to keep at least 275 stores in operation.

Once under new ownership, Francesca’s made good on its pre-bankruptcy promise to chase the “tween” market, young kids between ages 8 and 12, a sector that the retailer said could grow to $300 billion by 2030. It unveiled Franki by Francesca’s, a collection of items including tie-dye sweatshirts, tonal animal-print joggers, slogan T-shirts, skirts, biker shorts, rompers, jumpsuits and dresses designed for adolescents. The retailer also launched its mobile app, making it easier for tweens to “swipe and share.” Two Franki stores were opened by the end of 2021, with a total of 10 in operation by mid-2023. Last October, the brand reintroduced the line under the new moniker Hello Franki. Francesca’s said year-over-year sales were up 60 percent for the tween brand. At the time, Francesca’s said it planned to launch Hello Franki wholesale before year-end.

On the heels of its successful Franki launch, Francesca’s in April 2023 bought the Miley Cyrus approved brand Richer Poorer, best known for its comfortable basics. The Southern California T-shirt and sweatpants label also counts Suki Waterhouse and Jessica Alba as fans. The purchase price was undisclosed, but Francesca’s worked with Tiger Capital to finalize the deal for the dual-gender direct-to-consumer label. Clarke said at the time that the acquisition allows the company to make inroads with the 20- and 30-something customer base.

The Richer Poorer acquisition was also expected to help create new pockets of revenue as Francesca’s focused more on millennials and Gen Z. Clarke even suggested that there could be future opportunities on the horizon, “be they acquisitions, partnerships or otherwise.”