UK clothes and furniture retailer Laura Ashley is taking L'Oreal to arbitration after accusing the perfumery and cosmetics giant of breaking a deal between the two.

Laura Ashley says L'Oreal agreed a licensing deal with two of its subsidiaries in 1996.

The deal was meant to push toiletries, cosmetics and perfume products under the Laura Ashley brand to the company's customer base.

But the UK company says L'Oreal failed to fulfil its side of the bargain. "Substantial" revenues were lost as a result, it says, and it is now looking for a new perfume partner.

Riches to rags

Once the darling of the home counties, Laura Ashley has fallen on harder times in recent years.

The company comprehensively underperformed through the 1990s, only returning to profitability in 2000 after a sizeable minority stake bought by a Malaysian concern brought new management.

But recent turmoil - tourism-derived business has fallen sharply this year, among other things - means the six months to July 2002 produced a narrow £200,000 loss on sales of £140m.

Laura Ashley's contention is that the L'Oreal deal could have helped it back into the black earlier and kept it there - although it is possible that the perfumer will argue that its partner's decline is what made the licensing deal underperform.

In any case, Laura Ashley is taking its case to the arbitration panel at the International Chamber of Commerce, to be heard in 2003 or early 2004.

It wants not only unpaid royalties owed since July 2001 - £709,042, Laura Ashley says - but for the full £17m guaranteed by the deal, which runs out in 2016.

Shares in the company fell 2.5% to 9.75 pence.