Mothercare’s decision to appoint administrators to its UK operation has “come as no surprise”, as it has been unable to restructure the business fast enough to cope with changing retail trends, industry experts have told Drapers.
Today Mothercare filed a notice of intent to appoint administrators for Mothercare UK and Mothercare Business Services (MBS), which is responsible for Mothercare UK’s back-office functions including finance, HR, property and IT.
The mother-and-baby-goods retailer has deemed its 79 UK stores unviable and unattractive for a buyer after announcing plans to shift its UK retail operations to an independent franchise model.
Industry experts said Mothercare’s collapse was not unexpected following its company voluntary arrangement in 2018, profit warning in July and prolonged poor UK performance.
“What went wrong is a chronicle of events,” one Mothercare supplier said. “The biggest problem with Mothercare is that its customers treat its shops as big showrooms, and then go home and order the products online. Their shops as entities do not cover the costs – that’s why they need to close so many.”
He added: “Mothercare told us earlier this year that the UK business is not performing, so they said they were going to try to sell that. However, they can’t sell the stores as they are unprofitable. If [the UK business] is unprofitable for Mothercare, why would it be profitable for anyone else?”
The supplier said he is concerned for Mothercare’s future after its global product director Mary Love, who joined the company in 2009, left in September and was not replaced: “She was the broker between us and the financial director – and would listen to us suppliers.”
However, he said: “Providing the international business keeps trading, we can live with it. We anticipate a further downturn in business because of the low store count. This means they will probably pull the [stock] volumes down even further.”
In a statement this morning, Mothercare said: “The company operates a successful global brand business generating over £500m of revenues each year from over 1,000 stores internationally in over 40 territories in which the Mothercare brand operates. In the financial year ended March 2019, the brand generated profits of £28.3m internationally, whereas the UK retail operations lost £36.3m.”
Mothercare successfully passed a CVA in June last year, under which 50 stores closed. It sought rent reductions on two further stores and said it would seek to save a further £5m in costs as part of restructuring plans.
However, the 79-store nursery retailer has become another high-profile example of the limitations of a CVA.
“Most companies who do a CVA don’t actually survive. It tends to be a short-term fix and doesn’t really address all of the fundamentals that are going wrong in the business,” said David Fox, co-head of retail agency at property services firm Colliers International.
“There have been problems at Mothercare for a very long time. By expanding in what were viewed as the good times in the 1990s and 2000s, all they did was burden themselves with costs – a big part of which was debt – which is not manageable in the current climate.”
- Editor’s Comment: Mothercare has to shake up its whole approach
- The risks and rewards of franchising
- Mothercare to franchise UK stores as sales fall
In its most recent results, total UK sales fell by 23.2% for the 15 weeks to 13 July 2019 as a result of the store-closure programme, which cut the UK portfolio from 134 to 79. Online sales were also impacted by store closures – down 12.1% – as the retailer lost out on sales that were previously made via in-store devices. Total group sales fell by 9.2%.
Retail analyst Richard Lim said: “This is perhaps one of the most highly anticipated collapses on the high street. The retailer was already on life support having conducted a CVA last year. The cost-cutting operation and disposal of assets have not gone far enough to revive plummeting profits.
“Years of under-investment in the online business and its inability to differentiate itself as a specialist for young families and expectant parents has been the root of its seemingly inevitable downfall. As competition has become fiercer, they have been beaten on price, convenience and the overall customer experience.”
Sofie Willmott, retail analyst at GlobalData, agreed: “The retailer has failed to stand out as a specialist destination with new parents turning to competitors that offer a better proposition either in terms of low prices, convenience or service, such as Amazon and John Lewis.
“Its strategy to cull store numbers in recent years and transfer sales online has proved unsuccessful, with digital sales declining as its online offer failed to encourage purchases.”
Should Mothercare survive the expected administration process, Fox noted the business must focus on its online presence and logistics capability, as the nursery sector is squeezed.
“The only way for the Mothercare brand to survive is to focus on its profitable stores overseas. The CVA saw the closure of 55 shops, and now the UK high street may lose further stores from the remaining portfolio. It is of the utmost importance that creditors and suppliers tackle this situation head on, rather than waiting and hoping for things to improve.
“Opening a dialogue with Mothercare’s administrators as soon as possible is vital to weathering the storm, and ensuring that parties across the supply chain aren’t left high and dry, and out pocket.”