Mothercare’s plans to enter into a company voluntary arrangement (CVA) is a further warning that retailers are struggling to adapt to changing consumer behaviour, industry experts have observed.
Mothercare has appointed KPMG to oversee the CVA process, under which 50 stores will close, reducing its UK portfolio by more than a third, decreasing from 137 to 78 by 2020. In addition, Mothercare will seek rent reductions on 21 stores. A further £5m of cost savings will also be made as part of an ongoing restructuring.
Several industry insiders have said the number of high street CVAs is likely to rise as a result of the twin pressures of high rents and business rates squeezing bricks-and-mortar margins at a time when shoppers are increasingly migrating online.
Mark Williams, director of acquisitions, finance and investor relations at asset management firm Hark, and president of shopping centre body Revo, called on the government to take action to redress the tax imbalance between etailers and high street retailers.
“Mothercare is a retailer we all have fond memories of, but it is struggling. It is a worrying sign that CVAs are seen as a way to shed or get out of contracts they have entered into, but it hides the fact that the underlying problem is high property taxes and the internet.
“What Mothercare shows is that this is affecting both in- and out-of-town retailers, not just town centres. It is a bricks-and-mortar issue in general.”
Another industry expert said further CVAs would materialise in the coming year: “All of this is long, long overdue. What you are seeing with New Look, Mothercare and others is the start of more to come.
“Revenues from stores are decreasing at time when rents and rates are the highest they have ever been. That model doesn’t work.”
One property agent told Drapers CVAs represent an urge by retailers to drop rents to stay competitive: “To some extent there is a degree of opportunism out there at the moment, and if people can use the current climate to rationalise their estate why wouldn’t they do it?”
Mothercare also made the surprise announcement that it has re-appointed former chief executive Mark Newton-Jones, who was ousted five weeks ago, to handle the restructuring and CVA process.
One source said: “It is a tricky time to be plotting the course going forward. Having gone back to Mark, [Mothercare] may have decided that the better scenario is to have a steady hand at the helm who knows the business.”
One recruitment agent said Newton-Jones’s experience would be an asset during the restructure: “There has been a chairman change [at Mothercare] and the incoming chairman obviously thinks differently.
“There has been a realisation that, when it comes to continuity in leadership and strategy, change is not always the best. Generally, the industry believes Mark is the right man for the job and the good thing for Mothercare is that [the change] has happened quickly and cleanly.”
Rumours of a planned CVA at Mothercare have circulated since the start of the year after dire trading figures sparked a profit warning.
Last month, the retailer announced worldwide sales fell 4.8% for the full year to 24 March, and said like-for-like sales in the UK dropped 1.3%.