Mothercare has filed notice that it will appoint administrators to its UK business, putting 2,500 employees at risk.
Notice of intent to appoint administrators for Mothercare UK and Mothercare Business Services (MBS), which provides Mothercare UK with “certain services”, has been sent to the court today.
The procedure gives the retailer a 10 day period of protection from creditor claims.
The group, Mothercare UK and MBS will be free to continue to trade as normal while the process is ongoing.
In a statement the retailer said: “Since May 2018, we have undertaken a root-and-branch review of the group and Mothercare UK within it, including a number of discussions over the summer with potential partners regarding our UK retail business. Through this process, it has become clear that the UK retail operations of the group, which today includes 79 stores, are not capable of returning to a level of structural profitability and returns that are sustainable for the group as it currently stands and/or attractive enough for a third party partner to operate on an arm’s length basis. Furthermore, the company is unable to continue to satisfy the ongoing cash needs of Mothercare UK.”
“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. The company’s primary objective has been to seek to preserve value for as many stakeholders as possible, as we strive to optimise the level of sustainable long-term revenues for the group going into FY21 and beyond.”
Commenting on the previous speculation, Richard Lim, CEO of Retail Economics, 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.
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“Years of under-investment in the online business and its inability to differentiate itself as a specialist for young families and expectant parents as 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.”
He added: “Put simply, they have been left behind in today’s rapidly evolving market and the board has been unable to restructure the business fast enough to cope with a new retail paradigm that has emerged.”
The retailer hired KPMG to develop contingency plans for its UK arm last week, should its plan to shift retail operations to an independent franchise model not come to fruition.
At the time, it was understood that Mothercare’s current primary objective was to sell the UK business. The group is now dominated by its international franchising operations, and the UK represents a small part of the business.
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%.