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Price and service will define Mothercare's future, says industry

Mothercare must “compete with John Lewis on service and Amazon on price” if its rejection of three takeover bids by US business Destination Maternity is to be proved right, analysts have said.

Destination Maternity abandoned its efforts last Friday (July 26) after Mothercare chairman Alan Parker said the offer – which valued the business at £266m – did not “reflect [its] inherent value”.

There were also concerns about Destination Maternity’s ability to finance a turnaround, having itself issued a profits warning three weeks ago.

Mothercare is now conducting a 100-day review of its operations to get “momentum building” under new chief executive Mark Newton-Jones, who joined the business in April.

The retailer has made a marginal return to growth – with like-for-likes up 0.9% in the 15-week period to July 12, its first growth reported since October 2012 – since he started.

Although there was some support for its rejection of the takeover, analysts warned that Mothercare had a challenge ahead if it was to ultimately be proved right.  

Liberium retail analyst Sanjay Vidyarthi said: “Destination Maternity didn’t have a clear strategy in terms of its problems [including] price competition in the UK.

“The pressure is coming from everywhere – from online and from retailers such as Halfords selling baby seats, for example.

“People aren’t loyal to Mothercare in the way they once were. The customer service proposition isn’t strong enough.”

Conlumino research director Matt Piner agreed. “The problem is the way people shop has changed,” he said.

“When buying they look for price and convenience and this is playing into the hands of the likes of Amazon and eBay.”

The challenge was to “compete with John Lewis on service and Amazon on price – no mean feat for any high street retailer”, Piner added.

 

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