This autumn, Mothercare products will be available exclusively from Boots in the UK, both online and in-store. That marks the beginning of a new era, as the nursery and children’s clothing business, founded in 1961, has now completed its move away from its historic place on the UK high street in order to focus on expanding as an international brand.
The move means that it has removed about £30m in operating losses, related to its UK retail division, which went into administration last November, closing 79 shops. Mothercare is now shifting its focus beyond the UK into new markets – where more new babies are being born to more potential customers.
Today Mothercare Group reported revenue of £164.7m in the 52 weeks to March 28 2020, down by 17.6% from £199.8m in the previous year, and a pre-tax loss of £7.2m from continuing operations, down from a loss of £21.1m the previous year. However, when a gain from the administration of Mothercare UK was taken into account, bottom-line profits came in at £14.4m.
Moving away from retail
Mothercare says that the UK retail division had not made an annual operating profit in more than 10 years, with all profits generated instead from its international franchise business. While it had invested in becoming a digital-first multichannel business – and by 2019, about 50% of UK retail sales were online while its store estate had shrunk from 250 shops to 79 through a series of CVAs – it still failed to compete with other retailers in the sector as it continued to sell through floor space that, it says, provided about 70% of UK floor space for baby category brands. Its costs were too high and its sales were not growing.
When the Mothercare UK business went into administration, the company said its stores had become financially unviable on a discount-driven high street.
Clive Whiley, chairman of Mothercare, said in today’s results: “The UK high street is facing a near existential problem with intensifying and compounding pressures across numerous fronts, most notably the high levels of rents and rates and the continuing shifts in consumer behaviour from high street to online, as exacerbated by the impact of Covid-19. Our UK retail operations would not have been immune to these headwinds and the decisive actions taken stem from a belief that the management and financial resource being expended on fixing the conundrum of UK retailing would be better served on our global ambitions to build the Mothercare brand and proposition around the world.
“The facts remain compelling: we estimate that there are at least 30m babies born every year into the world, into markets addressable by the Mothercare brand, yet only 799k in aggregate in the UK. Hence whilst the UK is important for our brand heritage, it is certainly not the singular growth engine of the group.”
Expanding as a brand
As a brand, Mothercare is now serving websites and about 791 shops in 40 countries, . In its home UK and Ireland market it has appointed Boots UK as its franchise partner for the next 10 years, and Mothercare branded products will be on sale in Boots stores and on its website this autumn.
Beyond the UK, it has signed a 20-year agreement with its largest franchise partner, the Alshaya Group, which runs hundreds of Mothercare shops in countries from Saudi Arabia and the UAE to Russia. Mothercare says there is also plenty of room for growth in new markets, since its products are not currently available in the US, Japan, Australia or Brazil, while, closer to home, it does not sell through shops or websites in some of the the larger European economies, including Germany, France, the Netherlands and Scandinavia. “We believe this translates into great potential for the Mothercare brand,” Mothercare said in full-year results today.
From this autumn, Mothercare says it has launched a new “more sustainable and less capital-intensive business model” that will see its franchise partners pay for products directly from its manufacturing partners in a way that it says should mean better prices for franchise partners and a reduction in risk for its manufacturing partners.
Mothercare says that as a brand, it is now “well positioned to become a profitable and cash generative franchise operation, generating revenues through an asset-light model, operating in some 40 international territories.” That should mean it is able to deliver profits of about £15m in its current financial year.
Whiley said: “We have diligently managed our way through to mitigate the impact of the Covid‐19 pandemic during this period of global crisis, and we emerge in better shape than we went into it. We continue to reduce costs and improve our efficiency.
“We are excited to launch our new UK and Ireland franchise with Boots, restoring the Mothercare brand to its home territory. We have entered into a new 20 year franchise agreement with Alshaya, our largest partner. We have successfully rolled out our innovative, working capital light arrangements with our manufacturing and franchise partners. We are now singularly focused upon building Mothercare as a global brand, both in our existing territories and beyond. We are confident with these foundations now in place Mothercare can move forward as a profitable and cash generative international franchise business, generating revenues through an asset‐light model in some 40 international territories.
“This would not have been possible without the support of all of our stakeholders whom, on behalf of the Board, I would like to thank for enabling us to get to this point. As a result, from today, Mothercare can look forward to a brighter and stable future once more.”
The effect of Covid-19
The shift from retailer to brand does not insulate Mothercare from the factors affecting retailers in the UK and around the world. In April, an estimated 27% of its partners’ shops around the world were open – with 73% closed as a result of the Covid-19 pandemic and resulting lockdowns. Those partners recorded total retail sales of £145.8m in the first 28 weeks of the 2021 financial year, as sales fell by 39% compared to the same time last year.
Now an estimated 95% of shops are open again, and Mothercare is seeing a strong recovery in markets including the Middle East, but a slower recovery in Russia, where government restrictions do not yet permit full reopening, and challenging trade in India and Indonesia, where Covid-19 is still continuing to be felt strongly.
Mothercare is currently looking for a new chief executive following Mark Newton-Jones’ move to the role of non-executive director on the Mothercare board.
Boots is a Leading retailer in RXUK Top500 research.