In 2019, Mothercare put its UK business into administration, closing all of its stores in this market. Its chief executive Mark Newton Jones said at the time that its store estate was no longer financially viable. Today it has reported a profit for the first time in years. How? By closing all its directly-run UK stores and websites and becoming a brand.
Mothercare’s shift from retailer to brand, which started in 2019, has been complicated by Covid-19 along the way. But today Mothercare reported a top line pre-tax profit of £3.6m in the half-year to September 25 2021 – turned around from a loss of £13.2m in the same period last year, on sales of £41.7m – down from £44.4m last time. The retailer says it expects profits to improve further when it returns to more normal levels of business.
Its franchise partners, meanwhile, turned over £184.3m – down from £189.2m last time – including £17.6m from online retail sales, down from £27.1m a year ago, when shops were closed during Covid-19 lockdowns. Some 9.5% of retail sales took place online, up from 4.9% in the same period in pre-pandemic 2019.
Today Mothercare chairman Clive Whiley says the brand is getting “closer to unlocking the true underlying potential of Mothercare”. This, he says, reflects “the strong foundations we have created for the business over recent years, despite the impact that Covid-19 still has had over the period”.
He adds: “With positive feedback to our new product ranges and a lean operating structure, we enter the second half with growing confidence for our future prospects.”
The background
Back in 2019, Mothercare put its UK operations into administration, closing all of its stores in this market. At the time, that part of its business had not made an annual operating profit in more than 10 years – and all efforts to do so had failed, said then chief executive Mark Newton-Jones. In 2017 it cut its store numbers from 250 to 140, and took online sales to about 50% of turnover. Newton-Jones said at the time: “It was simply not financially viable to maintain the UK store estate and supporting infrastructure any longer without putting the whole Mothercare Group at risk.”
Its stores were too big and discounting was rife, and that, said Newton-Jones, made sales of third-party brands less profitable. Indeed, he said, Mothercare UK had provided 70% of UK store space to many leading brands – but the profit margin had reduced over time and no longer covered the retailer’s costs. In 2018, the size of its store estate was further cut, to 80 shops, through a series of company voluntary agreements (CVAs) in order to reduce costs. By the following year, its UK business was put into administration – and the retailer decided its future lay in becoming a brand. “From a strategic perspective,” said Newton-Jones at the time, “we knew that the effort and energy that were being expended on fixing the conundrum of UK retailing would be better served on our global ambitions and building the Mothercare brand and proposition around the world.”
The strategy
With its UK stores closed, Mothercare has focused on the profitable part of its business – its international franchises. Its UK business is now also a franchise as well – with Boots its exclusive franchisee until 2030. Now the retailer is working with long-term franchisees around the world, through an asset-light model in about 40 markets. Its franchisees trade through 740 shops, down from 793 a year ago. At the end of the half-year, about 10% of its partners’ stores around the world were still closed in Covid-19 lockdowns.
Now, some 84% of deliveries for the current spring/summer season will go direct from the country of manufacturing. That’s expected to rise to 88% by autumn/winter 2022, and its UK distribution centre will close, as previously set out, early next year. Mothercare is currently reviewing perceptions of its brand, and will then build a new brand strategy around its conclusions.
Mothercare, founded in 1961, marked its 60th anniversary as a parenting business in September.
