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Mothercare reports 20% rise in pre-tax losses after turbulent year

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A newly-slimmed down Mothercare today announced widening pre-tax losses but said it was now in a good place for future development. 

The multichannel retailer for the parents and carers of young children today reported a pre-tax loss of £87.3m in the 53 weeks to March 30. The loss was 19.9% greater than a loss of £72.8m in the 52 weeks of the previous year. Group revenue of £566.3m was down by 13.5% on last year while UK like-for-like sales were down by 8.9% on the previous year.

The retailer has cut its store space by 30% to 79 stores – down from 134 at the end of this previous financial year – and says it has saved £19m at the same time, through measures including store closures and by rightsizing the business around the world. During the year it also sold the Early Learning Centre brands to the Entertainer for £11.5m and sold and leased back its Watford head office for £14.5m. Net debt was cut at the same time from £44.1m to £6.9m.

Mothercare, a Leading retailer in IRUK Top500 research, has now created what it says is a “leaner organisational structure” with its business now divided into three international divisions: Mothercare global brand, Mothercare UK and business services. 

Mothercare chief executive Mark Newton-Jones said: “We have achieved a huge amount this year, refinancing, restructuring and reorganising Mothercare to ensure a sustainable future for the business. The majority of that work is now done, including the completion of our store closure programme, leaving us with 79 stores which are well positioned to support our UK customer base.”

He added: “The next phase of our strategic transformation plan is to develop Mothercare as a global brand, maximising the opportunities we see across many international markets. As the same time, our primary focus in the Uk will be the development of our online proposition, the introduction of enhanced credit options and more exclusivity in product, culled with a reinforcement of our specialist and service credentials.

“In the early stages of this financial year, we are seeing some improving UK trends as we continue to rebuild to be the specialist retailer for parents and young children.”

What went wrong?

In the statement interim executive chairman Clive Whiley explained why Mothercare had run into financial problems during the autumn of 2017 that required a £117.5m refinancing and restructuring programme in May 2018.  He said the business had invested a third of funds raised for a transformation programme in 2014 into its stores and digital capabilities – but that it did so “without the knowledge that the UK would see an unprecedented slowdown”. When that happened, its costs were too high for slowing revenues to support, while suppliers became nervous about keeping Mothercare in stock. Added to that, shareholders lost faith as relationships between non-executive and executive board members “fractured” and expensive professional advisers were appointed. Chief executive Newton-Jones left the business but rejoined 43 days later at the invitation of incoming chairman Whiley. Now, however, Whiley said he would soon step back into a non-executive position, and that the board was determined to make Mothercare a “textbook recovery case”. 

Without using a CVA (company voluntary arrangement) process to close stores, added Newton-Jones, it would have taken it four years to reduce its store numbers by the same level – through natural lease expiry.

Towards a new-look Mothercare

The effect of the changes in the UK market is to move the Mothercare business further online, serving customers through 79 stores that are within a 45 minute drive of 95% of the UK population, and through its website. 

Some 45% of its UK sales take place online (the figure is 5% for its global brand sales) and these sales have stalled and started to fall over the last year. That’s happened both as in-store iPad sales fell as stores closed and as wider online sales fell around the closing stores – which had deeply discounted sales. Ecommerce also fell as investment into both marketing and website development was cut amid Mothercare’s financial difficulties. The cut in marketing, said Newton-Jones, “led to a sharp drop in traffic to the website as we relied on organic search alone and not paid search to bring custom in.” A total cut in website and app development meant, he said, that Mothercare was now lagging behind its competitors. 

Now the retailer plans to increase its online marketing spending, and it has put development changes in place to improve the website. Conversion, it said, had risen following a redesign of the checkout and improved product presentation pages. 

Now the focus is on mobile, and specifically on smartphone. Currently mobile sales represent 73% of online sales, while 88% of traffic is from mobile – reflecting a core customer base of busy mothers. 

Mothercare has also improved deliveries, offering full order tracking and timed deliveries, and it has taken a new focus on social media, with a position of dealing with the reality – not the airbrushed version – of child birth. 

It has also invested in store, boosting base pay of staff to above the national minimum wage and offering further salary increases following training in up to eight areas, including customer service and product knowledge. “We believe this approach to training and then reward will both reduce our staff turnover, training experienced talent but also materially improving our service and specialist knowledge,” said Newton-Jones. 

Mothercare said it would be important to involve customers in its store-based community, since its smaller number of stores means they are now further away from many customers. Some 12,000 expectant parents attended in-store expert advice sessions in March – the same level of attendance as last year when the retailer had 57 more stores. 

Image courtesy of Mothercare

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