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Online and offline sales fall sparks structural Mothercare review

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Mothercare is to look again at its ecommerce operations as it launches a structural review of its UK business, a move prompted by sales falling both in stores and online, and bottom-line losses of more than £80m.

The multichannel nursery retailer’s UK sales fell by 4.3% to £281.1m in the first half of its financial year, with like-for-like sales down by 7%, or 6% including VAT. Its Direct division saw ecommerce sales of £62.0m, down by 5.6% from £65.7m last time, with sales at its Direct in Home division down by 4.3% to £42.6m while Direct in Store sales, of internet sales made in the store, fell by 8.5% to £19.4m from £21.2m last time.

Despite international sales growing by 15.7%, Mothercare reported a pre-tax loss of £4.4m in the 28 weeks to October 8, compared to a profit of £12.2m at the same time last year. After exceptional charges including a £55m write-down of the value of the UK business and costs related to a programme to reduce its UK store numbers to 226, those losses widened to £81.4m, compared the profit of £0.3m it turned in at the same time last year.

The figures have prompted a review of UK operations, announced today, which will look at both the number, format and location of Mothercare and Early Learning Centre retail outlets and their ecommerce strategy. The business is currently scheduled to launch a new website next year, which it hopes will reverse the downturn in online sales. Today it said that “disappointing” fall was the result of a decline in the home and travel categories, which account for most of Mothercare’s online sales.

The review is set to be completed in the first quarter of next year, and any changes implemented over the course of 2012 and 2013.

Alan Parker, executive chairman of the business, which is currently without a chief executive, said the UK business faced challenges “in a weak economic and consumer environment.” But, he said; “I am confident we can return to a profitable and sustainable business in the UK over time.”

International operations fared more strongly during the six months, with a 15.7% rise in sales to £338.3m. The company, which owns Early Learning Centre as well as Mothercare, saw its 350th overseas store open under that name during the period. It also opened its first stores open in Latin America and launched a new joint venture launch in the Ukraine.

Parker said: “I will continue to lead whatever decisions are necessary to restore profitability to the UK and create the structure for long-term success.”

Our view: In a market where ecommerce sales are this year expected to grow by 16% (according to the IMRG), to turn in a 5.6% fall in online sales is a sign of something going wrong. Through last year, Mothercare was still reporting double-digit online growth, but things have changed quite dramatically since then. Mothercare’s growth, it seems, came from the fast expansion of its online range. Now, however, thrift is the order of the day for shoppers who are cutting back and looking for cheaper alternatives. At the same time competition online has intensified, splintering a market previously safely in the hands of one main nursery supplier – Mothercare. What worked so well for Mothercare in the past is evidently no longer enough.

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