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Mothercare UK digital-first restructuring comes to the end of the line, with administrators set to be summoned

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Mothercare UK digital-first restructuring comes to the end of the line, with administrators set to be called in

Mothercare is set to call in the administrators to its UK retail business as it runs out of money for its digital-first rebalancing of online and stores.

 

The retailer for the parents and carers of babies and young children said today that it was filing notice of intent papers for the administration of its Mothercare UK and Mothercare Business Services divisions. The move does not include the Mothercare Group and its third division, the Mothercare global brand business.

 

The move comes in a year that was intended to see the group take the next steps in its journey towards becoming a digital-first business after it cut store numbers from 134 to 79 in the previous year. The process, achieved through a CVA (compulsory voluntary agreement), was intended to take Mothercare to its ‘right size’ in the light of fast-growing online retail. Some 45% of sales took place online in its latest financial year, to March 30 2019. In the same year, Mothercare Group’s pre-tax losses widened by 20% to £87.3m on revenues of £566.3m (-13.5%). But the retailer, ranked Leading in IRUK Top500 research, said its store closures and the sale of the Early Learning Centre brand to The Entertainer had put it in a good place for future development.

 

Today Mothercare Group said that a root and branch review of the UK retail business, that , discussions with “potential partners”, had dashed those hopes. “Through this process it has become clear that the UK retail operations of the group, which today includes 79 stores, are not capable of returning to a level of structural profitability and returns that are sustainable for the group as it currently stands and/or attractive enough for a third party partners to operate on an arm’s length basis. Furthermore, the company is unable to satisfy the ongoing cash needs of Mothercare UK.”

 

It said that plans to file notices of intent to appoint administrators to the Mothercare UK and Mothercare Business Services were well advanced.

 

Balancing online and the store

Mothercare’s last financial update was released in July, when a first quarter trading update showed that sales were continuing to fall despite its move to close 41% of its stores during the previous year.

 

At the time, it said that overall sales for the 15 weeks to July 13 were down by 23.2% as a result of store closures, and that online sales were also down by 12.1%. It put this down in part to the loss of in-store ordering through iPad sales in the stores that had closed. But like-for-like sales – which stripped out the effect of store closures – were also down, by 3.2%, while sales had not transferred from closed stores to the extent that the company had expected.

 

Its aim at that point was to improve staff training and to offer shoppers credit in-store and online as it prepared the UK business to become a standalone, independent, franchise. Today it seems that was not enough.

 

Analyst reaction

“This is perhaps one of the most highly-anticipated collapses on the high street,” said Richard Lim, chief executive of retail analyst Retail Economics. “The retailer was already on life support having conducted a CVA last year. The cost-cutting operation and disposal of assets have not gone far enough to revive plummeting profits.

 

“Years of underinvestment in the online business and its inability to differentiate itself as a specialist for young families and expectant parents has been the root of its seemingly inevitable downfall. As competition has become fiercer they have been beaten on price, convenience and the overall customer experience.

 

“Put simply, they have been left behind in today’s rapidly evolving market and the board has been unable to restructure the business fast enough to cope with a new retail paradigm that has emerged.”

 

Andy Barr, co-founder of online price-tracking website Alertr.co.uk, said: “Mothercare is one of the biggest baby goods retailers in the UK and it is truly a shame to hear such news, but sadly it comes as no real surprise with so many huge names, brands and retailers having come to an end this year. As people turn to online shopping and shop around for cheaper products, and with Mothercare being on the higher end price spectrum, you can see why this is now happening. Not only do consumers find it easier to shop online rather than in-store, saving time, money and fuel, they also have the ability to shop around, whether to find the best deal or to utilise discount codes, and there are usually deals and offers in order to get free delivery. The future of the high street is so up in the air at the moment and it doesn’t look as though 2020 is going to be any different to what we’ve witnessed in 2019.”

 

 

Image courtesy of Mothercare

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