Baby & parent products retailer Mothercare has unveiled the latest stage in its turnaround programme which will see its UK store portfolio shrink to just 200 shops by March 2015.
Along with a fourth quarter update, the struggling retailer announced today that of its two high street brands, 75 Early Learning Centre stores and 36 Mothercare outlets are to close by March 2015.
During the last financial year which ended on March 31st 2012, an initial 62 stores were closed in the UK and with these additional closures the company estimates that the entire store reduction programme should improve its profits by around £13 million on an annualised basis.
Mothercare has shifted its focus to international markets in recent years and now operates as many as 1,028 stores overseas, but its domestic trading has suffered from increased competition over the same period.
Today’s statement from the group shows that UK like-for-like sales dropped 8.2 per cent in the three months to the end of March, while its international sales grew 18 per cent year-on-year.
Over the full-year period total group sales rose just 0.7 per cent in total and perhaps most worryingly for the retailer its Direct in Home online sales fell 3.4 per cent, a poor result given the double growth in overall ecommerce over the last 12 months.
Executive Chairman of Mothercare Alan Parker commented: “Since November, a significant amount of progress has been made across the business.
“We launched a structural and operational review, appointed a new CEO, closed a significant number of underperforming stores and commenced a consultation programme to streamline our head office function. We have also introduced immediate initiatives aimed at improving value and service for our customers.
“Today we have announced the framework of our decisive three year strategy to restore the UK business back to profit and strengthen our foundations for growth.”
New CEO Simon Calver is set to join the business at the end of this month, and as the former boss of online film rental service Lovefilm, Parker says that his ecommerce and international experience should fit perfectly with the group’s new strategy.
A new website for the UK will be launched in 2013 and 30 new international online sites will also be created as part of a it’s plans, but the recent success of online competitors like Kiddicare has already seriously dented its market share.
James McGregor, Director of Retail Analysts at Retail Remedy, argues that Mothercare is suffering now because it has taken its eye of the ball in the UK and not invested enough to keep up with its rivals.
“Mothercare cannot blame conditions on the high street for its current predicament. It can only blame itself. Mothercare is ten to 15 years behind the game in terms of its look and feel,” McGregor said.
“Fashionwise, it has been outflanked by brands such as Mamas & Papas and Trotters, who are doing what it does, just better. Mothercare has no point of difference. It gives people no reason to shop with it over anyone else.”
Although the store reduction plan and improvements to existing shops will deliver long-term financials benefits they will also initially cost around £35 million, forcing Mothercare to introduce further operational savings and secure aditional outside investment.
The retailer has already identified cuts to non-store overheads which should provide at least £20 million on an annualised basis, and a reduction in head office staff should result in a 16 per cent drop in payroll costs.
Mothercare has also agreed new banking facilities with its lenders HSBC & Barclays which has increased its borrowings from £80 million to £90 million and extended the terms of the deal to May 31st 2015.
McGregor added: “Mothercare’s transformation strategy is long overdue, but you have to wonder whether it’s coming too late.”