Mothercare UK’s Business Under Pressure to Evolve

Earlier this year, beleaguered Mothercare UK announced their intention to close 110 UK stores amid lackluster sales and competition in the UK from supermarkets, as well as less shoppers on High Street, as a result of the economic recession. Additionally, Mothercare announced in October the departure of Chief Executive Ben Gordon, which almost coincided with the publishing of the company’s interim results on 17 November 2011.

Half-year results showed Mothercare had made an £82m pre-tax loss through 8 October in comparison with the £300,000 profit it made this time last year. In light of it’s not so positive financial results, Mothercare then announced a structural and operational review of its UK operations, in order not go out of business. The company is currently searching for a replacement CEO with Executive Chairman Alan Parker currently filling in. Parker said, “The Mothercare group has had a difficult first half. Whilst the International business continues to perform strongly our performance in the UK illustrates the extent of the challenges facing the business in a weak economic and consumer environment.” Parker also stated he would not rule out closing more stores in the UK.

Currently, the organization markets its Mothercare and Early Learning Centre brands through four channels, International, UK Retailing, UK Direct and UK Wholesale. Mothercare is seeking to improve business by focusing on international stores, as well as a new online platform scheduled for 2012. After all, on-line shopping is a fast-growing market that many important brands have already entered or are in the process of approaching. In the first half, the company saw a 15.7% rise to £338.3m in International retail sales through the opening of 81 new overseas stores, including opening its first stores in Latin America.

Conversely, UK performance was much weaker with total UK sales down 4.3% at £281.1m. However, UK sales make up about two-thirds of the company’s total sales, so it is crucial that Mothercare should strengthen its position in the UK market and do something to increase sales. Analysts fear a rapidly weakening international economy may soon impact the international division resulting in UBS analyst Adam Cochrane changing his recommendation from neutral to sell. Mothercare has been recognized over the years for numerous awards, including the Mother & Baby Awards 2011 as Best Nursery Retailer. However, higher rents combined with higher quality products in supermarkets in the UK have substantially impacted profits over the last year.

A warm autumn also forced the slashing of prices on apparel to clear inventory. Mothercare announced, “we have made some important management and operational changes in the UK and have developed a near term action plan to improve the performance of the UK business. This includes improving both pricing and price perception, improving advice and service, enhancing the shopping environment and reducing operational costs.” To sum up, Mothercare is going to have to come up with some smart strategies in order not to let the economic recession damage its sales too severely, otherwise it might have to file for bankruptcy soon.

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