Money Even after all the store closures, Mothercare's position still looks precarious

11:08  11 july  2018
11:08  11 july  2018 Source:   dailymail.co.uk

900 jobs at risk as Mothercare closes more stores

  900 jobs at risk as Mothercare closes more stores Mothercare has increased the number of stores it plans to close to 60, resulting in the loss of 900 jobs. The struggling retailer said its subsidiary Childrens World has been placed into administration and it will transfer 13 of its 22 stores to Mothercare.Last month, Mothercare rehired Mark Newton-Jones as its chief executive, announced plans to close 50 stores and raise fresh money from its shareholders as part of a rescue plan.In an update to the London Stock Exchange, the company said it plans to raise £32.5m through the sale of new shares to existing shareholders.

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Mothercare has confirmed it is closing 50 stores as part of a rescue plan, a move that will put 800 jobs at risk. The baby products retailer said it was in a "perilous" financial position . The store closures will leave it with 78 outlets in the UK by 2020.

Branding is seen outside a Mothercare store in Altricham, Britain, May 16, 2018. REUTERS/Andrew Yates © Catalyst Images Branding is seen outside a Mothercare store in Altricham, Britain, May 16, 2018. REUTERS/Andrew Yates Mothercare is just one of many High Street businesses currently pulling down the shutters on swathes of stores.

Like struggling retail counterparts Carpetright, New Look and House of Fraser, Mothercare hopes that store closures through a Company Voluntary Arrangement (CVA) – leading to reduced costs and rents – will give it the breathing room it needs to turn its fortunes around and return to profitability.

The retailer raised eyebrows and fears yesterday with the admission that it has to close more stores than it previously stated.

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Mothercare has confirmed it is closing 50 stores as part of a rescue plan, a move that will put 800 jobs at risk. The baby products retailer said it was in a "perilous" financial position . The store closures will leave it with 78 outlets in the UK by 2020.

Going-out-of-business sales began shortly after the announcement. The sales will last until stores run out of inventory. In late March, we visited a Toys R Us store in Yonkers, New York, that was part of an earlier round of store closures , and it was a grim look into the company' s future.

It now plans to shrink its UK store portfolio by almost half (axing nearly 900 jobs in the process), leaving it with just 77 stores next June – news which sent shares falling 9.5 per cent .

But it seems to me that, even with its 60 planned store closures and refinancing, Mothercare's position remains precarious.

The change of plan is partly because too few creditors voted to save its Childrens World business. Management were left no option, therefore, to put the offshoot into administration and held onto just 13 of its 22 shops.

People walk past a Mothercare store in Altricham, Britain, May 16, 2018. REUTERS/Andrew Yates © Catalyst Images People walk past a Mothercare store in Altricham, Britain, May 16, 2018. REUTERS/Andrew Yates

But such dramatically diminished levels of visibility does not scream confidence, and could make it even harder for the rattled retailer to turn its fortunes around.

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Mothercare sales drop even further as fewer people visit its stores . Since January, Toys R Us and Maplin have filed for administration while fashion retailers such as New Look and Select have embarked on bold store - closure programmes.

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While CVAs are certainly proving popular this year, the strategy does not guarantee rescue from the brink - as evidenced by the demise of Toys R Us earlier this year.

Of the firms that have done CVAs in the last decade, around half have ultimately gone to the wall, according to data from property firm Harper Dennis Hobbs, which suggests that some of the firms embroiled in the process now are likely to suffer the same sad fate.

But, of those, Mothercare - the former go-to destination for mums-to-be and parents of young children, founded in 1961 - looks to be particularly vulnerable, with many other daunting obstacles ahead of it.

Many of its products can now be found at lower prices online, its under-invested shops lack appeal and both boutique and mainstream rivals have eaten into its share of the market.

After swinging to a £72.8m annual loss last year, the company is now worth £46.7m, with shares at around 27 pence – a far cry from the summer of 2015 when it reached 295 pence per share.

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The latest store closures mean a total of 60 Mothercare stores will shut by June 2019, putting 900 jobs at risk overall. New Look store closures - how many shops and jobs are being axed? CLOSING DOWN.

“We are taking a fresh look at our estate and asking how many do we really need?” said Newton-Jones. Mothercare shares plunge 20% after sales fall at non-UK stores . Mothercare close to rescue plan that will speed store closures .

While store closures will bring down Mothercare's costs, it also will also reduce the retailer's exposure to passing trade and limit its opportunity to differentiate itself from online players though in-store events and services, for example.

Fewer stores may also hamper its ability to grow sales volumes and, unless its online division gathers extraordinary pace, could chip away at its buying power too, putting it in a weaker position to negotiate with suppliers and compete with the 'mighty' Amazon.

The retailer also recently endured the embarrassment of what looked from the outside like a shambolic rendition of Boardroom musical chairs, when boss Mark Newton-Jones was fired, just to be reinstated a few weeks later.

Amid the top-level chaos, David Wood was brought in to steer the ship, but only until chairman Alan Parker was ousted and Newton-Jones was re-anointed.

Wood, a retail veteran from Tesco and later Kmart, ended up in a newly-created role - group managing director - and the already frazzled business on the search for a new chairman (not to mention two top-level salaries to pay).

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Mothercare will shut 60 stores , 10 more than previously planned, as part of a drastic turnaround plan that could put 900 jobs at risk. The ailing baby products seller said it now planned to raise £32.5m of emergency funding from investors, up from a previous plan to request £28m.

Even if the two fundraising exercises succeed, both Mothercare and Carpetright will still be in a precarious state. Even after it has shut more than 90 stores , Carpetright will still be the UK market leader in floor coverings.

a man wearing a suit and tie: Boss Mark Newton-Jones who was re-instated in May and is trying to pick up where he left off © Provided by Associated Newspapers Limited Boss Mark Newton-Jones who was re-instated in May and is trying to pick up where he left off

Such a U-turn, as it attempts to execute a CVA and refinance, does little to fill investors with confidence.

But, perhaps less well-documented, is the issue of Mothercare's name.

The branding – clearly geared towards women – is well-known across the globe, but is rapidly losing relevance as the share of parenting becomes more evenly spread.

It has even been said to make some fathers feel unwelcome.

Unless Mothercare were to shift its proposition and become the maternity or pregnancy specialist, for example, it's name will continue to isolate a large portion of its shoppers – a problem that perhaps should have been acknowledged years ago, and that clearly a CVA cannot fix.

In yesterday's update, the retailer said it had secured additional funds by way of a fully underwritten equity fundraise of £32.5m as well as cost savings.

And an optimistic Newton-Jones pointed to new product ranges, better design and value, developing the retailer's digital and multi-channel proposition.

'Mothercare is a great British brand with over 50 years of heritage and we now have the financing in place to take it forward for many more years to come,' he chimed.

But, in the saturated children's market, during a truly punishing year for the retail industry, it feels to me as if Mothercare is at the start of a very, very long journey. Not, as Newton-Jones puts it, nearing the completion of a four-year turnaround.

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