Retailer announces £35m revamp and 800 job losses in second wave of closures as it fights losing battle with supermarkets
Struggling Mothercare has embarked on a drastic £35m revamp that will see one in three of its UK stores close and about 800 jobs lost.
Executive chairman Alan Parker announced the second wave of closures as he fired the starting gun on a three-year turnaround plan for the maternity and childrenswear chain. The retailer has been fighting a losing battle with the supermarkets and needs to slash its overheads.
Parker said 111 stores would close by March 2015 – on top of the 62 stores already shut. It would be left with a "profitable core" of 200 stores, said Parker: "We have a profitable business here in the UK which is waiting to come out. Today marks the beginning of a three-year turnaround."
Around 730 shop staff are affected by the frontline restructuring but workers in head office roles are also in the firing line after the company said it was looking to strip £20m from annual running costs. It has started consultation talks with 98 employees at its Watford headquarters as it looks to cut the wage bill there by 16%.
The growth of internet shopping means national chains require fewer stores. Property group CBRE estimates that the number of shops required to cover 50% of the UK retail market is now just 90, compared with 200 in the 1970s. Mothercare has increased its banking facilities to £90m to help cover the £35m bill for the closures and redundancies, which will involve compensating some landlords to break their lease agreements. In the long run the closures are expected to boost UK profits by £13m. The news was welcomed by investors with the shares closing up nearly 8% at 183p. Before the update, the shares had fallen 60% in the past year.
Parker stepped up his involvement in October after a trio of profit warnings made the position of chief executive Ben Gordon untenable. The store closures follow a review of the business by Parker who will hand over the management to former Lovefilm boss Simon Calver – Gordon's replacement – who starts at the end of this month.
Verdict analyst Maureen Hinton said Calver faced a tough job as the retailer, which recently hired Jools Oliver to put her name to an upmarket fashion brand for toddlers, needs to improve its image and its customer service. "Mothercare no longer has the credibility or authority it used to have in the UK when it was the main destination for young families – there is too much competition," she said, adding: "The grocers are child friendly, cheap and convenient, the clothing specialists offer fashion and the internet offers choice."
Like-for-like sales at Mothercare's UK stores tumbled more than 8% in the three months to 31 March as it slashed prices to clear unsold stock. Its domestic woes, however, were countered by a continued strong performance overseas, where it has more than 1,000 stores in 58 countries. Parker said it would step up overseas expansion with more store openings in new and existing markets. "Investors have been telling us two real fundamental things, one is sort out the UK and second is keep expanding internationally and we are doing exactly that," he said.
Mothercare's Early Learning Centre stores – which were acquired for £85m five years ago – are being hit hard by the closures. Of the 62 stores shut down last year, 59 were ELCs, and of the 111 new stores targeted for closure 75 will be ELCs. The 200 stores that remain will be made up of 173 Mothercare outlets and just 27 ELCs.