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

Daily Mail logo Daily Mail 10/07/2018 Alex Sebastian

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.

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.

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. 

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).

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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