Mothercare suffered another exit from its reshaped senior management team today as the business revealed that chief financial officer Richard Smothers had resigned.
The nursery specialist has restructured its top team, creating a chief customer officer role – filled temporarily until June by Kibble – and handing former UK managing director Matt Stringer the position of global product officer.
Mothercare has also drafted in Kevin Rusling from Monsoon Accessorize as international managing director, Kirsty Homer has joined from John Lewis Partnership as director of HR and Yodel’s Keith Basnett has taken on the role of global supply chain and business transformation director.
As Mothercare’s new leadership team gets its feet under the table, Retail Week assesses the strengths, weaknesses, opportunities and threats facing the business.
Global multichannel brand
Mothercare has grown into a global, multichannel retail brand, providing parents and parents-to-be with a one-stop shop offering products for maternity and early years products. It also owns Early Learning Centre.
The retailer’s international business had previously been struggling, but many of its markets, including China and Russia, are now in growth.
But if its fourth-quarter results – covering the 11 weeks to March 25 – were anything to go by, its key Middle Eastern division remains challenging.
The bright spark though was online, highlighting the progress it has made as a multichannel business.
Online sales rose 13.6% in the UK during the quarter and now account for 41% of total sales, while international online sales rocketed 64% in constant currencies.
Transformation and growth plan
Mothercare was one of the first large-scale retailers in the UK to recognise the need to scale back its physical presence in a multichannel market.
This was manifested in the development of a three-year transformation and growth plan from 2011, in which the UK business was to be right-sized in order to restore profitability.
The plan included accelerating expansion of the international business and an increased focus on multichannel across the operation as a whole.
In the changed economic circumstances, this turned out to be something of a fluid plan, although its store closure programme accelerated subsequently.
New top management team
The highly-regarded Mark Newton-Jones – credited with the transformation of mail-order behemoth Shop Direct into a modern online business – was appointed as chief executive in mid-2014 and oversaw a dramatic improvement in performance over the 2014/15 and 2015/16 financial years.
Mothercare said in April that group performance in 2016/17 would be “broadly in line with market expectations” when it posts full-year results next week.
But following the departures of Kibble and Smothers, Mothercare has had to rebuild its senior team for the second time in three years.
The experience of the likes of Rusling, Basnett and Homer will prove vital in mapping out its future.
For a prolonged period and under various management teams, the group has failed to fully exploit its position as the leading specialist for mothers’ and children’s goods on the high street.
As a result, other retailers have spotted a gap in the market and have increasingly encroached onto Mothercare’s territory.
Amazon has become a big player in baby clothing and accessories, largely driven through its marketplace offer, while supermarket chains including Tesco, Sainsbury’s, Asda and Aldi have all developed a reputation in the baby category.
Further afield, the likes of River Island and Boohoo have expanded into childrenswear, while New Look and Asos have branched into maternity wear, as they look to additional avenues for organic revenue growth.
In the face of mounting competition from both the specialist and non-specialist sector, Mothercare had lost its value perception with a disappointing, heavily promotional offer having developed.
Restoring a full-price trading stance has been a top priority under Newton-Jones and customers are now getting a clearer message that Mothercare is a quality retailer.
Mothercare suffered a prolonged period of top-level churn following the departure of long-serving chief executive Ben Gordon in 2011.
It would have been hoped that improving performance under boss Newton-Jones will have heralded a period of more stable senior management, but the departures of Kibble and Smothers since the turn of the year will be a concern for investors.
Mothercare is making solid progress towards re-establishing itself as the first choice for expectant and new parents and their young children.
As a result of its new full-price trading approach, customers are getting a clearer message that Mothercare is a quality retailer rather than a discounter.
Improvements in product and service, both online and in-store, are underpinning this overall strategy for the UK, but there is an opportunity for further progress to be made.
Improving UK like-for-likes
Like-for-like UK retail sales returned to growth in 2014/15 after four years of decline.
While this would have been against low comparatives, it still provided an indication that the new strategy was starting to bear fruit.
Underlining the direction of travel, UK like-for-likes rose 3.6% over the year ending March 2016.
While like-for-likes were back in negative territory in the first half of 2016/17, growth was restored in the key third-quarter, with UK like-for-likes up 1.0% over the 13 weeks to 7 January 2017.
Mothercare will be keen to keep that momentum going as it bids to transform the fortunes of the core British business.
Restoration of margin
The reduction in promotional discounting has had a positive effect on margins and the repositioning of the business away from the value end offers scope for further significant improvement.
Ongoing changes to the product mix under Newton-Jones – such as increased space for clothing and footwear in certain locations – should also drive up margins.
The retailer said that 66% of product was sold at full price in 2015/16, resulting in further gross-margin gains.
Improvement of UK store portfolio
The closure of unprofitable stores as leases come up for renewal will also be having a significant effect on margins.
Meanwhile, the remaining stores are being refurbished, some including new features such as tea or coffee shops and soft-play areas to drive footfall and increase dwell time.
The £100m rights issue towards the end of 2014 is enabling the group to accelerate the portfolio enhancement programme, with nearly 40% of space in the new, more modern format by the end of 2015/16.
Newton-Jones is using his expertise to increase personalisation within the online business and engage more with customers through the digital medium.
The current focus on capturing shopper’s due dates and their babies’ birthdates enables the group to enter into an ongoing relationship with customers as their children grow up, allowing it to make age-appropriate, personalised offers.
There is perceived to be particular potential for international multichannel growth, facilitated by the new platform within the domestic business which is easily scalable across the international markets.
In the past, Mothercare had been relatively slow to exploit overseas online potential given its extensive international coverage, but this is clearly changing under chief executive Mark Newton-Jones.
The beefing up of the international management team in 2016 signals an increased focus on this part of the business now that the turnaround programme at home is nearing completion.
Increasing competition from non-specialists
Competition from the major grocers and the online sector is showing no sign of abating and will continue to prove a particular thorn in the side of Mothercare given its mainstream stance.
In a sector where customers carry out a lot of online research before buying, Mothercare will continue to be impacted by customers choosing to complete their journey with lower-priced competitors.
Newer specialists also under threat
Foreign currency risk
With international sales representing 33% of the group’s reported sales and some 60% of its gross sales worldwide in 2015/16, the group is very exposed to currency fluctuations in key markets.
This was clearly underlined in 2015/16 when international sales came under severe pressure.
And following the slide in the value of the pound in the aftermath of the EU referendum, Mothercare will be among the British retailers looking most nervously at Brexit negotiations.
The analysis was compiled by Retail Week Prospect, an intelligence service offering insight and analysis on the UK’s retailers.