Mothercare hopes to raise £100m from a rights issue and has identified six key areas for investment. Retail Week looks at exactly where the money will be spent.
Becoming a digitally led retailer
Around 30% of UK sales are online and the company wants to grow this to 50% over the medium term.
Mothercare had the highest volume of website traffic in the UK this July in the baby and toddler sector compared with Kiddicare, Mamas and Papas, John Lewis and Amazon. Despite high traffic levels, the group’s online conversion rate of traffic into sales is lower than best-practice benchmarks.
The retailer is seeking to improve the customer experience on the website, expand its mobile, video and social media capability, integrate the digital and in-store customer experience better through click-and-collect, improve CRM and build a strong customer database for marketing. Mothercare will expand and restructure its online team and increase its global online presence as part of the changes.
Overhauling the UK store estate
Mothercare has identified around 50 to 75 loss-making stores that it intends to close by financial year 2016/17. The majority of these stores, including standalone Early Learning Centre (ELC) stores, will close this current financial year, ending on March 29, 2015.
The ELC brand and product range will continue to be offered online and in 120 store-in-store formats in Mothercare shops. By the end of the financial year Mothercare expects to reduce UK store space from 1.7 million sq ft to 1.6 million sq feet.
Further closures are being offset by the opening of 15 to 20 stores or stores being relocated to larger, better located premises. The retailer, which had 220 UK stores as of March 29, plans a core estate of around 110 profitable out-of-town stores and 50 profitable in-town locations. It is expected resizing its store estate will remove £5m of operating losses from the business.
The retailer will also refurbish its entire store estate over the next three years. At present 80% of the company’s store portfolio has not been refurbished over the past seven to eight years. Refurbishments will include introducing digital screens and video walls, iPads, customer wi-fi and click-and-collect enhancements to all stores.
Expansion of the international franchise
The group has 42 franchise partners and operates in 60 countries including China, India, Indonesia and Russia. Mothercare hopes to grow in its existing markets and sign partners in new territories including Latin America and Africa.
Mothercare expects its partners to open 150 stores per year to take its international footprint to around 1,650 stores across the four main regions of Europe, the Middle East and Africa, Asia and Latin America by the 2016/17 financial year.
That will be supported by growing the nine international transactional websites it currently has in operation.
Improving products, presentation and service
Mothercare hopes to shorten product lead time and overhaul its “Good, Better, Best” product architecture to offer good value products across all price points. These will be supplemented by exclusive third-party products and new brands.
The in-store experience will be improved by a focus on presentation and merchandising standards, while the online experience will be enhanced by improved photo and video content and more delivery options, including delivery to home, work, a local store or local collection points.
Mothercare will also invest in training of management and store teams to improve the quality and consistency of customer service.
The retailer’s gross margin in the UK has dropped significantly after heavy promotional activity to drive sales. Mothercare wants to reposition the business as a full-price retailer and reduce the level of discounting and markdown activity to improve overall margin and invest in product quality.
Mothercare hopes to achieve this by using its position as the UK’s largest specialist retailer for parents and young children to negotiate a better deal with suppliers, while reducing its inventory and introducing more exclusive products.
Mothercare claims to have made substantial progress with the three-year plan it laid out in May 2012 to reduce non-store operating costs by £20m. The cost reduction has come from reducing its head count and improving its sourcing. Mothercare expects to continue efficiencies within management of inventory levels and supplier relationships.