The Early Learning Centre, which has been owned by Mothercare for seven years, continues to lack destination appeal for mothers due to its inaccessibility and higher price architecture compared to the rest of the increasingly competitive toy market.

The Early Learning Centre, which has been owned by Mothercare for seven years, continues to lack destination appeal for mothers due to its inaccessibility and higher price architecture compared to the rest of the increasingly competitive toy market.

However, disposing of Early Learning Centre could be a double-edged sword for Mothercare. While offloading the underperforming business may improve the group’s financial stability, there is also a risk that losing the toy element within its Mothercare or dual fascia stores will impact footfall, hindering the group’s recovery.

Mothercare has been in discussions with several potential buyers regarding the sale of Early Learning Centre, eliminating one of the weak links across the business which has consistently underperformed during the time it has been part of the group. Early Learning Centre continues to bring down UK sales, and the strength of the competition makes it difficult for the toy retailer to win back shoppers, reducing its appeal among potential buyers.

Having closed 62 stores since March 2012, leaving it with just 40 physical outlets, Early Learning Centre faces growing competition from companies such as Amazon, the big four grocers, Argos, eBay and The Entertainer, which are benefiting from its misfortune.

While the multi-sector players benefit from targeting larger audiences, The Entertainer highlights that toy specialists can do well in the market - its robust performance throughout 2013 ws driven by strong product offering, online growth and a raft of store openings.

Early Learning Centre’s downfall has been caused by failing to respond to changes within the toy market. Lower manufacturing costs and slimmer margins have brought the retail prices of toys down, with the likes of Amazon and the grocers ensuring their prices remain low, undercutting the majority of Early Learning Centre’s comparable products.

Moreover, in a trend that has been heightened throughout the recession, many parents have started shopping for second-hand toys on sites such as eBay.co.uk and Preloved.co.uk – reducing the need to purchase full price toys and therefore impacting Early Learning Centre’s footfall.  

Because of the competition Early Learning Centre faces, combined with its lack of differentiation or destination status for toys, finding a willing buyer will be a challenge.

However, in its favour, the retailer does have own brand toy ranges such as HappyLand that remain popular among parents and children, providing it with one potential avenue: wholesaling or selling the rights of its well credited own-brand ranges to Amazon, department stores such as John Lewis or the grocers.

With the need for physical stores being reduced, if Mothercare cannot find a buyer for Early Learning Centre it must continue to close standalone stores, though Mothercare should keep Early Learning Centre concessions within its stores, ensuring it is not limiting its appeal among shoppers by slimming down the breadth of its offer, which would ultimately lower footfall. Allowing parents to be able to buy everything for their children under one roof makes Mothercare a more convenient destination and allows it to better protect itself from rivals such as Kiddicare

Early Learning Centre has not responded to the changes in its competitive landscape, or marketed its brand as a destination for parents, allowing its competitors to steal share and reap the benefits of its fall, making a potential sale unlikely due to its lack of appeal.

Mothercare is in the middle of a three-year transformation plan, and though there is still a way to go to restore profitability and achieve sales growth, its focus on offsetting costs, maximising the potential of the successful parts of the business and making a profitable store portfolio should help it rebuild its position in the UK.

  • Jessica Fioriti, associate retail analyst, Verdict