Mothercare to close one in three UK stores
Thursday 19 May 2011
The chief executive of Mothercare has urged landlords to be more realistic about rental demands, as the maternity retailer unveiled plans to close nearly a third of its 373 UK stores.
Ben Gordon made his comments and unveiled his plans to slash total annual occupancy costs by £18m, as a dire UK performance dragged down the group's full-year profits by nearly a quarter.
Mothercare will shut about 110 stores and negotiate rents to a "substantially lower" level on 40 stores over its next two financial years.
Most of the closures will be the group's Early Learning Centre outlets, which it acquired in 2007, and about 250 staff could lose their jobs. But Mr Gordon hopes it will be less, adding that the group would try to minimise redundancies.
In slashing its property costs, Mothercare joins a long list of retailers, from Thorntons to HMV, seeking to combat both the massive migration of sales online and depressed consumer spending.
Mothercare is using the fact that 120 of its high street store leases come up for expiry over the period to realign its shop estate in favour of out-of-town retail parks. These have long been Mothercare's preferred sites due to lower rents and bigger stores, allowing it to offer a fuller range.
Many of the stores Mothercare will close are on 25-year leases and Mr Gordon said: "The rents they [landlords] were able to get all those years ago are now completely uncommercial." A key difference is online, which now accounts for 22 per cent of Mothercare's sales.
Asked if landlords needed to be more realistic about rent, Mr Gordon said: "They definitely do. I think the high street is not good and the rents are too high."
Mothercare's plans will slash its number of UK stores from 373 to 266. Of those remaining, 102 will be out-of-town "parenting centres", which incorporate the Mothercare and Early Learning Centre brands, leaving it with 164 on the high street. The property measures will add between £4m and £5m to its UK profits from March 2013. The City approved and the shares rose by 23.2p, or 5 per cent, to 448.4p.
Over the year to 26 March, pre-tax profits, before exceptional items, fell by 23 per cent to £28.5m, on sales up 3.6 per cent to £793.6m. In the UK, however, Mothercare was forced to discount heavily on categories from toys to travel in the face of fierce competition from the supermarkets and weak consumer spending. UK like-for-like sales fell by 4 per cent and its gross margin fell by 2.5 per cent. Mothercare issued a profit warning in January and in March said margins would be lower.
Mr Gordon sees little improvement for UK retailing. He said: "I think it is going to be a fairly tough environment for the next year or two."
He was far more bullish about its overseas division, where underlying operating profit rose 18.5 per cent to £27.5m and stores numbers by 166 to 894 in 54 countries. In India alone, where it has about 60 stores, Mothercare plans to have 200 stores by 2015. Reported international sales jumped by 17.2 per cent to £206.4m last year.
Mr Gordon said: "The big opportunity for Mothercare is in its international business." The group raised its total dividend by 8.9 per cent to 18.3p.
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