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Business News

Mothercare wields axe after UK woes hit profits

Over 880 jobs and 111 shops to go, and chain considered pulling out of Britain altogether

The chairman of Mothercare has unveiled a major restructuring to turn around the retailer's troubled UK business involving a further 111 store closures and more than 800 job losses.

Alan Parker, the former chief executive of Costa Coffee's owner Whitbread, also admitted the group had considered "pulling out" of the UK completely to focus on its international operation, as part of his strategic review.

He made his comments as Mothercare posted a calamitous 8.2 per cent fall in underlying UK sales in the 12 weeks to 31 March, capping a terrible year for the maternity retailer.

Mothercare has been outgunned by the big supermarkets and department stores, such as John Lewis, on the high street. It also suffered a 3.2 per cent fall in online sales in its last quarter, at a time when many chains are posting double-digit growth on the internet.

Mothercare will unveil full details of its strategic review at the end of next month once Simon Calver, the head of LoveFilm, the DVD rental service, joins as its new chief executive on30 April.

Mr Parker said: "We looked at pulling out of the UK completely, franchising [in UK] and staying the way we were."

He said the three-year strategy unveiled yesterday was the best option.

Mothercare, which has 311 UK stores, plans to improve its product offering, cut prices on products and revamp its online business. But a key focus is a major cost-cutting programme.

Mothercare has already reduced its number of UK stores by 62 in the past 12 months but will now shut a further 111 by March 2015, resulting in about 730 job losses. This programme – which will leave Mothercare with 200 shops, including 27 of its Early Learning Centre stores – is expected to improve its UK profits by £13m in three years' time.

Mr Parker, who took the helm after its previous chief executive, Ben Gordon, left in November, said: "Two hundred is the right number of stores, with two-thirds of the population within 30 minutes' drive of a store." Its shares rose by 13.3p, or 8 per cent, to 183p.

Mothercare also wants to cut 98 jobs at its UK head office, as it seeks to slash its "non-store overhead costs" by £20m on an annualised basis by March 2015. The total cost of fixing Mothercare's UK operation is £35m over the next three years, which will be funded by renegotiated banking facilities.

Peter Smedley, an analyst at Charles Stanley Securities, said: "We believe the turnaround may well prove to be much more complicated and protracted than many think." Total sales at Mothercare fell by 4.2 per cent in the fourth quarter, although international revenues jumped by 18 per cent.

Mothercare, which has 1,028 shops overseas, said it plans to accelerate its international opening programme over the next three years.

Peel Hunt forecasts that adjusted pre-tax profits at Mothercare will have fallen by 98.5 per cent to just £0.5m for the year just ended.