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Back in 2012, Mothercare laid out a 3-year plan to turn around its ailing UK business. Now it is 2015 and investors are yet to see an improvement in its performance, as the retailer battles to gain traction in what has become an extremely competitive marketplace. Are analysts right to remain sceptical about the future of the business or is there scope for a revival?
The company recently reported that total UK sales for the 13 weeks to 10 January 2015 fell by 1.9% in comparison to the same period last year. However, like-for-like sales rose by 1.1%, indicating that the most recent adjustments in the retailer’s strategic plan, spearheaded by new CEO Mark Newton-Jones appointed in July 2014, are beginning to bear fruit. Returning the UK to profitability is a top priority and rightly so, given the UK accounts for over 60% of total group sales and current dynamic international growth may not be sustainable without a healthy domestic business.
Over the past decade, the leading mother and baby specialists (Mothercare, Mamas & Papas and Kiddicare), instead of making the most of their expert images, have engaged in a price war that undoubtedly contributed to their recent poor performances. Struggling to compete with private label products from the UK’s major grocers and value brands such as Primark and Matalan, Mothercare focused on the unsustainable short-term strategy of slashing prices – a war it was never going to win. Meanwhile, Mamas & Papas reported a 4% reduction in group turnover due to a poor UK performance in the year to March 2014, and Kiddicare reportedly lost £127.8 million in the year to February 2014 and, after a number of acquisitions, has now re-emerged as an online-only retailer.
Alongside competition from private label, Mothercare also faces increasing pressure from fashion-focused brands, including the current childrenswear leader Next and fast-fashion brands Zara, H&M and River Island. Online players, in particular Amazon, are capturing market share, not only in childrenswear but also in big-ticket categories such as pushchairs and nursery furniture. At the premium end of the market, department store John Lewis is finding favour with parents by offering a more varied brand selection, a robust omni-channel operation and an image built on an excellent reputation for quality.
Mothercare’s recent strategy adjustments have focused on producing a lean retail business, with the closure of loss-making stores and the development of its e-commerce business. Store refurbishments are also underway led by a “one-stop destination” concept, with an emphasis on digital innovation. The shift of focus from the high street to much larger out-of-town stores allows the company to incorporate additional services, such as play areas, coffee shops, pregnancy scans and family photo studios.
Digital innovation includes the introduction of iPads to stores, which enables the customer to access a broader product range and order online with the convenience of having the item delivered directly to his/her home. This progress in creating a digitally-led business and a seamless omni-channel operation indicates the retailer is on the right path to re-establishing itself as a leader in the mother and baby market. However, improvements in this area will prove futile if Mothercare is not able convince its former customers to return or attract new customers into its stores.
It is encouraging to see the company is making headways in overhauling store-based and online operations and reducing dependence on discounting, which is gradually resulting in margin improvement, but the execution of its current strategy needs to be more radical.
Mothercare is the longest standing ‘mother and baby’ retailer in the UK and a genuine expert in the industry, which provides a unique selling point that could be better emphasised. With a vast amount of information and advice that would be welcomed by parents while shopping, it appears Mothercare is missing out on an opportunity to achieve meaningful differentiation from private label products, value brands, online retailers and department stores.
Providing and, most of all, marketing this expert advice, while using social media to connect with customers, would help to begin rebuilding the brand loyalty that once established Mothercare as the ‘go-to’ retailer for baby products. For example, its own social media platform Gurgle.com could be featured more prominently on the company’s website, while discussion boards, notably Mumsnet.com and blogs such as Mojomums.co.uk, provide opportunities to reach out to a new group of customers.
Moreover, expanding the number of third-party brands would be an astute move in an attempt to differentiate itself as a specialist retailer by offering a wide variety of products. Strengthening its credentials in the fashion area is also essential, both in childrenswear and maternity wear. The new Blooming Marvellous maternity range is already a step in the right direction, but the introduction and promotion of other sought-after brands (eg Mamalicious) would present existing consumers with more choice and fill gaps in the company’s pricing range, helping to establish a more premium positioning and attract a new audience.
The current strategy of improving omni-channel operations and store environments will not be enough to return the UK to growth. Mothercare will need to place a stronger focus on rebuilding relationships with its customer base through the use of social media and a specialist offering if it is to make a full recovery.