Mothercare to close a third of its loss-making stores

9 April 2018 (Last Updated April 10th, 2018 11:14)

Mothercare is the latest retailer to consider store closures by entering a company voluntary arrangement (CVA).

Mothercare to close a third of its loss-making stores
Mothercare considers CVA to pay off its debts. Credit: Betty Longbottom

Mothercare is the latest retailer to consider store closures by entering a company voluntary arrangement (CVA).

The CVA, which allows a still viable company to reach a beneficial deal with its creditors, could lead Mothercare to close a third of its 143 stores in the UK, and as part of the arrangement, leases with landlords could also be renegotiated.

Founded in 1961, the baby clothes seller hopes entering the CVA will protect the business and reduce the costs.

Mothercare is currently in rescue talks with creditors to refinance its debt as it seeks ‘waivers of certain financial covenants’.

While the retailer is currently in rescue talks with its creditors to refinance its debts, former CEO Mark Newton-Jones has left the company. It is unknown whether creditors forced the departure.

Newton-Jones tried to turn Mothercare into a digital retailer, and even though more than 40% of its trade comes through the internet, the retailer’s online sales fell by 6.9% over the Christmas quarter and store sales fell by 7.2%.

Former Tesco and Kmart executive David Wood has replaced Newton-Jones to support the final rescue attempt.

Mothercare chair Alan Parker said: “We’ve got a premier league manager for a premier league job.

“Mothercare is a great brand with a great future, but it is facing a number of challenges, not least a highly competitive retail environment.

“We have made positive progress but it is essential that we have the most effective leadership in place to meet our ambitions for our customers and our shareholders.”

Parker said it was too early to comment on specific plans to turnaround the retailer’s fortunes.

Wood said: “My immediate focus is to ensure Mothercare is put back on a sound financial footing and deliver a successful plan to improve performance. Central to this will be our customers and their experience, securing Mothercare’s reputation as the number one choice for parents.”

Mothercare has blamed its poor Christmas trading on the decision to not discount during the festive period.

Sales picked up when the company started trying to aggressively discount to shift stock. However, profit margins were hit by the promotions.

A Mothercare spokesperson said: “We are also exploring additional sources of financing to support and maintain the momentum of our transformation programme and we are engaged in preliminary discussions on securing such additional financing.”

The company’s share price has plunged 85% in less than a year to leave it on a valuation of just £33m, while its debts rose from £38m to just under £50m.

It was reported that Sainsbury’s was considering taking over the retailer, but it has not madean offer.

Numerous high-street retailers have agreed to a CVA in order to avoid bankruptcy, including New Look, Prezzo and Select. Carpetright is also considering a similar deal after issuing its third profit warning in four months.