Monday 4 November 2019 12:15 pm

Three reasons behind Mothercare's fall into administration

Mothercare’s UK retail business is set to collapse into administration, despite a rescue plan implemented last year, the retailer confirmed today.

Mothercare has filed a notice of intent to appoint administrators to its 79 UK stores after determining they were “not capable of returning to a level of structural profitability”.

So what exactly went wrong? Here are three key factors behind Mothercare’s decline.

Read more: Mothercare confirms intention to appoint administrators

1. Mothercare didn’t adapt to a modern market

Analysts said Mothercare had failed to move with the times, as competition soared and parents turned to supermarkets and online stores to purchase maternity and baby goods. 

Richard Lim, chief executive at Retail Economics, said the retailer had been beaten “on price, convenience and the overall customer experience’.’

“Years of underinvestment in the online business and its inability to differentiate itself as a specialist for young families and expectant parents has been the root of its seemingly inevitable downfall,” he said.

Andy Brian, partner and retail expert at law firm Gordons, added that “price-driven customers can easily compare the price of big ticket items online and buy smaller items such as children’s clothing in their local supermarket”.

Julie Palmer, partner at Begbies Traynor, said: “The baby goods specialist hasn’t been able to meet the shift in consumer shopping habits and offer the same ease of purchasing the items from one location, as aggressive expansion strategies from major supermarkets offer customers multiple options for affordable maternity and baby products, as well as the convenience of purchasing via online outlets”.

2. A lack of investment in going online

Russ Mould, investment director at AJ Bell, said Mothercare could have continued doing well as the UK’s population continues to grow.

However, he believes the firm did not spent enough on digital – a key growth area with new parents often unable to leave home. 

“One of the key arguments is that it hasn’t invested enough money into its online operations so it could compete against Amazon and other retailers,” Mould said.

“It is often inconvenient for expectant mothers or parents with new-borns to go to the shops to buy essentials, hence why it is preferable to order online and have goods delivered to the home.

“Mothercare should have realised this situation and slimmed down the number of physical stores years ago, as well as investing more into infrastructure to support efficient deliveries.”

“Once again it is the prominence of internet competitors that has played a key role in taking down this high street staple, highlighting the difficulty in doing business on a brick-and-mortar model,” IG’s senior market analyst, Josh Mahony, said.

3. CVAs aren’t a cure for struggling retailers

The failure to turn the company’s fortunes around despite implementing a company voluntary arrangement (CVA) and shutting 55 stores, could also ring alarm bells for other struggling retailers as the controversial restructuring method becomes increasingly more popular on UK high streets. 

“Other retailers, particularly those who have also previously filed for CVAs, will be concerned that these restructuring plans haven’t succeeded and a more radical approach may be required in order to survive,” Palmer added. 

Read more: Mothercare warns on profits

“This collapse goes to show that CVAs cannot fix everything if fundamental problems faced by a business aren’t addressed properly,” Sean Moran, insolvency partner at Shakespeare Martineau, said.

“Mothercare has become something of an outdated brand that suffers from intense competition – even the name itself speaks of another time.” 

“This decision shows that for retailers in financial distress, CVAs don’t always equal a happy-ever-after, and they are no substitute for a radical rethink of the UK High Street,” Freddy Khalastchi, business recovery partner at Menzies, said.

Main image credit: Getty