The baby products retailer said it was in a “perilous” financial position and that the essential store closures will leave it with 78 outlets in the UK by 2020.
The retailer has already nearly halved its store numbers over the past five years. It had intended have 92 outlets by 2023, but has now accelerated its closure plans and will have just 73 by that year.
The plan to close stores and cut rents at 21 of its stores. is being carried out through a company voluntary arrangement (CVA).
The CVA, as is standard, will need the support of its creditors. One of these, the Pension Protection Fund, has already said it will vote in favour.
The company also said it would reappoint the chief executive who left in April following poor Christmas trading and a profits warning.
Mark Newton-Jones was sacked by the then chairman Alan Parker – who has himself subsequently stepped down. Former Tesco executive David Wood who had taken on the chief executive role and is just over a month into the job, will become group managing director.
In a statement, Mothercare said: “Recent financial performance, impacted in particular by a large number of legacy loss making stores within the UK estate, has resulted in a perilous financial condition for the group.”
As part of its restructuring, Mothercare has also arranged a refinancing package worth up to £113.5m, which includes £28m raised through issuing new shares, and an extension of its existing debt arrangements.
Mothercare chairman Clive Whiley said: “These measures provide a solid platform from which to reposition the group and begin to focus on growth, both in the UK and internationally.”
‘Unforgiving’ climate
CVAs have become widespread this year as a sheaf of major High Street names have had to undergo deep changes in the way they operate.
Earlier this year, toy store chain Toys R Us collapsed into administration, as did electronics retailer Maplin.
Carpetright has entered into a CVA and announced store closures, as has fashion chain New Look.
A number of reasons have been cited for failures on the High Street, including a squeeze on consumers’ income, the growth of online shopping and the rising costs of staff, rents and business rates.
Simon Underwood, business recovery partner, at accountancy firm, Menzies LLP, said: “Entering into a company voluntary arrangement (CVA) means Mothercare will have some extra time to continue trading by cutting costs. It is a final attempt to avoid administration and reset the business on a firm financial footing.
“Allowing a business to continue trading and its existing management to retain control, CVAs are sometimes viewed as a more attractive option than other methods of insolvency, such as pre-pack administrations. However, if all struggling retailers start taking this route, it could make matters worse for the ailing High Street – with more shoppers moving online and creating more empty stores. This in turn could force local councils to increase business rates to make up for revenue shortfalls.
“Increased competition in the mother and baby products sector, high property rates and a failure to improve online sales have all contributed to Mothercare’s financial difficulties. Whilst time is running out, adopting a front-footed strategy, designed to re-model the business and reduce fixed costs, could still present the retailer with a turnaround opportunity.”
