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New boss aims to steer Mothercare to recovery
August 1, 2014 / 5:00 AM / 3 years ago

New boss aims to steer Mothercare to recovery

LONDON, August 1 (Reuters) - From transforming businesses to sailing the Atlantic, Mark Newton-Jones is a man up for a challenge. Now, the new chief of baby products retailer Mothercare aims to succeed where many have failed and fix one of Britain’s best known retailers.

Officially installed in July after an interim spell since March, he will need to draw on all of his 30 years experience in retail to arrest a sales slide in a UK business which generates 64 percent of revenue but has lost Mothercare 68 million pounds ($115 million) in three years.

While Mothercare’s overseas business is profitable, fierce competition from supermarkets like Tesco and internet retailers like Amazon has hit it hard at home, leaving it with too many stores and not enough customers, and exposing a need to grow online and improve its product ranges and brands.

“Wherever you look there’s competition,” Liberum analyst Sanjay Vidyarthi said. “Ultimately if they don’t get the price proposition right, I‘m not sure what they can do.”

Newton-Jones, who by the age of 25 was Next’s youngest regional manager, later took that firm’s Directory business online, which now contributes 36 percent of the group’s turnover.

His initial assessment of Mothercare is that nearly everything at the “outdated” group needs investment - from its stores and products to core infrastructure and head office.

“There’s nothing I’ve seen here that I’ve not seen before,” the 46-year-old, whose career began in his family run retail and wholesale business, said, after unveiling a quick action plan in July ahead of a more detailed October update.

The sharp-suited CEO has moved quickly to improve the group’s gross profit margin, which was 6.2 percent in 2013/14, half what it was four years ago, agreeing better supplier terms and discounting less.

To aid this, more exclusive products will be offered and a trial of clothing-only stores with higher profit margins is underway.

More focus will also be placed on improving service online - a business worth 29 percent of UK sales - and one in which online customers spend twice as much as instore shoppers.

It will be a tricky balancing act with costs, analysts said.

A move to reduce discounts could hit online demand while increased store closures will hit sales and could weaken bargaining power with suppliers, potentially extending UK losses already expected to run until 2017.

“Any action that is taken is going to be painful and a hit to the P&L,” Vidyarthi, who has a ‘sell’ rating, said.

The 53-year old firm’s UK store numbers will fall to around 200 by the end of 2014/15 from 311 outlets in 2012 and it is expected to shrink further, although Newton-Jones has yet to say by how much. The average lease length is four years.

“We believe Mothercare requires a 60-90 million pound rights issue to cover the costs of closing more UK high street stores and paying down banking facilities,” Cantor analyst Mike Dennis said, adding that even cost savings looked limited at the firm.

The group’s net debt position at the year to March 29 was 46.5 million pounds. Its bank facilities were extended until this October by 10 million pounds to 100 million pounds in May.

Meanwhile, Mothercare’s net cash at its year end dropped to 17.3 million pounds ($29.2 million) from 38.5 million in 2010.

RIGHT MAN FOR THE JOB?

Newton-Jones follows in the footsteps of former Lovefilm boss Simon Calver, who made progress at Mothercare on store closures, online sales and refits but sewed his February exit after losing a fierce price war that hurt margins in the UK.

Newton-Jones, shareholders hope, will avoid such costly scraps with rivals.

“He comes with a very strong retailing pedigree and more importantly understands the detail of retail,” Bertie Thomson, senior investment manager at Aberdeen Asset Management, Mothercare’s fifth largest shareholder, told Reuters.

“It is encouraging to see him focusing on margin and value over sales and volume... It certainly seems he is the man for the job.”

Thomson added that if Newton-Jones did need to raise capital, he thought shareholders would back him.

“I think if there is a credible turnaround plan over and above what’s been mentioned, and he can demonstrate there is a very attractive risk/reward opportunity by raising equity, then I think most shareholders would be supportive of that.”

Shareholders have witnessed a 42 percent drop in Mothercare’s share price over the last 12 months, reducing the firm’s value to 213 million pounds.

The retailer’s international arm helped the group post a profit of 9.5 million pounds in 2013-14, down 67 percent on three years ago.

Last month, Mothercare fended off takeover interest from U.S. firm Destination Maternity and said it was fully focused on its turnaround strategy.

After his stint at Next, Newton-Jones spent a decade at Shop Direct where he completely restructured that business, from warehouses to merchandise and brands, although not everyone was impressed. Axed call centre staff burned effigies of him outside two British sites in the northern towns of Sunderland and Crosby.

$1 = 0.5923 British Pounds Editing by Elaine Hardcastle

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