Mothercare: Rumours of takeovers continue

December 12, 2011

Susan Moger & Tudor Rickards

Mothercare is a high profile brand in the UK which is struggling to become a successful global operation. It is also facing rumoured takeover bids

Recent rumours suggest that Mothercare is ‘ripe for a takeover’. These have been supported by speculative share purchases. Venture capitalist Cinven is currently [Dec 12th 2011] favourite to move for Mothercare.

Background

To the general British public, Mothercare has developed iconic status since its origins in the 1960s. In some ways it has the ‘much loved’ status of Woolworths. LWD subscribers will be familiar with the demise of “Woolies” adding to the gloom of last Christmas for its employees. In hard times, sentiment is a commodity that does not guarantee survival.

The Company was founded by Selim Zilkha and James Goldsmith in 1961. In 1982 it merged with Habitat to form Habitat Mothercare and in 1986 Habitat Mothercare merged with British Home Stores to form Storehouse. Mothercare also acquired the Early Learning Centre (ELC) in 2007.

Profits have been increasingly coming internationally, this year just about balancing losses in the UK. The financials suggest that a takeover by a venture capital organisation would result in more rapid and drastic actions to address UK losses.

The declining fortunes of Mothercare are indicated by a sequence of CEOs. Ben Gordon was the fifth in rapid succession four years ago. At first,his appointment was accompanied by a strong rise in share price which eventually reversed (until the recent takeover rumours)

Crisis actions

The firm has followed the well-known steps for businesses facing financial problems. In particular, there have been changes in leadership, and steps to reduce costs.

Any signs of rethinking its strategy?

Cost cutting has included announcements of reducing the number of stores in the UK as leases expire. Signs of rethinking strategy are less evident.

Alan Parker, executive chairman of Mothercare was quoted in The Telegraph [17th Nov 2011] as saying

“We have to rejuvenate the whole brand and offering. The competition in the UK is more intense than overseas. We need to review the format and location of our outlets in Britain.”

More than an economic downturn?

Matt Piner, at the retail consultancy Conlumino, said: “Mothercare has blamed its falling UK sales and profits on the economic environment, but in reality all this has done is expose the wider issues the retailer faces.

However, with consumers now increasingly confident using the internet and sites such as Mumsnet to educate themselves, the once habitual visit to Mothercare is becoming a thing of the past. Instead, consumers research what they need online and head to the cheapest retailers to buy it – which nowadays normally means one of the supermarkets.”

In addition, retailers such as Boots and Superdrug have made great efforts at providing advice as well as products for young families and with greater high-street footfalls.

Is the story straightforward?

Oner evaluation was less convinced about the non-UK business prospects.

Mothercare’s overseas growth has been hugely impressive. But despite the rapid growth in the international business over the past six years, the UK remains the driver (or not) of profits. For all the talk of reducing exposure to the UK market and restructuring the property portfolio, retail space in the UK actually grew last year.

Of course [Former Chairman] Peacock – and his chief executive Ben Gordon – would rather talk about Eastern Europe than the UK. International sales rose 15pc-plus, while the UK has seen sales fall 4.3pc, despite weak comparatives.

The retailer has made much of its international franchisee business in recent years, [flying out analysts and journalists] as far as India to see the business. But whatever the spin, Mothercare’s fortunes are still tied to the UK market. Last year the group sold £587m worth of baby stuff and toys to UK shoppers and £206.4m to its international franchisees. Mothercare – rather bizarrely in my view – prefers to highlight “network sales”, which include the international franchisees mark-up (of which Mothercare takes just a small “mid-single digit” cut).


Habitat, Conran and Creative Destruction

June 27, 2011

As Sir Terance Conran’s iconic ‘love child’ goes into administration, we reflect on the process of creative destruction

Habitat is a much-loved British institution. In the 1960s it pioneered a life-style revolution for a generation of home-makers, bringing a splash of coordinated colour into the design plans of a generation of young home-makers.

Design and Creativity

It serves as an example of the ideas of design theorist Margaret Bruce. Writing in the Routledge Companion to Creativity, she argues [p 40] that “design is the purposive application of creativity throughout the process of innovation.”

Professor Margaret Bruce

Margaret is Professor of Design Management and Marketing at Manchester Business School. Commenting on Habitat for LWD she noted

“I would put Habitat’s problems as being partly in the squeezed middle market not consuming high ticket items such as furniture. Low cost competitors like Ikea came in offering the same style. There are fewer first time buyers needing items for appartments. So Habitat failed to differentiate tself with an attractive proposition. In addition it may not be strong online which has high growth in the UK and its service needed to compete better than it has”

The decline of Habitat

The BBC reported the decline of Habitat

All but three UK Habitat stores are being put into administration in a deal to sell the indebted furniture chain. Home Retail Group, owner of Argos and Homebase, will buy the Habitat brand and three central London stores for £24.5m in cash. Habitat, which was set up in 1964 by designer Sir Terence Conran, has been owned by the private equity firm Hilco since it bought the heavily-indebted retailer from Ikea-affiliate Ikano in 2009.

“Of course I’m sad that my love child, Habitat, appears to be dying, but I am more interested in the future of my own business and design projects – that is my focus,” said Sir Terence.

You can see a video of the story here

Terence Conran

Sir Terence Conran has been one of the most influential British designers since the 1960s. His restless creativity has been implemented in life-style ideas. But unlike some entrepreneurs, Conran moved on. His remark about Habitat as his “love child” seems also to capture the capacity of the creative individual to be both involved and detached. The proud father and the rational economic entrepreneur. It is captured in the famous quote from Graham Green that “there is a splinter of ice in the heart of a writer.”

Creative Destruction

The demise of Habitat also demonstrated how creative change brings about destruction of the old and at the same time carries with it the seeds of its own destruction. Habitat was such a powerful idea that its niche position was eventually invaded by slicker and more modern alternatives such as Ikea.

Acknowledgement

Image is of the Habitat store in Cheltenham from skip to the end.com