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).


How Discounters Succeed in Tough Times: The Poundlands Case

September 1, 2010

Discount retail stores thrive in tough times.  Poundlands seems to be a good example. The firm is planning to create 2000 jobs and open 50 new stores to augment its 250 existing ones, many being installed in former Woolworths premises.

According to the BBC

Discount retailer Poundland posted annual operating profits [August 17th 2010] up 81% to £21.5m, on turnover up 28.7% to £509.8m. Jim McCarthy, chief executive, called the results “impressive” and promised further profits growth and expansion. He said: “With the economic uncertainty continuing, we are seeing many more first time shoppers joining our… customer base and with this trend set to continue, I remain confident of our prospects for the current financial year.”  Poundland employs more than 7,500 staff, and created about 2,000 full- and part-time jobs during the financial year ending in March 2010.

The firm, based at Willenhall, West Midlands, opened 56 outlets during the last financial year, many of which are based at former Woolworths stores.   The chain, owned by the private equity company Warburg Pincus, is gradually increasing the average size of its stores, and also stocking more branded items and food.

An interesting point is the way in which a smaller more dynamic firm is able to react in potentially difficult times. Woolworths, which might have been able to follow a similar strategy failed to survive the credit crisis, and became an opportunity seized by Poundland.


Woolworths woes continue

August 17, 2008


Troubles come not singly but in battalions. The adage might be applied to Woolworths at present as it faces financial decline, a hostile take-over bid, and a new leader due to arrive next month

In June, [2008] Leaders we deserve reported on the enthusiasm with which Mr Trevor Bish-Jones took his golden handshake and departed the company.

Since then, the company has seen further deterioration in its trading position reported in July

The replacement for Mr Bish-Jones former Focus DIY chief executive Steve Johnson was recently announced as joining the firm in September

But before Mr. Johnson could get his feet under the table, the company faced its latest challenge in the shape of a takeover bid. Which it promptly rejected.

Troubled retailer Woolworths says it has rejected a bid for its network of 815 stores, calling it “unacceptable”.
Woolworths confirmed reports that the boss of the Iceland frozen food chain, Malcolm Walker, had made an offer to buy its retail division.
However, the company’s board said the proposal undervalued its assets and involved a complex restructuring, which was not achievable.

What happens next?

In the various posts on leadership reported here, there have been a number of stories of takeover attempts. The case for takeover is easier to make if the target company is demonstrating leadership problems together with financial difficulties.

The arrival of a new leader may help signal a fresh approach. It worked magnificently in the famous case of Stuart Rose arriving at Marks and Spencer to thwart to attention of predator Philip Green.

Will the arrival of Steve Johnson increase the survival chances for Woolworths in its present form? In the M&S case, Rose quickly helped put an imaginative new strategy in place.

Maybe Mr. Johnson will also provide creative leadership at a time of Corporate crisis. The initial statement from Woolworths (according to the BBC) suggests that such a possibility is the hope of the organization.

Mr Johnson said he would be focusing on “value creation for all stakeholders” when he joins the firm in September.

The retailer said it was “delighted” that Mr Johnson was joining the company.
“His strong background in both retail and consultancy, together with his particular experience in achieving a turnaround at Focus, he brings the strategic and operational skills that the Group needs to help it move to the next stage of its development.”

But what will happen between now and September? Will the battalion of its woes be successfully kept at bay?


Have ‘Woolies’ been Bullies? The Case of Trevor Bish-Jones

June 21, 2008

Trevor Bish-Jones departs Woolworths with a smile. Is there a lesson here about the life-cycle of a Charismatic leader?

This week, Woolworths confirmed details of the departure of its Chief Executive Officer Trevor Bish-Jones. The corporate web-page provided the news at the end of an interim statement

“We have also announced this morning [18th June, 2008] that Trevor Bish Jones will be standing down as Chief Executive of Woolworths Group plc. Trevor will stay in place for the next three months as we start the search, both internally and externally, for a new Chief Executive .. We have strong operational management running each of our businesses and this, combined with Trevor’s commitment to stay while we find a successor, will ensure continuity for the Group. The Board would like to thank Trevor for the significant contribution he has made to the business over the past six and a half years.”

Six and a half years ago

Chairman Gerald Corbett reported on Trevor Bish-Jones’ appointment as follows

This financial year our priorities have been to stabilize the business post the de-merger, tackle the significant overstocking problem, reduce debt and take action on loss makers to give us a sound base for recovery in the year ahead. We are on target to achieve our stock and debt targets, albeit at a cost to this year’s profits .. I am delighted to announce the appointment of Trevor Bish-Jones. He is a highly experienced retailer with a successful record of managing large national retail chains in highly competitive markets. The performance of the Mainchain shows how much work there is to do to re-invigorate its position in the eyes of the consumer and improve retail disciplines.

We expect to see considerable further progress next year. We have a strong brand; major market positions; a national high street presence and sales of over £2.5 billion. We are continuing to strengthen our management at all levels and look forward to next year with confidence.

Neelam Verjee of the Times captured the new leader’s background:

Mr Bish-Jones never intended to end up in retailing. He studied at Varndene Grammar School in Brighton, before training as a pharmacist at the Portsmouth School of Pharmacy. His first job was as a research chemist studying oil shale in Colorado, Denver, with Tosco, a US company. He returned to Britain in 1983 to finish studying and joined Boots in its pharmacy division ..He spent the next 11 years at the health and beauty chain, first as a store manager before making the jump to buyer. He joined Dixons Group in 1994, at its PC World division, and went on to work for The Link and Currys, before taking the top job at Woolworths.

His hobbies include fast cars, especially Porsches, and motorcycles (he owns a Ducati), football (he supports Brighton and Hove Albion), spending time with family and friends and going to the pub. Mr Bish-Jones, 46, also likes horse riding and golf. He is married with two daughters.

Time passes

This week, the Financial Times noted that

Dealt a difficult hand from the outset with onerous leases and an outdated business model, Mr Bish-Jones had some success in improving the wholesale side of the business, which distributes CDs and DVDs to other retailers ..[But] the Woolworths stores have proven an uncrackable conundrum ever since they were spun out of the Kingfisher conglomerate, and he leaves with the shares close to an all-time low. [under 10p, 19th June 2008]

The demerger referred to took place in 2001, before Bish-Jones joined the company.

The Times this week updated its earlier story

Resplendent in a three-piece pinstripe suit, Trevor Bish-Jones gave a great impression of a man without a care in the world, at Woolworths’ annual meeting yesterday ..Sitting in the middle of the board of directors, the outgoing chief executive leant back and let his chairman do the talking. Mr Bish-Jones could contemplate what job offers he may consider and how to enjoy the rest of the summer.

One of the most likeable men in retailing, Mr Bish-Jones is also one of the most hardworking. In a career spanning 27 years he has never taken more than two weeks off at a time and is keen to spend a bit more time with his wife and two daughters.

The picture emerging from these reports is that of a charismatic leader, able to win hearts without necessarily winning the battle of the financial numbers. Which may indicate something about charismatics …[But see the list of hobbies above, for those fascinating discrepancies sometimes revealed in secondary data sources.]

Was Trevor a Scapegoat?

But was Bish-Jones a scapegoat, as the Telegraph asked?

Richard North, Woolworths’ chairman since last June and himself the subject of a sudden sacking by his chairman when he ran InterContinental Hotels in 2004, said that it was time for someone new to take a “fresh look” at Woolworths …Mr Bish-Jones will remain for three months while Zygos, the head-hunter, searches for a replacement, [adding] “Trevor has just completed a series of big things which in effect have come to a natural conclusion, so it is a natural time for change,”

The “big things” referred to were the reshaping the DVD and CD-making business, in the wake of Tesco dropping a lucrative contract in 2006, and a refinancing last year.

Some shareholders at the meeting supported the scapegoating view. Others were reported to be of the opinion that his departure was based on the rational considerations that it was time for a change, time to introduce fresh blood, etc.

It is certainly convenient for a business to arrange an amicable departure for its leader. One that implies no blame, rather a timely move forward. Such a rationale will always be less convincing as shares head south to record lows …