Mothercare plc

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Mothercare plc

Cherry Tree Road
Watford, Hertfordshire WD24 6SH
United Kingdom
Telephone: (44) 1 923 241 000
Fax: (44) 1 923 240 944
Web site: http://www.mothercare.com

Public Company
Incorporated: 1972
Employees: 5,149
Sales: $859.9 million (2005)
Stock Exchanges: London
Ticker Symbol: MTC
NAIC: 448130 Children's and Infants' Clothing Stores

Mothercare plc is a retailer that sells maternity clothing, apparel for babies and young children, home and travel products, and toys. As of 2005, the company had 231 stores in the United Kingdom and 220 franchise locations in Europe, the Middle East, and Asia. In 1986, Mothercare became the second major component of the Storehouse plc retail group along with Bhs (formerly British Home Stores). Plagued by weak sales and falling profits, Storehouse sold Bhs in 2000, dissolved its holding company structure, and adopted the Mothercare plc name.

CREATION AND DEVELOPMENT

Mothercare founder Selim Zilkha was born and educated in the United States and served in the U.S. armed forces during World War II. Descended from an affluent banking family, Zilkha began to seek alternate business interests in Britain during the late 1950s. After touring France's Prenatal shops, he sought to import the concept of a one-stop maternity and infant store to Great Britain. Moving quickly, Zilkha assembled a group of investors to acquire the ten-store Lewis and Burrows nursery furniture chain. Zilkha converted a section of one of these stores to a "mother-to-be-and-baby department" and hired several buyers to choose merchandise. The experiment, which lost £180,000 over a two-year period, was later characterized as "a complete fiasco."

Zilkha sold the chain in 1960 but did not give up on the concept. Before the year was out, he acquired the 50-store W. J. Harris chain, which sold very traditional baby carriages and nursery furniture. He shuttered half the stores, changed the chain's name to Mothercare, and revamped its merchandise to offer "everything for the mother-to-be and her baby under five." This one-stop concept included modestly priced maternity apparel, infant and children's wear, furniture, strollers, and even baby food. Zilkha also hired Prenatal's M. Mazard as an adviser but was still unable to mirror the French chain's success.

In 1963, the frustrated banker-turned-retailer invited an acquaintance, Barney Goodman, to join him in the business. The move proved a catalyst for success. The partners split the corporate responsibilities with special concentration on personnel, merchandising and distribution. Their "systems-based" management scheme included the adoption of a computerized ordering and distribution system as early as 1964. This highly efficient centralized purchasing program helped give Mothercare more purchasing power than the independent boutiques that constituted most of its competition. These controls in turn allowed the budding chain to offer its goods at lower prices while maintaining high profit margins.

After going public in 1972, Mothercare enjoyed several years of growth and prosperity. Barty Phillips, author of Conran and the Habitat Story, characterized the company as "one of the very few British firms who have had the courage to go into Europe and the determination to make it work." International expansion started in 1968, when Mothercare launched its first location in Denmark. Over the course of the next nine years, it established operations in Switzerland, Norway, Germany, Austria, Holland, and Belgium. Mothercare acquired an American maternity apparel chain in 1976 and converted it to the British format the following year. The chain expanded from 139 stores to 417 by 1981, and pre-tax profits multiplied from £3 million in 1972 to £22.3 million in the fiscal year ended March 1980.

1981 MERGER WITH HABITAT

The magic began to wear off in the early 1980s, however: pre-tax profits slid nearly 19 percent to £18.1 million in fiscal 1981. Several factors induced the decline. Although the American operation had expanded to nearly 200 stores by the early 1980s, it had yet to achieve consistent profitability. At the same time, Mothercare allowed its image to erode. Instead of going upmarket, the chain tried to compete on price with bargain outlets like Woolworth's, Boots and Littlewoods. Stores and merchandise were characterized as "dull" and "clinical." Gary Warnaby, writing for the International Journal of Retail & Distribution Management in 1993, also noted that "Selim Zilkha seemed to have lost interest in the company."

Whatever the causes, in 1981 Zilkha and Goodman sold their 423-store Mothercare chain to Habitat plc, a 52-unit home furnishings chain founded by Terence Conran. The leveraged buy out cost tiny Habitat £50 million ($239 million). Barney Goodman, who had moved to the United States to launch operations there, returned to Great Britain to help smooth the transition.

Although Habitat was only one-third the size of Mothercare, it had cultivated a much more upscale image. Both chains had originated in the early 1960s. Habitat's moderately-priced, own-design furniture was a British decorating phenomenon—Conran was even knighted "for services to British design and industry." The charismatic designer hoped to imbue Mothercare with Habitat's cachet while maintaining its much-heralded back-office strengths. Habitat, in turn, would use Mothercare's established operations in 10 countries as jumping-off points for its own internationalization. Over the ensuing 18 months, Conran undertook a gradual, subtle revamp of the Mothercare stores and merchandise that culminated in a mid-1983 relaunch featuring a new catalog and gala fashion show. Habitat/Mothercare's first year together appeared a success; profits of £19 million seemed to bode well for the coming decade.

Mothercare was the first in a series of acquisitions that expanded Habitat from a strictly British chain with about £67.2 million in annual revenues to an international retail empire with over £1 billion by 1986. Habitat/Mothercare plc capped its growth spurt with the 1986 acquisition of British Home Stores, a troubled 130-unit department store chain. Conran hoped that he could do for British Home Stores what he had done for Mothercare: infuse the "dowdy" chain with Habitat's marketing and design savvy.

A new holding company, Storehouse plc, was formed with Conran as chairman and CEO. Mothercare was one of seven chains in the group, which boasted more than six million square feet of selling space. Over the next three years, Storehouse attempted to reposition British Home Stores, but a serious retail downturn in the late 1980s thwarted the turnaround. By mid-1987, the conglomeration appeared to have failed so miserably that even Conran flirted with breaking up the retail group. The October 1987 stock market crash and two takeover attempts brought an end to Conran's career at Storehouse in 1988. Group pre-tax profits plunged from about £130 million in 1987 to £11.3 million in 1989.

COMPANY PERSPECTIVES

Our mission is to meet the needs and aspirations of parents for their children, worldwide.

Mothercare struggled unsuccessfully to regain its former glory during this turbulent period. A 1988 attempt to adopt barcode scanning backfired and resulted in what Marketing magazine's Suzanne Bidlake called "a stock replenishment and customer service fiasco." Competitors took advantage of the corporate confusion: by 1992, Britain's Adams chain had grown to within 14 stores of Mothercare's 254 domestic units, and department stores like Woolworth's, C&A, and Marks & Spencer expanded their maternity and children's offerings as well as their market shares. While the Storehouse subsidiary maintained dominant stakes in the British maternity wear and nursery equipment markets, it fell to third in infants' and children's wear by the end of 1992.

At the end of the 1980s, Storehouse executives decided to limit their efforts to Mothercare UK and British Home Stores (subsequently renamed Bhs). Having spun off most of its smaller chains including Habitat, Storehouse sold Mothercare Stores, Inc., the U.S. arm of its maternity chain, to American investment company Bain Capital Inc. in 1991. The £7.5 million ($13.5 million) loss on the transaction contributed significantly to Mothercare's £3.9 million pre-tax loss on the fiscal year ended March 28, 1992.

ATTEMPTING TO TURN AROUND: 1990–2000

Backed by an economic upswing, Mothercare's turnaround proceeded gradually under the direction of a succession of CEOs over the ensuing years. Derek Love-lock replaced exiting chief Peter James in 1990. Love-lock emphasized international growth (excluding the United States) via franchising. In 1992, he hired marketing specialist Patricia Manning away from competitor Woolworth's in an effort to boost Mothercare's market share. Marketing strategies in the early 1990s included cross-brand promotions and point-of-sale displays.

Lovelock led the subsidiary until mid-year, when American Ann Iverson was hired away from Bonwit Teller. Iverson stepped up the pace of the reorganization, leading the first full-scale revamp of Mothercare's store concept in nearly 20 years. The new store layout featured a park-like setting complete with lampposts and talking trees. Many locations were enlarged, and the variety of products was scaled back. In 1993, Iverson told WWD's James Fallon that "In trying to offer everything, we offered too much." By the end of 1995, 127 of Mothercare's stores had been converted to the new format. A new advertising campaign featuring television, print, and outdoor media helped promote the changes.

Iverson's cost-cutting efforts, which included a reduction of middle management, began to bear fruit in the mid-1990s. In a press release summarizing the first six months of fiscal 1995 (ended October 14, 1995), Storehouse chairman Ian Hay Davidson called Mothercare's performance "particularly pleasing." Same store sales had increased 2 percent annually, and pre-tax profits nearly doubled. The company expected to achieve a net of £17 million on the year, nearing its 1980 record of £22 million. In an apparent show of confidence, Storehouse announced its plan to acquire Boots Company plc's Children's World for £62.5 million ($95.8 million).

Although the chain had, in the words of Verdict Research's Hilary Monk, "lost a lot of credibility" over the course of its decade-long decline, a Mothercare executive asserted that "No one has such a strong brand name in kids as we do." It remained to be seen whether that trademark would regain its market dominance in the latter half of the 1990s.

During the mid-to-late 1990s, Mothercare remained an anchor in Storehouse's holdings. At the time, Storehouse ranked among the United Kingdom's top ten retail holding companies. The firm's 142 company-owned and 51 franchised Bhs department stores sold apparel, housewares, and giftware under the Bhs, Universal, and The One and Only trademarks. The 263 company-owned and 109 franchised Mothercare stores constituted Britain's largest retailer of clothing and housewares for mothers and their young children. The chains had international franchisees throughout Europe, the Middle East, and Asia.

At this time, Storehouse and its subsidiaries fell victim to weak market conditions in the retail industry, which were especially harsh in the children's clothing market. Problems resurfaced in the late 1990s for Mothercare as sales remained flat. As such, Storehouse launched a restructuring plan for the chain and began to shutter some of its smaller stores.

KEY DATES

1960:: Selim Zilkha acquires the 50-store W. J. Harris chain, which is later renamed Mothercare.
1963:: Zilkha invites Barney Goodman to join the business.
1968:: International expansion begins; Mothercare launches its first location in Denmark.
1972:: Mothercare goes public.
1976:: The company acquires an American maternity apparel chain.
1981:: Zilkha and Goodman sell the Mothercare chain to Habitat plc.
1986:: Habitat/Mothercare plc acquires British Home Stores (Bhs); Storehouse plc is formed to act as a holding company.
2000:: Bhs is sold; the company is renamed Mothercare.

NEW DIRECTIONS IN EARLY 2000

Big changes were on the horizon for the company in the first year of the new millennium. Storehouse sold the Bhs chain to retail entrepreneur Philip Green in a Euro 325.7 million deal. At that time, the company decided to dissolve its holding company structure and adopt the Mothercare plc name. Chris Martin, a Storehouse executive, was named CEO of the revamped company. Under his leadership, the firm embarked on a new strategy to restore Mothercare's brand image and return the children's clothing retailer into a profitable entity.

Shoring up Mothercare's bottom line however, proved to be a daunting task. Intense competition, issues related to inadequate store stock and product availability, and poor customer service kept shoppers at bay. Martin resigned in 2002 along with chairman Alan Smith. The company posted large losses during the fiscal year of $54.8 million.

Under the leadership of new CEO Ben Gordon and chairman Ian Peacock, Mothercare slowly began to rebuild the company. As part of its turnaround strategy, the company refurbished its UK stores, began buying directly from suppliers, and constructed a national distribution center. The company also focused heavily on its international operations, which by 2005 nearly outnumbered its domestic locations. With costs in the United Kingdom on the rise, Mothercare anticipated increased global expansion in the years to come. The company signed a franchise agreement for 40 stores in India and also opened its first location in Jordan in early 2006. By now, there were 84 stores in the Middle East including in the Kingdom of Saudi Arabia, United Arab Emirates, Oman, Qatar, Bahrain, and Lebanon.

Mothercare's efforts began to pay off. The company returned to profitability in fiscal 2004, securing a net income of $57 million. Sales climbed to $858.9 million the following year. While Mothercare appeared to have overcome significant challenges, it had yet to prove that its turnaround would produce long-term results. Nevertheless, the company's management team remained optimistic and was confident Mothercare was on the right path to success in the years to come.

April Dougal Gasbarre