One mother of a revival

With resurgent sales and a revamped brand image, Mothercare has Early Learning Centre in its takeover sights. Matthew Gorman examines what could shape up to be a perfect mix.

News that Mothercare, the UK’s leading retailer for expectant mothers and infants, is eyeing an £85m acquisition of Chelsea Stores, owner of Early Learning Centre. It is the latest in a series of moves that has seen the retailer revive its fortunes in spectacular fashion.

The company says it will make further announcements “in due course” on possible plans to buy Chelsea – a holding company made up predominately of Early Learning Centre, a chain offering educational toys for children up to six years old.

After reporting a pre-tax loss of £24.2m in 2003 – in part as result of distribution problems during the peak Christmas trading period – Mothercare has revived itself, reporting pre-tax profits of £24.2m last year. In the intervening years the retailer opened more out-of-town stores, revamped its high street branches with a new format and now boasts a UK store portfolio of 229 branches: 156 on high streets and 73 in retail parks. The company is also pushing ahead with expansion plans abroad and online. In its third quarter, online sales were up 22% after the company launched a new website in November.

Its international sales were also up by 38% – with strong like-for-like sales. It opened 53 new stores abroad last year, through franchises, making a total of 319 stores across Europe, the Middle East and Asia.

Chief executive Ben Gordon was appointed in December 2002 and set out a plan to turn the company around. His vision included revamping products and expanding its portfolio, improving supply chain efficiency and the in-store environment, and boosting customer satisfaction.

Retail analyst Richard Ratner, vice-chairman of Seymour Pierce, says: “Mothercare is a very well run operation, Gordon is first class. It’s a very slick operation, although like-for-like sales are not sparkling.” Its total UK like-for-likes sales for the 13 weeks to January 12 were up just 0.8%. For the 41 weeks to the same date, the company recorded an increase of only 1.9%.

Ratner says the company has done well considering that retailers such as John Lewis – the darling of the department store sector and strong in the baby sector – has seen its toys and children’s department struggle. “Mothercare has done a very good job in the UK of refreshing its stock and refurbishing its stores.”

Alongside store revamps and an extended product portfolio, the retailer has set up a number of successful clubs for parents and installed concessions such as Clarks, the shoemaker, into some of its bigger branches. Mike Godliman, director and retail consultant at Pragma Consulting, says the shops are now much more relevant to today’s consumers.

He says: “Compared to five years ago, the company looks in better shape. It had a lot of very old high street stores and many them were just tatty and completely out of sync with new mothers – they were more in line with mothers of 30 years ago. But now Mothercare has a good selection of prams and clothes, and it offers a very good environment for young children and babies.

“The management has taken Mothercare from a 1970s’ brand to a brand of today. The modern mother is very different from 30 years ago. They are much more fashion conscious and are prepared to spend more on their children. Mothercare offers the right environment for today’s mothers. If you talked to mothers five years ago, they would have gone into a store, taken a look and left. Now they enthuse about it.”

Such in-store initiatives are where most marketing budget goes. Mothercare does not have an advertising agency of record and nor does it run above-the-line ad campaigns. Although it does have an association with Comfort Pure, the fabric softener, which it endorses as the brand for softening baby clothes.

Chelsea Stores is owned by a consortium made up of Beano publisher DC Thomson, American private equity outfit Rhone Capital and Tim Waterstone, founder of the eponymous booksellers. Along with 215 Early Learning Centre stores in the UK, there are plans to continue expanding overseas through franchises. There are at present 80 international stores in 19 countries. Chelsea Stores also own the three Daisy & Tom children’s stores in Ireland and the UK, founded by Waterstone in 1996.

Buying up Chelsea Stores would increase Mothercare’s size by a third from its current market capitalisation of about £263m. “I think it’s a good move for Mothercare,” Godliman says. “There are obvious synergies there because it gives the group extra buying power and potentially saves on staff. Early Learning Centre needs a bit of a revival and in theory this is a good mix.”

He adds: “One thing Early Learning Centre benefits from is lack of competition. It caters for a very young age range and has a very specialist offering.”

Ratner agrees that it seems to be a good fit but warns: “Mothercare may be one of the best known brand names in the UK, but it has to have its head over its shoulder to keep an eye on the competition.” Consumers are increasingly associating Gap, Next and Marks & Spencer with children’s wear, and the large supermarket chains are also proving fierce competition for the once formidable Mothercare.

Facts and figures

Mothercare opened its first store in 1961 in Kingston, Surrey
•Total UK sales for the 41 weeks to January 12 were up 1.3%. UK store sales were up 0.6% in the same period
•Total UK sales for 2005/06 break down as 40% clothing, 47% home and travel, 12% toys and gifts and 1% other
•Mothercare has 229 UK stores – 156 on the high street and 73 located on out-of-town retail parks
•The retailer now has 319 overseas franchises in Europe, the Middle East and Far East. The company recently opened its 18th store in Russia and tenth store in India.