Long established maternity retailer Mothercare has announced its intention to launch a rights issue to help fund its ongoing UK turnaround plan.
Mothercare’s £100m rights issue, which has sent its share price into freefall, is part of the ongoing strategy to transform the retailer into a digital-led concern. The capital will also help to pay off a “significant amount” of its debt burden.
It is thought around £40m will be used to pay down existing debt, £25m will be spent on expanding its store closure programme and £20m has been earmarked to fund a store refurbishment programme. The ultimate aim is to realign the retailer as a digital-led business supported by well-invested e-commerce systems and a modern store estate.
A key part of Mothercare’s turnaround and insolvency avoidance will be the continuing closure of loss making stores, which will see 50-75 locations shut by the end of the next financial year. This will include the closure of all standalone Early Learning Centres (ELC). Instead, the company plans to continue the ELC brand by trading online and in concession stands.
The Mothercare directors believe an overhaul of their UK business would underpin future growth and unlock further value in its international business.
Chief executive Mark Newton-Jones, said: We have set out our strategic plans for the company rescue and turnaround of Mothercare and ELC in the UK. Our ambition is for Mothercare to become the leading global retailer for parents and young children.
“The support of our shareholders will allow us to deliver on this ambition. I am excited about the prospects for this company and the opportunity we have to provide great products, service and advice to our customers worldwide.”
Mothercare board invest in future
Such is the commitment to the ongoing changes being made at Mothercare, Newton-Jones is even willing to invest £400,000 of his own money into the company’s £100m right issue.
The chief executive insists the retailer has a future in the UK. This assertion has been supported by the entire board and executive team, all of whom have committed to taking up shares in the massive rights issue.
“We’re all putting our money into the business. It is important that while asking shareholders to invest in the future of Mothercare, we are also doing it ourselves.”
Private shareholders, who have not received a dividend since February 2012, might not be quite so optimistic, particularly given warnings that shareholders would not see a payout in the medium term.
Keeping up with changing demands
Mothercare has already closed 153 unprofitable stores in the past three years in a bid to cut costs. While many employees have lost their jobs, some staff are being transferred to nearby branches to improve customer service. There are also plans for up to 20 new stores or relocations across the UK.
The retailer is also planning to introduce higher quality, more exclusive products to its stores to encourage customers to buy at full price. Newton-Jones believes Mothercare has relied too heavily on price reductions and cost cutting measures, rather than keeping pace with the changing demands of its customers.
In the last few months there have been signs of a revival. Like-for-like sales in UK stores have crept up one percent for the 15 weeks to 12 July. Mothercare’s international business has also seen a like-for-like increase in sales of 14.7 percent.
The chief executive said: “There has been consolidation and I think that continues. If there are fewer competitors there could be a bigger piece of the pie for everybody. However, the piece we are after is not discount.”
Of course restructuring and turning around businesses is not just for the larger companies in the last twelve months alone we have rescued over 150 businesses most of which were insolvent. We were able to find the viable heart of the business and help loyal staff retain their livelihoods.
Some top tips in avoiding insolvency and cash-flow problems
- Make sure your invoice management is working – if not outsource it or seek advice on raising finance from your invoices – DO NOT simply jump into factoring as this can cause more problems than it solves
- Do not place all your eggs in one basket – spread the risk of not getting paid by working in various sectors; B2B and B2C; If you are working for one major company your risk of failure will grow greatly
- Know who your customers are – do credit checks on companies you are working for
- Look out for early warning signs of a potential debtor failure such as missed or continuously delayed payments; bizarre excuses made for delays in payment; key individuals not available to talk and in hurried meetings
- Make sure you know the person making the decisions to pay not just the person paying the cheques or transferring the funds
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