Mothercare sales drop but new business model is working
Mothercare has been through some major turbulence in recent years. But having switched its business model to a brand owning/franchised one and switching its stock exchange listing to AIM, is starting to work for the company, its latest trading update showed on Tuesday. Sales may have been down due to the pandemic but profits are improving.
The global specialist brand for parents and young children said that the financial year that ended in late March saw unaudited net worldwide sales of £326 million. The figure was down 40% de to “varied approaches to Covid-19 in franchisee markets”.
It significantly reduced its net debt of £12.1 million at the year end and it anticipates reporting a small EBITDA profit for the financial year, better than its previous guidance of a small loss.
Its new “asset-light” operating model provided “ongoing financial benefits” and it has had “encouraging feedback” to its new, bespoke product strategy for international markets.
That model means more and more of the stock it buys will be invoiced direct to its franchise partners from the manufacturers and most of it will be shipped directly from those manufacturers. Mothercare retains brand ownership and responsibility for design, quality control and choice of manufacturing partner.
The company said it's also progressing the development of a new ERP system “designed to provide easier, more accurate and cost effective access to information to benefit our own business and those of our manufacturing & franchise partners”.
Importantly too, the company has been working hard to internationally localise its products. It said that last year, it commissioned an in-depth customer survey across many of its major territories to gain greater insight of customers’ views on both the local Mothercare business and the relevant competitors.
This showed the specific categories it should focus on and the attributes of the products it needs to emphasise. “The revised product strategy will be much more geared to meet the expectations of our customers in our international markets, rather than majoring on products that were historically designed for the UK market,” it said.
The SS22 season, which was the first to use these learnings, was presented to its franchise partners this month “with pleasing initial positive feedback”.
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