| LONDON, August 1
LONDON, August 1 From transforming businesses to
sailing the Atlantic, Mark Newton-Jones is a man up for a
challenge. Now, the new chief of baby products retailer
Mothercare aims to succeed where many have failed and
fix one of Britain's best known retailers.
Officially installed in July after an interim spell since
March, he will need to draw on all of his 30 years experience in
retail to arrest a sales slide in a UK business which generates
64 percent of revenue but has lost Mothercare 68 million pounds
($115 million) in three years.
While Mothercare's overseas business is profitable, fierce
competition from supermarkets like Tesco and internet
retailers like Amazon has hit it hard at home, leaving
it with too many stores and not enough customers, and exposing a
need to grow online and improve its product ranges and brands.
"Wherever you look there's competition," Liberum analyst
Sanjay Vidyarthi said. "Ultimately if they don't get the price
proposition right, I'm not sure what they can do."
Newton-Jones, who by the age of 25 was Next's
youngest regional manager, later took that firm's Directory
business online, which now contributes 36 percent of the group's
His initial assessment of Mothercare is that nearly
everything at the "outdated" group needs investment - from its
stores and products to core infrastructure and head office.
"There's nothing I've seen here that I've not seen before,"
the 46-year-old, whose career began in his family run retail and
wholesale business, said, after unveiling a quick action plan in
July ahead of a more detailed October update.
The sharp-suited CEO has moved quickly to improve the
group's gross profit margin, which was 6.2 percent in 2013/14,
half what it was four years ago, agreeing better supplier terms
and discounting less.
To aid this, more exclusive products will be offered and a
trial of clothing-only stores with higher profit margins is
More focus will also be placed on improving service online -
a business worth 29 percent of UK sales - and one in which
online customers spend twice as much as instore shoppers.
It will be a tricky balancing act with costs, analysts said.
A move to reduce discounts could hit online demand while
increased store closures will hit sales and could weaken
bargaining power with suppliers, potentially extending UK losses
already expected to run until 2017.
"Any action that is taken is going to be painful and a hit
to the P&L," Vidyarthi, who has a 'sell' rating, said.
The 53-year old firm's UK store numbers will fall to around
200 by the end of 2014/15 from 311 outlets in 2012 and it is
expected to shrink further, although Newton-Jones has yet to say
by how much. The average lease length is four years.
"We believe Mothercare requires a 60-90 million pound rights
issue to cover the costs of closing more UK high street stores
and paying down banking facilities," Cantor analyst Mike Dennis
said, adding that even cost savings looked limited at the firm.
The group's net debt position at the year to March 29 was
46.5 million pounds. Its bank facilities were extended until
this October by 10 million pounds to 100 million pounds in May.
Meanwhile, Mothercare's net cash at its year end dropped to
17.3 million pounds ($29.2 million) from 38.5 million in 2010.
RIGHT MAN FOR THE JOB?
Newton-Jones follows in the footsteps of former Lovefilm
boss Simon Calver, who made progress at Mothercare on store
closures, online sales and refits but sewed his February exit
after losing a fierce price war that hurt margins in the UK.
Newton-Jones, shareholders hope, will avoid such costly
scraps with rivals.
"He comes with a very strong retailing pedigree and more
importantly understands the detail of retail," Bertie Thomson,
senior investment manager at Aberdeen Asset Management,
Mothercare's fifth largest shareholder, told Reuters.
"It is encouraging to see him focusing on margin and value
over sales and volume... It certainly seems he is the man for
Thomson added that if Newton-Jones did need to raise
capital, he thought shareholders would back him.
"I think if there is a credible turnaround plan over and
above what's been mentioned, and he can demonstrate there is a
very attractive risk/reward opportunity by raising equity, then
I think most shareholders would be supportive of that."
Shareholders have witnessed a 42 percent drop in
Mothercare's share price over the last 12 months, reducing the
firm's value to 213 million pounds.
The retailer's international arm helped the group post a
profit of 9.5 million pounds in 2013-14, down 67 percent on
three years ago.
Last month, Mothercare fended off takeover interest from
U.S. firm Destination Maternity and said it was fully focused on
its turnaround strategy.
After his stint at Next, Newton-Jones spent a decade at Shop
Direct where he completely restructured that business, from
warehouses to merchandise and brands, although not everyone was
impressed. Axed call centre staff burned effigies of him outside
two British sites in the northern towns of Sunderland and
($1 = 0.5923 British Pounds)
(Editing by Elaine Hardcastle)