Mothercare in trading halt as it desperately seeks an investor

Babywear and childrenswear retailer Mothercare Australia Limited has entered a trading halt as it seeks an investor to prop up the ailing listed company.

Mothercare Australia is a relatively new entrant to the Australian retail market, with its first store opening in March 2010. However, the retailer is well established in the United Kingdom where it has been operating since 1961.

The retailer has been franchising operations since 1968 and currently has over 1,000 stores globally, including 29 Mothercare branded parenting and baby stores and 19 Early Learning Centre and Kids Central stores across Australia and New Zealand that are backed and part-owned by Mothercare in the United Kingdom.

However, Mothercare has failed to perform in Australia. Its recently released annual report revealed a loss of $21.3 million last year and loans of $1.5 million in June and $1 million in July from existing shareholders including the Myer family.

Shares are down 70% in the past 12 months and The Australian Financial Review reports that existing shareholders are unwilling to stump up the $5 million Mothercare requires.

Brian Walker, chief executive of The Retail Doctor Group, told SmartCompany while Mothercare has been successful in the UK because of its strong heritage there, it has struggled in Australia as “it is a new entrant in a very competitive market”.

“They seem to be suffering more than their international colleagues and I think that is just the dynamic nature of this market,” says Walker.

Walker also says the retailer has been stretched by its acquisition of Babies Galore for $8.8 million and Baby on a Budget.

“Mothercare acquired some brands that were not working anyway and acquired some unprofitable stores in the mix,” he says.

Walker says Mothercare faces a lot of online competition as it operates in a commoditised end of the market.

“It’s also faced fierce competition from discount department stores, gone through a brand name changing exercise and tried to convert the existing brands into Mothercare,” he says.

“They have really tried to create a specialised chain and at the end of the day I’m not sure what their brand differentiation is.”

Walker says Mothercare’s pain seems to be stemming from its margins, as revenue has actually increased through the acquisitions.

“Mothercare seem to be trying to reposition for something, so when it makes its announcement and the trading halt ceases it will be interesting,” he says.

SmartCompany contacted Mothercare for comment but no response was available before publication.