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Strategic Assessment of Mothercare PLC Name Instructor Course Date

Contents Strategic Assessment of Mothercare PLC .................................................................................................... 1 Executive Summary ..................................................................................................................................... 1 Introduction ................................................................................................................................................. 1 Trend Analysis .............................................................................................................................................. 2 Mothercare PLC Financial Trend .............................................................................................................. 2 Sustainable fashion .................................................................................................................................. 3 Further Analysis ....................................................................................................................................... 4 Primary analysis ........................................................................................................................................... 5 Secondary Analysis ...................................................................................................................................... 7 The PEST Analysis (External Environment) ................................................................................................... 7 Political .................................................................................................................................................... 7 Economic ................................................................................................................................................. 8 Sociocultural ............................................................................................................................................ 8 The Porter Five Forces ................................................................................................................................. 8 Model Struggle for supremacy (High) ...................................................................................................... 8 Threat from new entrants (Average) ........................................................................................................ 9 Replacement Product Threat (Low) ......................................................................................................... 9 Supplier bargaining power ....................................................................................................................... 9 Bargaining leverage for the buyer (High) ................................................................................................. 9 SWOT Analysis ............................................................................................................................................. 9 Strengths: ................................................................................................................................................ 9 Weaknesses: .......................................................................................................................................... 10 Opportunities: ....................................................................................................................................... 10 Threats: .................................................................................................................................................. 11 Summary and Conclusion .......................................................................................................................... 11 Recommendations ..................................................................................................................................... 11 References ................................................................................................................................................. 13

2 As the market and the sector evolve, more companies are able to join thanks to the digital platform. As e-commerce and online shopping grow in popularity, the dominant firms will have less of a chance to maintain their stranglehold on the market. Mothercare PLC is having financial challenges as a result of falling offline sales and the need to adapt to shifting consumer expectations and behaviours. The results of this assignment reveal that Mothercare PLC has not fully adopted innovative business procedures despite competing in a highly commoditized retail industry (Kleinman, 2019, p.1). In order to maintain a competitive edge in the market, it is recommended that it use adaptable strategies for entering new commercial territory and tailoring its offerings to the preferences of individual customers. The analysis of the company's trend data is covered in great detail in the thesis. Profits at Mothercare PLC are weak and volatile, the company has poor financial and investment practises, and it has little cash on hand, according to trend research (Harrington, 2018, p.1). The company's operations should be optimised in order to maximise profit, which means cutting costs wherever possible. The company must also adjust the terms of its loans, reduce the amount of stock kept in retail outlets, and make more use of its digital assets. Introduction

3 The purpose of this research is to analyse Mothercare PLC from a strategic perspective. Mothercare PLC is a British department store that focuses on providing products for expectant mothers and their infants, as well as toys and clothing for children. Mothercare PLC also sells essentials for newborns' health, nourishment, and rest, such as goods for bathing, eating, and sleeping (Mothercare PLC, 2020, p.2). The most recent financial statements show that despite the company's best efforts over the years, it has continuously fallen short of its success target. Mothercare PLC continues to underperform despite issuing a high profit warning and being located in the region's largest market for children's products (the United Kingdom). There have been three changes in leadership, but it hasn't helped the company compete in the fiercely competitive European market (Clark, 2019, p.1). Mothercare PLC's organisational structure and market trends will be analysed in this project to identify the company's biggest weaknesses and propose fixes to help it strengthen its standing in the industry. In the first section, we'll examine the company and its demise, detailing both internal and external influences. In the assignment's second half, you'll evaluate the company's development by detailing its impact on key financial indicators like profit and loss, stock price, working capital, and cash flow. Trend Analysis Resulting Financial Tendency at Mothercare PLC

5 Sustainable fashion Mothercare PLC has stores all around the world and focuses on selling items for expectant moms, newborns, and small children. The business has taken numerous measures to lessen its impact on the environment because of its dedication to sustainability. Mothercare has promised to cut its carbon footprint in half by 2025. To get there, they have made investments in renewable energy, cut down on the carbon intensity of their supply chain, and upgraded to more efficient lighting and heating. The business is dedicated to cutting down on trash and enhancing recycling efforts as well. Mothercare is exploring methods to minimise the overall quantity of packaging used in its goods while while increasing the percentage of recyclable materials utilised. Mothercare is dedicated to offering products of the highest quality that are also sourced in an ethical manner. To guarantee this, Mothercare has established a Code of Conduct outlining the requirements for suppliers to work with the company. Fair wages, safe and healthy working conditions, and the absence of forced or child labour are all components of these norms. Last but not least, Mothercare is dedicated to only employing environmentally friendly components in their products. The company has decided to employ certified organic cotton and other sustainable fibres in its clothing lines and is investigating ways to lessen its dependency on plastic to accomplish this goal. Mothercare is dedicated to sustainability and has created numerous programmes to lessen its impact on the environment and guarantee the moral sourcing of its goods. Further Analysis

6 Mothercare PLC's performance has been erratic during the years of the trend. The investigation looked at trends over a 10-year period, from 2009 to 2019. Mothercare PLC is seeing a drop in sales and profits. When the company's cost of goods sold increased sharply, it cut into the company's operating margin and gross profit margin. Rising direct costs, operating expenses, and the price of raw materials all contribute to higher selling prices (Rigby, 2019, p.1). When examined across the company's departments, though, efficiency appears consistent. The liquidity trend has not changed significantly but remains below the average in the industry. Because of this variation, the organization's operations may be impacted (ADVFN UK, 2020, p.1). Success for the corporation, especially in relation to rivals, has been highly erratic and inconsistent throughout time. The annual revenue drop and the rise in sales expenses at Mothercare PLC have had a significant impact on the company's bottom line. The fact that the company's debt has been rising during the trend period is further evidence of the severe commercial and financial troubles it is currently experiencing (Clark, 2019, p.1). Mothercare PLC's capacity to maintain its current level of performance and profitability is highly dependent on a variety of external factors. The already fragile financial status of the company was exacerbated by the accumulation of debt and the subsequent increase in the selling prices of the company's products. As a whole, the industry's profitability and return on equity are declining (Statista, 2020, p.1).

8 majority of respondents consider it imperative that Mothercare PLC cut expenses and boost earnings in order to maintain its position in the market. Can you rate the significance of developing a new compensation plan for Mothercare PLC's staff? 1 0 1 2 3 4 5 6 How important do you think it is for Mothercare PLC to create a new compensation plan for its employees? very important important moderately important The majority of respondents (nine out of ten) think it's either very important or important for Mothercare PLC to develop a new remuneration plan for its staff. This demonstrates that most respondents are aware that offering competitive salaries and benefits is essential for attracting and retaining top workers. A new compensation plan is anticipated to be beneficial to Mothercare PLC in the long run. First, how closely do you think Mothercare PLC should monitor the success of its website?

9 1 0 1 2 3 4 5 6 7 8 To what extent do you believe that Mothercare PLC should evaluate the performance of its online storefront? very important important moderately important The majority of respondents to this question seem to think it's crucial that Mothercare PLC monitor how well its website is doing. This suggests that most people think Mothercare PLC should keep tabs on how well its online presence is doing and make adjustments to it if necessary. This is probably because of the growing significance of online storefronts for businesses and the consequent need for efficient management of such sites. Secondary Analysis The PEST Analysis (External Environment) Political The United Kingdom government is ramping up its efforts to get the toy industry to adopt the "Ethical Trading Initiative (ETI) Base Code." The legislation enacted in 2011 to promote environmentally friendly business practises is constantly being revised and improved. Several companies in the industry, notably Mothercare PLC, have had to invest resources into making changes to their operations and toy designs to avoid damaging their respective markets (Kleinman, 2019, p.1).

11 The Porter Five Forces Model Struggle for supremacy (High) Competitors including Mamas & Papas, Monsoon, Marks & Spencer Group, and Toys R Us Ltd give Mothercare PLC a run for its money in the children's toy market. Indirect competitors Sainsbury, Tesco, and Boots don't offer much better quality or lower prices than the rest of the market (Mothercare PLC, 2020, p.2). Threat from new entrants (Average) There is almost no technological chasm between established businesses and upstarts looking to break into the market (Mothercare PLC, 2020, p.2) Replacement Product Threat (Low) When shopping for used kid's goods, consumers care most about two things: cost and reliability (Harrington, 2018, p.1) Supplier bargaining power Every business uses multiple vendors, and if one of them doesn't measure up, the company can be easily replaced. Since Mothercare PLC does not have a secure and reliable supply chain, it risks running out of essential raw materials (Mothercare PLC, 2020, p.2) Bargaining leverage for the buyer (High) In a competitive market, shoppers have more options to suit their preferences. Companies are vulnerable to market fluctuations and the success of competing brands' advertising since consumers primarily make their decisions on price and quality (Mothercare PLC, 2020, p.2).

12 SWOT Analysis Strengths: Among maternity and baby care brands, Mothercare PLC has a dominant position. Cutting-edge products and services are offered to clients by the company. As a result of its excellent access to financing and solid balance sheet, it is in a strong financial position. In addition to a large online store, it offers mobile apps that simplify online shopping. With a global network of stores and enterprises, it is present in a variety of countries. Weaknesses: Because Mothercare PLC relies heavily on discretionary spending, it is prone to economic downturns. Its potential for growth is limited because the majority of its products are pregnancy and baby care products. There is an increase in competition among discount retailers, specialty stores, and online merchants. There is a high demand for its products in some countries where it has a limited presence. Opportunities: There has been an increase in the demand for goods designed to help mothers and their newborns everywhere. In order to meet the needs of both parents and children, the company can expand its product offering.

14 intense rivalry and ever-evolving customer preferences. For Mothercare, PLC to maintain its dominant position in the market and grow sustainably, it must employ a variety of strategies aimed at meeting customers' rising expectations for the company's products and services. In Clark's words, "there are some macro-level challenges that have an effect on how organisations work" (2019, p.1). When he remarked, "These," he was referring to the UK's relatively robust economy. He also emphasised that a company's performance is dependent on the economic standing of the country in which it operates. Mothercare PLC requires substantial investment, the acquisition of which must be negotiated in light of the statement's prospective consequences on the company (Rovnick and Pooley, 2018, p.1). The increased gearing ratio can be traced back to the fact that Mothercare PLC has debt in addition to equity. This has had an effect on the company's finances because it has increased the company's exposure to financial and operational risk. The long-term and sustainable position of a corporation is further distorted by this (Rigby, 2019, p.1) Thus, in the later stages of the organisation, it is crucial to investigate equity financing as an alternative to retained earnings and share sales for cash. Mothercare PLC needs to prioritise operating profit management if it is to survive in the long run. We anticipate this to play a significant role in the company's future expansion plans. Mothercare PLC needs to reduce sales costs while still turning a profit. Achieving this result would be impossible without making use of cheaper raw material alternatives and a cheaper labour force. Mothercare PLC needs to maximise its workforce and operations to increase productivity. In addition, a new compensation plan should be developed for the staff in order to increase incentive and establish measurable goals for the better alignment of the company's

15 operations (Harrington, 2018, p.1). Increasing productivity also reduces the company's cash conversion rate per period and the time it takes to turn over its inventory. Mothercare PLC needs to examine how well its online shop is doing now that so many more of its consumers are making purchases there. It is not surprising that, in light of recent liability events and difficulties in turning a profit, the company is shrinking the size and inventory of its physical locations (Power, 2019 p. 1). This is because it lacks the cash on hand to meet even its most pressing debt obligations, let alone run its day-to-day business. The company's operating strategy places a premium on listening to customers and studying the competitors. In addition, the organisation needs to be innovative by targeting an untapped market and customer-centric by catering to individual consumers' preferences. As a result, it will be able to boost its business by avoiding misleading advertising (Rigby, 2019, p.1). References ADVFN UK, 2020. Mothercare Company Financial Information . [online] Uk.advfn.com. Available at: <https://uk.advfn.com/stock-market/london/mothercare-MTC/financials> [Accessed 17 August 2020]. Clark, J., 2019. Three Reasons Behind Mothercare's Fall Into Administration - Cityam . [online] CityAM. Available at: <https://www.cityam.com/mothercare-collapses-after-failure- toadapt-to-changing-consumer-behaviour/#:~:text=Analysts%20said%20Mothercare %20had%20failed,'> [Accessed 17 August 2020]. Harrington, J., 2018. Mothercare Profit Warning Raises Banking Covenant Concerns . [online] Proactiveinvestors UK. Available at:

17 Rovnick, N. and Pooley, C., 2018. Mothercare Shares Tumble On Profit Warning . [online] Ft.com. Available at: <https://www.ft.com/content/06be0470-f443-11e7- 88f75465a6ce1a00> [Accessed 17 August 2020]. Statista, 2020. Mothercare Revenue Worldwide 2011-2019 | Statista . [online] Statista. Available at: <https://www.statista.com/statistics/536510/mothercare-product-sales- revenueworldwide/> [Accessed 17 August 2020]. Wall Street Journal, 2020. MTC.UK | Mothercare PLC Annual Cash Flow - WSJ . [online] Wsj.com. Available at: <https://www.wsj.com/marketdata/quotes/UK/XLON/MTC/financials/annual/cash-flow> [Accessed 17 August 2020]. Appendices .

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