ANCA ALBICI ESSAY (new )

Strategic Assessment of Mothercare PLC Name: ANCA ALBICI

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 industry evolve, the digital platform is allowing more enterprises to join in. The monopoly status of the currently dominant businesses in the online/e-commerce shopping space is eroding as its popularity grows. Mothercare PLC is currently going through a rough patch because of falling store-based sales and the need to adapt to shifting consumer preferences and habits. Mothercare PLC, which operates in the increasingly commoditized retail sector, has not fully embraced cutting-edge business practises, according to the results of this assignment (Kleinman, 2019, p.1). Therefore, it is recommended that it utilises adaptable strategies for entering unknown commercial territory and personalising its offers to each client in order to maintain its competitive edge. There is a lot of detail in the thesis about how the author analysed the company's trend data. Mothercare PLC's financial and investment practises are mediocre, its cash position is precarious, and its profits are weak and volatile, according to trend research (Harrington, 2018, p.1). The corporation should increase operational performance, seek for cheaper sources of raw materials and labour, and lower costs, as stated in the guiding principle. The company also has to adjust the terms of its loans, reduce its reliance on in-store stock, and make more effective use of its internet 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 Mothercare PLC Financial Trend

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 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

6 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). The company's performance is highly variable when compared to that of competing businesses, according to additional analysis. This demonstrates that upper management cannot carry out a sustainable corporate strategy (Harrington, 2018, p.1). It's possible that the company's revenue dropped because of unpredictable marketing strategies and a smaller product offering compared to rivals in the same industry. A worsening in the company's profitability as a result of rising debt (Power, 2019, p.1).

8 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.

9 1.First, how closely do you think Mothercare PLC should monitor the success of its website? 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

11 the most successful businesses are the ones whose marketing strategies and appeals are rewarded by the market (Mothercare PLC, 2020, p.2). Technological Online buying and banking are growing in popularity due to its convenience and lower prices. As a result, digital marketplaces and social media are replacing brick-and-mortar businesses. Because of these characteristics, businesses have been able to lower operating costs over time and increase their worldwide competitiveness. New and small businesses have turned to technological developments in order to expand their customer bases and increase their profits (Kleinman, 2019, p.1).

12 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).

14 In order to expand its customer base, it can leverage the increasing acceptance of online purchases. Threats: There is fierce competition for discount stores, online merchants, and other niche businesses. A downturn in the economy puts it at risk since it depends so much on discretionary spending. Safety and environmental rules are being increasingly enforced by authorities and regulatory agencies. There is growing competition from low-cost producers in emerging nations. Summary and Conclusion The trend analysis revealed that the company's two primary reasons of worry were falling revenues and steadily increasing costs of sales. The corporation should focus heavily on operating profit management as a corrective measure to enhance operational sustainability. This should be the company's first priority while seeking long-term growth. Similarly, the company's debt levels may make it difficult for it to achieve long-term financial stability and health. It's also important to remember that the company's liquidity is still below average, which may have a catastrophic effect on its operations in the future (Mothercare PLC, 2020, p.2). Recommendations Mothercare PLC's poor results can be attributed in large part to the decline in industry and company profits. Still, businesses in the retail sector face formidable challenges in the form of 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

15 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 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.

17 <https://www.proactiveinvestors.co.uk/companies/news/189660/mothercare- profitwarning-raises-banking-covenant-concerns-189660.html> [Accessed 17 August 2020]. Kleinman, M., 2019. ANALYSIS: Mothercare Faces Up To Its Failure . [online] Campaignlive.co.uk. Available at: <https://www.campaignlive.co.uk/article/analysismothercare-faces-its-failure/156639> [Accessed 17 August 2020]. Mothercare plc, 2020. Mothercare Plc: Transformation Plan Update . [online] GlobeNewswire News Room. Available at: <https://www.globenewswire.com/newsrelease/2020/01/23/1974065/0/en/Mothercare- plc-Transformation-Plan-Update.html> [Accessed 17 August 2020]. Power, G., 2019. Mothercare: Where Did It All Go Wrong? . [online] The Week UK. Available at: <https://www.theweek.co.uk/104145/mothercare-where-did-it-all-go-wrong> [Accessed 17 August 2020]. Rigby, C., 2019. Mothercare UK Failed Because UK Stores ‘Not Financially Viable’ In Discount-Driven Market . [online] InternetRetailing. Available at: <https://internetretailing.net/industry/industry/mothercare-uk-failed-because-uk- storesnot-financially-viable-in-discount-driven-market-20684> [Accessed 17 August 2020].

18 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 1. Do you think that Mothercare PLC should focus on generating profitability and cutting sales expenses? 2. How important do you think it is for Mothercare PLC to create a new compensation plan for its employees? 3. To what extent do you believe that Mothercare PLC should evaluate the performance of its online storefront? .