Mothercare rescue package will see 50 stores closed
Mothercare has announced a rescue plan that will see 50 of its stores closed.
Details of the Company Voluntary Agreement (CVA) drawn up in a bid to keep the troubled retailer afloat have been made public.
Under the proposals the firm’s 134 stores 64 will be carry on trading and pay their current rental rates, 21 will pay rent at 50% for three years and 49 will pay rents at 35% of the current levels for the next 12 months.
No formal announcement has been made on which stores will go but a leaked memo appearing to list the threatened branches has appeared online.
The list includes stores in Stockport, Macclesfield, Denton and Blackburn.
The closures will leave the chain with 78 stores by 2020.
A statement from the firm said: “Recent financial performance, impacted in particular by a large number of legacy loss making stores within the UK estate, has resulted in a perilous financial condition for the group.
“Given the financial position, the board instigated a full financial review. The financial review concluded that delivering the Refinancing and the UK Restructuring represent the most viable option to establish a sustainable future for Mothercare.”
Creditors will decide whether to support the rescue package in a vote on June 1st.
Mothercare is the latest in a long list of High Street retailers who have hit serious problems.
House of Fraser, New Look and Carpetright are just some of the big names to have been hit by the slump in the retail sector.
Jim Tucker, restructuring partner at KPMG and a proposed supervisor of the CVA, said: “For over 50 years, Mothercare has been one of the UK’s most trusted and familiar brands.
“But like many other traditional retailers, in recent years the Group has been adversely affected by the consumer shift to online shopping, as well as the trend of declining footfall.
“In addition, the business has been adversely impacted by other pressures impacting the retail sector as a whole including rising costs of labour, product, rent and business rates.”
He added: “Today’s comprehensive proposals to create a fully refinanced, restructured business will allow an accelerated transformation of the business and are a crucial part of Mothercare’s drive to a viable and sustainable future.
“As seen with similar successful CVAs, this proposal is one facet of a wider financial and operational restructuring plan. If approved, and with the support of the company’s lenders, shareholders and landlords, the business will be able to move forward across a smaller, more profitable estate, with a business model more suited to today’s multi-channel retail environment.”
Will Wright, restructuring partner at KPMG and second proposed supervisor of the CVA, added: “Mothercare currently operates 134 leased stores across the UK.
“The company is proposing Company Voluntary Arrangements in respect of its three lessee entities, Mothercare UK Limited, Early Learning Centre Limited and Children’s World Limited, which will divide the company’s sites into three categories.
“For a total of 64 ‘Category 1’ stores, the leases will be retained at current rents. For a further 21 ‘Category 2’ sites, a reduced rent, equivalent to 50%, will be paid for three years.
“Finally, for a total of 49 ‘Category 3’ stores, a reduced rent, equivalent to 35%, will be paid for 12 months while the company engages with landlords to agree the basis of any continued trading from these premises.
“Claims for dilapidations on exited stores, and intra-group payables, will also be compromised. It is important to stress that no stores will close on day one, and suppliers will continue to be paid on time and in full.”
Mothercare needs to secure at least 75% creditor approval for the CVA for it to proceed.
A detailed proposal document is expected to be made available to creditors via a dedicated website.
The creditors will vote on the CVA on 1 June 2018. KPMG will spend the coming weeks in further talks with key creditors to ensure they understand the full detail of the proposal.
