New Mothercare head aims to overhaul loss-making UK chain

Mothercare's loss-making UK chain is old fashioned and needs a complete overhaul, according to the new boss of the specialist retailer.

Mark Newton-Jones, whose appointment was confirmed earlier this month, was frank in his assessment of the domestic chain which in recent years has struggled to compete with the march of the supermarkets into the specialist mother and baby market.

"In the UK, my early observation is that the business needs modernising and requires investment in its infrastructure, its stores and head office systems," he said. "As a result many of the retail practices need updating, when we compare ourselves to more modern retailers."

His assessment made grim reading for investors given Newton-Jones' predecessor Simon Calver, who left after a disastrous Christmas trading performance, embarked on a turnaround in 2012. The shares fell nearly 9% to 255p on the prospect of more heavy lifting.

The stakes are high for Newton-Jones as earlier this month the retailer rebuffed a £266m takeover bid from US rival Destination Maternity. Mothercare argued the 300p a share offer undervalued the company and its prospects. The company refused to comment on the likelihood of the US company, which wants to get its hands on Mothercare's successful overseas business, returning with a higher offer before the July 30 deadline. Instead Newton-Jones used the trading update to set out the themes of a turnaround that involves weaning customers off promotions and thrashing out better deals with suppliers. He also plans to cut costs, improve customer service and introduce more upmarket product ranges.

It was "too early" to put a figure on the cost of implementing his vision and whether it would have to ask shareholders for money to fund them, he said.

Under Newton-Jones, who joined as interim boss in March, the performance of its UK chain has started to improve with like-for-like up nearly 1% in the 15 weeks to 12 July. Online sales were down more than 6% as it ran fewer promotions but the company said the sales it did make were more profitable. Sales at its large international business also picked up pace with like-for-likes ahead 14.7%.

Conlumino analyst Mark Piner said it was a "make or break year" for Mothercare with Newton-Jones risking his reputation on the retailer "at the most pivotal time in its history". "Mothercare has a lot to do if it is to have any hope of reigniting enthusiasm for its brand at home," he said.

The turnaround comes at a tumultuous time in sector with specialist website Kiddicare sold to turnaround investors Endless for a nominal £2m this week while upmarket Mamas and Papas chain is reported to be struggling amid fierce price competition. Morrisons is effectively paying Endless a dowry to free itself of the business it bought for £70m for in 2011 as it retains responsibilty for the leases on 10 loss-making Kiddicare stores, having set aside £163m to cover costs associated with exiting the venture earlier this year.