Shares in Mothercare were reported yesterday to have fallen by more than a quarter, but they need to think again about a heavy discounting strategy if they are to weather the storm for 2018.
The parenting and baby retailer stated substantially lower profits and a slump in sales over the Christmas period had led to a disappointing start for 2018. Like-for-like sales fell 7.2% year-on-year and online sales fell by 6.9%. The retailers said it had been heavily discounting stock as a way of getting customers through the doors, but the result has only been a landslide in profits.
So what went wrong? Well, we only need to look back at a few recent high street casualties to see that heavy discounting is not that answer to a sustainable business model. Fashion retailer, Jaeger, suffered its fate in early 2017. Same pattern, sluggish sales and constant discounting. Some retail experts at the time said that this confused the brand’s positioning and that the constant sales discouraged shoppers from paying the full price.
Conversely, if we look at Next, a company that claims to have reduced the amount of stock and the amount of discount events held throughout 2017, sales figures on full priced items showed strong growth at the end of last year. Even Marks & Spencer, which claimed a decline in their fashion ranges had lead them to focus more on their food halls, released a trading statement to say that they would continue to grow full priced items in clothing and homeware. They would be reducing their discount lines and there was no clearance sale held during last summer – typically when most retailers start to think about clearing stock to make way for Autumn/Winter ranges.
Mothercare’s brand is strong, they have a constantly refreshed market (babies!), and they have an established on-line presence. Yet against the backdrop of Brexit, which could have an impact on all retailers’ future costs such as importing tariffs and currency valuation, Mothercare needs to seriously review their strategy if they don’t want to end up on the mounting pile of other household name retail victims.