17 Nov 2011
November 17, 2011

The Double-dip Failure Shortlist

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I couldn’t help but notice that Mothercare is in the news again with the BBC headline Mothercare reports loss after weak UK sales  This time the business has posted a half-year loss of £81.4m, a like-for-like sales drop of 7%, and are launching a review of their UK business.

Back in January of this year when Mothercare issued a profits warning and attempted to blame the drop on poor weather and I commented their excuse was delusional

With the inevitability of a double-dip becoming even clearer – to those who didn’t know it all along – we have to wonder if Mothercare will survive if the usual peak trading at Christmas fails to deliver any comfort and joy?  Just recently their Chief Executive, Ben Gordon, fell on his sword and agreed to leave the business.  However, it may be his focus on building the export side of the business that actually keeps Mothercare afloat?

Shares in Mothercare are 140 compared 52week high of 604.11

Mothercare is just one of three major retail businesses that are on my ‘Double-dip-failure’ shortlist.  The other two that I see being at risk are Argos and HMV.

Back in October Home Retail Group, the parent company, announced a 70pc slump in first-half profit, with profitability at its Argos business collapsing as its cash-strapped shoppers felt the pain of the economic downturn.

In the ‘online vs high-street’ battle, the key advantage of a costly high-street presence is the ability of the customer to obtain good advice whilst getting up-close to the product.  The on-line model carries less cost but the shopping experience is more distant and impersonal. The Argos model, in combining the worst aspects of both models must surely be a risk.

Shares in Home Retail Group are 71.5p compared 52week high of 212.79

I’ve mentioned HMV on a number of occasions and, to be honest, I’m surprised they are still around. Back in June the group, having already issued four profit warnings, said that it made a profit before tax of just £2.6m in the 53 weeks to the end of April (£28.9m including profits from sold-off Waterstone’s and HMV Canada), compared with £67.3m last year. Like-for-like sales fell 11pc.

Now, HMV are banking on live music events and new technology to help turnaround its fortunes, but have they left it too late or is the business a dog?

Shares in HMV are now 4p compared 52week high of 46.18

So, will a combination of poor Christmas trading combined with the inevitable double-dip result in one or more major retailers going to the wall?

If so, then do you think it will be Mothercare, Argos or HMV? Or do you have another prime candidate?