Boots and Mothercare strike a deal for children's range

RETAILERS Mothercare and Boots have deepened their relationship with a new deal to work together on a range of high street clothing and accessories.

The two firms will design, source and supply the collection scheduled for a launch in Boots outlets across the UK and Ireland this autumn.

The partnership was seen by analysts as a strong deal for both companies, enabling Mothercare to continue to grow its wholesale business and Boots to makes sales in an area where it has previously struggled.

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The deal also builds on an existing relationship that Mothercare has to sell Early Learning Centre (ELC) toys across more than 400 Boots outlets.

Ben Gordon, chief executive of Mothercare, said the partnership agreement with former HBOS chief executive Andy Hornby's firm represented a "substantial development" in its recently announced strategy to develop a major wholesale business through sales to third party retailers.

He said the two companies had already started work on what they hope will be "a distinctive and quality product range".

The collection is expected to take over from the existing Mini Mode children's range at Boots run by Adams, the troubled retailer that last month went into administration for the second time in little more than a year.

Freddie George, a retail analyst at Seymour Pierce, said although it was a relatively small deal in terms of potential sales it appeared to make strategic sense.

He said: "Boots have been rather unreliable in the childrens' clothing market and have been in and out of it in recent years, so on the face of it this could work well."

Matthew McEachran at Singer Capital Markets added that it was an "exciting development" from Mothercare and came as a welcome revamp of Boots' existing children's offering.

He said: "Despite having been launched several years ago when Boots was a public company, Mini Mode does not appear to us to have been run well, with stock gaps and heavy mark-down apparent year to year.

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"Given Boots' heavy footfall dynamics, a better-ranged and better-run kids offer ought to be significantly more productive than was the case before."

McEachran estimates the deal – which is expected to be run as a wholesale arrangement with a profit share agreement on top – could generate at least 3 million to 4m in annual underlying earnings for Mothercare by 2012.

Boots said the new range is likely to run in a similar number of stores as seen under the ELC arrangement, but there is scope for extension.

Alliance Boots, owned by executive chairman Stefano Pessina and private equity firm Kohlberg Kravis Roberts, owns more than 2,600 stores and pharmacies in the UK and more than 400 overseas.

Since Gordon took the helm at a struggling Mothercare in 2002, the retailer has been one of UK retailing's most dramatic success stories with its share price rising eight-fold. It has also coped well with the recent downturn in consumer spending with figures last month showing a 4.2 per cent rise in like-for-like sales in the 13 weeks to 8 January after a strong Christmas.

Hornby was appointed chief executive of Alliance Boots last June. In a trading update to staff last month he said he was confident the group would report strong profit growth when it announces full-year results in May.

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