The UK Economy and Business: Mothercare's Failure Analysis

This report provides an in-depth analysis of Mothercare's business failure, examining the micro and macro-economic factors that contributed to its decline. The study delves into the company's background, its product offerings, and its eventual closure of stores. It explores the impact of consumer behavior, the shift towards online retail, and the competitive pressures from supermarkets and online giants like Amazon. The report analyzes key macroeconomic factors such as GDP growth, unemployment rates, inflation, and trade balance in the UK, and how these influenced Mothercare's performance. It highlights the importance of technological advancements, particularly the rise of the internet and online business. The report also examines the company's rescue plan, including the company voluntary arrangement (CVA), and why it ultimately failed. The conclusion emphasizes the significance of both micro and macro-economic factors, along with the need for a robust recovery plan, in determining a business's success or failure.

Running head: ECONOMICS AND THE BUSINESS
Economics and the Business
Name of the Student
Name of the University
Author note

1ECONOMICS AND THE BUSINESS
EXECUTIVE SUMMARY
The aim of this study is to examine a company that failed in business. This paper also analyses
the micro and macro-economic environmental factors that affected the business of the company.
The company chosen for the paper is Mothercare, a retail business from the UK.

2ECONOMICS AND THE BUSINESS
Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
The effect of the micro and macro environment of the country on the Mother care...................3
Micro-economic environmental factors.......................................................................................5
Macro-economic environmental factors......................................................................................8
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

3ECONOMICS AND THE BUSINESS
Introduction
The paper is associated with the failure of an organization. The chosen organization for
the paper is Mothercare plc. A British retailer, which specializes in the products for the children
of particular age and expectant mothers (Wells and Danskin 2014). The organization failed in
business and shutdown many stores of various places. As a result, it affected the economy as
well as employees of the organization. The role of the micro and macro environment is huge on
the growth and sustainability of the organization. Therefore, the organization is affected by the
several micro and macro-economic factors of the economy. Hence, this paper examines those
factors such as micro and macro-economic factors of the economy which affected the
performance of the company. Therefore, it also emphasizes on the impact of the economy on the
business of the organization. In addition, this paper also examines the reasons behind the failure
of the organization and how the recovery plan of the company did not work for it.
Discussion
The effect of the micro and macro environment of the country on the Mother care
One of the British retailer is Mothercare plc, which was founded in 1961
(Mothercareplc.com 2020). There was two founders of the company namely James Goldsmith
and Selim Zilkha. The products offers by the company includes one for children up to eight years
of age and other for expectant mothers. The company offers in general merchandise products for
the children. It is listed company on the London Stock Exchange. Headquarter of the
organization is in Cherry Tree Road of the Watford, Hertfordshire (Chenchehene and Mensah
2014). The administration of the company includes the retail arm of the company that is in UK
and other business service division as of November 2019. In addition, the company also decided

4ECONOMICS AND THE BUSINESS
to discontinue its remaining stores. Therefore, total 79 stores will be out of operation. As a result,
there exists a huge impact on the thousands of staff members of the company. However, the
parent company remained unaffected. As of 2019, the total number of franchisees the company
have is 1227. The organization is operated worldwide and served a wide range of customers. It
mainly serve the customers with the baby products. The revenue generated by the organization
was 513.8 million pound as of 2019. The number of existing employee in the company was 3752
as of 2019. Moreover, the number of employees of the organization dropped drastically (Stewart
and Saren 2014). Even, the operating income and net income of the organization were also
decreased. The name of the subsidiary of the organization is Mothercare UK limited.
Two factors plays an essential role on the business of the organization. The business of an
organization is operated in a particular market. Therefore, the sustenance and success of the
organization is shaped by some factors of the market. These factors are different in nature. Some
factors are controllable (Robson et al. 2015). On the other hand, some factors are uncontrollable.
The factors those are external in nature and non-controllable are known as macroeconomic
factors. Likewise, the factors those are internal in nature and controllable known as the micro
economic factors. There are several macro-economic factors within an economy. These are
structures of the political system, economic condition, demography, legal forces and practices,
socio-cultural factors and technological advancement. Therefore, any of these factor may lead to
the failure of the company. In addition, all the factors together may also impact the performance
and growth of the organization. There are a wide range of factors that influences the micro-
economic environment of the organization (Gupta and Gentry 2018). These are the general
public, suppliers, consumers, dealers, competitors and distributors that may impact the micro-
economic environment of the organization.

5ECONOMICS AND THE BUSINESS
There may be one micro-economic factor or all micro-economic factors that influence the
performance and growth of the Mothercare. As the performance of the organization deteriorated
in terms of profitability. It implemented a rescue plan in 2018. However, in 2019, it decided to
close its total number of 79 stores in the UK. According to the organization, these stores were
unable to return to structural profitability. The preference of the consumer is one of the key
factor of the retail industry (Bamfield 2018). Though, the organization went through several
changes within the organization. The organization also went through various acquisition and
mergers.
Micro-economic environmental factors
In recent years, the focus of the consumer shifted from the bricks-mortar stores to the
online stores and supermarkets. Under rational choice theory, the behavior of the individual is
analyzed to understand the aggregate social behavior. Therefore, the change in behavior of the
consumer influenced the demand for the Mothercare’s products. As a result, the competition also
soared in the retail market of baby and maternity goods. Parents are more interested in
purchasing baby and maternity goods from the online stores and supermarkets. It created a
pressure on the performance of the company. In addition, it also dropped the sales of the
Mothercare. The demand for the product of the company dropped. It created a mismatch between
the demand and supply of the products.

6ECONOMICS AND THE BUSINESS
Figure 1: Quantity decreases as demand falls
Source: As created by the author
Figure 1 depicts the fall in demand of the products of Mothercare decreases the quantity
and price of the product. The change in quantity of one input leads to change in quantity of
output is known as marginal products. The change in input of the Mothercare was unable to
improve the quantity of output. It can be stated that the micro-economic environment such as
preference of the consumer impacted the growth of the organization. The organization was
suffered due to customer experience, price and convenience (Bernon, Cullen and Gorst 2016).
Moreover, for several years, the Mothercare did not took any initiatives or investment pan fir its
online expansion. It was also unable to differentiate the business of the organization as a
specialist for expectant parents and young families. The customers of the UK those who were

7ECONOMICS AND THE BUSINESS
price-driven, they preferred to compare the prices of the products from the online stores and local
supermarkets and made the purchases accordingly.
As the population of the UK grown continuously. There was a high possibility for the
organization to expand its business with the growing population. In order to, make the online
presence of the company stronger, a huge investment is required. There are various big retail
players in the online market of the baby and expectant parent’s products. One of the big player in
this market is Amazon (Chohan et al. 2014). Moreover, parents with new-borns and expectant
mothers are reluctant to go for physical stores. Therefore, it was necessary for the organization to
focus online services. In addition, it was also important to slim down some of its non-profitable
physical stores. It should have realized that it need to invest in infrastructure to grow efficient
system of delivery.
Here, the change in decision of the consumers of the Mothercare can be examined with
the theory of behavioral economics. The economic decision making process of the consumers
changed the micro environment of the company. As the online market of the UK economy went
through transformation. It also increased the competition in the retail market. In order to sustain
in the retail market amid high competition, the organization should take necessary steps.
Competitors is considered as one of the crucial micro-economic environmental factors
(Brinkman Navarro and Harper 2014). It affected the growth of the organization dramatically.
The brand became outdated, as the organization did not invest sufficiently in the up gradation of
the business and brand. In order to sustain in the market, the organization should adopt proper
upgradation plan to beat the fierce competition of the market. It led the company into a financial
distress.

8ECONOMICS AND THE BUSINESS
Macro-economic environmental factors
Figure 2: GDP growth rate of UK from 2010 to 2019
Source: (Tradingeconomics.com, 2020)
Figure 2 represents the GDP growth rate of the UK. The fluctuations in the growth rate of
the country also impacted the performance of the company. In the third quarter of 2019, the
growth rate was 0.4%.

9ECONOMICS AND THE BUSINESS
Figure 3: Unemployment rate in UK from 2010 to 2019
Source: (Tradingeconomics.com, 2020)
Figure 3 shows the unemployment rate in UK. In October 2019, the unemployment rate
was 3.8%. The unemployment rate also plays a vital role in the growth of the company.
Figure 4: Inflation rate in UK from 2010 to 2019

10ECONOMICS AND THE BUSINESS
Source: (Tradingeconomics.com, 2020)
Figure 4 illustrates the inflation rate in UK from 2010 to 2019. Though, the inflation rate
was high previously. It improved at slower pace and as of December 2019, it was 1.3%.
Figure 5: Balance of trade in UK from 2010 to 2019
Source: (Tradingeconomics.com, 2020)
Figure 5 represents balance of trade in UK. In November 2019, the country generated a
trade surplus of 4.03 billion GBP. However, the country witnessed trade deficit in previous
month.
All these factors collectively influenced the performance of the company. Here, the role
of technology is also vital to degrade the performance of the organization. In the era of
technological advancement, internet became an integral part of the people’s life. As a result,
people became more dependent on the internet. It also boosted the online business segment. One
of the largest advanced country, UK also witnessed significant growth in the online business

11ECONOMICS AND THE BUSINESS
segment (Gov.uk 2020). The increased use of internet and allied business in this segment is a
macro-economic environmental factor, which affected the organizational growth. Though, the
restructuring method was controversial. It became popular in the UK economy. The Mothercare
also adopted the company voluntary arrangement (CVA). As a result, it shut down total 55
physical stores. Therefore, the CVA plan of the organization was inefficient to revive the
business. Hence, in order to survive in the retail market of the UK, the company required a more
radical approach. The reason behind the failure of the CVA plan was ignoring the fundamental
problems associated with the business. The recovery plan of the company was also weak. Thus,
it was unable to protect the company from the closure. Therefore, various micro and macro-
economic environmental factors influenced the business environment of the organization. In
addition, lack of proper recovery plan led to the failure of the Mothercare.
Conclusion
One of the retail player in the UK market, Mothercare went through several changes in
order to revive its poor business condition. However, it was unable to be successful. Thus, it led
to closure of several physical stores of the organization. There are several micro and macro-
economic environmental factors, which affected the performance of the organization. Even there
was growth in the retail sectors of the UK, the company suffered huge losses (Insley and Nunan
2014). The major macro-economic environmental factor that led to the failure of the organization
was technological improvement and increased usage of internet. In addition, the important
micro-economic environmental factor that led to the failure of the company was preference of
the consumer. The lack of investment in online retail business impacted the sales of the
company. It also made the customers reluctant to the brand and choose any other brands
available in the UK market.

12ECONOMICS AND THE BUSINESS

13ECONOMICS AND THE BUSINESS
References
Bamfield, J., 2018. International trends in retail crime and prevention practices. In Retail
Crime (pp. 33-53). Palgrave Macmillan, Cham.
Bernon, M., Cullen, J. and Gorst, J., 2016. Online retail returns management: Integration within
an omni-channel distribution context. International Journal of Physical Distribution & Logistics
Management, 46(6/7).
Brinkman, J., Navarro, I. and Harper, D., 2014. Unlocking the business environment. Routledge.
Chenchehene, J. and Mensah, K., 2014. Corporate survival: Analysis of financial distress and
corporate turnaround of the UK retail industry. International Journal of Liberal Arts and Social
Science, 2(9), pp.18-34.
Chohan, R., Shah, M., Larson, M. and Welch, M., 2014. Overcoming Trust Barriers: Evaluating
Inter-Organisational Knowledge Sharing in UK Online Retail Sector'. In European Conference
on Knowledge Management (Vol. 3, p. 1156). Academic Conferences International Limited.
Gov.uk. 2020. Welcome to GOV.UK. [online] Available at: https://www.gov.uk/.
Gupta, S. and Gentry, J.W., 2018. Evaluating fast fashion: examining its micro and the macro
perspective. In Eco-Friendly and Fair (pp. 15-23). Routledge.
Insley, V. and Nunan, D., 2014. Gamification and the online retail experience. International
Journal of Retail & Distribution Management.
Mothercareplc.com. 2020. Home. [online] Available at: http://www.mothercareplc.com/.

14ECONOMICS AND THE BUSINESS
Robson, M., Watson, K., Kadile, V. and Clegg, L.J., 2015. Best in Class International
Franchising: Report for the UK Retail Sector.
Stewart, D.W. and Saren, M.M., 2014. The Marketing Pathfinder: Key concepts and cases for
marketing strategy and decision making. John Wiley & Sons.
Tradingeconomics.com 2020. United Kingdom GDP Growth Rate . [online] Available at:
https://tradingeconomics.com/united-kingdom/gdp-growth.
Wells, J.R. and Danskin, G., 2014. Mothercare, 2014.