July 16, 2014, 11:59 AM

U.K. grocer Morrisons sends Kiddicare.com packing

Having acquired Kiddicare.com just three years ago for about $136.9 million, Morrisons yesterday sold Kiddicare.com for about $3.4 million to a London private equity firm.

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What began three years ago as a grand experiment of a big grocery chain in the United Kingdom acquiring a promising but smaller web-only merchant for its e-commerce expertise ended with a sale of the business yesterday.

In 2011 William Morrison Supermarkets plc, a U.K. grocer with annual sales of $30.97 billion (18.10 billion pounds) and a network of more than 500 stores under the Morrisons brand, acquired multichannel baby products merchant Kiddicare.com, No. 165 in the Internet Retailer 2014 Europe 500 for $136.9 million (80 million pounds). At the time Morrisons wanted Kiddicare.com for its e-commerce technology base and marketing expertise.

But the acquisition never truly worked and yesterday Morrisons sold Kiddicare.com to Endless LP, a London private equity firm, for about $3.4 million (2 million pounds). Despite not being a fit with Morrisons, Kiddicare.com, which generated sales of about $137 million (80 million pounds) in 2013, still has a lot of untapped growth potential, says Endless managing partner Garry Wilson. “Kiddicare has a history as a trusted brand in the children’s market,” Wilson says. “We will be working hard to grow the business over the long term.”

In December 2012 Internet Retailer featured Kiddicare.com in its Hot 100 issue of the best e-commerce sites. The article noted: “Kiddicare, which has been selling baby products in the United Kingdom since 1974 and selling online since 1999, has a web store that makes it quick and easy to shop in product categories such as buggies and high chairs. As just one example of the attention paid to detail, best-selling and top-rated products are listed prominently high on the left side of the home page for easy searching. Kiddicare also helps busy moms save time by offering free next-day delivery within a one-hour time slot selected by the customer. Other customer service perks include a one-year and hassle-free return policy.”  

But Kiddicare.com was never a real fit with Morrisons’ bigger e-commerce plans. In its year-end financial report published in March, Morrisons classified Kiddicare.com as “non-strategic,” and announced plans to sell the company and take a one-time write-off of $278.9 million (163 million pounds) to wind down the business. Morrisons didn’t disclose many Kiddicare.com financial metrics in its annual report but did note Kiddicare.com was performing poorly. “The performance of the business, particularly the trading stores, has been disappointing and has not met its financial targets,” the company says.

In 2012 Morrisons’ attempted to remake Kiddicare.com into a multichannel merchant. The company acquired 12 former Best Buy locations in the U.K. and opened a network of Kiddicare stores. But eventually Morrisons began concentrating more on its core grocery business and in July 2013 announced an e-commerce initiative with Ocado, the U.K.’s largest web grocer. Under the 25-year agreement, Morrisons invested $360 million (218 million pounds) in a new Ocado fulfillment center to incorporate Morrisons’ product range and integrate the company’s computer systems, and Ocado provided e-commerce technology and operating services to launch Morrisons’ online grocery business.

In May 2014 Morrisons began its first online deliveries with Ocado. But the company expects to ramp more deliveries—and sales—quickly. “By the year-end our online business will reach up to 50% of U.K. households and, together with convenience, is expected to account for over 500 million pounds ($855.8 million) of annualized sales,” says Morrisons CEO Dalton Philips.

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