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Demographics, Birth Rates And The Globalization Of The Baby Products Industry

Whilst COVID-19 caused economic activity in almost all other areas to decelerate, it created a sudden surge in e-commerce; 2020 saw an exponential increase in online sales, primarily due to...

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This story originally appeared on ValueWalk

Whilst COVID-19 caused economic activity in almost all other areas to decelerate, it created a sudden surge in e-commerce; 2020 saw an exponential increase in online sales, primarily due to the pandemic and lockdown becoming the new norm. This created a situation in which daily essentials were no longer seen as available to purchase in local stores either due to lockdowns, or the hesitance of consumers to increase their risk of exposure.

ddimitrova / Pixabay - Valuewalk

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At the same time, a reduced birth rate across the US and Europe, in part due to financial uncertainty and lowered consumer confidence, has plummeted demand for the baby products industry so much so that it isn’t even recognisable when compared to its previous strength. This compounds the challenges faced by these retailers, such as the increased competition that accompanied the surge in e-commerce and the increased fondness for buying second-hand goods.

Despite this, global brands in this industry must be aware of the future of baby products. In stark contrast to that of the rest of the world, birth rates in developing countries (i.e. those in Africa) have exploded, and represent an environment conducive for massive business growth if this potential can be realised and their current barriers to trade removed.

Birth Rates In And Outside The US

For the second consecutive year, US fertility rates have hit a new rock bottom, drawing out a decline in births that has been occurring since 2008. In one year, between 2016-2017, the rate of births fell 3%: from 62 births per 1,000 women of childbearing age in 2016 to 60.2 in 2017.

Several big manufacturers in the baby products market have been extremely vocal about the struggles they are being faced with as a result of this decline in birth rates. For example, Kimberly-Clark, the maker of Huggies diapers, announced it had to let go 13% of its workforce globally (at least 5000 jobs) in 2017 in order to cut costs as revenue fell.

Furthermore, baby care megalodon Johnson & Johnson (NYSE:JNJ)’s has been powerless to do anything but stand idly by as they endured a 20% sales decline in its Baby Care unit since 2011. The company is now considering implementing redesigns of their products that emphasise natural ingredients in the hope that this will respond to the “evolving needs of millennial consumers”.

The COVID-induced lockdown has only exacerbated the situation, extending the growing wont of would-be parents to push back parenthood even more, and companies providing baby products are feeling the walls close in. The birth rate in America stabilised at 12 births per 1000 between 2019-2021.

Though this is not just an American phenomenon. Birth rates are falling sharply in Europe, with Turkey, Kosovo, Moldova and Estonia predicted to experience the most drastic declines in births per 1000 between 2005-2025. This of course contributes to the problem, not only for companies based in these regions, but those operating globally suffering these losses on multiple fronts.

However, what appears to be a trend that is occurring on a global scale is in reality only occurring in developed countries. In direct contrast, it is often a characteristic of the poorest countries in the world to have some of the highest fertility rates. This is why, upon observation of the ranking of the top countries for births per 1000, countries of Africa will dominate the list.

The top ten countries for birth rate are all African: Niger, Somalia, Congo, Mali and Chad composing the top five. Not only this - social media has given parents in such countries a better understanding of the tools available to their counterparts in developed countries, the consequence of which has been a surge in demand for such products.

This represents an opportunity for globalised companies in the baby products industry to recover the losses they are suffering in developed countries. If they can remove the barriers relating to trade associated with these countries, there is potential for extreme profit to be made.

What Is Globalisation?

Globalisation is the process by which organisations develop influence that extends internationally, or begin to operate on an international scale. It describes the interaction and integration among people, companies and governments worldwide, and has accelerated greatly since the 18th century as a result of superior technology in transportation and communication sectors.

Globalisation is a paramount issue in the discussion of the baby products industry because, simply put, it describes a process by which free trade can be enabled to the countries these businesses most want to access but currently cannot. For global businesses operating in the baby products market to be able to capitalise on the aforementioned emerging markets.

As it happens, these same regions are also experiencing a massive boom in technology as a result of recently built infrastructure. As a consequence of the increased use of the internet in these developing countries, parents in such areas are increasingly gaining awareness of the tools that their counterparts in developed countries have at their disposal to raise children, which has created a surge of demand for baby products from the global market.

This technology growth simultaneously represents a breakdown of the trade barriers in these emerging economies and an opportunity for growth to such global businesses. However, this reduction in the barriers to entry through greater technology use (i.e. physical stores are not necessary and businesses can sell their products digitally) is only a first step: many of the pertinent trade barriers to these countries are still present, such as port congestion, theft of goods, import permits, an inefficient bureaucracy and requirements to localise supply.

Trends in the Baby Products Industry

Whilst the emerging markets of Africa represent a novel opportunity for businesses in which, due to a lack of competition, any general baby products will thrive, the mature markets of the US and Europe are saturated with producers. This means that products require specific qualities, determined by market trends, that set them aside from their competitors.

As with many other industries, consumers are expressing an increasing desire for products that are ethical, natural and sustainable; businesses that appeal to these trends appear to dominate. For example, in the baby food market, key drivers to success include “‘kid-friendly’ packaging and advertising it uses, as well as the sustainable initiatives it is pursuing,” says Paul Lindley, the founder of Ella’s Kitchen.

Furthermore, the brand is attempting to protect the planet for future generations by helping to tackle climate change. In 2019 it joined over 500 other B Corps in committing to be net zero by 2030, and is working with conservation partners to restore, rewild and protect the ecosystems that are relied upon by so many.

The same trend of ‘eco-friendly products’ can be seen in other baby product markets. For instance, many parents have collectively decided that anything that isn’t good for nature will, at the same time, not be good for their children. Natural products are perceived as gentler on the skin, especially a newborn’s delicate skin, so parents who can afford better products are no longer taking chances.

Convenience is another big factor sweeping the industry, retailers such as BabyOutlet are experiencing great success because of the wide variety of products they curate in one place, and the ease with which this can be accessed by customers. On top of this, their products are eco-friendly and they make it much easier for customers to purchase previously hard to acquire items, such as personalised baby clothing, extremely quickly.

Final Remarks

On balance, the face of the baby products industry is changing - both globally and locally. On a scale local to the US, the saturated industry that currently exists because of the market’s maturity demands specialised products that adhere to specific trends, such as sustainability and convenience (primarily peddled by Amazon.com, Inc. (NASDAQ:AMZN)'s generational leaps forward in delivery).

The growth of technology in emerging markets in Africa represents the first step in the breaking down of trade barriers to the area, which will only be compounded as it becomes increasingly exposed to globalisation. This represents a previously untapped market that can be capitalised by attentive businesses in the baby products industry.