Maternity, baby goods seller in acquisition deal for growth

2023-06-14 08:44:14China Daily Editor : Li Yan ECNS App Download

A consumer checks out products at a Kidswant store in Huaian, Jiangsu province. (ZHOU CHANGGUO/FOR CHINA DAILY)

The recent acquisition plan of majority shares of Leyou by Kidswant, two major retailers in maternity and baby-related products, has signaled the further integration and consolidation of the sector to boost performance, as more parents prefer shopping online amid the consecutive drop in the newborn population in recent years.

Kidswant, a Nanjing, Jiangsu province-based maternity, infant and baby product chain, has plans to acquire 65 percent of shares in Leyou at the price of 1.04 billion yuan ($145.2 million), which dominates the northern China market. The deal is pending approval from the government department. Once the deal is approved, Leyou will operate as a subsidiary of Kidswant.

Kidswant, founded in 2009, had 508 direct-owned stores in 20 cities by the end of 2022, with its network mainly covering eastern China and some cities in Southwest and Central China.

Leyou runs about 494 direct-owned stores and 50 franchises by the end of 2022, covering the northern regions.

The acquisition is expected to expand Kidswant's presence in northern China, where the number of its stores is lower than 8 percent of its total. The deal is expected to fuel the synergy between the two companies in terms of market layout, operational model, supply chains, distribution and logistics as well as digitalization.

Song Liang, a dairy analyst, said the shrinking maternity, infant and baby product market is a result of the decrease in births in the country, directly impacting the revenue for retailers who have generated profits from selling milk formula, diapers and maternity and infant care services.

According to figures from the National Bureau of Statistics, the total number of new births in China in 2022 was 9.56 million, a decrease of about 10 percent year-on-year, marking the sixth consecutive year of decline and nearly half of the 18.83 million new births in 2016. According to a report on the market insight of infant formula released by NielsenIQ in May, overall sales of categories related to mothers and infants decreased by 8 percent in 2022.

Over the years, e-commerce has become a popular trend for Chinese parents when ordering maternity and baby-related products. According to NielsenIQ, sales from online channels dropped 0.8 percent in 2022, while sales of brick-and-mortar stores have decreased 6.5 percent year-on-year.

The switch to online consumption among parents has further hurt the revenue and profit of brick-and-mortar retailers in the sector.

In 2022, Kidswant reached an income of 8.52 billion yuan, a year-on-year decrease of 5.8 percent, and a net profit of 120 million yuan, a year-on-year decline of 39.4 percent. In 2022, Leyou posted a revenue of 1.94 billion yuan, a drop of 6.3 percent compared to that of the prior year.

Recognizing the factors contributing to the declining revenue and profit, such as limited offline traffic, Kidswant has improved and accelerated its online operations, which have contributed to nearly half its overall revenue in 2022.

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