Retailer Baby Bunting has warned investors its earnings may be adversely affected by the recent collapses of two other baby goods retailers, with one retail expert saying e-commerce is likely to put immense pressure on the sector in future.
On Tuesday, Baby Bunting released a statement to the Australian Securities Exchange, confirming its market position had “strengthened” amid consolidation in the kids’ and baby goods sector. However, it said the fallout of the administrations of competitors Baby Savings and Baby Bounce could cast a cloud over its gross profit margin this year.
The future of stores at both Baby Savings and Baby Bounce remain unknown as administrators begin a review process for the businesses.
Baby Savings has three stores in New South Wales and called in administrators from HLB Mann Judd at the start of the week.
Get daily business news.
The latest stories, funding information, and expert advice. Free to sign up.
Administrator Barry Taylor tells SmartCompany the Baby Savings stores will continue to trade while administrators assess the business and stock levels, ahead of a possible search for a buyer.
He says the business owners would “would attribute the difficulties to the increased competition generally” in the infant goods space, including the fact that bigger players have entered suburbs like Kotara, where one of the stores is based.
At an initial glance, the business could owe creditors somewhere in the vicinity of $800,000, Taylor says.
The other retailer, Baby Bounce, has 10 remaining stores in New South Wales and Queensland, with the company’s Facebook page informing customers it is currently conducting “closing down” sales at its Bundall and Chatswood stores.
Baby Bunting says while the immediate trading future of these other branded stores is not yet known, it did warn shareholders the possible fallout of this situation could mean its earnings came in short of the predicted $23 million if other retailers begin clearing stock at lower prices.
“However, with our low cost of doing business, strong balance sheet, established multi-channel strategy and great team, Baby Bunting is well placed to capitalise on these market changes,” Baby Bunting chief executive Matt Spencer said in a statement.
“Unprecedented” consolidation in the baby goods market
According to Baby Bunting, Baby Bounce was Australia’s third largest specialty baby goods retailer, while Baby Savings was the equal fourth largest speciality retailer in the space.
Baby Bunting has 43 stores and is the leader in a market that is seeing an “unprecedented” level of consolidation this financial year, said the company in its ASX statement.
That consolidation includes the voluntary administration of Bubs Baby last year, while the US operations of Toys ‘R’ Us were also forced to shut up shop earlier this year, raising concerns about the future of the brand’s Australian operations.
Strategist at Retail Oasis, Pippa Kulmar observes that right across this sector, the impact of online sales, but more importantly online communities, has made it incredibly challenging for bricks-and-mortar retailers in the space.
“Product recommendations in this space have been driven completely online, through people like mummy bloggers, and that’s where it gets really hard,” she tells SmartCompany.
While it might seem as though infant goods are a category that customers want to see in store before buying, Kulmar suspects that at this point in the online shopping revolution, parents are more trusting of online testimonials than in-store expertise.
“If you look at human nature, as humans we’re going to choose the path of least resistance in order to buy. There are communities bringing people together online, and shoppers are trusting the recommendations of another mum over a shop staff member about products,” she says.
The numbers support the idea that online sales of baby goods are becoming increasingly popular across Australia. According to IBISWorld research, the sector is now worth $635 million annually and has grown by 14% annually between 2013 and this year.
“Strong marketing campaigns, competitive pricing and the development of multichannel retailing options have enhanced the industry’s success,” says IBISWorld analysts.
For Baby Bunting, amping up its digital sales has been a top priority. The company’s most recent half-year results revealed that online sales were up 56% compared with a year ago, with the retailer launching an eBay store for the first time.
The business also revealed it was launching a gift registry app this year, to “put greater convenience in the hands of our customers”.
SmartCompany contacted Baby Bounce but did not receive a response prior to publication.