The Baby & Kids Business Is in Play in 2022

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Attention Liam, Noah, and Oliver. And Olivia, Emma, and Charlotte. It’s going to be some year for the baby and toy business as you are welcomed into the world in 2022.

Those baby names – the top three for each gender in 2021 according to the Social Security Administration – represent one of the many ways the kid’s business is changing: from moves to new, nontraditional names and a potential mini-baby-boom to significant changes on the retail and supplier side of the industry. And while some are vaguely related – as most things seem to be these days – to the aftershocks of the global pandemic, others are arriving in the normal course of the way business sectors work. To say you ain’t seen nothing yet baby is only putting it mildly.

The wheels of the baby and toy business are still spinning furiously, and the winners and losers are far from certain.

The Baby Boomlet

The U.S. birth rate has been in a slow, but steady decline since the peak of the post-war Baby Boom in the early 1960s. It leveled off throughout most of the final years of the 20th century but over the past few years it treaded dangerously close to the zero-population-replacement level. Combined with the Trumpian policies that kept out immigrant groups with historically higher birth rates and family sizes it meant companies who depended on the baby and kids’ business were in serious trouble.

But that was nothing compared to the past two years when the pandemic caused even more declines in the birth rate. Confounding some who thought people stuck at home would revert to activities that would result in more babies being born, the rate declined even more, dropping nearly 10 percent in January of 2021. But now as the nation emerges from the worst of the pandemic – as well as theoretically from their homes and bedrooms – births are starting to climb again.

“The difference between birth patterns seem for the first six months of 2021 and earlier years suggests that the magnitude of the downward trend in the second half of 2020 and January of 2021 may have begun to wane,” the National Center for Health Statistics wrote in a new analysis earlier this year, as reported by Bloomberg. “Declines in the number of births may be returning to pre-pandemic levels.”

Given the time lag between baby-making and babies-being-born (consult your high school biology textbook if you can’t remember) we could expect to see a more substantial upswing as we go further in 2022. What’s even more encouraging is the surge in the marriage rate this year. It took a big pandemic hit but marriages have also come back with a vengeance (perhaps the wrong way to put that, but you get the idea). Businesses associated with weddings, from venues to dresses to catering services, are all reporting strong business with the pent-up wedding demand.

And where there are more marriages, not too long afterward – especially for older couples who postponed their weddings and find their biological clocks ticking louder and louder – there are usually babies. (Again, consult your biology textbook, although your sociology 101 class notes may be helpful here too.)

Finally, there is one more factor that could impact the birth rate going forward, although how you view this depends a lot on your politics. If the Roe v. Wade mandate allowing abortions is overturned by the Supreme Court later this year – as looks increasingly likely – one result is probably going to be more babies born. It’s something that isn’t often part of the pro-choice/pro-life conversation, but there’s no denying it will come into play in large parts of the nation where abortion could be illegal as soon as this summer.

Whatever happens with the court ruling, there are enough factors out there to suggest there will simply be more babies in the next few years.

Toys’R’Us Is Back…Again

Certainly, the most iconic retail brand in the toy business – but also the one that has had the most financial twists and turns – Toys is coming back in 2022 with a new business model that will place some 400 shop-in-shops within Macy’s department stores. They are officially being called “concessions” and will presumably all be up and running by the crucial fourth-quarter holiday shopping season. For those keeping score, this is at least the third attempt to bring the TRU brand back to life following the company’s bankruptcy filing in 2018 as a result of too much private equity-induced debt and too little merchandising investment to keep the brand relevant in the online era. At the time, management believed the Chapter 11 filing would allow it to re-emerge, no doubt smaller but also with a better balance sheet. But it didn’t work out that way and its more than 730 stores all closed.

Act Two brought back the brand with an entirely different merchandising footprint, featuring smaller, mall-based locations built around experiential selling spaces and a more boutique feeling as opposed to the original TRU warehouse format. Two such stores opened around the start of 2020…right before Covid shut down much of the physical retailing world. The pair of stores, in Paramus, NJ and Houston, followed suit and never reopened.

Which took Toys to its next owners, WHP Global, a brand management firm headed up by Yehuda Shmidman, a well-known name in the field. In late 2021 he announced the Macy’s deal, and a few shops were open for the holiday season although the vast majority are scheduled for later this year. Visits to several of the pop-ups at Macy’s stores in Chicago and New York, showed very small departments, several hundred square-feet at best, though one can expect the full roll-out will feature larger areas.

WHP also opened what it calls its “flagship” store just before Christmas last year in the giant American Dream mall in New Jersey. At 20,000 square-feet it takes on more of specialty format than the previous warehouse look, according to published reports.

Whatever these 400 Macy’s locations will look like, they do represent a new, high-profile place for shoppers to go for toys in a marketplace now dominated by three big national players: Walmart, Target and Amazon. With far fewer stores, Macy’s will not be expected to be operating at those massive levels, but for consumers looking for a more upscale venue Macy’s will have the channel pretty much to itself on a national level.

Bye-Bye Buy-Buy?

There’s a second big player in the kids’ retail sector that could be having a game-changing year in 2022. BuyBuyBaby, the 130-unit chain owned by Bed Bath & Beyond could be in play this year following calls for its divestiture by an investment group seeking changes in the company’s retail operation. RC Ventures, run by investment crusader Ryan Cohen, has secured a 10 percent stake in Bed Bath, put several of its supporters on the company’s board and pushed for the baby unit to be spun off to generate more shareholder value. So far, the parent company has fought off the move though it says it continues to explore ways to make itself more valuable.

Either way – as part of Bed Bath or as an independent entity perhaps owned by another group of investors or even another retailer – it’s likely that BuyBuyBaby will become more aggressive in its expansion plans. And while the retailer focuses on baby products like cribs and strollers, it also sells infant apparel and toys so it too will impact the overall business going ahead.

Barbie, et al. Private?

Finally, there is one more unknown in the kids’ sector, a big unknown. Mattel, one of the two big toy and plaything suppliers along with Hasbro, has been rumored to be talking about going private. The Wall Street Journal reported in late April that the company was talking with private equity firms L Catterton and Apollo Global Management about a possible takeover. Nobody is confirming anything officially, but it is not the first-time speculation has been raised about Mattel being sold. Hasbro too has come under siege by another investor group wanting more bang for its buck.

There’s absolutely no way to know whether anything substantive will happen with either of these powerhouses, much less what any change would mean for the marketplace. These two companies own or control many of the most important brands in the toy space – Barbie, Hot Wheels, American Girl for Mattel; Monopoly, My Little Pony, Playskool for Hasbro, just to name a few – so any change in ownership or finances could have big repercussions.

22?

If you know your Casablanca trivia, you know that “22” was the number Rick suggested the Czechoslovakian refugee play on the roulette wheel to try to win enough money to gain his letters of transit to go to America. Rick’s signal to the croupier made sure 22 was a sure thing and paid off. But this time around, for 22 – 2022 to be exact – there can be no such assurances. The wheels of the baby and toy business are still spinning furiously, and the winners and losers are far from certain. It’s anybody’s bet what happens next.

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