Baby Bunting warns that new, younger parents facing spending crunch as mortgages and rents rise

Retailer Baby Bunting warns that with 80 per cent of new millennial parents facing rising living costs, they will face pressure on spending for baby goods.

Retailer Baby Bunting has warned the financial strains experienced by younger parents, especially millennials, whether they rent or have a mortgage is placing pressure on discretionary spending which includes the types of products its sells such as prams, toys, strollers and clothing.

Addressing shareholders at the company’s annual general meeting on Tuesday, recently appointed chief executive Mark Teperson – who is only seven days into his role – said the trading environment for the infant and baby products specialist was challenging.

He particularly called out the pressure on younger families, where 80 per cent of new parents were millennials and who were facing rising living costs.

“There is a shifting consumer landscape where millennials account for around 80 per cent of new parents. At the same time, around half of millennials own a home with a mortgage and a further 40 per cent are renting,” Mr Teperson told shareholders.

“With fixed term mortgages written in the last few years now rolling off into variable loan rates, this group is experiencing higher housing costs. The purchasing behaviour of this group continues to evolve, as seen through shifts in spending behaviours, preferences and shopping channels.”

Wider economic headwinds, inflation, cost of living crisis and higher mortgages and rents was denting Baby Bunting’s sales growth, with a trading update provided at the AGM showing that sales had gone negative.

Baby Bunting said its year-to-date total sales were down 3.3 per cent against the corresponding period last year, where total sales growth was 12 pert cent. The company said comparable store sales were down 8.5 per cent, year to date, cycling to positive 7.6 per cent growth for the same period last year.

However, it said pleasingly, for the first quarter, gross profit percentage was 37.9 per cent, up 70 basis points compared to the prior corresponding period.

In August, Baby Bunting posted a 49.5 per cent drop in full-year net profit to $9.9m as the pressure on household budgets forced many parents to pull back on spending. And that pressure had continued into the new financial year, with Baby Bunting reporting at the time sharp sales declines since July. At the time, Baby Bunting said total sales growth for the last six weeks of trade was down 4 per cent and comparable store sales down 9 per cent.

At the AGM, Mr Teperson said the opportunity for Baby Bunting continued to be significant, with the discretionary retail spend of millennials and Gen Z expected to grow from 32 per cent in 2020 to 48 per cent by 2030.

“The biggest discretionary spending demographic is also our core customer and Australia’s birthrate remains relatively steady at around 300,000 births each year. As consumer preferences continue to evolve, we have the opportunity to lead and reimagine the baby and nursery category for our current and future customer. I believe the opportunity for Baby Bunting is an exciting one.”

Shares in Baby Bunting have fallen 50 per cent in the last 12 months.