(Yicai Global) June 12 -- Kidswant Children Products will buy a controlling stake in Leyou, another retailer of mother and baby goods, as consolidation in the sector gathers pace amid China’s falling birthrate.

Kidswant will pay about CNY1.04 billion (USD145.6 million) for a 65 percent stake in

Leyou, the buyer said on June 9, adding that the deal will boost the two firms’ business integration in various parts of the country.

Nanjing-based Kidswant operates mainly in southern and eastern parts of China, while Beijing-based Leyou focuses on the north.

By the end of last year, Kidswant, which was founded in 2009, had opened 508 direct-sales stores in 20 cities and provincial-level regions, about 278 of which were in eastern areas, with over 70 outlets in both western and central regions.

Leyou had 494 direct-sales outlets and 50 franchisees at the end of 2022, with the number of stores in Beijing and Tianjin and the provinces of Shaanxi, Hebei and Liaoning, which are all in China’s north, making up 70 percent of the total. 

The acquisition is based on Kidswant seeking to expand its overall market position, but it also makes sense for the two firms because of the fall in the number of new-born babies in recent years and the downsizing of China’s maternal and baby care market, Song Liang, an independent dairy industry analyst, told Yicai Global. 

Further consolidation among retailers in the sector is inevitable, Song said, adding that it will allow for more bargaining power when negotiating with brand owners and will also generate greater economies of scale. The shakeout will also spur the integration of companies’ online and offline businesses, he added. 

The market’s size has dwindled to the point where it cannot sustain the existing number of brick-and-mortar outlets, Song noted. “Probably, there will only be 50,000 to 80,000 outlets selling baby and maternity products nationwide in the future,” he said. 

There were once around 300,000 such stores in China, according to industry data. Market insiders told Yicai Global that the number of outlets for mother and baby goods has likely halved to fewer than 150,000. 

The sector also still has many small retailers. In 2020, about 49 percent of the firms selling mother and baby products had less than five outlets, while just 5.3 percent had 51 to 100 stores and only 4.1 percent had more than 100. 

The number of babies born in China fell for the sixth consecutive year in 2022 to 9.56 million, a 10 percent drop from the year before, according to data from the National Bureau of Statistics. Last year’s figure was only about half of 2016’s 18.83 million.

A Nielsen IQ report also showed that sales of products for mothers and babies fell by 8 percent in China last year from 2021.

Editors: Tang Shihua, Tom Litting