Betting on babies: a smart bit of demographic analysis

You don’t normally associate Private Equity barons with high chairs and bibs, so why has Bain Capital, a buy-out firm, announced that it would purchase the Gymboree Corporation for $1.8 billion? It’s an enormous deal, so why the interest? Simple – it’s one of the few areas of market research where the future is relatively clear.

Peter Francese, a demographer at Ogilvy & Mather, an advertising agency, describes it as “a pure demographic play”.

Gymboree sells children’s clothes and operates centres where children can play noisy games on brightly coloured soft mats. According to The Economist children’s clothes are recession-resistant. Parents hate to see kids do without. Also, little people grow fast, and often need new shoes.

But there is more to Bain’s bet than this: the birth rate in America has dipped to its lowest point in at least a century. Young couples are putting off having babies because they doubt they can afford it (so Gymboree could be snapped up at a bargain price). But the chances are that these couples still want children. Once the economy improves, the people who put off parenthood will get down to it. Mr Francese (from the ad agency mentioned earlier) projects that in 2014 there will be 4.4m births, a record high. “That’s a lot of demand for Gymboree’s products,” he says. What’s more, the women who give birth to these post-recession babies will be better educated than any previous generation of mothers, and slightly older too. Many will earn enough to splurge on pricey stuff for their offspring.

And don’t forget the grandparents. America’s overall population is expected to grow by less than 1% a year for the next few years, but the number of people aged 65 to 74 will grow at a rate of 5%. There’s also emerging markets, such as Brazil. Gymboree already operates play and music centres in 30 countries outside America, and hopes to use them to raise brand awareness. Earlier in the year Bain bought a stake in Lilliput Kidswear, a children’s apparel company in India.