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United States / Analyst Insights
New Trends That Are Altering Childcare Industries

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by Jack Curran
Jan 09 2018

To the benefit of many industries, the number of annual US births is on the rise. The cost of having a baby is a significant expense for most families; according to the US Department of Agriculture’s 2015 report on Expenditures on Children by Families (latest available), the average family spent an estimated $12,680 on childcare expenses during their child’s first year of life. For this reason, many couples held off on having children immediately following the financial crisis. As a result, the number of births dropped to a low of 3.9 million in 2013. However, as the economy has recovered, more people are choosing to have children. Over the five years to 2018, the number of births is expected to rise at an annualized rate of 0.7% to 4.1 million. This increase has supported strong growth in some industries and kept others from falling into decline.

Online convenience

For busy parents, online platforms have made buying baby supplies significantly easier. Instead of going to a brick-and-mortar store, parents are now able to buy baby clothes and supplies from their homes. The infant clothing market in particular has benefited from this shift; over the five years to 2018, revenue for the Online Baby and Infant Apparel Sales industry is expected to have increased at an annualized rate of 12.3% to $2.3 billion. Meanwhile, revenue for the Children’s and Infants’ Clothing Stores industry is expected to decline at an annualized rate of 1.3% to $9.6 billion. However, while the Online Baby Products Sales industry has grown significantly over the past five years, its brick-and-mortar equivalent, the Durable Baby Goods Stores industry, is not expected to decline. This is likely because when purchasing infant supplies and furniture, parents may prefer to see the products in person to ensure their quality. However, the overall shift toward e-commerce has been a steady trend throughout the retail sector. Over the next five years, baby goods and clothes retailers will increasingly offer online platforms to take advantage of this trend.

Daycare needs risenumber of births graph

One of the largest childcare costs for most parents is daycare and nanny services. According to the National Association of Child Care Resource and Referral Agencies, the average yearly cost of center-based daycare services is $11,666. Despite the high price, demand for daycare is growing as the number of working parents continues to rise. According to the Bureau of Labor Statistics, in 56.3% of married couples with children under age 6, both parents worked full time in 2016 (latest available data). This represents an increase from 54.6% in 2012. If both parents work and do not have another family member at home to take care of their children, daycare is a necessity. Due to this growing demand, revenue for the Day Care industry is expected to reach $48.8 billion in 2018.

Traditional products

While many industries have experienced strong growth as the number of births has risen, two traditional baby products have stagnated over the past five years. Revenues for the Diaper Manufacturing and Infant Formula Manufacturing industries have only risen at annualized rates of 0.8% and 0.2%, respectively. Diaper manufacturing revenue has been slow to rise over the past five years due to the growing popularity of cloth diapers. Cloth diapers are reusable and, therefore, more cost-effective and environmentally friendly than disposable diapers. According to the Real Diaper Association, an estimated 7.5% of infants wear cloth diapers. While this portion is small, this has posed a threat to disposable diaper manufacturers.

Meanwhile, infant formula manufacturers have altered their products to fight falling demand for formula. Over the past decade, the Centers for Disease Control and Prevention have made efforts to highlight the health benefits of breastfeeding over formula-feeding. This has helped the percentage of infants exclusively breastfed at 6 months to rise to 23.9% in 2018, up from 16.4% in 2013. As the breastfeeding rate has risen, demand for formula has declined, forcing manufacturers to adjust their product offerings and marketing strategies. Most formula manufacturers now offer formula that is meant to be used as a supplement to breastfeeding. For example, Mead Johnson, one of the four largest formula manufacturers, recently introduced Enfamil Human Milk Fortifier, a powder combined with breastmilk to add nutrients for babies born prematurely. Additionally, many formula manufacturers offer dairy-free products for infants with allergies. These new products, combined with the rising number of births, have helped keep revenue for infant formula manufacturers stable.