Jean Pierre Verster, a hedge-fund manager with Fairtree Capital says new parents’ desire to buy the best for their first child is a huge drawcard for companies involved in making high-margin baby gear, particularly as people in developed markets are generally having fewer kids, and spending more per child as a result.
In China, chances are that children are only children of only children — and with no other siblings for grandparents to dandle on their knee, “That means there’s always an investment opportunity when people are spending more money on a particular need, especially when there’s an emotional connection,” he says.
Sadly, companies have cottoned on to this dynamic. A lot of the brands that have become household names are bought out by bigger firms. Stokke, whose Tripp Trapp adjustable high chair is the best-selling furniture item in Norway, according to Wikipedia, was snapped up by NXMH, the investment arm of South Korean gaming company Nexon in 2013. Still, you could buy shares in Dorel Industries, the Canadian owner of the Maxi Cosi and Quinny juvenile-products brands, or you could go large in the toy department with listed companies Hasbro (the world’s largest toy company) and Barbie-owner Mattel.
Or, as you remove yet another nappy, buy the companies involved in baby staples — Kimberly Clark (Huggies), Johnson & Johnson (toiletries), or Procter & Gamble (Pampers). That’s a dynamic that applies to almost all investments. When you buy shares with the aim of keeping them for a while, look at two types of company: the lowest-cost producer, or the firm with the strongest pricing power. The one is all about volume — billions of nappies a year, say. The other is where you push the price as high as possible because you can. Think Ferrari, Louis Vuitton owner LVMH, Gucci parent Kering or Johann Rupert’s Richemont. High-end baby gear falls squarely into this category.
And if you’re now starting to have some fun in the equities shopping aisle, does it make sense to try to find companies you think will be big by the time your baby is? Some say it’s a mug’s game. In the early days of the internet, Yahoo was the popular stock pick. Now we know the right call would have been Amazon.
Verster has another way of looking at it. “I try to think: how will the industry and this company look 10 years from now?” he says. “But what I’m looking for is actually not change: it’s lack of change. I’m looking for industries where I think the company will be in a similar state, if not in a stronger position than it is today, and that the industry will not be disrupted.” For instance — the toy market. “I don’t think that kids will do everything on a screen because motor development is very important and you need to use your hands. So toys are not going to disappear,” Verster says.