Baby Bunting turns to e-commerce to maintain sales growth and market share

Baby Bunting ASX BBN COVID-19 sales growth
Nursery retailer Baby Bunting has recorded a 10% increase in sales so far in 2020, led by a surge in online sales.

The first signs that the effects of the COVID-19 pandemic are gradually easing were evoked by Baby Bunting (ASX: BBN) this morning after the nursery retailer said its customer base is increasing as restrictions start to ease.

However, the company did admit its day-to-day operations had been affected by the government restrictions imposed due to COVID-19, including higher operating costs and greater difficulty in providing accurate future estimates.

One casualty of COVID-19 has been the company’s performance guidance for the current financial year, which it said would not be provided due to the “difficulty in anticipating consumer behaviour in the current environment” and the associated effect on sales, gross margin and the cost of doing business.

“All Baby Bunting stores have remained open throughout the current period, but we have adapted how we work, and how we service and support our customers. There are a number of social distancing and hygiene measures that are now a part of how our store and support teams operate,” Baby Bunting chief executive officer and manading director Matt Spencer said.

“We have introduced no contact click-and-collect as well as our Helping Hand telephone-assisted shopping service to provide choice in how and when our customers choose to shop with us,” he added.

Sales growth

Despite the operational difficulties, Baby Bunting reported consistent sales growth since the start of this year including throughout March, the specific period in which Australian authorities deployed quarantine and social distancing measures.

One direct method to counteract the lack of physical store footfall has been online sales.

In the second half of the current financial year, Baby Bunting reported sales growth totalling 13.2% with online sales now constituting 17% of total sales, up 66% compared to last year.

If looking at this year’s performance in isolation, the nursery retailer said it had generated 10.3% in total sales growth with comparable store sales growth peaking at 3.4%.

“Our sales performance reflects the less discretionary nature of the baby category and we have welcomed many new customers to our brand in these difficult times,” the company said.

According to Baby Bunting, its online sales figures rose 121% on a year-on-year basis with the no contact click-and-collect service seeing a surge in demand.

More specifically, the company reported that 42% of its online orders were now utilising the click-and-collect service.

However, the flip side is that online sales have come at a lower gross margin due to higher freight fulfilment costs relative to in-store sales.

According to Mr Spencer, COVID-19 has also affected the type of products demanded by consumers including a drop-off in purchases of travel-related products such as prams and car seats, in favour of lower-margin consumables such as nappies.

With restrictions now easing, Mr Spencer said demand for travel-related products has now “begun to recover”.

“Initially during the period of public health restrictions, there was strong demand for lower margin consumable products, including nappies and baby wipes. As the period has progressed, we have seen increases in purchases of products for the nursery, such as cots and furniture, toys and play gear, and bedding,” he said.

Development measures

In a bid to maintain its resilient performance and maintain sales, Baby Bunting also announced a string of initiatives to support its customers, namely new and expectant parents.

For starters, the company will commission another “online fulfilment hub” in Casula in New South Wales, thereby expanding the existing hubs already operational in Cannington and Hobart.

The move also means the nursery retailer will be able to deliver its products to seven more stores in Victoria, NSW, Queensland and South Australia.

Moreover, Baby Bunting said it plans to fulfil 90% of orders from metro areas, on the same day.

Another initiative undertaken by the company is to set up its ‘Helping Hand’ assisted telephone shopping service, enabling expectant parents to receive a personalised shopping experience courtesy of an experienced team member from their local store.

Longer term, Baby Bunting said it plans to adapt its online offering to facilitate cross-border sales. However, given current conditions, this capability is expected to be available towards the end of the financial year and is not expected to materially contribute to sales in the short term.

E-commerce

Over the next 12 months, Baby Bunting said it plans to migrate its e-commerce infrastructure from its current Magento 1 site and move to a “headless e-commerce architecture” to enable the company to “leverage best of breed applications to deliver a world-class customer experience”.

As a consequence of its planned change in e-commerce technical architecture, the nursery retailer said it expects to recognise an additional $2-3 million on its balance sheet, recorded as a non-cash impairment.

Today’s news pushed Baby Bunting shares up 15% up to $3.08 per share around midday.