Pampers vs. PlayStations: The Changing Spending Habits of Expectant Parents
Recently, System2’s founder Matei Zatreanu and his wife, Ring Concierge founder Nicole Wegman, announced that they had welcomed their second child. Holding Zander in their arms for the first time, they may not yet have realized one key fact about how this baby will affect their lives: he’s going to be damn expensive.
It is estimated that a newborn can cost up to $50,000 in the first twelve months alone. But, spending habits can change before the baby even arrives: expecting parents spend much more at a host of different retailers in preparation for the little bundle of joy’s arrival. While many people just stock up on essentials, a deeper look reveals that spending habits can differ wildly between different retail categories:
How much money is spent on baby clothes versus baby furniture?
Do expectant households order more takeout compared to buying groceries?
Are people more or less likely to buy an Xbox when they know they’re expecting?
To answer these questions, and many more, System2 looked at anonymized, row-level credit card data.
Methodology
While it’s impossible to guess exact dates of birth, it is possible to get a good idea of when a person has learned what they’re expecting by looking at spending data. Assuming that many parents-to-be will make at least one baby-related purchase soon after receiving the news, we can filter our data to look for this “first baby-related purchase” for each member of our sample (if it exists).
Another limitation of the dataset used that’s important to remember is that we don’t see what people buy, only the money spent at the retailer they’re buying from. If people purchase their baby-related goods from a department store like Target, we can’t tell them apart from any other Target shopper. Therefore, our definition of “baby-related purchase” had to be narrowed: we just looked at people who spent money at Buy Buy Baby, one of the largest baby-related retailers in the US.
There were some additional data-cleaning steps, as well. First, we restricted our panel to users with three or more transactions at Buy Buy Baby, which filters out customers buying one-off gifts for friends or family. We then “panelized” the data by filtering out customers who didn’t display consistent spending across our time window. Lastly, because our panel was conditioned on spending on Day 0, we excluded spending in that week from the analysis to reduce bias.
Results
There are multiple ways to do this comparison, but the simplest is to use the percent of change in spending at a certain retailer before and after Day 0, which we defined as someone’s first purchase at Buy Buy Baby. We compared purchases made in the 30 weeks preceding this day to purchases from the 30 weeks after. We can filter this data by company and category and compare total spending before and after Day 0.
The clearest trend was that people spend more money when they’re expecting a child. Across all retailers in our sample, we saw, on average, 16% more spending after Day 0 compared to before. This isn’t surprising; you don’t prepare for a baby until after you know one is coming.
NOTE: Some names of specific companies have been redacted in the following analysis. If you would like a free copy of the unredacted report, please direct message System2 on LinkedIn.
The biggest category winner was Home, which includes companies like Crate & Barrel, █████, and █████. On average, they saw a 35% sales increase after Day 0.
Your new kid has to sleep somewhere, so you’ll buy a crib, and while you’re there you might as well get some new decor to convert a plain ol’ bedroom into a “nursery.” Some expectant parents might even move to a larger house, which often requires new furnishings.
Breaking this category down further, we saw that furniture companies enjoyed an even higher increase — an insane 47% — in spending, whereas home improvement retailers like █████ and █████ only saw a 20% jump. This suggests that most families aren’t doing major renovations; rather, most are just buying required items.
The Home category also includes the retailer with the highest sales increase of all: █████, with a 144% spike!
Wholesalers like █████ and █████ also won big, seeing a 29% increase in spending as people stocked up on essentials. This also isn’t surprising; parents-to-be probably look to buy essentials in bulk.
People spent 26% more on discount clothing at retailers like H&M and █████.
Fair enough—a baby needs clothes. Retailers that don’t carry much children’s clothing saw a significant decrease in spending: Anthropologie was down 8%.
It’s also likely that maternity clothing was responsible for a large portion of this new spending as many of the top retailers in this category carry some.
Luxury retailers like █████ saw no significant changes in spending.
Outdoors-oriented retailers like █████ lost hugely, down around 20% on average.
█████ was the retailer with the sharpest spending decrease. No comment…
eCommerce also reaped the rewards, with companies like Amazon, █████, █████, and █████ collectively seeing 21% more spending. In comparison, brick-and-mortar retail (excluding wholesale) was only up 5%.
Over the next 30 weeks, future mothers are likely to nest more and have the essentials delivered.
Of all these companies, █████ was by far the top dog, with a massive 51% spike in spending! It makes sense, as they’re known for cute, boutique products.
People also spent about 15% more on average on takeout food.
Unlike the other categories, there wasn’t a major difference between high and low-end names.
█████, █████, and Five Guys narrowly came out on top here, but this might just come down to the noise in our sample. The worst-performing fast-food joint was █████, which only had 6% more spending.
In comparison, grocery spending was only up around 6% on average. It’s not hard to imagine why takeout beat groceries so handily.
We also noticed that people forked over more in the Home Internet and Online Entertainment categories, which both saw about an 8% spending jump. If you’re spending more time at home prepping for baby, you might as well be connected and entertained.
Video streaming platforms saw 13% more spending, but gaming platforms like █████ and PlayStation saw a near-zero change in spending. It seems like some folks realized it was time to grow up.
The biggest loser was the Travel category, which had about an 8% decrease in spending.
This effect was consistent across travel aggregator sites, hotels, and airlines.
Not only is traveling more difficult when pregnant or caring for a newborn, but travel spending is generally discretionary, the kind that people might hold off on when budgets get tight.
Conclusion
If you’re expecting a little one, anticipate a significant bump in expenses, especially on home goods, consumer staples, and delivery. Trust me on that last one, I’ve seen Matei’s Seamless history.
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Disclaimer: All opinions expressed by System2 employees and their guests are solely their own and do not reflect the opinions of System2. This post is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of System2 may maintain positions in the securities discussed in this post.
Today’s post was written by Jackson Hejtmanek.