Gap’s slowing sales of baby clothes indicate inflation is deeply hurting families

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CNN business

Customers are pulling back on their spending at the Gap and Old Navy — particularly in a particular category that shows how badly families are feeling the inflationary crisis.

During tough times, parents usually save for themselves and focus on meeting the needs of their growing children. But Gap and Old Navy said Thursday they are now seeing less spending on baby and children’s items.

“Children’s spending is one of the last areas where most parents save, so the softness at Gap and Old Navy suggests some households are under significant financial strain,” said Neil Saunders, retail analyst and chief executive of Globaldata.

Because these brands are geared towards middle-to-low-income shoppers, this drop in spending is a very real indicator of just how much budget-conscious households are feeling the pain of higher prices. They were forced to go to their last resort.

Headline inflation is up 7.7% compared to 2021, although the latest data on the prices households are paying for essential and discretionary purchases showed a slight slowdown.

The cut in childrenswear spending at Gap Inc. (GPS) — which operates its eponymous Gap stores Old Navy, Banana Republic and Athleta under its umbrella — was part of Thursday’s third-quarter earnings release.

While the company’s total sales rose 2% year over year to $4 billion for the quarter ended October 29, the retailer noted that sales growth at both Gap and Old Navy was driven by weaker sales in the kids and babies categories has been balanced.

“Old Navy customers still have an inclination to buy. That being said, it continues to experience restraint in spending and shopping frequency among its lowest-income consumers,” Bobby L. Martin, interim CEO of Gap Inc., told analysts during Thursday’s earnings call.

It’s not just Gap. According to market research firm NPD, purchases of baby and toddler clothing are down this year: From January through October, sales of clothing for babies and toddlers fell 3% in revenue and 6% in units sold compared to the same period last year.

“This is a big indicator of financial stress,” said Marshal Cohen, chief analyst for the retail industry at NPD. “You have to look at the big picture. Are families just about cheaper products and shops, or is it a retreat in general?”

“The other thing to watch for is how long the withdrawal is taking,” he said. “Parents can stay in clothes that run a little small for so long, but not for long. So a quarter slide is one thing – multiple quarters [of decline] send a strong message.”

As parents buy fewer new items, they instead turn to resale platforms to buy children’s clothes and other necessities for less money.

Resale platform Mercari said a Globaldata survey of more than 2,000 parents in March found that 62% said they had bought used items for children at some point in the past year. More than a quarter said inflation motivated these purchases, and half of the parents surveyed sold a second-hand item in the children’s and baby goods category.

Mercari said parents of children under the age of 2 are the most active second-hand buyers, according to his survey.

“This shift [to reuse] gaining momentum in 2022 as consumer prices rise amid inflation and ongoing uncertainty,” said John Lagerling, CEO of Mercari US, in Mercaris 2022 Reuse Report: Family Edition.

“In 2021, Americans spent a total of $143 billion on children’s and baby products alone. By 2030, that number is expected to grow to $182 billion. We think it’s just too much,” he said.

Second-hand shopping is becoming a lifeline for households on a tight budget, said Burt Flickinger, retail expert and chief executive of retail consultancy Strategic Resource Group.

“Families rely heavily on credit cards to pay their rent, grocery and gas bills and everything else. Household wealth has fallen while food costs have risen,” Flickinger said. “Unless they planned it earlier, parents shop at resale and take used stuff from family and friends.”