Baby boom fuels gold rush

Until then there were no specialty baby-product chain stores in China and most of the products were sold in supermarkets and department stores.

"The specialty chain store concept is more competitive especially in terms of price. Due to the centralized purchasing and the presence of an online platform, prices at Leyou stores are 10 to 15 percent lower than other channels," said Hu.

The specialty stores also offer better services. "For instance, if a mother comes to buy baby food, our shop assistants will recommend an appropriate product according to the age of the baby," Hu said.

According to Hu, when the average annual income of a family exceeds $7,000 (5,182 euros), specialty chain stores for certain commodities or services will have their market and competitiveness.

To access more remote areas, Leyou launched a service in 2004 to integrate its network, catalogue and stores. Hu said the three channels can complement each other and reach a wider audience. While the website and catalogue can attract more customers, the stores act as a platform to promote new brands and new products.

Currently Leyou's stores contribute about 70 percent of sales, with the remaining 30 percent coming from the website and catalogue. Leyou's current gross margin stands at around 20 percent, partly because new brands are bringing in higher profits through the three channels.

"Despite the immense potential, there is also pressure due to intense competition," Hu said.

Attractive market

Many companies, including several original baby product manufacturers, are taking aim at the profitable retailing market.

The Jiangsu-based baby stroller maker Goodbaby Group is now the largest supplier of strollers in North America, Europe and China. After more than 20 years of global business, Goodbaby has a 40 percent share of the baby carriage market in the United States and an 80 percent share in China.

Enthused by the current baby boom, the company has been increasing its brand building efforts in China. The company entered the retailing business in 2006 with a shop in Xizang Zhonglu, Shanghai. At present, it has 16 mother- and baby-product stores in China.

The Taiwan-based Les Enphants Co Ltd, which makes and sells children's clothes, sportswear and accessories under the Les Enphants and Petit Chou brands, entered the mainland market in 1993. It is also an authorized sales distributor for mid- and high-end brands such as Disney Baby, OshKosh B'gosh and Nike Junior. But the real star for the company is the Les Enphants brand, which occupies the top slot in the retail market for children's apparel.

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The company's mainland business accounted for more than 64 percent of total revenues in 2009, and rose to 65 percent last year. It now owns around 1,500 stores in China and plans to add another 300 more outlets this year.

Enthused by the surging demand, most of the companies are now planning public floats on bourses.

On Nov 24, 2010, Goodbaby International Holdings Ltd, a subsidiary of Goodbaby Group, was listed on the Hong Kong stock exchange. The share price of the company surged 18.36 percent on the first trading day, underscoring the strong demand for its products. The company is expecting double-digit growth during the first quarter.

Leyou also has a listing agenda. Hu says the company will list its shares on the New York Stock Exchange or the Nasdaq over the next 12 to 18 months. The share listing will help the company raise funds for future expansion.

In July 2007, seven years after its first investment, Leyou received a cash injection of $11 million from AsiaVest Partners. Later, it received a third round of investment totaling $37 million from AsiaVest Partners and Deutsche Bank, making it the largest investment recipient in China's baby-product industry.