Executive Summary
The childcare industry has long been a crucial pillar of the U.S. economy, enabling parents to work and contributing significantly to national stability. However, the past decade has seen unprecedented challenges, particularly during and after the COVID-19 pandemic.
Ankura’s Performance Improvement team is keeping a close watch on the current state of the childcare industry in 2024. Our focus areas are:
- Financial Challenges: Financial strains facing childcare providers and potential solutions
- Government Intervention: Impact(s) of government policies and funding on the industry
- Looming Issues: Affordability for families and staffing shortages for service providers
With an understanding of these challenges, we can examine strategic options for childcare providers to navigate this complex business landscape effectively.
Introduction
The childcare industry in the United States experienced stable growth prior to the COVID-19 pandemic boasting a compound annual growth rate (CAGR) of 4.3% from 2014 to 2019. 
However, the onset of the pandemic in 2020 triggered sharp declines. Industry revenue plunged by 13.5%, and operating cash flows shrunk by approximately 60%. The financial strain led to widespread facility closures and a significant shift in market demand. The difficulties were exacerbated further by increased operating costs due to new health and safety regulations.
Government Intervention and Its Impacts
To mitigate the financial devastation caused by the pandemic, the U.S. government enacted several key pieces of legislation, injecting over $53.5 billion into the childcare sector between March 2020 and March 2021:
- The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020
- The Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act in December 2020
- The American Rescue Plan Act (ARPA) signed in March 2021
These funds provided much-needed assistance to struggling childcare providers and helped families with childcare costs to make service accessible and affordable.
Unfortunately, most of the funds were available only through September 30, 2023, leading to an anticipated closure of approximately 70,000 childcare programs. This would potentially affect 3.2 million children and could result in a loss of $10.6 billion annually due to decreased tax revenue and business activity.
Current Challenges
Based on operating results through 2023, the industry faces significant challenges that could hinder its recovery and future growth:
Increasing Demand for Services: The demand for childcare is experiencing a significant increase in 2024 as parents return to in-office work. This is a stark contrast to the demand decreases experienced during the peak periods of the COVID-19 pandemic when many parents opted for remote work or exited the workforce entirely. With the economy stabilizing and more employers now mandating in-office attendance, the need for accessible and affordable childcare services has surged.
Affordability and High Operational Costs: Childcare remains prohibitively expensive for many families, with costs for infant care in some regions reaching up to $15,417 annually, which can consume up to 19.3% of the median family income. These high costs are attributable to expensive operational needs, and compliance with stringent regulations, making services unaffordable for a large segment of the population.
Staffing Shortages: The childcare industry continues to grapple with finding and retaining qualified workers, a challenge compounded by historically low wages and demanding working conditions. Although staffing levels returned to pre-pandemic numbers by October 2022, the quality and quantity of the workforce have not kept pace with increasing demand, further stressed by a median hourly wage of just $14.60 as of May 2023.
Strategic Focus Areas
To address these challenges and position the industry for sustainable growth, businesses within the childcare sector should consider the following strategic initiatives:
- Optimize Staffing: Develop comprehensive workforce management strategies that improve worker retention and job satisfaction. This could involve implementing fair wage policies, providing professional development opportunities, and optimizing staff schedules to reduce overhead costs. Providers should look to simplify administrative tasks, shift to attendance-based forecast scheduling, utilize seasonality for trend profiling, and leverage opportunities to combine classrooms within acceptable staff-to-child ratios.
- Drive Efficiencies Through Technology: Invest in automation and technology solutions to streamline administrative processes, thereby reducing overhead costs. Effective use of technology can also enhance service delivery and customer satisfaction.
- Consolidate Procurement: By consolidating procurement and sourcing functions, childcare centers can achieve economies of scale that reduce the cost of supplies and other indirect expenses.
- Enhance Sales and Marketing Efforts: Develop targeted marketing strategies and sales initiatives to maximize enrollment and minimize vacancies. Effective use of digital marketing tools and community engagement strategies can significantly improve visibility and service uptake.
Conclusion
The childcare industry is at a critical juncture in 2024, facing both significant challenges and opportunities. By strategically addressing these issues, particularly through improving affordability, enhancing workforce management, and optimizing operational efficiencies, the industry can not only survive but thrive in the coming years. These efforts will not only support economic recovery but also contribute to the social well-being of millions of American families.
Ankura’s Performance Improvement team has in-depth, direct experience working with companies in the childcare and early education sector to help address these challenges. We welcome the opportunity to understand your specific challenges and share how we can help.
Sources:
- Day Care in the US: Baby business: Growth in per capita disposable income is expected to benefit the industry as childcare services are likely to remain in high demand, Gabriel Seiler | October 2023
- https://time.com/6314455/federal-childcare-funding-expiring-what-to-know/
- https://tcf.org/content/report/child-care-cliff/
- Bureau of labor statistics employment chart: https://beta.bls.gov/dataViewer/view/timeseries/CES6562440001;jsessionid=3591CA03B8B32620363395772848FC96
- Bureau of labor statistics – childcare worker employment and wages data: https://www.bls.gov/oes/current/oes399011.htm
- https://bipartisanpolicy.org/report/national-state-child-care-data-2023/
- Childcare costs in the United States: https://www.epi.org/child-care-costs-in-the-united-states/
© Copyright 2024. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
