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Last week, at the CIBC World Markets 7th Annual Growth Conference, management from Gymboree
A playful and musical beginning
Gymboree began nearly 30 years ago when it launched its Play & Music program, which creates developmental play, music, and arts classes for parents and children from newborns to five-year-olds. This is a franchise part of the business, and Gymboree has been very successful in using it to reach new customers.
Although Gymboree does not offer these programs in my area, my son and daughter have attended similar programs with great results, so it's easy to see how parents who are happy with the program would easily become loyal Gymboree customers.
Gymboree has recently begun taking advantage of the success of the classes by presenting offers to parents who have been satisfied with its Play & Music program. Every new customer who signs up for the program receives a welcome kit, introducing them to all of the Gymboree brands and giving them incentives to shop at the company's retail stores. With almost 400,000 new customers a year, I wonder why management didn't take advantage of this opportunity earlier.
Bountiful brands
Gymboree's first retail stores opened more than 20 years ago. It now operates more than 581 locations in the U.S. and Canada. Its namesake stores consist of what management claims customers identify as "the cutest clothes that last forever." The company is proud that its styles are not simply smaller versions of adult clothes. Instead, it offers age-appropriate matching outfits designed specifically for kids in sizes 0 to 12. As a father who's less than great at putting outfits together, I certainly appreciate the matching aspect of the clothing.
Just five years ago, Gymboree went after the high-end customer, introducing its Janie and Jack brand. With styles inspired by Europe, and stores management feels recall what you'd find on a side street in Paris, Gymboree is certainly after a specific parent: those who desire the heirloom look.
With the high-end and average shoppers accounted for, Gymboree decided to offer clothing to the value-oriented parent when it opened its first outlet location about three years ago. The key point to these stores is that they don't contain unsold markdowns from its other locations, but reproductions of its popular, original offerings discounted approximately 30%. The company operates very inexpensive stores with tight teams, enabling Gymboree to turn a profit in just six months.
Being bullish on crazy
As if it didn't already have a product for every customer, Gymboree then decided to institute its newest brand -- Crazy 8. The idea behind this brand is great products at great prices. The company realizes there are parents out there who can afford the Janie and Jack clothes, but refuse to pay top dollar for clothes their children will outgrow in no time. Like its outlet stores, Crazy 8 is about 30% less expensive than clothes offered at Gymboree locations.
Competing in a segment with a plethora of competition, including Children's Place
With its matching outfits, Gymboree caters more to babies and girls than it does to boys. However, its boys' segment has been its fastest growing business. Taking advantage of that, Crazy 8 will offer more clothing focused on boys with a more casual approach to matching items. This brand will also offer clothes up to size 14, larger than Gymboree has offered in the past, allowing it to keep its loyal customers just a bit longer.
Gymboree is being quite aggressive in its launch of Crazy 8. It will open 10 to 20 stores this year, more than would be typical of a test. That's not to say the company's not approaching matters cautiously. It realizes there will be some cannibalization with its Gymboree stores, so it wants to get an idea of just how much right up front. To do that, it will open some Crazy 8 stores in the same locations as its Gymboree stores, though most will open where there isn't already a Gymboree. This helps the company minimize its risk; if its Crazy 8 concept is a complete failure -- which management considers very unlikely -- it will simply flip those stores into a Gymboree.
Growing into the future
Despite its large footprint, Gymboree expects to be able to grow an additional 35%, not including its new Crazy 8 stores. It estimates more than 10% annual growth over the next three years. Three years is obviously not a long time, so it will also look to attract new customers to further expand.
To do so, it will continue to emphasize the success it has seen in its boys' clothing. It will also concentrate on the newborn and baby market. Obviously, if it can generate interest in these products, it should expect to have customers for several years to come. Gymboree has also begun offering new sizes to cater to a larger customer base. Finally, it will focus on seasonality. It seems intuitive that a company selling children's clothing would get involved in the back-to-school market, yet it only started to focus on that season in the last couple of years.
The changes at Gymboree have thus far turned out quite well for the company and its investors. Its new management team has successfully implemented strategies that it probably should have been focusing on all along. The true test going forward will be whether Gymboree can leverage its recent success and continue to develop new ideas for growth.
For more on the growth at kiddie retailers, check out:
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Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article. The Fool's disclosure policy misses Garanimals.
