Kiddie clothier Gymboree
Once again, CEO Matt McCauley drew our attention to possible Play & Music synergies waiting to be tapped. Roughly 400,000 families attend these early-childhood development programs every year, and McCauley says that 70% of these parents are new moms. Getting them emotionally invested in the brand, and addicted to the Gymboree concept, is a major growth opportunity.
To that end, the company sent out a "benefits package" to all its Play & Music customers in April, with invitations to exclusive "Circle of Friends" discount events to raise awareness of the retail brand.
Going the other way in the retail-and-play group relationship, you'll be able to sign up for classes in your local retail store by the first half of 2008, since the test markets responded nicely to that project. A new customer relations management (CRM) software package will roll out in that time frame, too, giving the company more detailed information on who buys what from where, how often they do it, and why.
That's an in-house development, tailored to Gymboree's unique needs. The software should help feed class enrollments and marketing efforts, which in turn pushes more data into the system. It's the law of increasing returns at work.
All of this makes me a happier investor. I've asked for tighter integration between the two segments for some time, because I've seen the near-fanatic devotion to Gymboree those play-group moms can develop. It seems so obvious that you'd want as many raving fans as you can get, both for the direct sales they bring in and for the powerful -- and free! -- word-of-mouth advertising.
Card game, anyone?
In other growth news, McCauley told us more about the new store concept he hinted at in the last earnings report. This lower-priced chain, called Crazy Eights, will target busy moms working for their kids eight days a week, from getting them out of bed at eight in the morning to "jumping on the bed" at 8 p.m.
Ten stores are going up in the second half of 2007, spread across three or four test markets. Despite the lower-priced merchandise, Gymboree will still aim for upper-crust and middle-class malls, rather than budget shopping centers. Even affluent customers apparently consider kids' clothes disposable, and don't necessarily want to spend a lot on such wear-and-tear items.
Crazy Eights stores will have a wider aim than Gymboree or Janie & Jack, covering a 0-14 age range with a better-stocked boys' section. The company pulled out of its Janeville concept last year, but that was always a departure from Gymboree's strengths anyway. The new brand still caters to kids, where Janeville wanted to dress mom.
Skipping a beat
Gymboree spoke very little about the upcoming quarter. That's understandable, since summer is weak for the company, and for rivals like Gap Kids
The back-to-school season is where Gymboree makes its bets count. McCauley and his management team now have a school year under their belts, and stand ready to capitalize on what they learned last year. They've listened to customer demand for school uniforms, particularly outfits conforming to tighter uniform codes. Backpacks are back, with a focus on function over design, again in response to popular demand.
Gymboree has been playing with denim walls in a handful of stores, and it plans to widen that approach in time for school. A heavy marketing push will support these items, possibly with direct mailings and other high-cost tactics. McCauley believes that the returns will be well worth it.
In all, it was an encouraging call. All of these things sound like fine opportunities for a growing small-cap retailer, and the company is very close to achieving its stated goal of 15% trailing operating margins.
Once that's met, I expect them to raise the bar and reach for even more excellence. You don't see a lot of clothiers outpacing Gymboree's net margins, and you have to reach into rarefied air in the high-end sphere to find them. We're talking about Nordstrom
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Fool contributor Anders Bylund is a Gymboree shareholder but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like. Foolish disclosure still loves the occasional juice box.