As CEO of Gymboree, Lisa Harper faces a classic retail dilemma: She's running a fast-maturing chain that already has locations in most desirable malls and shopping districts, and she needs to develop new avenues of growth. As the 587-unit Gymboree kids' apparel chain approaches the saturation point, Harper's strategy is to start specialized niche chains. Harper in 2002 launched Janie and Jack, which sells upper-end baby clothes and gifts, and has opened 32 stores over 18 months.
Earlier this month, Gymboree (GYMB) announced it will test a women's apparel concept called Janeville, Harper's newest niche for the Burlingame (Calif.) company, which last year posted net income of $25.7 million on sales of $566.3 million. BusinessWeek Correspondent Louise Lee spoke with Harper about her plans for Janeville and how it fits into Gymboree overall growth. Edited excerpts of their conversation follow:
Q: What will the Janeville stores look like?
A: We're testing a range of sizes. Stores will average about 3,000 square feet, and we'll be testing in a range of locations. They won't all be in [high-end] malls.
Janeville has a cottage feel. We're emulating a Hamptons cottage. We want each store to have a personality, a residential feel, a combination of a garden and cottage setting, with antique tables, wrought iron gates, galvanized pieces like old flower containers. We'll have 10 by the end of the year.
Q: Who's the target market for Janeville?
A: This woman's life is changing from being under external influences to family influences. We're targeting a 38-year-old woman who has moved from the post-college career years to home and family. She has at least $85,000 a year in household income.
Q: What merchandise will Janeville carry?
A: Our customer's priorities have changed, and her shape is changing too. Almost all our [woven fabrics] stretch. They're beautiful fabrics. We're buying from Italy as well as the Pacific Rim.
We're trying to address a variety of price points -- you'll be able to get an outfit of pants and a top for $98 to $128 -- and we'll let the customer vote. With Janie and Jack, we started with a lot of traditional layette products, but customers said they wanted fashion, so we've dramatically shifted away from layette to more fashion.
Q: How do you plan to market Janeville?
A: At the beginning we'll do direct marketing in the communities where we're opening stores. We're tapping our customer lists from Janie and Jack and Gymboree. We've got 1 million-plus consumers right there. And we're buying additional lists. We'll have an online presence in 2005, and we'll augment that with direct mail.
Q: How much money has the company invested in its newest concepts, and when do you see Janeville turning a profit?
A: We spent $7.5 million in 2002 on development costs for Janie and Jack. Last year, the losses at Janie and Jack plus development costs of Janeville were about $3 million, or 10 cents a share. In 2004, we expect to spend the lion's share of that amount for development costs for Janeville. Janie and Jack will be breakeven in 2004 and profitable in 2005. We're using a similar timeline for Janeville, which would be breakeven in 2006 and profitable in 2007.
Q: Isn't the apparel retail industry already overstored?
A: This segment of the women's market is actually understored. For the older traditional woman, there's Talbot's (TLB) and Chico's (CHS). For the younger woman there's Bebe (BEBE) and The Limited's (LTF) Arden B. But for the 30s age demographic, there aren't a lot of specialty options just for them.
Most stores for women are for the 25-year-old woman. When we ask our target women where they shop, few have a top-of-mind store. They're shopping at a combination of department stores and specialty stores and boutiques.
Q: How do Janeville and Janie and Jack fit into the overall Gymboree Corp. growth plans?
A: This overall strategy developed because Gymboree is a mature concept. We still have some areas to fill in with some Gymboree stores, and we have opportunities to expand existing stores -- we have square-footage growth potential of 15% to 20% over three to five years.
At Gymboree we focus on store productivity and gross margins instead of comparable-store gains. Gymboree is mature but with a lot of productivity left in it, and it throws off a lot of cash to launch these other concepts. For Janie and Jack, we see about 150 to 200 stores total. We'll open 25 stores in 2004. Janie and Jack is a proven model and has a lot of growth potential.
And finally, Janeville is our test concept. Based on our current model, we see this as a 350- to 400-store concept over seven years to eight years. If and when Janeville hits, we'll be able to double our number of stores in the company as a whole. Janeville gives us a great opportunity for growth. This is exactly the way we've planned it.