Gymboree Grows Up with Janeville

CEO Lisa Harper on why she's testing a clothing chain for women in their late 30s: This group doesn't have a lot of specialty options

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.

Edited by Patricia O'Connell

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