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Posted Date: 10/6/2008

Gymboree's "Mission Impossible" Reaching Every Mom in America

More than three decades ago Gymboree launched one of the first structured play centers for preschoolers, and its programs have remained immensely popular ever since. Today, more than 550 franchised Play & Music centers worldwide offer classes in music, arts, sports and other creative and developmental activities. In 1986, responding to demand from parents, the company entered the apparel business with a line of high-quality children's clothes. Later it added three more apparel brands to the original Gymboree brand, and it currently operates more than 800 stores and several e-commerce sites.

Gymboree's apparel business has experienced remarkable growth over the past several years. Recently, Gymboree CEO Matthew McCauley spoke with Apparel about the company's strategies for success - and how it plans to keep on growing.


Apparel:  Apparel's 2008 Top 50 list showed Gymboree moving up to 12th place from 15th last year, measured in terms of profit margin. Since 2004 your sales, net income, profit margin and earnings per share have all grown dramatically; earnings per share nearly quadrupled between 2004 and 2007. What's Gymboree doing right?
McCauley: The last few years have been a pretty incredible ride. Every function in the company has set quantifiable goals - "Mission Impossibles" - that seem almost impossible to accomplish, and that contribute to company's bottom line. We've divided the entire company into two teams. The "offense" is our obsessed sales drivers, who are asking how we can get more customers and more wallet share of the existing customer base. The "defense" - production, human resources, IT, finance, accounting, operations, and logistics - are masters of efficiency. Their job is to think constantly about how we can do more with less, and leverage more of what we have.
   For example, we asked how we could improve the customer experience in the stores, spend more time with customers, make our employees happier and still reduce payroll. Sounds impossible, doesn't it? But by analyzing the stores, we were able to find more efficient ways of doing things. We figured out when the peak transaction times were and then scheduled everything around those - staffing, inventory replenishment, markdowns, bringing in new lines.  So customer satisfaction goes up, sales go up, and payroll comes down.
   Another thing making us successful is that we're an incredibly nimble organization. The stores can turn on a dime, and the IT team can launch a new concept faster than I've ever seen it done. Our Janie and Jack concept took about nine months to go from idea to store and web site. Our outlet business and Crazy 8 business also each took about nine months to launch, and in almost record time we launched a new web site for the Play & Music division.

Apparel:  How do you discover, and stay focused on, the styles that kids (and their parents) are looking for?
McCauley: When Gymboree launched the retail business 20 years ago, we built a reputation for cute, wholesome clothes that last forever. There was a two-year hiatus [1998 to 2000] where the company took a different design direction, went off track and failed miserably. The company recognized that and made changes in management and design. Now we're back on track, and back to our roots, with wholesome outfits for kids. That's where Gymboree is unique: We understand what's going on in trend, we can lead the way on the fashion side, but we can translate it to make it age-appropriate. That's what moms and dads want from us. They want kids to look like kids, not like "mini-me."

Apparel:  Gymboree now has four brands at different price points. What markets are they targeting?
McCauley: Our vision is to reach every mom in America, in addition to others around the world. The best way to do that is through multiple brands. Janie and Jack is an upper-end concept targeting moms who want the very best European-inspired styles of baby clothes with beautiful detailing. Picture a beautiful little shop on a side street of Paris with knotty pine floors and wainscoting - it's where you'd buy the most beautiful gift for a baby shower.
   Then there's Gymboree, which reaches the middle- to upper-end customer. The Gymboree brand is for moms and dads who want the cutest clothes in mix-and-match outfits - shoes, handbag, and hair accessories that all match with a skirt and top, or boys' clothes that look wholesome but cool, and are rough-and-tumble.
   Crazy 8 is a lower-price-point business for customers who want their kids to look great but at a price. The customer who shops Crazy 8 typically goes to Target, Old Navy or Children's Place. We differentiate by not "talking down" to the customer - it's still an elevated shopping experience with fabulous service and great clothes.
   Finally, the Gymboree Outlet reproduces last year's Gymboree best sellers and sells them in outlet malls. Before we opened these stores, Gymboree customers were going to outlet malls and shopping Gap because we weren't there, so now we've captured more wallet share among those customers. Some new customers are introduced to the Gymboree brand in the outlet stores as well.

Apparel:  How are current economic conditions affecting children's apparel?
McCauley: The economy is impacting everybody, but most parents seem to want to protect their kids, so the child is the last one they stop spending on. Also, kids grow out of clothes and they have to be replaced. Most children's retailers will tell you they see the size of the average transaction slowing. But we're bucking the trend on the number of transactions - we've seen increases in the number of transactions as a result of our focused efforts in marketing.

Apparel: Have you rethought your supply chain strategy based on rising energy prices and the rising labor costs in China?
McCauley: We're in the beginning or middle stages of more aggressive sourcing strategies - we're getting into new countries and new factories. India's relatively new for us, even though other companies have been there a long time. Also, we're in growth mode, opening over 100 stores this year at a time when many retailers are closing stores. That allows us to get better efficiencies and better economies of scale. We can reduce the cost of goods because factories want to work with us. Our new brands are benefiting from larger order sizes.

Apparel:  Do you see future growth occurring through acquisitions or expansions?
McCauley: We've always said we were open to acquisitions if it made sense. But at this point we have substantial growth in Janie and Jack, and we can grow Gymboree through expanding the boy business. Crazy 8 and the Gymboree Outlet can both grow by adding stores. There aren't that many outlet malls, so we might reach 150 Gymboree Outlets altogether [compared to 101 today], but there are a lot more traditional malls, so if we stay on track with Crazy 8 it could ultimately be as big as Gymboree [that is, more than 600 stores, compared to 24 today].
   We're also making major investments in marketing and customer acquisition efforts. By cross marketing and cross promoting we can gain more customers in total. Play & Music is a natural way for us to grab new customers. Seventy percent of the Play & Music customers are new moms, so we welcome them into Play & Music with a beautiful marketing piece introducing all of the retail brands and offering a coupon for each brand and ongoing incentives at the stores.

Apparel: Given the phenomenal growth over the last few years, how do you motivate staff to keep on outdoing their past achievements?
McCauley: Everyone talks about accountability, but here it's so tangible you can walk through the building and ask people what their "Mission Impossible" is, and they'll tell you. They're very energized. People perform at a high level consistently, and we support that with a culture that not only celebrates progress but makes sure people feel they've been rewarded for their efforts. We try to have a party any chance we get, and we hand out bonuses every quarter. We work like crazy and have fun doing it.

Masha Zager is a New York -based free-lance writer who specializes in business and technology.


systems at a glance
Customer Relationship Management: Epicor
Data Warehousing: Oracle
Database Management: Oracle
e-commerce: Escalate Retail (Blue Martini)
Merchandising: Oracle
POS: Oracle


A Customer-Focused IT Department Keeps Gymboree Nimble

Gymboree CEO Matthew McCauley credits his IT department with enabling the company's growth by revamping all of its major systems in the past few years without disrupting operations.

According to CIO Donald Hendricks, the IT department began a complete overhaul early in the decade, matching its initiatives with the company's strategic initiatives in order to provide a "strong operational foundation." New standards for networking, operating systems, hardware, database administration and applications all supported the company's goal of flexibility.

To avoid having his initiatives become simply "IT projects," Hendricks emphasizes close cooperation with operating groups. He operates what he calls a "small, smart team" and focuses on rapid implementation of projects.

Most recently, Hendricks' team rolled out a new point-of-sale system to all of the stores, using Fujitsu hardware and Oracle software. The system is integrated with inventory management, time and attendance management, and signature capture. At the same time, the networks connecting the stores to the corporate data center were upgraded from frame relay to the more cost-effective DSL technology.
 
Oracle is a major part of Gymboree's technology and application portfolio. The Oracle database underlies the company's systems, and Oracle applications are used for merchandising, data warehousing and several other retail applications in addition to POS.

"Having all of these systems talking in near real time is a big benefit for us," Hendricks says. "Even more important is that when the systems talk, it's all automatic, and not a lot of handholding is required." That means that when the customer swipes a credit card in a store, the transaction is reflected quickly and easily in the inventory system, enabling buyers to make appropriate decisions.

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