700 Airport Boulevard
Based in Burlingame, California, Gymboree Corporation designs, manufactures, and retails unique, high-quality apparel and accessories for children from birth through seven years of age. In the mid-1990s the company was operating more than 279 retail stores throughout the United States and was planning to expand globally throughout the late 1990s. Gymboree also operates parent-child developmental play programs for children through the age of five years old. In 1995 it had franchised roughly 400 such centers internationally. The company grew rapidly during the late 1980s and into the mid-1990s by focusing on its retail operations.
Gymboree's children's recreation and exercise operation represented a relatively meager portion of its income by the 1990s, but it was that business that launched the venture in the 1970s and established a foundation for its future success in the retail industry. The concept of a commercial children's exercise program was inspired by Joan Barnes. Barnes, in her early 20s, had taught modern dance to children in New York City before organizing a children's recreation program for the Jewish Community Center in San Rafael, California. She was serving as the recreation administrator at that center when, in 1975, she came up with the notion of offering exercise classes for babies with their parents. The idea stemmed partly from her personal desire to share physical fitness playtime with her own daughter.
The baby exercise classes were an instant hit. Parents lined up to bring their babies and toddlers to Barnes's exercise sessions. Recognizing the commercial potential of her idea, Barnes left her job with the Jewish Community Center and opened her first commercial children's workout center in 1976. She had little trouble filling her classes with enthusiastic parents. She knew that she was dealing with a viable business concept, moreover, when some of those parents started asking her about opening their own children's exercise centers. After polishing her concept, Barnes did start opening other centers in the late 1970s.
Barnes recognized that her expertise was working with parents and children, not in building a sprawling franchise business. To help her take the concept cross-country, she hired franchise specialist Robert Jacob, who was best known for developing the hugely successful Midas International car-service franchise system. Jacob helped Barnes set up a successful licensing program for Gymboree centers that focused on low start-up costs. Franchisees typically paid Barnes a $20,000 start-up fee, which included about $8,000 worth of equipment and enough money to get the center moving. The franchisees also agreed to pay Barnes six percent of their revenue. To help fund the expansion effort, Barnes turned to venture-capital firm Venture Partners, of Menlo, California.
The Gymboree franchise effort was a triumph. By 1984, 125 Gymboree franchises were operating in 20 states and were bringing in more than $1 million in revenue annually. The franchises were typically operated by women, many of whom had training in occupational therapy or education. Classes were usually held in church halls and community buildings, and parents were charged only $4 to $8 per 45-minute session. Classes varied to accommodate children ranging from three months to four years in age, but a typical session included the children hanging from bars to build up arm muscles, popping soap bubbles to develop eye-hand coordination, or walking on inflated logs to improve balance. In addition, the tots could exercise on brightly colored tunnels, slides, and other apparatus, and no class was complete without a visit from a clown-puppet named "Gymbo."
By 1985 Barnes's net worth had sailed past $1 million. As important to her as the financial gain, though, was the success of her idea: "It's a neat feeling to know the same scene is going on in scores of centers at the same time," she said in the May 1984 Money. "It feels like I've given birth to a new experience." Barnes had, indeed, given birth to a viable concept, as evidenced by Gymboree's rapid expansion during the mid-1980s. By 1987, in fact, the Gymboree chain had grown to include more than 350 centers throughout the United States and in ten foreign countries. Those units were generating over $10 million in annual sales. Importantly, the Gymboree name had become known and respected by parents.
Barnes decided in 1986 to start capitalizing on the goodwill that Gymboree had accrued since she had opened the first exercise center in 1976. To that end, she opened the first few Gymboree retail stores: "... because we recognized that we have a unique marketing platform," she said in the November 1987 Chain Store Age Executive. "No one could approach our authenticity, no one could knock off what we do because of the number of children already participating in our Gymboree programs." The first Gymboree stores piggy-backed off of the original Gymboree concept. Approximately 1,000-square-feet in size, they were designed similar to a children's gym, incorporated displays that looked like bleachers, had video screens showing tapes of Gymboree exercise classes, and had pictures of Gymbo the clown throughout.
The first Gymboree store, opened in 1986, was a success. With financial backing from Venture Partners, Barnes opened an additional 15 stores by the end of 1987. The initial idea was to open the stores in areas where Gymboree centers were established (although the company eventually determined that the concept could work in areas without an established customer base). The outlets stocked about 60 percent apparel and 40 percent hard goods and targeted a price range that attracted buyers between the upscale and middle-income markets. Gymboree sustained its unique image and increased profit margins by designing and manufacturing many of its own products, which couldn't be found in other stores.
By 1989 Gymboree was operating 32 retail stores, mostly in malls, in addition to its base of 350 Gymboree franchises. Sales rose to nearly $17 million, although the company posted a net loss of nearly $1 million. It was clear that Gymboree's future was in retailing, rather than in children's fitness. Barnes's influence in operations had steadily declined in proportion to the amount of money infused by her investment partner, U.S. Venture Partners. U.S. Venture Partners believed that the company was failing to reach its potential, so the investment company began installing a new management team that it hoped would take Gymboree to new heights.
In 1989 U.S. Venture Partners brought in Don Cohn to serve as chairman and chief executive of Gymboree. Cohn was the founder of the successful New England Clothing Co. and had served stints with such venerable retailers as Mervyn's, Laura Ashley, I. Magnin, and Ross Stores. Among other moves, Cohn adopted an incentive-based approach to sales by allocating work hours to store employees based on a sliding scale influenced by their performance. He also fired several managers and brought in more experienced retail executives. Cohn also received much of the credit for the company's successful initial public offering in March 1993 that brought $43 million into Gymboree's coffers.
Partly as a result of Cohn's efforts, Gymboree's sales increased to $48.5 million in 1991 and then to a lofty $68 million in 1992 (fiscal year ended January 31, 1993), while net income rose to a healthy $6.9 million. The total number of retail outlets increased to 120 in late 1993, by which time Gymboree was employing more than 2,100 workers. Despite impressive gains, however, Cohn was forced to resign in 1993 to make way for a new chief executive: Nancy Pedot. In fact, it was Pedot, as the manager of Gymboree's merchandising strategy, who had been largely responsible for the chain's rapid rise during the early 1990s.
Pedot had been hired by Gymboree in 1989 to serve as a general merchandise manager. Previously, she had worked at Mervyn's Inc. as a division merchandise manager. She was effectively handed Gymboree's 32 retail stores and told to fill them with products. She quickly revamped the stores' entire product line and introduced brightly colored, high-quality jumpers, dresses, pants, and tops for newborns to six-year-olds. The Gymboree-brand apparel was a hit and per-store sales surged. She augmented that effort by reducing the number of toys in the product mix and shifting the focus to high-margin clothing items. The change moved Gymboree into a higher price bracket, which paid off in some of the highest profit margins in the industry.
Pedot's appointment as the president and chief executive cemented a near matriarchy at Gymboree, where the six vice-presidents for production, real estate, human resources, stores, merchandising, and franchise operations were all women--only the chief financial officer of the company, James Curley, was male. Under the direction of that management team, Gymboree sustained the aggressive growth it had achieved in the early 1990s, opening a stream of new Gymboree retail outlets and pushing both sales and profits to record levels. Indeed, revenues in 1993 rose to $130 million and net income doubled to $14.1 million. By late 1994 the Gymboree chain had grown to more than 200 stores throughout the United States.
Gymboree continued to expand during 1995, adding more than 50 new outlets to its chain. At the same time, management began intensifying efforts to whip the sprawling distribution and inventory operations into line. To that end, new purchasing, planning, and distribution managers were hired, and new information systems were implemented. In addition, the company launched a Gymboree mail-order catalog and introduced larger goods like furniture into many of its stores. After posting an average annual growth rate of 63 percent over five years, Gymboree increased revenues in 1994 (fiscal year ended January 31, 1995) to $188 million, about $22.2 million of which was netted as income.
To sustain future growth, in 1995 Gymboree began exploring the possibility of overseas retail expansion--its exercise franchises were already operating in Taiwan, Mexico, and eight other countries. Pedot identified potential areas for expansion in Europe and announced plans to open overseas retail units in late 1995 or 1996. In addition, the company planned to increase the size of new stores in the United States and to add more merchandise, in keeping with the superstore concept sweeping the retail industry in the mid-1990s. Gymboree was also working to develop its own educational toys and products and to extend its targeted age range to seven-year-olds. The company hoped to have as many as 500 Gymboree retail outlets operating by 1998.
Comment about this article, ask questions, or add new information about this topic: