By  on June 11, 2007

SAN FRANCISCO — Gymboree is adding a third leg.

It's been 21 years since the retailer branched out into children's apparel after building a following with its original business: storefront early-learning play centers emphasizing yoga and music. Now the company is launching its third children's clothing store concept, Crazy 8, targeting a lower-priced end of the market to compete with retailers like Target, the Children's Place and Old Navy. The first Crazy 8 stores will open in August in northern and Southern California, the Houston area and sites in the Northeast.

Gymboree in January closed the last of its 17 Janeville stores — a concept launched in 2004 selling casual fashions to women in their mid-30s and older. The boutiques never took off and dragged down earnings. In announcing Janeville's closing last October, Matt McCauley, Gymboree's chief executive officer and chairman, noted in a statement the need to focus on "developing new opportunities that are more in line" with Gymboree's core kids' business.

Crazy 8 plans to clothe infants to size 14, roughly up to 10 years old, in attractively priced fun fashion that doesn't scrimp on fabric and has sturdy buttons and secure stitching, said McCauley in an interview at company headquarters here.

"If you look just at the prices, you might expect cheap. We believe in offering the opposite," said McCauley.

As an example of how Crazy 8's prices run, $25 will buy an outfit of embroidered jeans with hidden elastic waistband and a T-shirt stamped with a graphic design. In the mid-$30 price range, shoppers will find a sleeveless olive cable-knit hoodie, long-sleeved white shirt in a periwinkle print and cuffed brown trouser shorts.

This year, the company plans to open 10 Crazy 8 stores in the U.S. in three or four major markets, but locations have yet to be announced. Eventually, McCauley expects Crazy 8 to be the size of the company's core apparel business, Gymboree, which operates 581 stores in the U.S. and Canada.

Gymboree's move into the lower-priced, high-quality realm is strategic, said Marshal Cohen, chief industry analyst for The NPD Group, describing a niche with a lot of elbow room where shoppers want something more than Wal-Mart's discount prices and quality. Overall, U.S. children's retail apparel sales last year were $36 billion, or 18 percent of the total $200 billion domestic apparel market.Crazy 8 also steers the company into a trendier fashion niche, Cohen said. "Now Gymboree has a very young-focused brand," he said. "That is why they are stepping out a bit."

The company's reputation for being service-oriented and offering good quality follows it into the new venture, Cohen said.

In 1986, the company first capitalized on the success of its Gymboree Play and Music centers, also used for birthday parties, to start Gymboree stores selling mix-and-match colorful children's fashions. The stores clothe newborns to 12-year-olds, in a midpriced market where this summer, for $57, customers can buy capri pants with strawberry appliques and contrast stitching paired with a gingham and lace smocked top.

Five years ago, the company turned its sights on customers shopping for classic kids' styles for newborns to five-year-olds and started Janie & Jack, which has an exclusive, boutique image. Examples of what's being offered this season are white cropped pants with a fruit print and a yellow sleeveless poplin top with bow and shirring for $62, and a peach cotton sundress with crocheted bodice and breezy gauze skirt for $48.

There are 544 franchised Gymboree Play and Music centers in the U.S. and 30 in other countries. There are also 57 Gymboree outlet stores selling top styles from previous seasons that are produced anew. This year, 20 Gymboree stores, 45 Gymboree outlets and 15 Janie & Jack shops are slated to open.

Crazy 8 is being launched as Gymboree Inc. ended its fiscal year 2006 with comparable-store sales up 12 percent from 2005, and net sales of $791.6 million, up 19 percent over the year. For the first quarter of 2007, comparable-store sales increased 3 percent from January through March last year, and net sales were up 13 percent, to $209.3 million.

While the name Crazy 8 is a nod to the venerable children's card game, McCauley said it connoted how parents' busy lives are crazy all week and they need a place to find attractively priced clothes kids can wear "8-to-8," he said. The stores also will carry footwear and accessories.

Despite the lower-price concept, the 2,500-square-foot stores aim to convey a higher-end shopping experience, McCauley said, standing in the middle of a prototype created at company headquarters with some Crazy 8 fixtures and merchandise. He cited successes of similar strategies at For Love 21, the accessories store concept of Forever 21 stores, and with Jet Blue airlines, of offering lower prices without looking like it.Crazy 8 stores are designed to be bright and calming with pendant and recessed lighting fixtures, cherry wood floors and ivory wardrobes, tables and shelves to display merchandise. Hardware and shelves are interchangeable throughout, which helps keep costs down. Older children's clothes are at the front so customers don't feel as if they are shopping at an infants' store. In the back behind a wardrobe is a large couch and a 50-inch plasma television where parents can stow kids while shopping.

"These kids are just at the edge where they are influencing mom's fashion decisions," McCauley said of older customers, in the third or fourth grade. Parents are looking for "wholesome, age-appropriate clothing." McCauley was named chief executive and chairman of the company last year. He's moved up the ranks since 2001, when he joined Gymboree after working at several posts at Gap Inc., also in San Francisco.

Anya Dinovich, vice president of design, said ideas for the Crazy 8 line had come from all over — vintage illustrations, flea markets and designers playing around a table with fabrics and other material in search of something to suggest a fashion statement.

"It's a real fresh approach," said Dinovich, who's expecting her second child. "It's definitely challenging, but it's also doable," she said of keeping production prices down and quality high.

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