Children's and Infants' Wear Stores

SIC 5641

Industry report:

This category includes establishments primarily engaged in the retail sale of children's and infants' clothing, furnishings and accessories. Such establishments may specialize in either children's or infants' wear, or they may sell a combination of children's and infants' wear.

Industry Snapshot

The infants' and children's wear business consists of hundreds of small independently owned shops and dozens of larger retail chains. Because many of the companies in this industry are privately owned, the exact size of the industry is difficult to determine. Because it is a relatively small market in the apparel industry, this sector has traditionally lacked the fierce competitiveness of other clothing sectors. There are roughly 1,000 children's fashion vendors supplying retailers, and specialty, mass and department store chains selling children's fashions totals just 47. Even in children's specialty shops, apparel accounts for 17 percent of floor space and 16 percent of sales (baby furniture accounts for two-thirds of space and revenues).

In the mid-2000s, the trend in this sector was for clothing and accessories that were smaller versions of the hottest trends for adults, primarily women. The increase in consumer spending on apparel and accessories, begun in 2003, was growing very quickly in the children's sector, particularly in luxury and upscale products and brands. Designers such as Polo, DKNY, and Calvin Klein were entering the market with pint-sized products. Children's apparel sales increased approximately 6 percent in both 2006 and 2007.

According to the U.S. Census Bureau, 7,349 establishments were engaged in the retail sale of children's and infants' clothing, furnishings and accessories in 2008 with industry-wide employment of 91,498 workers. That number grew to 8,413 children's and infants' wear stores valued at nearly $4 billion with 75,660 people employed within the industry. Stores retailing both children's and infants' wear accounted for 55.2 percent in market share, while retailers specializing in children's wear only constituted 40.4 percent of the market. Additionally, 372 infants' wear stores held 4.4 percent of the market with an estimated $80.8 million in sales for 2009.

Organization and Structure

This industry has traditionally been highly seasonal, as with other clothing businesses. Industry sales generally peak between late August and December. During this period, stores compete for precious back-to-school sales and holiday gift purchases. Stores typically generate between 30 and 40 percent of their annual sales in these months. With record high numbers of infants, toddlers, and children attending preschool throughout the year, clothing purchases for this segment are becoming less cyclical.

Because children's and infants' wear stores carry narrow product lines, they are classified as specialty retail stores. Traditionally, children's and infants' wear stores, and specialty stores in general, were small boutique-style operations. These "mom and pop" stores were often undercapitalized and had high overhead costs in proportion to their sales. However, they did not compete on the basis of price alone. Rather, they pursued customer satisfaction strategies, such as offering products with low turnover rates and providing more sales expertise than their competitors.

Competition.
Until the mid-1980s, department stores were the main competitors of children's and infants' wear specialty retailers. As this industry moved into the mid-1990s, however, the growing popularity of off-price and discount retailers presented new challenges. By 1994, discount stores accounted for 36.5 percent of children's and infants' wear sales. These low price retailers expected to expand by outselling both specialty children's wear stores and department stores. Department stores accounted for approximately 35 percent of sales in 1994 while children's and infant's wear stores accounted for 13 percent.

In addition to off-price and discount retailers, smaller children's and infants' wear stores experienced increased competition from chain stores. Eager to capitalize on growth opportunities in the children's wear market, apparel chains such as The Gap, Inc. and The Limited, Inc. launched children's versions of their successful adult stores--GapKids and Limited Too. Toys "R" Us launched their children's wear stores, Kids "R" Us. All of these companies are publicly traded and have access to tremendous amounts of capital. Their entry into the children's and infants' wear industry during the mid-1980s began a shift toward consolidation in the competitive structure of the industry.

Background and Development

At the beginning of the 1990s, the industry felt the impact of a minor recession. Buyers were markedly value-oriented. Children's wear retailers noticed that consumers routinely bought basic commodity-like items such as t-shirts but did not splurge on accessories. Although consumers resisted buying nonessentials, they were willing to purchase new and exciting children's fashions if the price was consistent with their concept of value. Some retailers speculated that infants' wear sales were not as affected by the recession as other retail markets because most items purchased for infants were essential clothing items.

Changing demographics made the children's and infants' wear industry attractive to new entrants and, therefore, extremely competitive. Large retail chains began to penetrate the market. As the industry moved into the mid-1990s the smaller shops experienced intense competitive pressure from these new industry players. Nonetheless, sales continued to grow. Fueling this growth was a rise in birth rates in the late 1980s and early 1990s, which increased demand for infants' and toddlers' wear.

One trend during the 1990s and into the 2000s in the industry is a continued relocation of stores to shopping malls. Working parents with limited time schedules like the convenience one-stop shopping malls provide. In the malls, children's and infants' wear stores and department stores are in close proximity. This arrangement gives customers an opportunity to comparison shop for price and quality. Price points become critical competitive priorities in the mall environment, particularly during a recessionary economic climate.

Product Lines.
Casual merchandise was often carried by retailers throughout the 1990s. Customers purchased fewer frilly girls' styles and moved toward a more informal look. Denim, active wear, and fleece separates were popular fashions for both girls and boys. In the mid-1990s Osh Kosh B'Gosh, a large children's wear manufacturer, estimated that department and specialty retailers sold $500 million in fleece separates alone, which represented 15 percent of the industry's total retail sales. Throughout the 1990s, a casual look continued to be in vogue for toddlers and kids as well as teenagers.

Licensed clothing is one of the best-selling casual lines. Items featuring characters from popular television shows and movie releases sold extremely well in the 1990s. Every successful children's show or movie was released with a line of clothing connected to it. The clothing, featuring cartoon, television, and movie characters, was extremely popular.

Other popular children's clothing items in the 1990s included sports apparel. The proliferation of new sports franchises during the 1990s and the fact that children who grew up with team logo apparel in the 1970s were buying this look for their own kids in the 1990s contributed to the success of sports-team clothing.

National brands are jumping on the bandwagon of children's wear. Dolce & Gabanna, Mudd, l.e.i., Unionbay, and P.L.U.G.G., all successful marketers to the teen crowd, have introduced small-sized versions of their clothing lines. Grown-up designers such as Kate Spade, DKNY, and Polo were offering infant products as well. With the introduction of national brands to the sector, there has developed a trendiness in children's clothing. National brands are not just making kids' clothing, they are replicating the same fashions for the younger, smaller crowd. The challenge has become to shape more mature fashions, such as low-rise jeans, into an age-appropriate product for the younger set.

Independent children's apparel vendors fueled the upswing through 2006 and 2007 by tapping into demand from young parents and Baby Boomer grandparents. For example, new parents Trent and Melissa Nash founded Knuckleheads Inc. in 2005 and had 500 boutique customers in the United States and abroad, selling $40 outfits of retro-design T-shirts, shirts and pants inspired by skateboarders, motorcycles, pirates and bowling. The couple launched an infants' line in the fall of 2007.

Children's clothing was predicted to gain another 2.5 to 3 percent in sales in 2008 after gains of 6 percent the previous two years. Fashions inspired by skateboarders continue to be strong in the late 2000s. "Skateboarding isn't in any form of a recession," Maureen Kendall, who started Little Ruler apparel in 2005 with her skateboard champion husband, Jeff Kendall, told Women's Wear Daily in February 2008. "The market begins with the younger parents who are all over cooler fashion for their child. They don't want the truck and train patterns they had to deal with."

Current Conditions

On a national level, children's clothing sales have declined 7.5 percent over the past two years, however, one industry standout, Gymboree, a children's specialty retailer announced plans were underway to open 75 to 100 new Crazy 8 stores in 2010. "That makes it one of the few specialty retailers to pursue an aggressive expansion even before the Fed has declared "Mission Accomplished" in the battle against the recession," cited from the San Francisco Business Times in March of 2010.

While parents may spend less when it comes to their clothing during an economic recession, whatever their child needs in the way of clothing their needs are met. More importantly, cost is normally not the determining factor when making those clothing purchases. In fact, although the overall clothing industry was down by 6 percent between July 2008 and July 2009, the infant and toddler market was down by only 3 percent. Moreover, children's and infants' wear accounts for $33 billion of the $200 billion U.S. clothing retail market, according to Marshal Cohen, the chief industry analyst for the NPD Group who watches retail industry trends.

Industry Leaders

Discount/Department Store Retailers.
Although the children's and infants' wear retail market was comprised primarily of small independently owned stores, a few large retail chains dominated sales. The large retailers' competitive strategies ranged from aggressive price-cutting to unique product offering. Typically, since such firms derive income from a variety of operations, sales figures are not reported by market sector (e.g., children's/infants' clothing sales) but rather as gross sales from retail operations. Regardless, total revenue reported from retail operations provide some insight regarding the presence these firms have in the children's/infants' clothing wear industry. In 2007, J.C. Penney reported $19.9 billion in retail sales; Target $59.5 billion; Sears, Roebuck and Co., which merged with Kmart in 2005, $30 billion; and Wal-Mart $348.7 billion.

Through its 1,100 stores J.C. Penney reported revenues of $19.8 billion before declining to $17.5 billion in 2010 with 154,000 employees. By 2010 Target operated about 1,750 Target and SuperTarget stores in 49 states. The company grew its revenues to $63.3 billion in 2008 and $65.3 billion in 2010 with 351,000 employees. Sears Holdings Corporation, the holding company created from the merger in 2005 reported revenues of $50.7 billion in 2008, declining to $44 billion in 2010 from the combined 850 Sears stores and 1,325 Kmart stores. The combined companies employed 322,000 workers in 2010. Wal-Mart Stores, Inc. grew its revenues to nearly $379 billion in 2008 and $408.2 billion in 2010 with 2.1 billion employees.

Chain-Store Retailers.
Many chain retailers realize that private label merchandise is more profitable than brand-name clothing. One industry leader, The Children's Place Retail Stores, Inc., developed its own label, "The Place," after years of selling branded merchandise. Children's wear retailers who sold private label merchandise did not have to mark up prices to allow for manufacturer and distributor profits; savings were passed on to the consumer. In a consumer climate that increasingly demanded retail discounting, this pricing advantage gave private label retailers a competitive advantage. Consequently, the Children's Place became popular among young mothers. The toddler and children's clothes there were modeled after adult styles. The Children's Place constantly added and updated its inventory to keep its merchandise current, and in 2004, it bought the retail division of Disney. In 2007, the Children's Place had revenues of $2 billion from its 875 stores. The company shed its more than 200 Disney Stores retail business in 2008, which accounted for about 30 percent of overall company sales. The company reported reported $2.1 billion in 2008 and $1.6 billion in 2010 from the operations of its remaining 950 stores with 23,600 employees.

One of the leaders in private label retailing was The Gymboree Corporation, a large franchise retailer whose 2007 sales were $791.6 million from 580 stores. The company grew its revenues from $920.8 million in 2008 to $1.0 billion in 2010 from the operations of its 635 stores with 12,400 employees. The company was acquired by Bain Capital in 2010 for about $1.8 billion. The company was founded in 1976 by Joan Barnes, a part-time co-director of a children's recreation program at a local community center and mother of two. Barnes developed a popular 45-minute exercise-to-music class that she ultimately expanded to other sites. Her business was a success, and in 1979, Barnes began franchising her baby-exercise classes. By 1985, she had established 204 play centers, but she was not generating profits. Forced to re-examine her business, Barnes decided that "Gymboree could mean more than play classes. Gymboree would mean everything significantly wonderful for kids under five." In 1986, she decided to use the exercise class as a basis for selling children's clothing, which now accounts for 99 percent of Gymboree's annual sales.

The Gap introduced GapKids in 1985 to provide well-designed comfortable clothing for boys and girls aged 2 to 12. GapKids expanded its target market segment in 1990 when it opened BabyGap as a department of a San Francisco GapKids store. By 1993, most of the 272 GapKids stores also offered infants' and toddlers' clothes in the BabyGap department. By 1995 there were 369 GapKids stores in operation. By 2007, Gap operated roughly 3,100 stores in the United States, Canada, France, Germany, Japan, and the United Kingdom. In the late 2000s, The Gap, Inc. experienced declining revenues falling from $15.7 billion in 2008 to $14.1 billion in 2010 with 135,000 employees. A global company, The Gap grew its store count to 3,100 stores as of 2010.

A wholly owned subsidiary of Toys "R" Us, Babies "R" Us operated 215 outlets that focused on infant/toddler apparel and infant/toddler furniture and feeding supplies. Operations were conducted in 25 countries with the largest market presence in Canada, Europe, and Japan. The company operated 260 Babies "R" Us stores in over 40 states as of 2010.

America and the World

Manufacturers of children's and infants' clothing and accessories were well aware of the opportunities overseas, and many had established joint ventures in various foreign markets. Such market penetration efforts, however, have not been very successful. Japan and Europe were two particularly attractive markets for children's wear. In Japan, American products, especially licensed character and team logo apparel, were popular with young people. This demand, coupled with Japan's large market and high discretionary income, made the country a coveted retail market. Europe also boasted a large consumer market and historically high discretionary income, but the stiff competition from European hypermarkets deterred smaller retailers. Nevertheless, GapKids stores were operating in the United Kingdom in the 1990s.

Some of the barriers to global expansion in this industry were clothes sizing and fashion differences. GapKids and The Children's Place, which sold private label merchandise, controlled the manufacture of their clothing and were able to size clothing appropriately for any market. All retailers did not have this flexibility. Toys "R" Us, for example, successfully placed 167 toy stores in 11 different countries including Spain, Japan, and Malaysia by 1993. They had not, however, taken Kids "R" Us international because the brand-name clothing that they offered was difficult to sell overseas. Despite the obstacles, children's and infants' wear retailers continued to investigate opportunities abroad, and they expanded into new markets after the implementation of the North American Free Trade Agreement and the explosion of e-commerce via the Internet.

Research and Technology

Inventory management through advanced automation was a major strategic priority in the retail environment, including the children's wear segment. Larger retailers, for example, implemented automated inventory replenishment systems management to reduce inventory ownership while ensuring that each store was supplied with the correct product mix. The system electronically linked distribution centers, inventory control, and store demand in order to determine the optimal individual store distribution. Other technologies implemented in the children's and infants' retail operations and the retail industry as a whole included cash registers that could calculate discounts, approve credit, accept credit cards, and schedule deliveries. Although this type of technology brought cost savings in the long run, the short run cost of the technology was prohibitive to smaller stores.

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News and information about Children's and Infants' Wear Stores

Definition of terms in the survey of buying power. (1989 Survey of Buying Power; Section A: User's Guide)
Sales & Marketing Management; August 7, 1989; 700+ words
...inclusive group that--aside from men's and women's clothing and accessory stores--also encompasses children's and infants' wear stores, bridal shops, furriers, handbag stores, lingerie stores, custom tailors, and sports apparel stores...
Definition of terms in the survey of buying power - part II. (Section I - User's Guide and Highlights) (illustration)
Sales & Marketing Management; November 13, 1989; 700+ words
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Definition of terms in the survey of buying power-Part II. (1988 Survey of Buying Power: Part II)
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