The Children's Place Retail Stores, Inc.

Hoover's Company Profiles:

The Children's Place Retail Stores, Inc.

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(NASDAQ:PLCE)
Contact Information
The Children's Place Retail Stores, Inc.
500 Plaza Dr.
Secaucus, NJ 07094
NJ Tel. 201-558-2400
Toll Free 877-752-2387

Type: Public
On the web: http://www.childrensplace.com
Employees: 18,300
Employee growth: (3.2%)

If The Children's Place Retail Stores had a grandma, she'd proclaim, "My, how fast you've grown!" The rapidly-growing chain is the largest pure-play children's specialty apparel retail in North America (ahead of Gymboree). It operates about 965 Children's Place stores, primarily in malls and outlet centers throughout the US and about 130 stores in Canada. It also sells apparel online. The Children's Place outfits children from newborn to 12 years old in its own brand of value-priced apparel, shoes, and accessories, most of which is produced by manufacturers in China (38%), followed by Bangladesh, Cambodia, and Vietnam. The Children's Place Retail Stores was founded in 1988.

Key numbers for fiscal year ending January, 2013:
Sales: $1,809.5M
One year growth: 5.5%
Net income: $63.2M
Income growth: (18.1%)

Officers:
Chairman: Norman S. Matthews
President, CEO, and Director: Jane T. Elfers
EVP, COO, and CFO: Michael (Mike) Scarpa

Competitors:
The Gap
Gymboree
Target Corporation

Gale Directory of Company Histories:

The Children's Place Retail Stores, Inc.

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Incorporated: 1969
NAIC: 44813 Children's and Infants' Clothing Stores
SIC: 5641 Children's & Infants' Wear Stores

The Children's Place Retail Stores Inc. operates a chain of children's clothing stores across most of the United States. Its products are designed for children aged newborn to 12. It sells under its own "The Children's Place" brand name. In the competitive children's retail market, The Children's Place offers prices significantly lower than principal brand name competitors. Most of the chain's stores are in malls, with a mix of upscale and more down-market sites. A pair of entrepreneurs started the company on the east coast, and it gradually spread west and south. By the year 2000 The Children's Place had close to 400 stores in 42 states, with plans to expand rapidly. In 1981, the founders sold it to the retail empire of Federated Department Stores. The company is now publicly owned, with about a third of the stock in the hands of CEO Ezra Dabah and his family.

The first Children's Place store was opened by two 1965 graduates of Harvard Business School, David Pulver and Clinton Clark. Pulver and Clark both agreed that they did not want to go to work for big corporations, but it took them several years to decide what kind of business they would like to run. Some of the options they first considered were opening auto repair shops or marketing special meltable crayons. Eventually they focused on opening a children's department store. Both men had children and thought they knew something of what children wanted, so they decided to put this expertise to work. Pulver and Clark opened The Children's Place in Hartford, Connecticut, in 1969. The store sold toys as well as clothing and accessories, a product mix described by Clark in a February 1, 1982 profile in Forbes as "everything for everyone." This strategy was not particularly successful; many lines were unprofitable. Pulver and Clark spent three years adjusting the product mix and learning how to run the store before The Children's Place made money. They chose to focus on medium-priced children's sportswear, along with some name-brand kids' clothing. Pulver and Clark expanded, opening more stores in the east. After ten years, The Children's Place had blossomed into a chain of 34 stores. Revenues were growing at close to 50 percent annually, and profits were growing by a third.

The Children's Place had little direct competition at first. Its stores were primarily located in malls. Consumers could buy children's clothing at mall anchor department stores such as J.C. Penney and Sears, but The Children's Place was generally the only small mall shop selling children's wear exclusively. The chain galloped along, nearly doubling to 65 stores by 1981. Sales were over $50 million. Pulver and Clark took the chain public in 1981, and were apparently besieged by merger offers. The two founders were willing to sell the company, but they did not want to stay on and run it under a corporate boss. In 1982, they sold The Children's Place to Federated Department Stores. Federated was a large chain store conglomerate with sales of around $6 billion. It ran such well-known department stores such as Bloomingdale's and I. Magnin. Pulver and Clark's deal with Federated called for them to train replacements to run The Children's Place, so their association with the retail chain ended soon after the sale.

The chain's growth continued under new ownership. From 1982 to 1986, The Children's Place added on average 20 stores a year, spreading mostly through malls across the northeast and midwest. But under Federated, the chain was no longer as profitable as it had been in its early years. The store sold a mix of brand-name clothes and some private label, but its sales were hurt by discounters offering comparable goods at cheaper prices. A new chain, Kids `R' Us, an offshoot of the mass-market toy store chain Toys `R' Us, also provided new competition. In 1985, The Children's Place lost money, and then stayed in the red for 1986 and 1987.

Federated had made some changes to the chain, remodeling a few stores after a new prototype in 1984, and then progressively remodeling others for the more updated look. The parent company built a new warehouse to handle The Children's Place goods, and hired new staff, anticipating growing the chain to 300 stores by 1990. However, The Children's Place seemed to lose its uniqueness. It lost out to discounters, but it was not as upscale as some of its department store competitors. It lacked guidance from Federated, and this was made worse in 1988, when the Federated conglomerate was bought by a Canadian company, Campeau Corp. Already a small piece of a big firm, The Children's Place was even farther from the center of operations after the sale of Federated. The Children's Place lost $12 million in 1988, and Campeau decided to sell it. It went on the block along with a sister chain it had started in 1986, The Accessory Place. This was another mall-based chain, selling accessories to girls and young women.

By 1988, The Children's Place had grown to 161 stores. Campeau hoped to get bids of $75 million for the chain, in tandem with The Accessory Place, but no buyers were willing to shell out that much. Eventually the two chains together went for $28 million. The purchaser was an investor group led by Morris Dabah, the head of the apparel corporation Gitano Group. Dabah's investor group bought the two chains from Federated, then sold The Accessory Place the next day for $6 million. The chief executive position at The Children's Place was then taken over by Ezra Dabah, who was also president of E.J. Gitano, Gitano Group's children's division. He had a solid background in children's merchandising, extensive contacts with manufacturers, and was a father of five himself.

Ezra Dabah was enthusiastic about running The Children's Place. He knew the company had not been well managed under Federated, but he was sure the chain had great potential. It was still the only national children's specialty chain to be found principally in malls. Its main competitor, Kids `R' Us, was primarily in strip malls or the kind of edge-of-town retail areas where big box stores were found. The mall locale of the Children's Place chain gave it a unique identity. And Dabah believed that children's apparel was a market poised for immense growth. Dabah quickly initiated plans to get the chain back on its feet. He opened two new prototype stores, planning to build other new ones on the same model. These had a bright, open floor plan with walls accented by floral wallpaper; a toddler play area; revamped fitting rooms, including one for handicapped children; video monitors; and colorful posters and props. Unprofitable stores were shut down, layers of management cut, and the merchandise mix was reconsidered. Dabah preferred to go with an upscale image. Ninety percent of the clothing was branded, with labels like Gloria Vanderbilt, Bugle Boy, OshKosh, and Gitano. By late 1989, Dabah was able to claim that The Children's Place would turn a profit that year. Expenses were down, and inventory was turning over faster.

Dabah also announced that the chain would continue to grow. In an article in WWD for September 18, 1989, Dabah revealed plans to add 20 to 30 stores in 1990, and eventually bring the chain up to 400 to 500 stores. Direct competitors were considered the department stores that frequently anchored malls, such as J.C. Penney and Macy's. Price was not to be the main draw at The Children's Place. "The big come-on," Dabah declared to WWD, "will be the merchandise itself."

Nevertheless, The Children's Place remained financially troubled. Between 1990 and 1992, the company lost $60 million. Store closings outnumbered openings, bringing the total number in the chain to only 90. The investor group that had bought the firm filed for Chapter 11 in November 1993, along with Ezra Dabah and three other members of his family. The Dabah's Gitano Group was not doing well, either. It filed for bankruptcy in 1994. The Children's Place had trouble meeting its payments, and finally agreed in 1993 to an out-of-court settlement restructuring its debts. This allowed the firm to remain in business. Three years later, the company was still not financially sound, and it brought in two outside firms to help it handle its debt. These were Saunders Karp & Megrue (SKM), which took a stake of over 30 percent in The Children's Place, and Nomura Holding America, which took a smaller stake of around nine percent. The Dabah family continued to hold the remaining stock.

By 1997, the company had changed its marketing thrust somewhat. Instead of offering high-priced brand-name merchandise, it sold good quality but value-priced children's clothing under its own brand name, Children's Place. This gave it more of a competitive edge against the many retailers it was up against in the children's market. These newcomers included Gap Kids, Baby Gap, and Old Navy, all offshoots of The Gap; Limited Too, a children's version of the long-standing mall-based The Limited chain; and Gymboree, a nationwide chain of children's clothing stores. The Children's Place continued to vie for market share with J.C. Penney, Sears, and other mall department stores, as well as Kids `R' Us. The Children's Place set the price of its private label clothing at 20 to 30 percent below most of its mall-based competitors. Its Children's Place brand was sold exclusively in its own stores. In 1997, the company vaunted its new, improved image to attract investors for an initial public offering (IPO). By then it had grown to include 130 stores. Sales in 1996 of $122 million had given the firm a slim $1.65 million in profit, but for 1997 the figures were better, with net income of over $30 million on sales of around $144 million.

The Children's Place hoped to raise $70 million with its IPO. In fact it raised $50 million, which went to pay off debt. SKM, which had taken a stake in the company in 1996 to help turn its finances around, sold off its holdings in the IPO. More than 40 percent of the stock remained in the hands of CEO Ezra Dabah, and the company's board in total held almost 80 percent. The publicly traded shares started out at $14, and soon reached a high of over $16. But unseasonably warm weather depressed fall sales, and a month after the September IPO, The Children's Place announced that it would have lower than expected results for that quarter. The stock plunged, and shareholders sued.

However, a year later, the stock was performing well, and the company seemed back on track. Though the company faced stiff competition from Gap Kids, Gymboree, and others, its lower pricing set its stores apart. The chain kept up its expansion, moving west and south. In 1998 it had 180 stores and looked forward to opening many more. Its stated goal was to have 800 stores by 2004. By 2000, the chain's growth seemed more assured than at any time in its recent past. Over the three years since the public offering, sales rose 44 percent, topping $400 million, and earnings also climbed by over 15 percent. The Children's Place opened 84 stores in 1999, and planned 100 more openings in 2000. Analysts in various publications agreed that The Children's Place had at last found itself a unique niche. A retail analyst quoted in Crain's New York Business (May 3, 1999) claimed "There's not another concept out there like them. ... The clothes offer great value, and they're fashionable." Another industry expert quoted in Business Week (May 29, 2000) echoed this, declaring the chain's stores "have a real and unique niche." Ezra Dabah, quoted in the same article, crowed that "We do well where our competitors cannot." The secret was the mix of fashion and low pricing. The Children's Place could open stores in fancy upscale malls, where they fit in because of the bright look of the d├ęcor. But its stores did well too in more cost-conscious malls and retail strips, because the clothes were priced for value. Dabah's long experience in children's clothing apparently allowed him to keep costs down. Another analyst interviewed in the Crain's New York Business article mentioned above declared, "Most companies go to the factories and say, `I want a pair of jeans for $5.' Ezra negotiates every single element. He goes in and says, `I'll pay this price for the zipper and use this kind of stitch.' In the end, he comes out with good quality at a great price."

Good quality at a great price was almost a universal retailer's dream. As long as Dabah could continue to manage this for The Children's Place brand, prospects at the chain looked bright. Children's clothing was expected to be a hot growth industry in the 2000s, as the "baby boomlet" ensured that children were a growing percentage of the population.

The chain planned to expand its number of stores, moving south into the Sunbelt and farther west as well. It also found more locations by increasing the number of stores within one city. It often clustered more stores near an existing location, or near its competitors' stores. And when moving into Portland, Oregon, for example, it opened not one store but five within months of each other. With room to grow and at last a seemingly reliable retail formula, The Children's Place looked forward to becoming an even bigger player within the children's clothing market in the years to come.

Principal Competitors: Gymboree Corporation; J.C. Penney Company, Inc.; Kids `R' Us; Gap Kids.

Further Reading

Auerbach, Jonathan, "Children's Place Seeks Out-of-Court Settlement," Daily News Record, February 26, 1993, p. 10.

"Campeau's Federated Sets $30 Million Sale of Children's Place," Wall Street Journal, November 10, 1988, p. B12.

Chanko, Kenneth M., "Gitano Makes Deal for Children's Place," Discount Store News, January 23, 1989, p. 1.

"Children's Place: Hey, Good-Looking," Business Week, May 29, 2000, p. 190.

Cuccio, Angela, "The Children's Place: Born Again," WWD, September 18, 1989, p. 4.

Denitto, Emily, "Kids Apparel Retailer Survives El Nino as Stock Recovers Allure," Crain's New York Business, July 13, 1998, p. 4.

Fitzgerald, Beth, "Stocks Plunge at Children's Place Apparel Stores," Knight-Ridder/Tribune Business News, October 15, 1997.

Forman, Ellen, "Secret Memo Gives Details of $7.4M Loss at Children's Place," Daily News Record, August 1, 1988, p. 3.

Gault, Ylonda, "Third Time's the Charm," Crain's New York Business, May 3, 1999, p. 3.

Goldfield, Robert, "Kid's Clothing Chain to Open Local Stores," Business Journal-Portland, March 17, 2000, p. 3.

Moin, David, "Children's Place Is Growing Up," WWD, August 24, 1998, p. 18.

Reeves, Scott, "Niches Can Get Crowded," Barron's, September 29, 1997, p. 39.

Rohmann, Laura, "Golf Is Boring, Anyway," Forbes, February 1, 1982, pp. 104-05.

"The Children's Place Sizes Up New Sites," Shopping Center World, July 1998, p. 26.

Wilson, Marianne, "A Second Childhood," Chain Store Age Executive, October 1989, pp. 21-23.

— A. Woodward


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