KRU is cooler, but still in transition

DSN Retailing Today, Oct, 2003 by Emily Scardino

When John Eyler approached Babies "R" Us president Elliot Wahle in April 2003 and asked him to add Kids "R" Us to his responsibilities, Eyler's objective was clear: shepherd the apparel business to greener pastures. It was not only a priority, it was a corporate necessity--because if there was one division most would agree needed shepherding, it was Kids "R" Us, which had wandered from its objective and had become the lost sheep in the stable of brands.

What got Kids "R" Us off track in the first place is a confluence of many factors. But one of the principle reasons for its need of an overhaul is the steady rise in budget-focused children's fashion options in the mass market--Wal-Mart's billion-dollar mary-kateandashley brand being just one. In the specialty sector, in particular, there are many more faces than two decades ago, when Kids "R" Us first broke into the business. Limited Too and Abercrombie are considered today's fashion leaders, and price competition from stand-alone concepts like Old Navy has taken its toll.

Keenly aware of this competitive landscape, Wahle is now refocusing and redefining both the Kids "R" Us approach as well as that of the entire apparel business. And contrary to what the numbers show--KRU's store base has actually shrunk from 184 units in 2001 to 146 in 2002--the company is not at all retreating from the category.

"The Kids 'R' Us business is 20 years old right now, and it still obviously appeals to the apparel market, from infants all the way up to preteens," said Elliott Wahle, president of Kids "R" Us. "[But] we don't believe that we can win, or should try to win, strictly by being the lowest price."

Wahle's first order of business, therefore, has been to redefine what Kids "R" Us is all about. So in late 2000, the chain rebranded itself a hipper "KRU" and jettisoned a number of its private labels in favor of a unified, K.R.U. apparel brand. The new KRU store format is still a prototype and work in progress. The company is experimenting with everything from the color scheme--which currently features teal blue, green and white instead of the original primary colors--to the signage, currently a mix of lifestyle imagery, colorful signage and mannequins on elevated pallets.

Taking "kids" out of the name in the remodeled KRU stores, nicknamed "R" Gen, slang for "Our Generation," helps keep older children shopping. The new store format and layout is also designed so that girls and boys sizes, both up to 16, are upfront, and infant and toddler merchandise is tucked away at the back. Mom can shop for all of her children at once, but older children get the impression they are buying the teen looks they aspire to.

"The ['R' Gen] stores generally have a tendency to be our larger store in our more urban, major metropolitan markets," said Wahle. "This really gave us the opportunity to chase a different design, a more contemporary design and a more aggressive fashion offering." This includes new urban brands like JNCO alongside classics like Nike and Columbia.

Brands continue to sell well, specifically fashion-forward national department store apparel brand names. They bring cachet, while the company rebuilds the equity of KRU as a fashion label. The right licenses "are always important," and Wahle stresses that national brands are vital to Kids "R" Us.

Though about 40% of the assortment and volume come from the KRU brand, the rest is a mix of famous names like L.e.i. and U.S. Polo Association. Licensed apparel and accessories also predominate, from Barbie to Yu-Gi-Oh, Fairly Oddparents to Major League Baseball Association merchandise.

But fashion aside, the children's apparel business is always appealing because of the sheer demand--this and Kids "R" Us remain key to the company. "You can buy apparel in about 400 of our toy stores now, and that's a relatively less seasonal business," noted John Eyler, chairman and ceo. High-margin apparel is also a significant or dominant part of the assortment at Geoffrey, and newer Toys "R" Us stores feature a larger selection lifestyle apparel and accessories than previous formats. In the same way Kohl's and other strip mall competitors drive traffic by carrying broader assortments that drive more frequent visits year-round, Toys "R" Us is cross-pollinating its various divisions with complementary merchandise that adds instore excitement and reasons to shop.

But in order for apparel to be a profitable year-round business, the company must first make sure that styling, sizing and pricing are all relevant, according to Wahle. "I think we have a lot of work to do ... to get ahead of the curve to deal with the needs of the guest."

kids "R" us

STORES          146

NET SALES *    $466 mil. ([dagger])

OP. INCOME *   $(106) mil. ([dagger])

Source: Company Reports

Note: All figures as of Feb. 1, 2003

(): loss or decline * Reported as "other"

([dagger]) Reflects sales from the company's four-store Geoffrey
division; reflects operating income from the Geoffrey division, as
well as "corporate assets and related depreciation."