Was Gymboree doomed before the LBO?
Taking on a massive amount of debt definitely restricted Gymboree’s ability to invest in its business, but it’s possible the company was in trouble before Bain Capital arrived on the scene. Sales per square foot, for example, was trending downward well before the takeover occurred.
In FY 2007, the average Gymboree store generated $1.146 million in sales. By FY 2010, this figure had declined to $990,000.
This decline isn’t related to the LBO because Bain Capital didn’t take over Gymboree until 2010. The fact is that Gymboree’s growth peaked and then began to decline prior to the takeover. Gymboree had robust same-store sales growth of 7% in FY 2007, but showed no growth in 2008 and a 4% decline in same-store sales in FY 2009.
A major caveat:
A recession took place in the U.S. during 2008-2009, so Gymboree’s poor performance prior to the 2010 takeover could be attributed to general economic conditions. However, a major selling point of Gymboree had been that the company was supposed to be somewhat insulated from overall economic conditions since it sold children’s clothing. In any case, Gymboree was in trouble before it was acquired by Bain Capital.