Hayley Arita, Union, N.J., has 5-year-old twin daughters and a 10-year-old son and shops at Children's Place because "it's like Gap stylish, washes really well, but you get a lot more for the dollar."

Anna Cifelli, of Nutley, N.J., has two daughters, ages 1 and 4, and "loves" Gymboree because "the quality of clothes is better than any other store even though it's a bit pricier" because she gets items such as leggings, embroidered socks and hair accessories.

Customers such as Arita and Cifelli are helping Gymboree Corp. (GYMB) and Children's Place Retail Stores Inc. (PLCE) chip away at the tight hold big-box stores Target Corp. (TGT) and Wal-Mart Stores Inc. (WMT) have on the children's retail market. Both implemented new concepts within the last two years such as direct mailings and lower prices on "key items" to bring in new shoppers. Meanwhile, the companies fine-tuned other programs to keep loyal customers spending money for a longer period.

Experts and analysts estimate the U.S. children's retail market will be about $30 billion by the end of 2006. Analyst Thomas Filandro of Susquehanna Group said specialty stores represent about a quarter of the total market, but "( Gymboree and Children's Place) are in the best position to continue to grow market penetration."

Andin both cases, they've already begun to do so. During fiscal 2005, Children's Place opened 55 flagship stores, while Gymboree opened 12 flagship stores. As of Oct. 28, Children's Place owned and operated 851 flagship stores, while Gymboree operated 557 flagship stores.

Both companies' stocks also have been doing well, recently, too: Gymboree's stock reached a 52-week high of $48.65 on Oct. 26, while Children's Place hit its 52-week peak of $71.37 on Oct. 27. Recently, Gymboree traded at $46.63, while Children's Place was at $71.10.

Management Makes A Difference

Experts cited the management of both companies as being instrumental in the performances. Gymboree Chairman and Chief Executive Matt McCauley - who, at 33, is one of the youngest chief executives on Wall Street - became president in February 2005 before being promoted to CEO this January and chairman in July. During January's management moves, Kip Garcia replaced McCauley as president, while Blair Lambert remained chief financial officer and chief operating officer.

Filandro said McCauley's background in planning and allocation at Gap Inc. ( GPS), where he held a variety of positions, and Lambert's focus on cost details have helped strengthen Gymboree's operational base.

Children's Place President Neal Goldberg took over that clothing chain almost three years ago, and "arguably, Children's Place has one of the strongest and if not the strongest management team in specialty retail," Filandro said. Goldberg was president of Gap's outlet division and also worked at Limited Brands Inc.'s (LTD) Victoria's Secret Beauty unit.

Children's Place Focuses On Visuals, Coupons

Goldberg said he's focused heavily on visual presentation because customers buy what they see. Children's Place, which has a more than 4% market share and whose core customers range from infant to 6 years old, has more mannequins per square foot than similar children's clothing retailers because "you come in and see how to put an outfit together, whereas big-box stores don't spend as much time on visual presentation," Goldberg said.

And customers notice. Arita said, "They show you things that you would have never thought would go together." At Easter, she said, the company displayed striped-knit sweaters, polka dot and plain skirts, striped shirts and headbands that all matched.

Analyst Kimberly Greenberg of Citigroup said, "The store is much better rounded than it was two-and-a-half years ago; they have eye-popping bargains to draw customers into the store, which is in-line with pricing a big-box retailer has, but they've layered in better fashion pieces for that consumer that can afford them."

Children's Place, Secaucus, N.J., "draws an unusually broad stream of consumers from those with incomes in excess of $100,000 to lower income levels," analyst Margaret Whitfield of Ryan Beck & Co. said.

Filandro said that now, Children's Place is reaching a broader audience through in-store merchandising, aggressive mailings and print advertising. The store has deals on key items such as skorts, skirts and graphic T-shirts and made itself a key destination in the mall for denim. "At two for $28, the brand hallmark value rings loud and clear," Filandro said.

Arita and other Children's Place customers touted the coupons they get in the mail for 15% off, which one can combine with coupons from the company's Web site. Another plus is "you see the ensemble on a kid on the coupon, and then you go into a store and it's there - usually that doesn't happen," Arita said.

Gymboree: Lower Price Points On 'Must-Have' Items

Within the vicinity of most Children's Places is Gymboree, whose core customer ranges from 5 to 7 years old and whose parents have income of $70,000 or higher. Like Children's Place, Gymboree benefited from direct-marketing initiatives and Internet advertising. The company also now puts "must-have fashion items" at the front of the store but prices them lower than other items within the store.

Gymboree's McCauley said the company doesn't publicly release market-share figures but confirmed analysts' estimates that it's between 3% and 4%. Joanne Roche, a Boston-area mother of four kids ranging from 2 to 14, shops at Gymboree for her 2-year-old daughter when items are on sale or she has coupons because " the prices are ridiculously expensive." However, Roche said, the quality of the clothes is excellent, and items she bought for her 14-year-old son years ago are still wearable for her 8-year-old son.

Gymboree, San Francisco, hasn't forgotten its loyal shoppers, either, and last year expanded the sizes of both boys' and girls' clothes. In girls, Gymboree added sizes 10 and 12 to its online business, and in boys it added size eight in stores. "The biggest request from customers is to add sizes because their child is growing out of Gymboree," McCauley said.

Despite the positives, analyst Adrienne Tennant of Friedman, Billings and Ramsey said "valuation is becoming a concern," because there's a risk Gymboree won't be able to maintain its momentum since the company will be comparing itself to a November same-store sales increase of 22% and a December same-store sales increase of 16%.

-Josee Rose; 201-938-5400; AskNewswires@dowjones.com