Sylvan, LeapFrog plan to tutor kids in big stores


Sylvan Learning Center has been described as "the McDonald's of tutoring."

Now parent company Educate Inc. is aspiring to be the Starbucks of tutoring, too.

The Baltimore corporation said yesterday that it - like the ubiquitous coffee seller - plans to expand into big-box stores and other retail locations so that children can learn while their parents shop. It will join with LeapFrog Enterprises Inc. of Emeryville, Calif., a maker of educational toys that opened a pilot learning center this year in a Wal-Mart store in Louisiana.

The new partnership reflects the growth in the tutoring industry and the trend in retailing toward stores-within-a-store, which enables people to bank and get medical care or other services while running errands.

The tutoring partners expect to open as many as 20 centers in the next two years to test the idea, which is to be run by Educate using LeapFrog products. No name has been chosen, but the centers will probably use the LeapFrog brand, well known to parents through such products as LeapPad devices, and not Sylvan's.

The centers will be aimed at parents looking for a less intensive - and less expensive - extracurricular program for their children.

"The principal vision: bringing affordable tutoring to grassroots America," said Peter Hewitt, vice president and general manager of LeapFrog Learning Centers. "One of the things we learned here is that being inside of a Wal-Mart was fantastic for convenience. This participating store has roughly 50,000 shoppers a week."

Businesses are increasingly seeing the benefit of leasing space in another company's store. Starbucks Corp. has coffee counters in hundreds of grocery and discount stores. And Target Corp. has allowed quick medical care centers called MinuteClinics in several stores, including some in the Baltimore area. Some Home Depots sell Dunkin' Donuts; some Wal-Marts sell McDonald's food.

Several analysts said they couldn't think of another tutoring company that has moved into the store-within-a-store arena, but education experts said the idea seems to make sense.

"From a business perspective, I can't see a downside," said Henry M. Levin, director of the National Center for the Study of Privatization in Education at Columbia University. "It would attract people to those kinds of locations on the one hand, and on the other hand, it would provide a parent with a respite as they took the time to go shopping."

Sylvan is one of the largest tutoring-center companies in the country, with more than 1,000 locations in North America. Its parent, Educate, also offers tutoring online and in schools, the latter as part of the No Child Left Behind Act.

R. Christopher Hoehn-Saric, Educate's chairman and chief executive, said the partnership with LeapFrog is part of a plan to expand into new markets next year.

Educate is interested in offering summer camps - it tested the idea in Sylvan centers this past summer - and selling educational products that parents could take home to use with their children. It also sees opportunities for early-reading programs.

"We're trying to create a category here that didn't exist 10 years ago," Hoehn-Saric said. "We think we're still at the early stages of what's possible."

Hoehn-Saric is using as a model Starbucks, which sells products from its free-standing stores, in corners of other businesses and on grocery shelves. "That's what we would aspire to be," he said.

The retail tutoring centers with LeapFrog are an attempt to draw a wide audience that can't afford more comprehensive tutoring assistance at Sylvan Learning Center, which averages about $2,500 for six months of instruction, or doesn't need the one-on-one attention.

Hoehn-Saric estimates that the market for the LeapFrog-branded centers would be "several times the size" of Sylvan's.

"There are lots of parents interested in more fun after-school extracurricular activities that are much lighter in the content requirements," he said.

Details about price and retail partners have yet to be worked out for the new sites, the first of which is to open next summer or fall. But Hoehn-Saric said big-box stores would work well as locations.

He expects customers to pay about $100 a month, in line with other after-school programs.

"I think it's kind of an ingenious way of exploring whether there is a broader market out there at a lower price point," said Trace Urdan, education analyst for investment banker Robert W. Baird & Co. "The fact is, Sylvan is a very pricey purchase."

He doesn't expect the new centers to cannibalize Sylvan's business because the target audiences are different.

Educate Inc. is a product of the complicated breakup of Sylvan Learning Systems Inc., which until last year owned the tutoring centers and a network of universities around the world.

In March last year, after a disappointing gamble on a venture capital fund for Internet education-related businesses, Sylvan Learning Systems decided to sell its kindergarten-through-12th-grade businesses to focus on higher education. It changed its name to Laureate Education Inc.

Hoehn-Saric was co-chief executive officer of the original company, and Laureate and Educate remain in the Inner Harbor East office tower they had occupied when they were the same corporation.

Educate went public in September.

LeapFrog is the third-largest U.S. manufacturer of educational toys, with about $700 million in annual revenue last year.

It also has had complications lately: increased competition from cheaper instructional toys, a sharply declining stock price and a messy business relationship with the head of the Prince George's County school system, who approved the purchase of $1 million in LeapFrog products while his girlfriend was a saleswoman for the company.

Urdan, the Baird analyst, thinks the expansion into learning centers makes sense for LeapFrog because it helps make the case to investors that it is an education company rather than a toy company and because it puts LeapFrog products into the hands of more kids.

"That's just perfect kind of marketing for them," he said.

Hoehn-Saric said the retail tutoring centers would offer instruction in small groups, focus on reading and math and incorporate LeapFrog technology.

More than 250 families have sent children to LeapFrog's pilot center in Louisiana since it opened in March, Hewitt said.

Ann Dupre is one of them. She is raising her 7-year-old grandson, Hunter, and wanted to keep him on an even keel educationally, so she signed him up for frequent summer sessions. He has gone in for tutoring twice a week since he started first grade, and he is getting A's and B's in school.

"Believe me, it's a wonderful program," said Dupre, 60, of Independence, La. "To find someone that does tutoring at a reasonable price is hard, it's very difficult. ... It's like $49.95 for four lessons. ... You just put your priorities where they belong, and you can do it."

At a glance

Educate Inc.

Revenue, first nine months of 2004: $232 million

Net income, first nine months: $4.5 million

Employees: 10,000

Headquarters: Baltimore

LeapFrog Enterprises Inc.

Revenue, first nine months of 2004: $384 million

Net income, first nine months: $1 million

Employees: 870

Headquarters: Emeryville, Calif.

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