Athleta Makes East Coast Debut: Can Sportswear Give Gap a Much-Needed Win?


The Gap (GPS) is making a run for the $31 billion women's activewear market.

Athleta, the sportswear merchant the Gap has pegged for growth, made its East Coast debut with the opening of two stores in New York City this week, sprinting toward its goal of 50 stores by 2013. The brand already has two West Coast stores in San Francisco and Mill Valley, Calif.

With Athleta, based in Petaluma, Calif., Gap is making a bold bid for the upscale-sportswear retail market occupied by stores like Lululemon Athletica (LULU), the hot yoga chain.

Gap bought Athleta for $150 million in 2008. At the time, some speculated that the retailer may also have been considering buying Lululemon.

Sponsored Links

Can Athleta Outdistance Its Competitors?

Athleta aims to set itself apart from the competition by focusing, not only on high-performance sportswear (the merchandise is designed for and by female athletes), but also on fashion, executives told DailyFinance during a tour of the brand's new store in the Upper East Side of New York. Its products also span a wide range of sports, Scott Key, senior vice president and general manager of Athleta, said during the tour.

In stores that are larger than competitive retailers' -- ranging from 3,500 to 4,500 square feet -- Athleta carries women's lifestyle apparel for yoga, running, swimming, the gym, hiking and skiing, Key says.

But in going up against Lululemon, whose sales growth and performance has been "phenomenal," Athleta has its work cut out for it, Tim Shimotakahara, vice president of investment banking for DA Davidson, tells DailyFinance.

"What Lululemon has done to differentiate itself in the market is to create a lifestyle brand that is as much about women's empowerment as it is about athleticwear," evident in everything from its marketing to its store environment, he says.

For Athleta to compete effectively in the high-end women's activewear market, "they're going to have to create cachet in some way.... rather than being a me-too lifestyle brand," he says. "The question is: Is there room for more than one [retail] brand in the same category?"

Targeting Sporty, Upscale Women


For its part, Athleta's target customer is a multitasking, affluent woman -- with a household income of $100,000 or more -- who revels in her hectic lifestyle. "We call her 'happy crazy," says Tess Roering, vice president of marketing and creative for Athleta. And, of course, this target customer also is big on fitness, whether she's a marathon runner or does daily power walks with her dog, she says.

Athleta is also capitalizing on the surge in women playing sports just as new sports -- such as kettle-bell lifting, a form of weight training -- are popping up, Roering says.

Women are realizing that wearing their boyfriend's T-shirt to work out just doesn't cut it anymore, she says. "They want a true performance item, but it has to be cute. We're really watching fashion."

Hence, you'll find items in the stores like the $59 double-layered Karma tank with a built-in bra, which picks up on the layering trend that's "big in fashion these days," but also features the Meryl SkinLife patented anti-odor and anti-bacteria technology to keep customers smelling fresh, Roering says.

Then there's Athleta's Dry Dipper Jean -- likely the first pair of hiking jeans on the market, she says. They're cut from a fabric that wicks on the inside and repels water on the outside, but are also stylish, "so you can go from a rugged trail to a nice dinner."

Stores also include a "To-Fro" section stocked with items you can wear after the workout is over, from cashmere sweaters and empire-waist dresses to scarves and tights that "let's women make the transition from working out to going out," Key says.

A Bright Spot forthe Gap

Athleta's expansion from an online and catalog merchant to one with brick-and-mortar stores has gone well, the company says, prompting Gap to accelerate its expansion plans. Gap plans to open eight to 10 Athleta stores by the end of the year, Glenn Murphy, Gap's chief executive officer, said during a conference call in May.

The launch of Athleta's flagship store in San Francisco -- announced in January -- exceeded expectations, he said.

It's no secret that Gap could use a hit these days.

The company has been beset by weak sales, management shakeups and fashion missteps at its namesake stores, and plans to close 200 of its 900 units by 2013.

Athleta's expansion comes in stark contrast to that contraction.

Boutique-Like Stores

While Athleta is earmarked for growth, it's determined to preserve its boutique-like, store-of-the-community spirit, Key says.

The brand aims to reflect the neighborhoods it serves, in part by hosting events like yoga classes that are typical of the local vibe.

Other personal touches include free in-store alterations, free fitness classes, and kiosks that link to its website assortments so that customers can access additional products and sizes.

So while expansion is in the cards, the goal is not be a 1,000-store, cookie-cutter chain, Key says.

"We don't aim to be on every street corner."

Get info on stocks mentioned in this article: