January 13, 2011 / 5:40 AM / 8 years ago

Gap gets active in young market with Athleta store

SAN FRANCISCO (Reuters) - Gap Inc’s (GPS.N) Athleta brand of athletic wear for women will open a flagship store on Thursday in San Francisco to connect with brick-and-mortar shoppers after booking double-digit sales growth through its catalogs and website.

The new store, in the city’s tony Pacific Heights neighborhood, will allow the brand’s affluent female target audience to discover the line, while the company decides whether to open more stores.

Petaluma, California-based Athleta, acquired by Gap in 2008 for $150 million, sells clothes for a host of activities and sports, including yoga, cycling, hiking and skiing.

Toby Lenk, president of Gap Direct, the unit that includes all of the company’s Web operations, said there were no current plans for a bigger store roll-out but added that there was a “reasonable chance” more could follow in the near future.

“It’s been strong double-digit growth ever since we bought the brand and it was strong double-digit growth before we bought them,” said Lenk, adding that the brand was “still relatively small in the grand scheme of things.”

Athleta gave Gap an entry into women’s activewear, a lucrative $31 billion U.S. market in the 12 months ended November 2010, according to research firm NPD Group. Sales growth of 2 percent in the segment exceeded the 1.2 percent growth for the broader women’s apparel market, which has been affected by overall weak consumer spending.

Gap does not break out sales for Athleta.

Ed Yruma, an analyst with KeyBanc Capital Markets, said Gap has been disciplined about its capital spending, so will be prudent when it comes to opening more stores.

“They’re not going to embark on a roll-out of this before they test it,” he said.

A host of apparel makers and retailers have seized on the popularity of activities like yoga and Pilates, and brands from global giant Nike (NKE.N) to smaller niche players like Title Nine offer clothing for workouts.

Athleta’s clothing, geared to women ages 30 to 50, offers performance and convenience details, whether hidden mesh to enhance breathability, interior pockets to hold keys, or reflective piping that keeps runners visible to cars at night.

Prices range from about $40 to $60 for tops, to $75 to $95 for pants.

The San Francisco store features exposed brick, heavy wood beams, kiosks that link to Athleta’s website, where additional products can be found, and mannequins modeled after real female athletes striking active poses.

It’s the brand’s second store, following a smaller one in nearby Marin County that executives call just a “laboratory.”

“Customers have really asked Athleta for a number of years to open stores up,” said Lenk. “The majority of customers have the preference to try the product on in the store.”

YOUNG MARKET

Gap Chief Executive Glenn Murphy has said the North America market for much of the company’s clothing is “mature,” so Gap is looking to branch out into areas with more room to grow.

Competitor Lululemon Athletica Inc LLL.TO, a Vancouver-based company with about 130 stores primarily in the United States and Canada, recently raised its fourth-quarter profit outlook, and analysts expect double-digit same-stores sales growth to continue for the near future.

“You’re talking about a still underserved market,” said Yruma.

Gap stores have struggled with inconsistent sales in a highly competitive retail environment, and the brand — despite merchandise improvements in fashion and quality — is still trying to convince its shoppers to pay full price.

The company plans to double overall online net sales to $2 billion by 2015 from $1 billion in 2008, which includes sales from Athleta and online shoe store Piperlime as well as Gap’s three main chains — Gap, Old Navy and Banana Republic.

Editing by Steve Orlofsky

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