September 30, 2008
Gap Buys into Women’s Fitness Apparel
By Tom Ryan
Gap, Inc. last week agreed to acquire Athleta, Inc., the women’s sports and active apparel catalog company, for about $150 million in cash. The acquisition will help Gap break into the $31 billion women’s active apparel sector in the U.S. and also greatly expand its online presence.
Athleta will become the “fifth tab” on Gap Inc.’s new online platform, entitled Universality. The website allows consumers to click through all of its labels – Gap, Old Navy, Banana Republic and Piperlime – and pay one shipping fee. Gap’s online sales rose to $905 million in 2007, from $595 million in 2005, a 52 percent increase.
But analysts claim the bigger opportunity for Gap may be targeting the better women’s active apparel market represented by Lululemon Athletica, Lucy, and Title Nine.
The most notable success has been Lululemon, which went public in July 2007. In the second quarter, Lululemon’s earnings jumped 117.6 percent to $11.1 million on a 59.1 percent gross margin while revenues catapulted 45.7 percent to $85.5 million on a 13 percent comp gain. Its corporate-owned stores in 2007 averaged sales of approximately $1,700 per square foot.
Gap officials said the company might consider giving Athleta space in some of its brands’ retail outlets.
“The women’s athletic apparel segment is a very compelling merchandise category,’ said Richard Jaffe, an analyst with Stifel Nicolaus & Co. The acquisition helps Gap “gain easy entry into this attractive market.”
Founded 10 years ago, Athleta, based in Petaluma, CA, caters to the 25-to-55 age group and offers stylish and functional apparel for yoga, running, skiing, snowboarding and surfing. Although e-commerce has grown to a significant part of its business, Athleta also mailed 13 million catalogs last year and 21 million are planned this year.
“Athleta is a great success story with loyal customers that will now become part of the Gap Inc. family of brands,” said Glenn Murphy, Gap Inc.’s chairman and CEO, in a statement. “This strategic acquisition complements our brands perfectly and allows us to leverage our new online platform to expand into this significant retail sector.”
Discussion Question: What do you think of the Gap’s acquisition of Athleta? Is the opportunity bigger around building its e-commerce business or expanding into better women’s active apparel?
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First of all, I love Gap’s online Universality premise. Every multi-brand retail group should emulate what they are doing to make the online shopping experience seamless andencourage brand surfing and multiple purchases in the process.
As for Gap’s acquisition of Athleta; I consider it a necessity as other retailers go after this market. Discounters are a particular threat as they make market share grabs during the downturn that no one can afford to assume will be temporary. Target has refined its women’s active offerings with C9 by Champion and Converse One Star. Wal-Mart’s already-sizable and impressive Danskin Now and Starter branded programs promise to get even bigger in ’09 and not just in apparel (check out the small exercise components in sporting goods). None too soon for Gap!
As a loyal customer of Athleta for the past 8 years, I must say that I hope that Gap leaves it alone to keep doing what it has been doing. In particular, Athleta and lululemon have a good grasp of what athletes (in many types and sizes) need and want to wear. Lululemon is right above a yoga studio where they get constant feedback. As I understand it, Athleta staff live what they sell as well. I wonder if Gap will really understand and embrace the market and the spirit of the audience.
I like this move. The Athleta brand is hip and adds another lifestyle look for this fashionable, active, healthy consumer. Gap definitely has an opportunity to build its e-commerce offering, especially given the younger, tech-savvy consumer the brand serves.
Still, for the consumer it will ultimately come down to the apparel. Athleta must retain its distinct look. Together with the other brands under the Gap umbrella, it presents the consumer with a broad selection of apparel choices that suit the individual’s multiple lifestyles, day parts and occasions. Shoppers can pick and choose the apparel they want to outfit their personal styles.
Yes, as has been said, it is a question of whether they leave the brand alone and allow it to remain true to its existing identity. Gap isn’t a brand name that elicits confidence in the same areas that the Athleta brand does. Not sure it does much for Athleta. Does more for Gap. So, resist the temptation to “own” it. Just buy it and leave it be.
Gap has struggled with the identity of its brands. To most consumers, gap brands are separated by price point and manufacturer quality. The three brands encroach and eroded each other. A fitness apparel brand allows Gap to extend beyond its cluttered space into a growing segment. It’s a great move.
Glenn Murphy is at it again. Following his success at his previous post as CEO of Shoppers Drug Mart (where he revolutionized the drug store industry in Canada), he’s blazing new trails for The Gap.
There are some compelling angles to this new market. The target demographic appears to be right on, given that women in this age bracket are underserved. The category is booming as well.
What remains to be seen is how long it will take (not if, just how long) for The Gap and all of its banners to re-establish their relevance and desirability in the minds of consumers. The inclusion of this new brand and category will surely hasten the pace.
Good move! The benefits will be seen in the execution of acquisition strategy. The signs so far are looking positive.
Gap made a good move from a Gap perspective, but will have to carefully manage the Athleta brand so it doesn’t get tarnished by the “everyday” image Gap carries. Specialty athletic gear brands are highly valued and part of the allure is the differentiation from mass brands. The separation might need to be distinct for the consumer base. Gap should do careful research to keep abreast of potential risks in this area.
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First of all, I love Gap’s online Universality premise. Every multi-brand retail group should emulate what they are doing to make the online shopping experience seamless andencourage brand surfing and multiple purchases in the process.
As for Gap’s acquisition of Athleta; I consider it a necessity as other retailers go after this market. Discounters are a particular threat as they make market share grabs during the downturn that no one can afford to assume will be temporary. Target has refined its women’s active offerings with C9 by Champion and Converse One Star. Wal-Mart’s already-sizable and impressive Danskin Now and Starter branded programs promise to get even bigger in ’09 and not just in apparel (check out the small exercise components in sporting goods). None too soon for Gap!
As a loyal customer of Athleta for the past 8 years, I must say that I hope that Gap leaves it alone to keep doing what it has been doing. In particular, Athleta and lululemon have a good grasp of what athletes (in many types and sizes) need and want to wear. Lululemon is right above a yoga studio where they get constant feedback. As I understand it, Athleta staff live what they sell as well. I wonder if Gap will really understand and embrace the market and the spirit of the audience.
I like this move. The Athleta brand is hip and adds another lifestyle look for this fashionable, active, healthy consumer. Gap definitely has an opportunity to build its e-commerce offering, especially given the younger, tech-savvy consumer the brand serves.
Still, for the consumer it will ultimately come down to the apparel. Athleta must retain its distinct look. Together with the other brands under the Gap umbrella, it presents the consumer with a broad selection of apparel choices that suit the individual’s multiple lifestyles, day parts and occasions. Shoppers can pick and choose the apparel they want to outfit their personal styles.
Yes, as has been said, it is a question of whether they leave the brand alone and allow it to remain true to its existing identity. Gap isn’t a brand name that elicits confidence in the same areas that the Athleta brand does. Not sure it does much for Athleta. Does more for Gap. So, resist the temptation to “own” it. Just buy it and leave it be.
Gap has struggled with the identity of its brands. To most consumers, gap brands are separated by price point and manufacturer quality. The three brands encroach and eroded each other. A fitness apparel brand allows Gap to extend beyond its cluttered space into a growing segment. It’s a great move.
Glenn Murphy is at it again. Following his success at his previous post as CEO of Shoppers Drug Mart (where he revolutionized the drug store industry in Canada), he’s blazing new trails for The Gap.
There are some compelling angles to this new market. The target demographic appears to be right on, given that women in this age bracket are underserved. The category is booming as well.
What remains to be seen is how long it will take (not if, just how long) for The Gap and all of its banners to re-establish their relevance and desirability in the minds of consumers. The inclusion of this new brand and category will surely hasten the pace.
Good move! The benefits will be seen in the execution of acquisition strategy. The signs so far are looking positive.
Gap made a good move from a Gap perspective, but will have to carefully manage the Athleta brand so it doesn’t get tarnished by the “everyday” image Gap carries. Specialty athletic gear brands are highly valued and part of the allure is the differentiation from mass brands. The separation might need to be distinct for the consumer base. Gap should do careful research to keep abreast of potential risks in this area.