Jan. 13 (Bloomberg) -- One of the bright spots for Gap Inc. during the economic slump was yoga pants.
Sales of its Athleta active wear for women -- marketed over the Web -- grew at least 10 percent in 2009, while Gap’s overall sales fell 2 percent. Now the company aims to build on demand by bringing the e-commerce brand into brick-and-mortar stores.
Gap, the largest U.S. clothing chain, is set to open a flagship Athleta store today in San Francisco, where the company is based. The 5,000-square-foot shop in the city’s Pacific Heights neighborhood could lead to more outlets if the store can match the pace of online sales, said Toby Lenk, president of Gap’s e-commerce business. That would provide a new source of domestic growth at a time when the company is closing some U.S. stores and looking overseas for shoppers.
“The majority of customers in this space won’t buy a product if they can’t try it on in the store,” Lenk said. “That’s very clear to us -- we’re the only major small specialty brand competing without a store.”
Gap isn’t alone in seeing a surge in demand for women’s active wear, especially yoga clothes and gear. Sales at Lululemon Athletica Inc., based in Vancouver, rose 28 percent in the past fiscal year to $452.9 million, and the company raised its fourth-quarter projections earlier this week. Lucy Activewear Inc., which started as an e-commerce site more than a decade ago and then opened 65 stores, was acquired by VF Corp. in 2007 for $110 million. In October, VF said Lucy’s sales grew by a percentage “in the high teens” during the third quarter.
Gap acquired Athleta in 2008 for $150 million, aiming to tap the $31 billion women’s sports-clothing and active-wear industry. The business, which was founded in 1998, only sold products through catalogs and its website. To test the idea of bringing Athleta to storefronts, Gap opened a smaller shop last year outside of San Francisco in Marin County.
The new Pacific Heights location will serve as a larger bellwether for the concept, said Lenk, who declined to say if more stores are in the works. The company also doesn’t break out Athleta’s revenue figures.
“If this goes well, there will be other tests,” he said.
As yoga and pilates studios spread -- and more people work out at home with the Wii Fit and other gaming consoles -- the clothing category is poised for growth. Brian Sozzi, a retail analyst for Wall Street Strategies in New York, compares it to the rise of Under Armour Inc., a maker of popular form-fitting clothing that goes under sportswear.
“Yoga wear is the next Under Armour,” Sozzi said. That company has posted sales growth every quarter since going public in 2005, and its stock more than doubled in value last year.
Athleta’s best-selling products include the $79 Kickbooty yoga pant and $36 Hana running shorts, according to Tess Roering, vice president of marketing for the brand. The typical customer is between 30 and 50 years old, works out at least three times a week and spends as much as $500 on active wear a year.
When Gap “looks at how big and explosive Lululemon has done, and here they have this brand they’ve been incubating online, I think right now is a good time to start opening the stores and potentially doing something bigger,” Sozzi said.
Chief Executive Officer Glenn Murphy has spent the past three years remodeling locations for the company’s Gap stores, as well as its Banana Republic and Old Navy chains. He’s also closed some sites and introduced new clothing lines in a bid to revive growth.
It’s been a slow turnaround. Revenue hasn’t grown annually since 2004. Last month, Gap sales fell 3 percent, missing analysts’ projections for a 2.4 percent increase.
The stock has dropped 7.9 percent so far in 2011, erasing its gains last year. Gap rose 6 cents to $20.38 yesterday in New York Stock Exchange trading.
Gap decided to open the Athleta flagship store because its test in Marin showed shoppers bought more in person than online, Lenk said. For every dollar that customers in the region spent over the Web, they shelled out an additional $4 in the store.
“You do the math on that, and you go, ‘Well geez, it really makes sense to open this and more,’” Lenk said.
The Pacific Heights location had to weather resistance from neighbors who object to chain stores. While San Francisco regulations require chains to get special permits to open, the city determined that Athleta wasn’t in that category, even if it’s part of Gap.
The company wants to avoid the mistake it made with Forth & Towne, a line of stores that Gap opened in 2005 specifically for women 35 and older. It shuttered that business less than two years later because it failed to attract enough shoppers.
In that case, the new brand didn’t have a built-in following like Athleta does, Lenk said. Gap projects that sales for its e-commerce business will double to $2 billion by 2014, and Athleta is included in that estimate.
“It’s easy to surmise that this will have to be hundreds of millions of dollars in growth over the next few years possibly to make that math work,” he said.
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