Old Navy via Bloomberg

Old Navy Hopes Athletic Clothes Will Be Its Next Big Thing

The discount clothing giant is aiming for its sweet spot

Old Navy's latest advertisement has nothing to do with the low-priced jeans and discounted basics that made it a multibillion-dollar business. Rather, it's chock full of athletics—a woman wallops a punching bag in a gym, a young breaker dances in a schoolyard, a free-runner does flips on a rooftop.

It's a plug for Old Navy Active, the brand's athletic wear line that has remained fairly quiet since its launch in 2011. Like its other offerings, Old Navy's going for mass appeal with its performance items, instead of the exclusivity of Lululemon or the hard-core athletic appeal of Under Armour. With its "Built For Play" tagline, Active seeks to establish itself as a viable sub-brand under the Old Navy banner, an effort to clothe entire families when they're out doing anything sporty. That's why it sells its activewear to both men and women, carries petite, plus, and tall sizes, and even has polyester mesh shorts and zip-front hoodies for toddlers. And the prices are accessible—shoppers can find racerback tanks on sale for less than $10, yoga pants for $15, and sports bras marked down to $7.

"We're about the families," says Jill Stanton, executive vice president for product development and design at Old Navy. "I think we’ve got the broadest offering for the family [of] anybody else." Charged with refining Old Navy's various product lines, Stanton sees athletic clothing as an important part of the label's future. Old Navy has grown into a discount mammoth since its first store opened in 1994, with more than 1,000 locations and $6.6 billion in global sales. And it's been charging hard recently, with sales at stores open at least one year (and online orders) increasing 11 percent in the most recent quarter. Old Navy declined to disclose the size of its activewear business but said it recognized activewear as a growth opportunity.

Activewear is booming, with more than $35 billion in annual sales as of October and outpacing the growth of the overall U.S. apparel market in each of the past three years, according to data from research firm NPD Group. All sorts of clothing and footwear labels have scrambled to enter the fray, from such pricey designer labels as Stella McCartney and Tory Burch to mass market clothiers Forever 21 and H&M. Industry mainstays Nike, Adidas, Under Armour, and others continue to develop new fabric and footwear technologies to defend their turf as trendy premium labels such as Lululemon gobble up market share.

Old Navy's parent company, Gap, has three major brands in the mix: Old Navy Active is the discount play; Gap Fit goes for the middle market; and Athleta, its standalone activewear label, shoots for the high end. On a conference call in February, new Gap Chief Executive Officer Art Peck told analysts and investors that the company is placing a big bet on activewear. "We continue to push on Fit inside of Gap and on the Active expression inside of Old Navy as well," he said. "So this is a space that, not only through Athleta, but as a company, we are very committed to."

Bridget Weishaar, an analyst at Morningstar, says Old Navy has the right idea. Not only is activewear one of the few expanding product lines in apparel, she says, but people are turning it into everyday wear—the so-called "athleisure" trend. By pushing sporty clothes at such modest prices to families, Old Navy's hitting its sweet spot. "If you look at the ad, the stuff looked really good," says Weishaar. "They're basically giving consumers the exact same trend at a more affordable price point."

Old Navy didn't advertise its active line much until now because the products weren't quite ready for the big time. The past few years represented a period of experimentation, working through the early stages of developing all kinds of new products and planning for the future. “You always need to be in a place that you feel really great about your products before shouting about them,” says Stanton. “It just feels like it’s the right time to shout out a little bit more loudly.”

In recent years, Old Navy has quietly put together an ever-deepening bench of athletic-wear veterans. It looked for those with experience in designing or selling performance clothing, rather than fashion garb, at the world's athletic powerhouses. Before she came to Old Navy, Stanton spent 14 years at Nike. Other senior designers hail from Puma, North Face, Adidas, and Reebok.

Old Navy Active began with generic workout clothes but has since branched out into more sport-specific lines in running, basketball, and more. Stanton's team has the next four or five years of products mapped out, as they work on developing better fabrics to improve the tech behind their compression garments and provide better moisture management. This fall, Old Navy Active will launch a range of fabrics with thermal properties to keep wearers warm. There are three things athletes need, says Stanton: Keep them cool when they're hot, keep them warm when they're cold, and keep them dry when they're wet.

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