The Gap Goes After Lululemon

Jan 18, 2011
Tom Ryan

Attempting to tap into the gusher Lululemon has found, Athleta,
the women’s activewear brand owned by The Gap, last week opened its first flagship
store in San Francisco.

Founded in 1998, Athleta sells apparel to active women
across a range of activities, including yoga, running, cycling, hiking and
skiing. Targeting 30 to 50 year olds, it’s one of the largest catalog and online
stores in the space and was acquired by The Gap for $150 million in 2008

"It’s been strong double-digit growth ever since we bought the brand and
it was strong double-digit growth before we bought them," Toby Lenk, president
of Gap Direct, the unit that oversees Athleta, told Reuters.

The 5,000 square-foot store on Fillmore Street in the city’s tony Pacific
Heights neighborhood comes after the successful test of a smaller "laboratory" store
in Marin. Gap found that for every dollar that customers spent online in the
Marin region, they spent an additional $4 in the store.

"The majority of customers in this space won’t buy a product if
they can’t try it on in the store," Mr. Lenk told Bloomberg. "That’s
very clear to us — we’re the only major small specialty brand competing
without a store."

The closest competitor will be Lululemon, which last
week once again raised its quarterly estimates. With sales per square foot
averaging over $1,500 and comps climbing in the mid-to-upper-twenties in the
latest quarter, the quirky retailer is known for its yoga-trained staff, local
brand ambassadors, inspirational mantras and in-store yoga sessions. Beyond
yoga, Lululemon is also tapping strong general trends supporting running and

Another women’s-only concept is Lucy Activewear, which is owned by
VF Corp. and has 65 stores. Sporting goods and footwear chains are also testing
newer concepts to reach active consumers looking for premium brands and better
service. These include S.A. Elite from The Sports Authority, Mind Body Sole
from Famous Footwear and Foot Locker Run by Foot Locker.

The Gap is also targeting
active women at its flagship stores with its GapBodyFit collection and at Old
Navy with its GOGA-GO (Go out Get Active) line. But Athleta most directly targets
the opportunity.

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," Brian
Sozzi, an analyst at Wall Street Strategies, told Bloomberg.

Discussion Questions: How successful do you think Gap will be transitioning the Athleta brand from the web and catalogs to a brick and mortar environment? How easy will it be for Gap and other larger retailers to tap the active women opportunity exemplified by Lululemon?

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12 Comments on "The Gap Goes After Lululemon"

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Bill Emerson
Bill Emerson
10 years 3 months ago

Lululemon has demonstrated pretty clearly that this is a hot category and Gap could surely use one of those. Whether Gap can replicate the success in this rapidly crowding venue will depend, I think, on how well they can replicate the entire in-store Lululemon experience–a staff of true believers/devotees of yoga and physical fitness. If the Gap focuses strictly on the product with the idea of rolling it our quickly, they will undoubtedly add a new revenue stream. To capture the high productivity of Lululemon, however, they will have to spend a lot more time than they do currently on their staffing model. On the other hand, Dunkin’ Donuts does just fine in the face of the more cultish Starbucks. It will be interesting to watch this play out.

Paul R. Schottmiller
Paul R. Schottmiller
10 years 3 months ago

I expect to see the bricks and clicks adding new brands online as well as adding store channels to successful online brands (JCP, GAP, etc.) at an increasing rate over the coming years.

We have reached a tipping point where most retailers know how to do both (skills, infrastructure, synergies, etc.) and therefore have the opportunity to put them together in the ways that best meet customer needs/market opportunities.

Michael Tesler
Michael Tesler
10 years 3 months ago

Clearly this is a niche that presents opportunity but retail history has shown us that innovators (such as Lululemon and Apple currently and looking back Staples and the Gap of the ’70s and ’80s) who tap into new space with great merchandise and creative store concepts generally will be the winners, and that followers who are not the innovators and creators frequently end up not being winners either. Gap might be better served keeping all its focus on resurrecting their once great store and core brand.

Gordon Arnold
10 years 3 months ago

At this time all of the marketing numbers are in and the numbers show that stores designed to provide upscale and designer active wear to women are a solid bet. Floor plans and inventory categories are where the speculation lies. A giant room filled with sneakers and sweats is not going to work for long, if at all.

Where I do see opportunity is in the sports where women are showing up in numbers and where the garment industry refuses to look. I am an outdoor enthusiast. I spend a lot of free time camping, hiking, shooting sporting clay, fly fishing and now almost of the newer participants around me are women. What is sad is that they are dressed in casual sporting garb designed for men. I also see the same in canoeing, surfing, schools of self defense and more.

The designers that recognize these voids and respond will do well. In addition to comfort and fit, functionality is a must epically in the sports just mentioned.

Cathy Hotka
10 years 3 months ago

Lululemon does a great job of selling athletic-gear-as-fashion. There is certainly room for another player here, and if Gap’s designers can create compelling merchandise, they’ll have a winner.

Chuck Palmer
10 years 3 months ago

There is some skepticism in Gap’s ability to pull this off. If they still have the people who built Athleta, they may have a chance, but the key to Lululemon’s success is how they have localized and made intimate the experience. Their real estate strategy to their staffing model is in tight alignment with who their best customers are. The anchor focus on serious Yoga is key here.

Athleta’s opportunity is in that next ring out with women who have a dedication to a sport/activity. If they can create real relevancy for those segments and then and only then (with the right permission) try to cross-sell, they may be on to something.

Odds are they will follow the mall model (Yoga class at the mall? Maybe.) they are so used to, and fall into standard ways that don’t align with who these women are and how they engage brands. I’m not convinced Gap gets that anymore.

Carol Spieckerman
10 years 3 months ago

Now that Gap appears to have plugged the cannibalization cracks between Old Navy, Gap and Banana, the time is right for Gap to introduce its most differentiated brand to terra firma. At last week’s NRF show, pure online players such as Gilt Groupe and Ru La La admitted to having wee cases of bricks envy (and wouldn’t you know, Gilt stores are headed our way this year). The word that keeps cropping up is “scale” and regardless of where brands originate, multi-channel is the best way to achieve it.

Andrea Learned
Andrea Learned
10 years 3 months ago

It is exactly as suggested within these comments – will Gap/Athleta be able to deliver on customer experience level, which is something Lululemon pioneered in this space?

I am a woman who buys a lot of these sorts of products, and have shopped Athleta, Lucy and Lululemon for a while now. I am also someone whose work is understanding consumer behavior. Given all that, I can tell you I go on and on to friends about Lululemon. It is all because of the fun in-store buying experience and their very good sales staff. I loved Athleta initially, then noticed their catalog got weak, and recently–with Gap’s purchase and a revived design energy have started buying more there. Lucy has never been able to add up, for me.

It will be hard for Athleta to beat Lululemon on in-store and brand experience, but if it keeps up its existing strengths in designs and selection (and good online customer experience), it could be a solid second.

John Hyman
10 years 3 months ago

If GAP is brilliant on the operational basics and their store level team members create an engaging environment this should compete very well. While it is always better to be first than to be best, Athleta has impressed me through their product offering and attitude and should easily be transferable to the brick and mortar world.

Marge Laney
10 years 3 months ago

Even though Mr. Lenk comes from the online world, he apparently gets it when he noted “The majority of customers in this space won’t buy a product if they can’t try it on in the store…” If he and his team truly embrace that idea and build an excellent experience which includes the fitting room they have a chance to give Lululemon a run for their money. The need to have pretty stores and excellent product is a must, and goes without saying when talking about competing with the likes of Lulu.

The winner of the battle will offer a compelling and connected multi-channel experience that includes laser focus on the fitting room experience and an in-store selling strategy that emphasizes fitting room usage and service.

Craig Sundstrom
10 years 3 months ago

So 5000 sf is now a “flagship”…and will it be just one of hundreds??? GAP, of course, was known known for contributing more than its fair share to the glut of store space in this country, and while that saturation strategy may have made sense when selling to the broad market of jeans-and-T shoppers, it is unlikely to serve them as well in this niche market.

Jeff Hall
10 years 3 months ago

Given Athleta is already an established online/catalogue brand, Gap shouldn’t have any difficulty transitioning it to a bricks and mortar brand experience. Lululemon won’t have much to worry about–they’ll continue attracting the cult-like followers–the core, dedicated yoga enthusiasts, whereas Gap will attract a more mainstream consumer who is active, but perhaps a bit more aspirational in being active.


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