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?