Gap, Target, Other Retailers Push Into Active Wear Craze

Investor's Business Daily

Everywhere you look there's an athlete on the go.

Or so it seems from what people are wearing on the streets: running shoes, compression tees, bike shorts, yoga pants.

The trend is a winner for a bunch of brands and the retailers that are scrambling to carry them or their own labels to meet demand.

Active wear is the fastest growing apparel sector and performance wear is the fastest growing sub-segment, industry observers say.

Overall active wear sales in the U.S. grew 9% in the 12 months ending in June, according to the NPD Group, to more than $30 billion.

"Total apparel is growing 3.2% and women's apparel isn't growing much," said NPD Group chief retail analyst Marshal Cohen. "So you can see why this is such a healthy business. Five percent growth is considered great growth; 9% is considered phenomenal .

Sporting apparel and footwear chains are natural-born players in the arena. And "all of them, Lululemon (LULU), Hibbett (HIBB), Foot Locker (FL), are benefiting," said analyst Sam Poser of Sterne Agee.

Mass-Market Niche Target

So is Gap (GPS) with its fast-growing women's active wear concept Athleta, and Target (TGT) with its proprietary C9 by Champion line, soon to sport a standalone store in San Francisco.

A number of mass-market and department store players also are trying to catch up by expanding assortments.

"It's all about how good the product is and the product continues to improve," said Poser.

Some major department stores have started carrying products from fast-growing performance brand Under Armour (UA)," says Craig Johnson, president of Customer Growth Partners.

"They know their customers are wearing the stuff," he said.

Fabrics and fits are getting more technical and lighter to enhance performance, even if not all customers are training for marathons, triathlons, mud runs and adventure races.

Fitness, But Fashion Too

Enhancements include compression and wicking in apparel and lighter weights in running shoes, not to mention brighter colors, part of the new rule that products ought not to forget about fashion.

"We support a high number of end uses, whether running, yoga, tennis, swimming," said Athleta's senior vice president and general manager, Scott Key, adding that a number of "performance lifestyle" items can be worn after workouts.

"We put tremendous fashion sensibility into performance products," he said. "Our customers want to look cute in them.

Gap opened 11 Athleta stores in the last quarter alone, more than any of its other concepts, and is about halfway to its goal of hitting 50 stores by the end of 2013. The first store opened two years ago.

Key says Athleta is riding the wave of women's growing participation in sports and healthy living, and points to the Summer Olympic Games as evidence.

"It was the first time at an Olympics that more women competed than men," Key said. "They brought home 29 of the 46 medals for the U.S.

One of the medals went to the women's water polo team. Athleta was one of its sponsors, for the performance wear players used on land to prepare for the pool.

Women's active wear in the U.S. grew faster than men's in the last year, with $13.7 billion in sales to men's $12.7 billion, says NPD Group. Children's, a smaller part of the pie, grew even faster.

Some say Athleta is running after Lululemon, a hot concept from Canada expanding on U.S. turf. It's staked a claim in pricey yoga pants and other workout gear of its own design.

Lululemon sales jumped 53% to $285.7 million in the quarter ending April 29 vs. a year earlier, with same-store sales up 25%. Athleta has not disclosed sales, but Johnson thinks they're growing more than 40%.

"Both are doing well. Athleta has a little bit of a broader appeal. It doesn't take itself quite as seriously as Lululemon," he said.

Generalists such as Dick's Sporting Goods (DKS) and Hibbett play the field with a broad array of fitness apparel and footwear from popular brands such as Nike (NKE), Reebok's Adidas, Under Armour and North Face, a unit of VF Corp (VCF).

At the Summer Games, logos of active wear brands were as much on display as the athletes. Adidas got a lot of mileage when the stylish Duchess of Cambridge Kate Middleton showed up in Adidas Team GB attire, including blazing red Adidas sneakers.

U.S. sales of running shoes jumped 14.4% in the 12 months ended in June, to more than $4 billion, according to NPD.

Dick's just opened its first standalone running store, True Runner, in Pittsburgh. It plans to open a second store in October.

Since its 2004 launch, Target has expanded C9 by Champion into a $1 billion brand for families, adding performance products in expanded floor space.

A premium women's line was launched last fall, followed by a men's premium line in the spring. They still sell for under $50 to keep true to Target's value focus.

The brand's first stand-alone store — C9 Active Apparel — is set to open in October, on street level below a City Target store opening at San Francisco's Metreon complex.

Target will take cues from customers before deciding whether to roll out other C9 stores, Thomas says.

"C9 would allow Target to develop a free-standing, small-footprint strategy that could travel into any mall or strip center in America," said Dick Seesel, principal of Retailing In Focus. "To me it signals it's a business they clearly believe in.

Kohl's (KSS) active and fitness apparel were bright spots in an otherwise disappointing quarter, outperforming other areas, thanks to robust sales of Nike, Adidas and proprietary brands Fila Sport and Tek Gear.

Not to be left behind, Wal-Mart (WMT) is carrying more performance wear, Johnson says, "But it's not as far along as Target.

While Target has carried C9 since 2004, Gap acquired Athleta in 2008, when it was a catalog company with a long and loyal following.

Gap expanded the brand online and opened the first store in 2010. Boston's recent opening was the 23rd.

Athleta products are designed in-house by women who also happen to be athletes. They often test run them on trails near their offices in Petaluma, Calif., a 45-minute drive north of Gap's San Francisco headquarters.

Will fatigue in the category set in as players try to keep pace with past milestones

Analysts say the cycle still has plenty of room to run. But the category could get more crowded.

"The overall industry will continue to get bigger as other sportswear brands see the success of the athletic wear business and jump on the bandwagon," said Cohen. "So there will be more competition."

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