Gap Buys Athleta Chain

Company pays $150 million for retailer.

Gap Inc., seeking to tap deeper into the growing but increasingly competitive activewear arena, has acquired the Athleta women’s sport and active apparel company for $150 million in cash.

This story first appeared in the September 23, 2008 issue of WWD.  Subscribe Today.

The direct-to-consumer company is based in Petaluma, Calif. It currently does not operate any stores, which could be an opportunity for Gap.

Athleta will become the “fifth tab” on Gap Inc.’s online platform, called Universality, which enables shoppers to browse and buy all of the company’s brands in one shopping cart with a single shipping fee. Athleta’s products will be sold online alongside Gap Inc.’s other divisions: Gap, Banana Republic, Old Navy and Piperlime.

“Athleta is a great success story with loyal customers that will now become part of the Gap Inc. family of brands,” Glenn Murphy, Gap Inc.’s chairman and chief executive, said. “This strategic acquisition complements our brands perfectly and allows us to leverage our new online platform to expand into this significant retail sector.”

The 10-year-old Athleta is considered a lifestyle brand, combining style and function for yoga, running, skiing, tennis, cycling, triathlons, golf, walking, climbing, hiking, snowboarding and surfing. Customers can purchase Athleta product online or through the company’s catalogue. Ninety percent of the merchandise is private label. Athleta circulated 13 million catalogues in 2007 and said it would circulate 21 million this year. The brand targets women ages 25 to 55.

Joe Teno, the current ceo of Athleta, will remain as president of Athleta at Gap Inc. upon the completion of the deal. He will report to Toby Lenk, president of Gap Inc. Direct. Athleta has 250 other employees and a distribution center in Grove City, Ohio.

The acquisition represents a major step forward by Gap to tap the $31 billion women’s athletic market. The Gap does operate Gap Body, which offers some active apparel.

However, the deal is somewhat of a surprise, coming as Gap continues to struggle to repair its divisions. “The brand isn’t bad, but with all the problems Gap has, why take on another business, especially in an area where there is tons of competition?” said one source, who estimated Athleta’s volume at around $100 million. The source was referring to activewear behemoths like Nike and Adidas as well as fast-growing firms such as Lululemon.

Louise Callagy, a spokeswoman for Gap Inc., said Athleta is profitable and that its sales volume would be included in total online sales, which are disclosed each quarter. She declined to comment on the $100 million volume report.

Asked if Athleta stores could be opened, Callagy replied the focus for now would be on the online and catalogue businesses. “Of course, we will consider whether other growth vehicles such as brick-and-mortar stores will make sense over time,” she said.

As far as operating both Gap Body and Athleta, she said, “There is plenty of room in the market for both.”