NEW YORK — After Liz Claiborne Inc. bought niche yoga and climbing company Prana for $34.4 million in November, chief executive officer Paul Charron said the company was considering other brands in the activewear and outdoor category.
Liz Claiborne has a lot of company.
Activewear and outdoor firms have become attractive investment properties, primarily because health and wellness trends are leading to more athletic activity and these niche brands are perceived to have long-term growth.
Merger and investment activity has been intensifying, with four significant deals in the last quarter of 2005, and it’s likely more deals will take place soon, said Tim Shimotakahara, an associate with investment firm D.A. Davidson & Co. Among recent deals: Retail chain Chico’s FAS took a stake in Lucy Activewear, equity firm Advent International bought a portion of retail chain LuluLemon Athletica, Quiksilver purchased ski firm Rossignol and Apax Partners bought Spyder Active Sports, a niche skiwear business. The $3.8 billion purchase of Reebok by Adidas Solomon, while of a different nature, will also create a new dynamic in the industry.
VF Corp. has been particularly active and in the last five years has spent more than $1 billion to snap up brands such as The North Face, Vans and Kipling.
“There are not really a lot of emerging brands in the marketplace that can scale those multichannel retailers in this category, but people are seeing that there are smaller brands that have larger potential,” said Mike Edwards, president and chief executive officer of Lucy Activewear, which has 35 stores.
Shimotakahara said activewear remains a fragmented industry and he expects continued investment activity.
“These smaller brands allow a big company to round out their portfolio,” Shimotakahara said. “We are seeing more big apparel companies try and focus on a number of different categories as a way to hedge and offer a wider assortment to retailers.”
Steve Collins, a principal at Advent, said larger demographics are at work and was a reason his firm invested in Lululemon. “We think this is a terrific segment,” he said. “Women are more active in running and working out, and they are demanding their own apparel to wear for those activities.”
There are some risks. Shimotakahara said a lot of companies are going after this sector. “Every brand will try to develop something,” but not all can survive, he said.
Edwards said the investment community is receptive to activewear, citing the recent initial public offering of Under Armour, which commanded a premium price of $9.50 a share. Among other developments, Finish Line is launching a retail concept called Pavia that will include upscale activewear and apparel for women.
Athletic apparel, including outdoor apparel, had total sales of $38.8 billion in 2004, up 4.9 percent compared with 2003. Women’s athletic apparel reported sales of about $17.4 billion in 2004, a 10.8 percent increase, according to The NPD Group, a Port Washington, N.Y.-based research firm.
Apart from a few giants such as Columbia Sportswear and Patagonia, the outdoor apparel industry and much of the action sports business have largely operated outside the megacorporate culture that pervades much of the apparel and retail world. The bulk of vendors and retailers carrying these brands are primarily small operations with a tight focus on certain sports or activities.
Most large sporting goods chains, such as Dick’s Sporting Goods and The Sports Authority, tend to focus on giant athletic brands like Nike and Adidas. Specialty outdoor retailers, including REI and Eastern Mountain Sports, usually carry smaller, specialty brands such as Helly Hansen, Mountain Hardwear, Keen and Kuhl, as well as Prana and The North Face.
A few trends are leading to the merger mania, experts said. Many of the traditional outdoor companies have added fashion items and are taking cues from streetwear firms as they expand their women’s offerings, which makes them more attractive for fashion-oriented retailers. Firms such as Columbia Sportswear, Patagonia, Lands’ End and Burton offer attractive, durable products with bright colors, fitted silhouettes and embellishment details.
In addition, there are higher participation rates of women in outdoor activities — canoeing, trail running and hiking, among others — and an overall increased interest in health and well-being, evidenced by the growth of yoga and Pilates and the rise of organic supermarket chain Whole Foods.
“We have a population now that has an increasing awareness of their body and health issues,” Shimotakahara said. “There are more garments now that are geared toward low-impact activity, people in age segments that maybe used to play basketball or run that are now doing yoga or more low-impact sports.”
For Lucy Activewear, having Chico’s FAS as a partner has been “extremely positive,” Edwards said.
“They do many things right and we can leverage off of their experience,” he said.