Last month, Lululemon Athletica (LULU) opened a store in Durham, N.C. Three weeks later, Athleta, Gap’s (GPS) answer to Lululemon, opened its own shop in the same mall. The pattern—Lululemon store opens, Athleta pops up nearby—is happening across the U.S. as Gap mounts the most potent threat so far to the Vancouver-based yoga powerhouse.
Gap’s Athleta is also borrowing from its competitor’s playbook. Like Lululemon, Athleta is hooking up with local yoga instructors and sponsoring classes such as Mommy & Me Yoga. Like Lululemon, Athleta trains staff to make garment recommendations tailored to customers’ pursuits—a half-marathon, say, or paddle boarding. And the upstart chain is often undercutting its rival on price. Cropped padded cycling pants sell for $88 online at Lululemon, while similar shorts cost $64 on Athleta’s website. Yoga pants are often $15 more at Lululemon.
Gap’s yoga upstart is even using special discounts to make headway with a group that’s been key to Lululemon’s success: yoga and fitness instructors whose personal brand preferences can influence purchases by their students. Says Nomura Securities (NMR) analyst Paul Lejuez: “Gap looks at what Lulu has established and says, ‘Well, why not play off the traffic they attract, and if we offer our product at a slightly lower price, we’ll get share.’ ”
The $14.3 billion U.S. market for such gear is growing twice as fast as women’s apparel overall, according to market researcher NPD Group. Stylish yoga gear also commands higher prices and margins than other athletic apparel. As more women pursue sports, many are willing to trade up to pricier fabrics that wick away perspiration and reduce odors, says Tess Roering, Athleta’s head of marketing.
In Lululemon, Gap faces a formidable brand. With a canny blend of fashion and lifestyle marketing, the Canadian chain has built a cultlike following since moving into the U.S. in 2003. Lululemon generated a record $1 billion in sales last year with 112 U.S. locations. It boasts the third-highest sales per square foot among North American retailers ($1,948), after Apple (AAPL) and Tiffany (TIF), estimates retailing consultant RetailSails.
Gap bought Petaluma (Calif.)-based Athleta in 2008 for $150 million to extend its position in women’s premium sports clothing beyond its Gap Body division. Founded in 1998, Athleta had a loyal following for products sold through its catalogs and website. Gap is using expertise gained from operating more than 3,000 stores to turn Athleta into a brick-and-mortar retailer. For now, the yoga business is relatively small. Gap reports sales from Athleta and its Piperlime Web store together; at $301 million for the year ended Jan. 28, their combined revenue is less than a third that of Lululemon.
Of Athleta’s 22 locations, 13 are about a mile or less away from a Lululemon, based on the addresses listed on both company’s websites. Athleta is opening seven stores this summer and fall from Seattle to Boston, and all but one will be a 12-minute walk or closer to a Lululemon. Gap plans to have 50 Athleta locations by the end of next year.
The geographic proximity to Lululemon locations is a coincidence, and Athleta is simply opening stores where, according to a “heat map,” its online customers buy the most, says Toby Lenk, head of Gap’s online operations. “There are locations where we’re not anywhere near that particular competitor,” he says.
Yet the similarities between the two chains are hard to ignore. In an echo of Lululemon’s famously personalized service, Athleta staff write customers’ names on whiteboards outside fitting rooms. The boards allow salespeople to address a shopper by name while she tries on clothes and help them put a name to the face if she comes back.
While the Canadian retailer often provides fitness classes offsite, Athleta holds them in its stores—the racks are on wheels and can be rolled aside. “They both make quite an effort to create a community,” says Annie Foster, a 27-year-old yoga instructor and blogger in New York, who attended an Athleta marketing event before the chain’s New York debut and received free pants and a top for her trouble. “I don’t think I had really heard of them before, and it was a really cool way to lay the groundwork.”
While Lululemon gives a 15 percent in-store discount to certified fitness instructors in exchange for feedback on garments, Athleta offers 30 percent off for all fitness professionals—with no input required. It may be working: Foster says that while she loves both brands, Athleta’s discount makes it more affordable.