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By opening a store, Gap goes against the tide ; As others shift to Web, clothing retailer gives its online brand a 2^nd home

International Herald Tribune January 14, 2011 | STEPHANIE CLIFFORD

STEPHANIE CLIFFORD International Herald Tribune 01-14-2011 By opening a store, Gap goes against the tide ; As others shift to Web, clothing retailer gives its online brand a 2^nd home Byline: STEPHANIE CLIFFORD Type: News

As the retailing world seems to be rushing to the Web, Gap. is going against the tide, opening a store in San Francisco for a brand built on the Internet.

While most of the retail world flings itself at the Internet, Gap is moving in the opposite direction in a bid to improve its lagging standing.

On Thursday, the American retailer was to open a store in San Francisco for a brand that was originally available only online and in catalogs.

The brand, Athleta, was acquired by Gap in 2008 for $150 million.

It features sportswear, like yoga pants, shorts and “to/fro” dresses to throw on around town or on the way to the gym.

“It goes counter to how the Web’s growing, stores are declining in the world at large, yadda yadda yadda,” said Toby Lenk, the president of Gap Inc. Direct, which oversees the Athleta brand.

“With this type of product, women’s active athletic product, it is really important to be able to feel it, touch it, try it on,” he added. here athleta coupon code

It also seems to be a move for Gap to capture some of the success that Lululemon Athletica, which sells costly yoga pants and hoodies, has enjoyed. Lululemon, based in Vancouver, British Columbia, is trading at more than four times its initial public offering price in 2007 and has a price-to-earnings ratio of almost 55.

While it has a Web site, its 130 or so stores drive about 90 percent of its revenue.

Edward Yruma, an analyst with KeyBanc Capital Markets, said the new store’s effect on Gap’s bottom line would be minor, but the extension of the Athleta brand beyond the Internet and catalogs was “compelling.”

“They’re trying to incubate it in the best way they can,” he said. “Athleta is, at least from a store perspective, still a test, and at this stage the business is not large enough to move the needle.”

Gap does not break out Athleta results, but for fiscal 2009, the direct division the brand belonged to had sales of $1.1 billion, up from $1 billion the previous year. Over all, Gap’s sales shrank that year to $3.8 billion from $4.2 billion in 2008.

Mr. Lenk said that Gap, which also owns Banana Republic and Old Navy, has been trying to find new areas of growth, like stores in China, as U.S. sales have fallen behind those of competitors.

For the three months that ended in October, the most recent financial period for which Gap has reported results, many apparel companies were rebounding from the previous year.

But Gap said sales at stores open at least a year, a measure known as comparable-store sales, were flat for the quarter. go to site athleta coupon code

In its financial third quarter of 2009, it also reported no improvement in comparison with the third quarter of 2008, when sales declined 12 percent. And that decline was a further slide from declines in the third quarters of 2007, 2006, 2005 and 2004.

The company has said that it wants the comparable-store sales to range consistently from zero to 5 percent, which has been the case for the past five quarters.

And the online unit has been growing, with sales rising 15 percent in the third quarter; overall sales that quarter grew 2 percent.

The Athleta retail store will be run within the company’s direct– sales division, which includes online sales, rather than in a division that traditionally operates physical stores. And in a first for Gap, the online and in-store inventories will be combined, meaning Web customers could see items that are on sale in the store and request that those items be shipped to them.

Mr. Lenk said that the Athleta retail store’s placement in his division had “nothing to do with the relative performance” of the online and store divisions. “There’s a tremendous amount of back– end benefits by keeping everything integrated as one machine,” he said.

Gap opened a test store for Athleta in Marin County, California, before committing to the San Francisco store, a 5,000-square-foot, or 465-square-meter, space in the fashionable Pacific Heights neighborhood. While Athleta’s online and catalog sales to Marin residents remained steady, Mr. Lenk said, in-store sales shot up.

“We found for every dollar of revenue we capture from people in Marin at the Web site, we got another four dollars in revenue for the store,” he said. “What that clearly said to us was, there’s clearly a lot of women who just won’t shop directly for this product category. They must go in and try it and touch it and feel it.”

Athleta has a slightly wider selection than Lululemon. Athleta sells ski clothes and swimsuits, while Lululemon is focused on yoga and clothes to wear on day-to-day errands.

“You can’t name a competitor in this space that doesn’t have store presence or store distribution,” Mr. Lenk said. “If you want to be a leader in this product category, there’s a good chance you need a store.”

Mr. Lenk declined to specify whether Athleta would open more stores, but said that “you certainly could see us thinking about test stores in other markets down the road.”

STEPHANIE CLIFFORD