How Gap Inc. Is Cashing In On The Athleisure Trend

November 9th, 2016 by Trefis Team
-7.53%
Downside
24.15
Market
22.33
Trefis
GPS: Gap logo
GPS
Gap

Activewear, or the ‘Athleisure’ trend, has become so popular, it has carved out a niche for itself in the clothing industry. It has been the lone star in a waning apparel industry, with an estimated market size of $44 billion in the US alone, according to research firm NPD Group. While the apparel sales, as a whole, increased 2% year-on-year in 2015, the rise in activewear sales was a whopping 16%. If this category is excluded, the total clothing sales would have declined 2%, NPD stated. Morgan Stanley has predicted a growth to $83 billion by 2020, stealing the market share from non-athletic apparel. The graph below charts the rise of the trend globally, with sales climbing from $197 billion in 2007 to over $350 billion by 2020.

Activewear

Gap Inc (NYSE:GPS) has also entered the athletic wear market with its brands Athleta, and has delivered a strong performance in this segment. The brand first started out as a catalog and online business, and it now includes over 100 stores in the company portfolio. CEO Arthur Peck continues to be bullish about its performance and its growth potential. The company in its fourth quarter  conference call announced its intention of building an assortment all the way up from a young girl to a teenager under the Athleta brand. Instead of incurring additional expenditures to build and operate additional stores, the company is adding the merchandise to its existing stores.

See our complete analysis for Gap Inc.

The main driver for the growth of this segment has been the millennial consumers who love to spend on fitness and experiences, which is why this segment has seen such phenomenal growth recently. As per a Harris poll, 72% of millennials prefer to spend their money on experiences, rather than material things. As athleisure clothing is typically worn for an experience, more often an outdoor experience, such as working out or hiking, they are more likely to spend their money on it. Even for Gap Inc., its Athleta brand, the company’s foray into athleisure, has been selling well for the company. Strong sales of leggings and sports bras were a bright spot in an otherwise dismal sales for the company in 2015. Peck has also stated that activewear could be the industry’s “most important” trend since the rise of skinny jeans. This can be considered as a noteworthy statement as the skinny jean was a game-changer for the industry, and the trend still refuses to die down. Unluckily for Gap, Athleta currently accounts for less than 5% of the company’s business, and hence, growth in this segment is not likely to have any significant impact on the company’s results in the short term.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Gap Inc.
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