Yoga war heats up

In the battle for the yogawear market, Athleta squeezes Lululemon.

Retail giant Gap may have suffered declining sales during the recession, but immune to that drop was its online-only women’s activewear brand, Athleta, which grew by 10%. Athleta was such a bright spot for Gap that in mid-January the company opened a 5,000-square-foot flagship store in San Francisco, set to sell stretchy shorts and fitted tank tops to what it hopes will be a new customer base.

But Gap’s growth in this arena casts a dark shadow over Vancouver-based Lululemon Athletica, which has become the authority on fashionable yoga gear, and boasted a 28% increase in sales over the last fiscal year. Lululemon’s 13-year rapid expansion, and niche-market domination, has allowed it to beat earnings estimates for the past two years, but analysts are uncertain how long this growth can continue. Gap’s Athleta isn’t the only U.S. company that’s expressed interest in carving out a piece of the fitness fashion pie, and other big brands like Nike and Adidas have launched yoga lines with a similar focus on style.

Lululemon has become a status symbol, and Gap has been watching. Its tests show customers are willing to spend four times in a physical store what they are willing to shell out online. Even so, the company believes Athleta’s online following is strong, and is sure to grow — Gap estimates that Athleta will be a big part of doubling e-commerce sales to $2 billion by 2014.