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(CNN Business) —  

If the new-look Gap is going to survive on its own, Athleta may hold the key.

The trendy women’s athletic clothing brand will be part of Gap (GPS), Inc’s fresh start after the company spins off its powerhouse, Old Navy. The new business will contain the Gap (GPS), Banana Republic, Hill City, Intermix and Athleta, which Gap (GPS) bought in 2008.

While the Gap and Banana Republic will make up the majority of sales at the new company, those mall-based brands have struggled in recent years. The Gap has been cutting stores and plans to close another 230 over the next two years.

That means that without Old Navy, Athleta will take on a bigger role for the new company, which expects to debut in 2020. Gap plans to expand Athleta, a brand it hopes can draw new customers who want to wear athletic clothes to the gym, on the weekends, and even to work.

“Athleta is going to be the new crown jewel” of Gap, said Simeon Siegel, analyst at Nomura Instinet. “Athleta will pose the shiny object that is driving sales growth.”

Gap does not break out Athleta’s annual sales, but the brand had more than 160 stores at the end of January. Gap said in 2017 that Athleta was on its way to hitting $1 billion in annual revenue. The company declined to elaborate on current Athleta revenue figures for this report.

But CEO Art Peck said “active is a key growth area for Gap” last year when the company launched Hill City, its men’s athletic brand.

$55 billion market

Athleta, which sells pricey yoga pants, workout tops and hoodies, has flown under the radar compared to its bigger sister brands. That’s by design.

The company’s flagship brand found success by opening up thousands of stores in malls across the world.

“The Gap historically has been criticized that they overbuilt,” said Marshal Cohen, analyst at NPD Group. “Everywhere you looked, there was a Gap.”

But the company took a methodical approach to building Athleta stores because it wanted to protect its niche status. Peck also said last week on an analyst call that the company has been “purposeful and intentional” about building Athleta.

Gap did not want to get stuck with too many Athleta stores, nor did it want to hold extra inventory in case the athleisure trend slowed. “They made a very calculated and conscious decision to not overgrow,” said Cohen.

But the market for fitness clothes is still booming in the United States, and analysts believe Athleta can take a larger slice. Activewear clothing sales in the United States hit nearly $55 billion in 2018, a 10% spike from the year earlier, according to NPD Group data.

If the new-look Gap is going to survive on its own, its Athleta brand may hold the key.
Benjamin Lowy/The New York Times/Redux
If the new-look Gap is going to survive on its own, its Athleta brand may hold the key.

Shifting fashion tastes have driven the trend. Dress codes at work and schools have gotten more casual, while more Americans have become comfortable wearing leggings, sweatpants and sneakers outside of the gym.

Gap is not only betting on the women’s athleisure market. It debuted Hill City last fall to compliment its Athleta line.

“We’ve identified this area as a growth opportunity for Gap,” said company spokesperson Trina Somera this week.

Hill City does not have any plans to open standalone stores, though. “It’s going to be a while before it’s needle-moving,” Nomura’s Siegel said of the brand.

’Ride the wave’

Athleta plans to build new stores and grow online by pushing its environmentally friendly clothing profile and inclusive advertising to reach women. The brand wants 80% of the clothes it makes by 2020 to come from sustainable fibers.

Gap said last week that it is focused on opening more Athleta stores, but the company has stayed mum on exactly how big it expects the brand to become.

Analysts expect Athleta to continue stepping up its clothing business for girls. Athleta has also been developing new products like denim with stretch technology, lingerie and swimwear, said Jane Hali, chief executive of retail research firm Jane Hali & Associates.

“We continue to see tremendous market share opportunity and runway for growth in 2019 and beyond,” Peck said of Athleta last week.

Athleta could have more trouble standing apart in an increasingly crowded athleisure industry, though. Lululemon (LULU), for example, has around 420 stores and plans to build more.

Bigger brands such as Nike (NKE) and Adidas (ADDDF)have added to their athletic clothing lineups. New brands like Outdoor Voices also have cropped up. And Target (TGT) launched JoyLab, its own women’s fitness brand, two years ago, while Kohl’s (KSS) has been expanding athletic clothing sections at stores.

Some analysts also question how much longer the athletic clothing market can continue to grow. If Athleta ramps up too quickly and the athleisure bubble pops, the brand will be left over-retailed, much like the Gap is today.

Athleta has to be careful “not to overgrow, not to be overzealous just because the trend is there,” Cohen said. It must be able to “ride the wave without getting caught on the back end.”