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ATHLETIC CHIC

Growing Lucy chain helps women be stylish at the gym

BY MAURA K. AMMENHEUSER

So long, sweatpants and old T-shirts. Today’s women want to be stylish as well as comfortable when they’re exercising. Even for women who run more errands than marathons, chic athletic wear has become a hot commodity, observers say. And with women’s athletic apparel and footwear sales expected to hit $39 billion by next year, retailers are trying to give these women what they want.

“It’s not good enough anymore to look hot and sweaty,” observes Wendy Liebman, president of WSL Strategic Retail.

From her vantage point as Nike’s director of U.S. brands, Sue Levin caught on to the trend early. In 1999 she and partner Steve Hochman, an Intel product manager, formed an e-commerce site and secured the backing of a group of venture capital firms. The site, called Lucy, drew a following with its style- and comfort-conscious apparel and special emphasis on fit. Developing and marketing the site, however, proved too expensive, so the executive team shut it down in 2001.

Despite that setback, Lucy’s leaders remained convinced that the customer for fashionable fitness garb was still out there. Three of the investment firms that had backed Portland, Ore.-based Lucy from the start — Maveron, Seattle; Sutter Hill Ventures, Palo Alto, Calif.; and Oak Investment Partners, Westport, Conn. — agreed to help finance a foray into brick-and-mortar retailing. These firms invest in a variety of companies, some of them being retail businesses and many others having a technology focus, appropriate for Lucy’s Internet roots.

In fact, in December 2000, even before the site closed, Lucy decided to test the waters with an 800-square-foot shop inside a New York City branch of gym chain Crunch. Unfortunately, running this tiny outpost was a stretch for Lucy’s West Coast-based management team, sources say. And the Crunch store turned out to be too small to be an effective model anyway (the current stores measure about 2,200 square feet), so it closed this past June.

But the boutique did prove that physical stores were feasible. “We weren’t losing any money on it,” said Judy Neuman, a Maveron partner. Before long, Lucy had a fourth major backer, a New York City-based hedge fund called Lone Pine Capital. In 2001 the retailer opened its first full-size store, a freestanding unit in Burlingame, Calif. Successful sales at this store encouraged company executives to expand the portfolio to the current 12 boutiques in Arizona, California, Oregon, Texas and Washington. Most of the stores operate in upscale malls and lifestyle centers.

This spring Lucy hired Mike Edwards to replace Levin as CEO and to chart an ambitious expansion course. Levin remains on Lucy’s board of directors. Edwards, who was previously executive vice president of operations at Jo-Ann Stores, helped turn two solid years of losses into record growth in 2002 for that fabric-and-crafts chain. Before that, he assisted in building electronics retailer CompUSA’s store base from seven to over 200 during an eight-year tenure there.

Edwards plans to open three new Lucy stores by the end of this year and an additional 15 next year. Lucy’s investors believe that the concept can eventually grow to several hundred stores.

To achieve that goal, Edwards brought in Hycel Properties Co. in September. The St. Louis-based company will handle Lucy’s real estate dealings, from leasing to construction. Most of Lucy’s 30 employees deal with merchandise, not real estate, and Lucy is not ready to invest in a development staff, Edwards said.

Getting physical
For its expansion, Lucy favors a mix of lifestyle center, mall and freestanding stores in populous areas (defined as 300,000 residents within 10 miles) with annual household income in the $70,000-to-$100,000 range, say Edwards and Hycel president Mark Zorensky. The company seeks centers with strong apparel tenants. Lucy’s imminent stores will open in or near its existing markets, Zorensky adds.

Edwards describes the physical Lucy stores as “instantly successful,” averaging $630 in sales per square foot. Sources won’t divulge many financial details, but William H. Younger, Sutter Hill’s managing director, calls the existing units “million-dollar stores” with strong capital behind them. The chain markets to the 25-to-55 age group, though most of its customers are between 35 and 45.

To be sure, Lucy is not alone in targeting this demographic, but “who else out there is doing something like this?” Edwards asked. “Certainly, there are a lot of people in the women’s active-wear business,” he added. But there is no one selling private-label goods plus brands, with Lucy’s “combination of style and sport. I see Lucy as a very unique brand.”

Any retailer selling active wear or lifestyle apparel is viewed as a competitor, says Neuman, citing Chico’s and Coach in particular. “We’re all vying for the same wallet.” Edwards and Younger point to Nikewomen (formerly Nikegoddess), Nike’s recent female-focused stores, and to the active-wear departments inside department and discount stores, carrying Reebok and other major brands. But few carry private labels, they point out. (Lucy also carries Nike, Adidas and other brands.) The Sports Authority and other sporting goods chains attract a good number of female apparel shoppers too.

“We think we have a leg up when it comes to fashion and materials,” Younger said.

Certainly the style part of the equation gets women’s attention.

We love Lucy
After strolling in on a whim, Alison Miller and Christi Walker spent at least an hour at Lucy’s Corona del Mar Plaza store, in their home town of Newport Beach, Calif., where they bought tops, tennis shoes and lots of pants. Miller knew of the old Lucy Web site and was tickled to learn the store grew from the same company.

“I’ll go back every week now and see what they have,” Walker said.

Such an enamored state is understandable, according to some. “Once you become a Lucy woman, it’s contagious,” Neuman said. “It’s addictive.”

Lucy “demonstrates the ability to edit the store well with major brands and a fashion sense,” said Nina B. Robinson, vice president of marketing for the retail properties division of The Irvine Co., which operates Corona del Mar Plaza. “The multibrand selection is a good fit for our customer.”

The Irvine Co. is also landlord to Nikewomen at Fashion Island, Newport Beach. That store, which opened in June 2001, was Nike’s first under the “Goddess” concept, a corporate effort to cater more effectively to female athletes. Its sales trends are “strong and consistent,” Robinson says, more proof of the strength of the women’s active-wear market.

Though Nikewomen and Lucy are aimed at the same market and Lucy’s goods are designed for exercise, Lucy “provides casual sportswear with a fashion sense that the consumer might or might not work out in,” Robinson said. “Nikewomen attracts a more serious athlete and provides true athletic apparel with a fashion flair that is both functional and technical.”

Lucy’s online misfortune doesn’t seem to bother landlords. The stores are highly productive, Robinson says. “Their online experience was not a factor.”

The failed Web site certainly hasn’t haunted Lucy’s leaders. In fact, at press time Lucy was planning to resume online sales in October. Edwards says, in effect, that Lucy’s choice of the selling venue is less important than the merchandise it designs. “First and foremost,” he said, “we are a product company.”