Lululemon Athletica Inc.
April 11, 2019
Part One: Introduction
Lululemon, founded by Chip Wilson in Vancouver in 1998, is a yoga-inspired, technical apparel company for both men and women. Lululemon started as a design studio by day and yoga studio by night, eventually transitioning into a standalone store in Vancouver’s Kitsilano district in November of 2000 (“History of Lululemon”, n.d.). The original intention of the flagship store was not to create a multi-billion dollar apparel company, but rather to give local residents a hub to live a healthy lifestyle and gather as a yoga community (“History of Lululemon“, n.d.). Since starting in 1998, Lululemon has grown into a worldwide enterprise, possessing a multitude of stores across the globe. What started with producing yoga apparel for women has transitioned into now producing apparel for a much broader scope of consumers with apparel for both men and women covering many more activities such as running, cycling, training, and other sports. Lulu’s mission is to “empower people to reach their full potential through providing the right tools and resources, and encouraging a culture of leadership, goal setting and personal responsibility” (“History of Lululemon”, n.d.). The company also holds true to their core values of “quality, product, integrity, balance, entrepreneurship, greatness and fun” (“History of Lululemon”, n.d.), with the hope of creating a positive culture around the brand and their stores around the globe.
Lulu has been hugely successful in the yoga apparel industry, being a primary seller with predominantly no competition, thus allowing them to charge premium prices. Jane Hali & Associates analyst Jessica Ramirez said this of the market Lulu is operating in: “Lulu captured the women’s market, that’s where they started with yoga wear being their staple. Now they’ve evolved some of that collection into everyday-wear and that’s been really successful for them” (Sarkar, Kumar, 2019). Originally targeting the female yoga culture, Lulu has moved into new territory in putting more of a focus on menswear and leisure/athletic wear in the future. The new consumer territory also means new competition for Lulu, who is now going up against industry giants like Nike and Adidas with their non-yoga athletic apparel. Allen Adamson, co-founder of marketing consultancy firm Metaforce, said that Lululemon’s expansion into menswear and fitness will add to headaches for Nike and Adidas, already in a harsh war over market share in their core markets, “They play in the same neighbourhood but not on the same block,” he said. “Lululemon has one foot in the fashion world and one foot in athletics while Nike has both feet in athletics” (Sarkar, Kumar, 2019). When asked about the future of the company, Chief Operating Officer Stuart Haselden commented: “We really believe that Lululemon can be a dual-gender brand, and that our men’s business can ultimately be as big as our women’s” (Sarkar, Kumar, 2019). Another trend we can expect from the company in the future is a more global approach to their branding and sales techniques. With almost 90 per cent of their business stemming from North America, Lulu hopes to expand their reach in newer markets like China, where online sales have risen more than 140 per cent in the quarter (Sarkar, Kumar, 2019).
Part Two: Analysis
Shares in Lululemon have raised 15 per cent after a blockbuster fourth quarter (Sarkar, Kumar, 2019). “Lululemon has delivered one of its strongest years yet, a result of broad-based strength across the business” said CEO Calvin McDonald in a statement (Danziger, 2019). With a total net revenue of 3.3 billion dollars in 2018, and 440 stores globally, Lululemon is one of the most profitable retail companies in North America (“Investor Relations”, n.d.). In the table below we can observe the trends of net income and earnings per share (EPS) over the last four years, as stated in the company’s annual financial statements:
We can see from this data that in the last four years Lulu suffered its worst year in 2015 and had its best year in 2017.
Comparing to Under Armour, in the last fiscal year, Lululemon had a revenue increase of 13 per cent to reach 2.6 billion dollars (“Investor Relations”, n.d.), While Under Armour produced 5.2 billion dollars in revenue while only hitting 4 per cent growth from the previous year (“Investor Relations”, n.d.). An important thing to note in Under Armour’s revenue compared to Lululemon’s is that Under Armour is a much larger company with more business worldwide as well as a large amount of their earnings coming from footwear sales, an industry which Lululemon has yet to make a serious impact. Looking at earnings per share, Lululemon’s 2018 EPS is much higher at $1.90 while Under Armour’s 2018 EPS is a shocking $-0.10 (“Under Armour EPS”, n.d.). This data confirms that Under Armour is much more established and well known, but Lulu is relevant and seeing rapid growth. Lulu is growing financially at a much more consistent rate than Under Armour, expect to see them close the gap on Under Armour’s net revenue in the future as Lululemon continues to develop their brand identity worldwide.
Charging high prices for their products and using unconventional marketing strategies, Lululemon has defined itself as a luxury apparel brand. Though their prices are remarkably high, with their women’s leggings selling at an average of $130 a pair compared to competitor Nike’s average $60 a pair, one could question how Lulu can compete with bigger competition. But with Lulu, they are selling much more than a product, they are selling a culture. A lifestyle. And the biggest selling point is that people want to be a part of the Lululemon culture; “They’re selling a brand identity…the model that Lululemon is trying to build is, you’re pretty cool, we’ll be your partner in being your best possible self. And that kind of turns retail on its head,” said Wall Street analyst Christian Buss (Hum, 2015). The biggest advertising factor Lululemon uses to promote their brand is word of mouth. By putting a premium on customer experience, Lulu hopes to build trust and loyalty between customers and the brand (Hum, 2015). Lulu frequently hosts events and funds fitness and yoga programs, giving back to the communities they are operating in. The company uses these events to position itself as a venue for customers to not only purchase yoga and running apparel, but also to participate in life- enriching events that promote brand loyalty. In this sense they are building relationships with the locals, creating long-term customers. Lululemon encourages customers to buy into a unique lifestyle that transcends the physical product it produces. When people see their peers getting active in the community more and wearing new workout clothes, they become encouraged to join in. Instead of spending money on advertising Lulu found a more cost-effective way to spread brand awareness by establishing its identity. Lulu hopes to position itself as a customer-focused company, the company takes pride in the customer service they provide, even to the point where the staff feel more like your friend or gym partner rather than a salesperson (Hum, 2015).
An interesting tactic Lulu uses in selling their product that differs from their competitors is that they choose not to license or franchise their brand, which means consumers can only buy lululemon apparel from official Lululemon stores or though their online shop. Another distribution channel they use that is uncommon is pop-up shops, which are short-term, temporary retail events that sell high amounts of merchandise in a short amount of time.
Lululemon uses very unconventional marketing strategies compared to their competition. Companies like Nike and Adidas rely on customers to buy their product through exposure from celebrities and professional athletes in advertisements and endorsements, contrary, Lulu uses everyday people to get the message of their brand across, rather than celebrities and professional athletes. When looking at Nike advertisements you will frequently see high budget productions with the biggest celebrities on the planet like Lebron James, Michael Jordan, or Cristiano Rinaldo, to name a few. Lulu on the other hand never has flashy, celebrity led advertisements, rather they typically use normal looking individuals from a variety of people groups.
Management and People
Lululemon has chosen to go with one of the most common ways to set up their organizational structure, a functional organizational strategy, this strategy groups employees into their similar roles or tasks (Quiroz, 2018). Lulu groups its employees into six different specialized categories: strategy, community and brand, creative, human relations and culture, retail in Americas, and visual merchandising (Quiroz, 2018). Each department has managers for workers to report to and communicate with, who then report to upper-level management, fast-tracking operations and communications. Lulu operates on an organizational structure that is intended to be as flat as possible, allowing cross communication and information flow to be carried out as fast and efficient as possible, operating within budget and using strategic planning (Quiroz, 2018). Lululemon currently has over 13 thousand employees, 7,900 of them working in the United States, 3,800 working in Canada, and 1,700 working outside of North America (“Investor Relations”, n.d.). At Lulu the relationship between management and employees is one of the best you can find anywhere, Lulu’s 2018 annual report states that “people are key to success of our business, and we strive to foster a distinctive corporate culture rooted in our core business values which attract passionate and motivated employees who are driven to achieve personal and professional goals” (“Investor Relations”, n.d.). In addition, CNBC appointed Lululemon as one of the top ten places to work in 2018 and has consistently ranked in the top ten for the past ten years.
Lululemon, founded in 1998 by Chip Wilson, is currently led by Chief Executive Officer (CEO) Calvin McDonald, who was recently hired in August of 2018. There has been some buzz about the top leadership after replacing their CEO twice in the past four years (Bloomberg, 2018). Previous CEO Laurent Potdevin abruptly left the company after controversy surrounding his workplace behaviour and relations (Bloomberg, 2018). Lulu scrambled to recover its brand image and looks to be doing well under McDonalds leadership and proven track record after previously heading the infamous makeup company Sephora for five years (“Management and Board of Directors”, n.d.). Chief Financial Officer (CFO), Patrick Guido, also recently joined Lululemon in 2018. The company has been seeing a lot of change recently and with all the growth we have been seeing it is clear to see that Lululemon is on a mission to expand their reach across the globe and solidify their place among its competitors in the apparel industry. Another important thing to note about Lulu is that of the 14 people in head management or on the board of directors (“Management and Board of Directors”, n.d.), less than half of those members are female, for a company aimed towards reaching women and a brand identity seen as largely feminine, some could expect a bigger female presence in the core leadership group. Nevertheless, every member of the core leadership group has extensive experience in business and has outstanding resumes, it is unmistakable to see the success each of these candidates has had in the business world and it shows that Lululemon is no longer some small local yoga company from Vancouver, Lulu is poised to become a huge threat to company’s like Reebok, Nike, and Adidas.
Part Three: Conclusions/Discussion
I chose Lululemon to write about in my research paper because I was intrigued at how a local Vancouver company can make a worldwide brand identity like it has, and how it can grow its exports and business so rapidly and have the quality of the product and the “luxury” status of the company sustain like it has. I am a huge fan of the clothing they make, and it is extremely popular among the younger and older consumers, as well as male and female consumers. It is incredibly honourable how Lululemon has continued to grow its name without selling out to department stores or franchises. I have learned a lot about this company such as how they market compared to their competitors, I found it interesting how they do not use celebrity endorsements to push their products, rather they prefer word of mouth or other non-conventional ways of marketing in 2019. I have come to respect Lululemon much more through the research I have completed. I believe what makes Lulu different from other companies is exactly why they are successful, people feel wholesome when purchasing Lululemon products, they feel like they just bought into a culture, a healthier and better culture that is Lululemon.
Bloomberg. (2018, April 6). Lululemon Is Looking For a New CEO Again. Here's Who Might Be on the Shortlist. Retrieved from:http://fortune.com/2018/04/06/lululemon-new-ceo -shortlist/
Danziger, P. N. (2019, April 05). Three Challenges Lululemon Needs To Address To Keep Delivering Record Results. Retrieved from https://www.forbes.com/sites/pamdanziger/2019/04/05/lululemons-2018-results-were-astounding-but-can-it-do-it-again-in-2019/#16939d793b47
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Investor Relations. (n.d.). Retrieved from Under
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Sarkar, A., & Kumar, U. S. (2019, March 28). Lululemon shares soar on menswear, online push; inches into Nike turf. Retrieved from https://www.theglobeandmail.com/business/article-lululemon-shares-soar-as-it-challenges-nike-adidas-with-deft-moves/
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Quiroz, M. A. (2018, January 08). A Growth Strategy for Lululemon 2018. Retrieved from https://medium.com/@michaelangelo_q/a-growth-strategy-for-lululemon 68819680e511