Lululemon Athletica
CASE STUDY
Lululemon Athletica, Inc.
Analyzed by:
A. Executive Summary: Lululemon Athletica Inc, styled as lululemon athletica, is a self-described yoga-inspired athletic apparel company, which produces a clothing line and runs international clothing stores from its company base in Vancouver, British Columbia, Canada. The company was founded by Chip Wilson, a yoga enthusiast, in 1998. The company began as a store selling Yoga fabrics and a studio of practicing yoga. Lululemon has invested considerable time and energy building its brand identity and company culture, which has resulted in loyal customers and employees. Consistent with the company’s mission of “providing people with the component …show more content…
to live a longer, healthier and more fun life”, lululemon executives sought to promote and ingrain a set of core values centered on developing the highest-quality products, operating with integrity, leading a healthy balanced life, self-empowerment and self-responsibility, positive inner development and individual goal setting. The company has made strategic decisions to develop this culture in its message and as part of its store growth, brand identity and product offerings. 5 years after opening the first retail store, it was apparent that lululemon apparel was fast becoming something of a cult phenomenon and a status symbol among yoga fan in areas where lululemon stores had opened. In December 2005, with 27 company-owned stores, 2 franchised stores and record sales en route to $85 million annually, Chip Wilson sold 48% of his interest in the company’s stock to a group of private equity investors led by Advent International Corporation and Highland Capital Partners. In 2007, the company’s owners elected to take the company public and IPO took place with the company selling 2,290,909 shares. Shares began trading on the NASDAQ and Toronto Exchange. In January 2008, Christine M. Day joined the company as executive vice president, retail operations. Previously, she had work at Starbucks, Asia Pacific Group, North America Finance & Administration in a variety of capacities and positions including president. In July 2008, she was named CEO and member of the BOD. Company founder Chip Wilson stepped down from his executive position but continued his role of chairman of the BOD. The company’s growth and success over next 5 years were impressive by any standard: sales revenues climbed rapidly toward $1 billion annually, stock price had risen from $2.25 per share on March 9, 2009 to close at $64.58 per share on February 3, 2012… The company’s functional and stylish apparel had taken on “must have” status among growing numbers of fitness conscious women.
The company announced its growth strategy with 5 elements: grow the company’s store base in North America, Increase brand awareness, introduce new product technologies, broaden the appeal of lululemon products and expand beyond North America. The lululemon management as well as investors and business analysts were considering the following top priority issues: - How long the lululemon athletica phenomenon would last and whether the company could keep its current performance in the future. - Whether the growth and expansion strategy of the company in the international markets would be successful. - Whether the company could carve out a sustainable market position for itself in the fitness and athletic apparel industry, especially against such competing names as Nike, Under Armour, adidas and …show more content…
Reebok.
B. Analysis and Evaluation:
I. Five -force Analysis: 1. Threat of New Entrants into Performance-based Yoga and Fitness Apparel: Threat of New Entrants is low because of high hurdles of entry. The industry is categorized by large capital requests, access to distribution channels, large economies of scale and product distinction. New entrants will require spending a lot of time and money to come in to the market, increase cost advantage, and establish loyal customer base. The product differentiation is high in this industry because different companies are trying to have it own identity. The switching cost to move from one supplier to another can be high due to the standards of quantity that they must maintain in every company. With the internet and in today’s globalize world the access to distribution channels are low. Another reason will be the numerous trades according between countries. 2. Threat of Substitutes for Performance Yoga and Fitness Apparel: Threat of Substitutes is quite temperate since customers do not face great substituting cost when substitute products are lower in price; the quality performance capability of substitute products is not greater. There are a lot of substitutes in this clothe business because some of them you can find at a low price. For example, free classes of yoga or Pilates, like Athleta is doing. 3. The Bargaining Power of Consumers of Performance Yoga and Fitness Apparel: The Bargaining Power of Buyers is low because the supplier is quite fragmented and less concentrated than the clothing retail industry. In the athletic and outdoor industry of clothe, buyers have a lot of power. In this business, even thought there is not a single buyer, the people have a lot of products and brands to choose from. For example, “Nike’s Salvation chain of athletic-wear stores is selling $64 training capris and features a yoga-studio format and logo similar to that of Lululemon. Gap’s Athleta stores sell $60 women’s yoga tops and offer free yoga classes—another innovation popularized by Lululemon. Nordstrom’s Zella line, dedicated to yoga attire, even hired a Lululemon alum to launch the effort”. The customers in this industry are very sensitive to the prices, giving a plus to the company that offers them a much better deal. The buyer is tried to be manipulated to face high switching cost with the creation of places to do Yoga. 4. The Bargaining Power of Suppliers of Performance Yoga and Fitness Apparel: Bargaining Power of Suppliers is low since the supplier segment is quite disjointed and less focused than the clothing retail industry. There is lot of choice for supplier substitution and buyers typically embody a significant customer group. Switching cost for the industry can be high because changing from one supplier to another will bring problem while it tries to meet the quality requirements and present delays in the orders. In these industries a forward integration will be much low due to the high cost of marketing that will need to face in order to compete with the current companies. 5. The Rivalry among Designers & Marketers of Performance-based Yoga and Fitness Apparel: The intensity of Rivalry among competitors in the Industry is high because there are currently a lot of rival companies. Athleta was bought by The Gap inc in 2008 and started competing with the big players, of the sportswear industry, like Nike, Lululemon, Nordstrom and ADDY. “Of Athleta’s 22 locations, 13 are about a mile or less away from a Lululemon, based on the addresses listed on both company’s websites”. The proposal of a “lifestyle”, more than a company that sells just clothe, is also getting more popular because this is building exit barrier for the customers. Increase the switching cost of their customers. Going from one place to do Yoga to another becomes problem for the reason that on their current place everybody is wearing one type of brand and in another it’s other type. “The $14.3 billion U.S. market for such gear is growing twice as fast as women’s apparel overall, according to market researcher NPD Group. Stylish yoga gear also commands higher prices and margins than other athletic apparel. As more women pursue sports, many are willing to trade up to pricier fabrics that wick away perspiration and reduce odors”
II. Strategic Group Map:
[pic]
Based on the strategic group map of Lululemon in the market, it could be seen that the company is well-positioned because in the area of the company’s location there are no close rivals. However, they could still consider moving their current position though they can face directly competitor because of 2 reasons. First of all, the range of product offering is narrow which means Lululemon does not give customers enough product choice as Nike, Adidas and Reebok despite Lululemon product’s quality is quite high. In the long run, this may lower the position of Lululemon in gaining customer loyalty and attract new customers. Secondly, Lululemon does not take advantage of all the distribution channels available which have been taken up by some of their competitors.
III. Key Success Factors: Founded in 1998, Lululemon's phenomenal rise to the top as the Yoga mecca of its hemisphere has baffled economic experts on its exponential increase in sales. Lululemon’s star quality did not happen by accident, however. The keys to success has been its philosophical approach to achievement which forms its foundation and which mimics some of the most famous business gurus of the past, including: Andrew Carnegie, Napoleon Hill, and Werner Erhard. 4 core principles that have fueled Lululemon’s meta-mission and impacted its stellar performance in the market are: Number 1: Educating employees At Lululemon, employees are referred to as “educators” frequently engaged in training to develop a professional cadre of staff. Educators are presented with a “learning library” that includes “The Seven Habits of Highly Effective People,” “The Phoenix Seminar on the Psychology of Achievement,” and Landmark Forum seminars, after their first anniversary as staff. Number 2: Authenticity Christine Day, Lululemon’s CEO says, “If you want to be successful in this industry, it is about being authentic.” The Yoga brand’s $52 tank top and $99 leggings are not cheap by any means, but clients have bought into the name; its reputation simply speaks for itself. Number 3: The Scarcity Model Customers know that only a limited supply of stock is kept at outlets, which translates to “buy items now or risk not seeing it again” culture of shopping. Scarcity creates “these fanatical shoppers” says CEO, Christine Day. Lululemon rarely offers sales, therefore at full price, a Yoga pants will cost from $75 to $128. Thrifty customers could easily get a similar product at Old Navy or Gap for $25. Number 4: “Fierce Loyalty” through Product Upgrade Call it the apple model– says Christine Day who “has worked out a strategy of improving the features and fabrics of Lululemon which is aesthetically pleasing, functional–and pricier.” These success principles have resulted in little need for aggressive marketing; Lululemon has been able to spread the word almost effortlessly through allure, good customer service, and a shift in cultural thinking as "the brand of choice."
IV. SWOT Analysis: 1. Strengths: - Product design efforts were led by a team of designers based in Vancouver and headed by the company’s founder, Chip Wilson. The team collaborated closely with various international designers. The design team included athletes and users of the company’s products who embraced design philosophy and dedicated to premium quality. - Ample financial resources to grow the business: Lululemon’s full fiscal year 2012 net revenue equaled $ 1.3 billion, earnings per share equaled $ 1.5 and stock trade in early May 2012 equaled $ 75 - Superior product quality: Innovative fabrics capable of stretch ability, moisture-wicking, color fastness, feel-good comfort and durability. - Strong brand name/reputation for Yoga apparels. - Proprietary technology, superior technological skills: + Develop the company’s trademarked fabrics (Luon, Luxtreme and Silverescent) + Use of advanced sewing techniques such as flat seaming. + Shortest lead times of only 2 months. - Strong bargaining power over buyers - Consumer focused - Sustainability + Providing people with components to live a longer, healthier and fun life + Retailed store employees, referred as educators, are required to develop a personal connection with each customer, help them lead a healthy lifestyle not just sell products. - Good distribution channel: + Retailed stores are mainly located on street locations, in upscale shopping centers, and malls. + Efficient e-commerce website which brought $57.3 million for the company in fiscal year 2010. - Niche market leader in Yoga practitioner’s products 2. Weaknesses: - Such narrow a product line relative to rivals (Nike, Adidas, and Reebok) - Strategies (e-commerce service, inviting famous athletes) that are easily copied - The company’s brand is perceived as for Yoga only - The company’s brand is mainly perceived as for females. 3. Opportunities: - International expansion - Promote growth in the US market and Canada - E-commerce development - New market segment Man-youth, old people who follow healthy lifestyle. - Strengthen US brand recognition 4. Threats: - Economics condition may decrease consumer spending - Competition from big rivals like Nike, Adidas and rivals of the same target customers, strategies (Athleta, Nordstrom, Lucy, Bebe’s store) - Lack of focus in the US market - Heavily focused word-of-mouth marketing strategy could lead to customer’s misunderstanding 5. Overall attractiveness of Lululemon: Lululemon has gained it stable position in the market of producing high-quality apparel for female yoga enthusiasts.
The company’s internal resources and capabilities such as effective brand connection with customers, its own distribution and high quality products enabled the company to offset a high threat of substitutes and intense rivalry among competing firms. Lululemon managed to offset the attractiveness of substitute products by offering high-quality product combined with unique and superior customer experience that is highly valued by its target group. This resulted in extremely loyal customer base and brand
popularity.
V. Value Chain: 1. Primary Components: a. Sourcing & Manufacturing: - Production was the only value chain activity Lululemon did not perform internally. Lululemon did not own or operate any manufacturing facilities to produce fabrics or make garments. - All products were sourced from a group of 45 manufacturers. During the fiscal year ending January 31, 2012,about 49% of apparel products were produced in China,41% in South/South East Asia, 3% in Canada and the remainder in the United States, Israel and other countries. - Lululemon transacted business on an order-by-order basis instead of long-term contract. - The company utilized the services of a leading inspection and verification firm to closely monitor each supplier’s compliance with: + Quality of manufacturing + Working conditions + Child labor and applicable laws + Code of ethical business conduct b. Distribution: - Lululemon shipped products to its stores from 3 modern and cost-efficient distribution centers: + A leased 102,000-square-foot facility in Vancouver, British Columbia & a leased 82,000-square-foot facility in Sumner Washington for North America + A leased 54,000-square-foot distribution center in Melbourne, Australia for Australia and New Zealand. - Merchandise was typically shipped to retail stores by third-party delivery service. - As of February 2012, Lululemon’s retail footprint included: + 47 stores in Canada, mainly located in British Columbia, Alberta and Ontario. + 108 company-owned stores in the United States + 18 stores in Australia + 1 store in New Zealand (opened in 2011) Typically, stores were leased and were 2,500 to 3,000 square feet in size. c. Sales, Marketing and Service: - In 2012 Lululemon had “showrooms” in 35 locations in the United States, 4 Australian locations, 2 New Zealand locations and 1 location in Hong Kong, functioning as a means of introducing the brand and culture to a community. - Marketed products to select yoga studios, health clubs and fitness centers for wholesale. - Lululemon launched its e-commerce website to enable customers to make online purchases in 2009, in addition to its already-functioning phone sales activity. Moreover, website visitors could browse information about what yoga was, what various types of yoga were and their benefits, learn about fabrics and technologies used in Lululemon’s products; read recent posts on its yoga blog and stay abreast of Lululemon activities in their community. - Every retail store held an in-store yoga class after of before regular shopping hours each week, complete with yoga mats and a professional yoga instructor. When the class concluded, the attendees were given a 15% off coupon to use for shopping for products in the store. - The company aimed to sell all of its products at full price. Special colors and seasonal items were in store for only a limited time – 3, 6 or 12 weeks life cycles so that frequent shoppers could always find something new. - Lululemon used community-based approach as a differentiating marketing tool. The company chose local fitness practitioners to be ambassadors introduced their fitness class attendees to the brand. Each yoga-instructor ambassador was also called upon to conduct a complimentary yoga class every 4 to 6 weeks at the local Lululemon store they were affiliated with. Every Lululemon store also had a dedicated community coordinator who developed a customize plan for organizing, sponsoring and participating in athletic, fitness and philanthropic events in the local area. In addition, each store had a community events bulletin board for posting announcements of upcoming activities and a chalkboard where customers could scribble comments, which were relayed to Lululemon headquarters every 2 weeks. - The company made little use of traditional advertising print or television advertisement.
2. Support Components: a. Product R&D: - Product design efforts were led by a team of designers based in Vancouver and headed by the company’s founder, Chip Wilson. The team collaborated closely with various international designers. The design team included athletes and users of the company’s products who embraced design philosophy and dedicated to premium quality. - Regularly worked at stores to interact with and receive direct feedback from customers. - Used various market intelligent sources to identify and track market trends. - Hosted meetings each year in several geographic markets to discuss the company’s products with local athletes, trainers, yogis and members of the fitness industry and gather their ideas for products improvements and innovations. - Worked closely with its apparel manufacturers to incorporate innovative fabrics and garments. Trademarked fabrics currently incorporated in Lululemon products included Luon, Luxtreme and Silverescent. - Used the services of an independent inspection, verification, testing and certification company to conduct test on fabrics before bringing out new products with new fabrics. b. Human Resource Management: - Lululemon’s store sale associates, referred as educators, received about 30 hours of in-house training within the first 3 months of their employment, which focused on leading a healthy and balanced life, exercising self-responsibility, setting lifestyle goals and to serve as knowledgeable references for customers about the products and yoga. - New hires that lacked knowledge about yoga were given subsidies to attend yoga classes so they could understand the activity and explain it to the customers. - Store personnel were taught how to “educate” guests about Lululemon apparel, not sell to them. - As of January 29, 2012 Lululemon had 5,807 employees and there had been no labor-related work stoppages.
VI. Strategy and its Key Elements: 1. Grow the company’s store base in North America: - The strategic objective was to add new stores to strengthen the company’s presence in locations where it had existing stores and then selectively enter new geographic markets in the United States and Canada. Plans were to open 20 to 25 stores in fiscal 2007 and 30 to 35 stores in fiscal 2008 in the United States and Canada. - Top management in 2010 determined that having franchised stores was not in the company’s best long-term strategic interests. A strategic initiative was begun to either acquire the current stores of franchisees and operate them as company stores or convert the franchised stores to a joint venture arrangement where Lululemon owned the controlling interest in the store and the former franchisee owned a minority interest. - Current store expansion efforts were concentrated mainly in the United States. The company’s plans for 2012 called for opening 30 new stores in the U.S., 2 ivivva athletica-branded stores in Canada and 5 new stores in Australia and New Zealand. - Lululemon management undertook ongoing evaluations of the company’s portfolio of company-owned store locations. Underperforming store locations were closed in 2009 and 2010. No stores were closed in 2011. 2. Increase brand awareness: - This initiative entailed leveraging the publicity surrounding the opening of new stores with grassroots marketing programs that included organizing events and partnering with local fitness practitioners. - Provide a distinctive in-store shopping experience, complemented with strong ties to fitness instructors and fitness establishments, local athletes and fitness-conscious people and various community-based athletic and fitness events. - In 2012 Lululemon had “showrooms” in 35 locations in the United States, 4 Australian locations, 2 New Zealand locations and 1 location in Hong Kong. They functioned as a means of introducing the brand and culture to a community, developing relationships with fitness instructors and enthusiasts, and hosting community-related fitness events, all in preparation for the likely opening of a new retail store in the near future. - As a wholesale strategy, Lululemon marketed its products to select yoga studios, health clubs and fitness centers as a way to familiarize the customers of these establishments with the Lululemon brand and give them an opportunity to conveniently purchase Lululemon apparel. - Lululemon launched its e-commerce website to enable customers to make online purchases in 2009, in addition to its already-functioning phone sales activity. Moreover, website visitors could browse information about what yoga was, what various types of yoga were and their benefits, learn about fabrics and technologies used in Lululemon’s products; read recent posts on its yoga blog and stay abreast of Lululemon activities in their community.
3. Introduce new product technologies: - Incorporate next-generation fabrics and technologies in the company’s products to strengthen consumer association of the lululemon brand with technically advanced apparel products and enable lululemon to command higher prices for its apparel products compared to the prices of traditional athletic apparel. - The company’s goal was to sell all of its products at full price. Special colors and seasonal items were in store for only a limited time – 3, 6 or 12 weeks life cycles so that frequent shoppers could always find something new. - Typically it took 8 to 10 months for Lululemon products to move from the design stage to availability in its retail stores; however, the company had the capability to bring select new products to market in as little as 2 months. Short lead times facilitated quick responses to emerging trends or shifting market conditions. 4. Broaden the appeal of Lululemon products: - Adding a number of apparel items for men, including tops, jackets and hoodles, shorts, pants and gear bag, etc. - Expanding product offerings for women and young females in such categories as athletic bags, undergarments, outerwear and sandals. - Adding products suitable for additional sports and athletic activities. 5. Expand beyond North America: - Over time, management expected to expand into additional countries, primarily Asia and Europe, either by opening company-owned stores or by emerging into join ventures with experienced and capable retail partners. - In near term, the company planned to expand its presence in Australia and Japan then, pursue opportunities in other Asian and European markets that offered similar, attractive demographics. In summary, Lululemon was pursuing the Focus Differentiation Strategy. Lululemon offered a diverse and growing selection of premium-priced performance apparel and accessories for women, men and female youths that were designed for healthy lifestyle activities such as yoga, running and general fitness. While many of its products were specifically intended for the growing number of people that participated in yoga, the company had for some years been broadening its product range to address the needs of other activities.
VII. Financial and Operating Performance: - From the end of fiscal year 2007 through the end of fiscal year 2012, lululemon’s net revenues grew from $148.0 million in fiscal 2007 to $1000.8 million in fiscal 2012, equal to a compound average growth rate (CAGR) of 46.6%. - From the end of fiscal year 2007 through the end of fiscal year 2012, lululemon’s net profit grew from $7.7 million in fiscal 2007 to $185.0 million in fiscal 2012, equal to a CAGR of 88.9%. - Lululemon’s gross profit margin was 56.9% in fiscal 2012, versus 55.5% in fiscal 2010 and 49.3% in fiscal 2009. - Lululemon’s operating profit margin in fiscal 2012 was 28.7% in fiscal 2012, versus 25.3% in fiscal 2011and 19.1% in fiscal 2010. - Lululemon’s net profit margin in fiscal 2012 was 18.5% in fiscal 2012, versus 17.1% in fiscal 2011 and 12.9% in fiscal 2010—these are very respectable increases from a shareholder perspective. - Lululemon’s diluted net income per share rose from $0.06 in 2007 to $1.27 in 2011, a very hefty compound average growth rate of 84.1% (albeit from a low base of $0.06). - Lululemon’s selling, general, and administrative expenses as a percent of net revenues were 33.4% in fiscal 2009, 29.9% in fiscal 2011, and 28.2%in fiscal 2012—such operating efficiency gains in SG&A expenses are highly positive suggest good expense controls are being exercised by lululemon’s top management. - Sales per gross square foot at lululemon’s corporate-owned stores open at least one full year grew at a compound average rate of 7.3% from fiscal 2007 through fiscal 2012. - Lululemon’s return on stockholders’ equity investment in fiscal 2012 was 30.5% in fiscal 2012 and 30.9% in fiscal 2011. - The balance sheet section of case Exhibit 1 indicates that lululemon has increased the size of its cash and cash equivalents significantly every year since 2007, and currently seems to have very ample cash on hand. - The cash flow section of case Exhibit 1 shows strong gains in net cash provided by operating activities and, perhaps more importantly, the net cash provided by operating activities greatly exceeds the amount the company is spending annually on capital expenditures. Therefore, Lululemon is generating ample cash flows to fund the company’s growth from internal funds rather than having to borrow money and incur growing amounts of long-term debt. - In the store data section of case Exhibit 1, Lululemon is generating very impressive gains in sales per gross square foot of store space at its retail stores open at least one year. - Likewise, average sales at corporate-owned stores open at least one year are growing (up 41.8% since 2009, despite tough economic conditions in North America). On the whole, it is quite impressed with lululemon’s growth and financial performance since 2007.
C. Recommendations:
- Lululemon should continue pursuing the Focused Differentiation Strategy. It had created a unique position in the strategic map group as well as a niche market for high-end yoga-inspired apparel. Lululemon should take advantage of this position to avoid direct confrontation with other rivals that have different target markets and market offerings. Therefore it could skim the profits in these open market segments.
- Expand the distribution channels into the international markets together with reinforce them with strong community bases, especially which related to yoga and fitness activities. In essence, the momentum for the lululemon phenomenon as well as the company growth and development came from the spiritual and core values of a healthier and happier life from fitness and athletic activities. Besides building showrooms, the company should using different approaches to spread this idea widely to the local community before setting up new stores... Therefore, lululemon could sustain its successful performance.
- With the momentum of its phenomenal growth over recent years as well as favorable supports from the investors and customers, lululemon should consider a competitive offensive into its rivals’ market positions in order to gain more sales and market shares.
- Focus on social responsibility to gain support from the community in general as well as customers. The company should keep serving the interests of the customers by providing them with quality products and how it meets its mission to help people live healthier lives by providing in store yoga classes. Lululemon should create specific and effective charity plans, which encourages people to use their products since they will know that money will go to charities. With lululemon entering the global market it will continue to achieve major success by being socially responsible in any location it operates in.
Lululemon Athletica, Inc.
Analyzed by:
A. Executive Summary: Lululemon Athletica Inc, styled as lululemon athletica, is a self-described yoga-inspired athletic apparel company, which produces a clothing line and runs international clothing stores from its company base in Vancouver, British Columbia, Canada. The company was founded by Chip Wilson, a yoga enthusiast, in 1998. The company began as a store selling Yoga fabrics and a studio of practicing yoga. Lululemon has invested considerable time and energy building its brand identity and company culture, which has resulted in loyal customers and employees. Consistent with the company’s mission of “providing people with the component …show more content…
to live a longer, healthier and more fun life”, lululemon executives sought to promote and ingrain a set of core values centered on developing the highest-quality products, operating with integrity, leading a healthy balanced life, self-empowerment and self-responsibility, positive inner development and individual goal setting. The company has made strategic decisions to develop this culture in its message and as part of its store growth, brand identity and product offerings. 5 years after opening the first retail store, it was apparent that lululemon apparel was fast becoming something of a cult phenomenon and a status symbol among yoga fan in areas where lululemon stores had opened. In December 2005, with 27 company-owned stores, 2 franchised stores and record sales en route to $85 million annually, Chip Wilson sold 48% of his interest in the company’s stock to a group of private equity investors led by Advent International Corporation and Highland Capital Partners. In 2007, the company’s owners elected to take the company public and IPO took place with the company selling 2,290,909 shares. Shares began trading on the NASDAQ and Toronto Exchange. In January 2008, Christine M. Day joined the company as executive vice president, retail operations. Previously, she had work at Starbucks, Asia Pacific Group, North America Finance & Administration in a variety of capacities and positions including president. In July 2008, she was named CEO and member of the BOD. Company founder Chip Wilson stepped down from his executive position but continued his role of chairman of the BOD. The company’s growth and success over next 5 years were impressive by any standard: sales revenues climbed rapidly toward $1 billion annually, stock price had risen from $2.25 per share on March 9, 2009 to close at $64.58 per share on February 3, 2012… The company’s functional and stylish apparel had taken on “must have” status among growing numbers of fitness conscious women.
The company announced its growth strategy with 5 elements: grow the company’s store base in North America, Increase brand awareness, introduce new product technologies, broaden the appeal of lululemon products and expand beyond North America. The lululemon management as well as investors and business analysts were considering the following top priority issues: - How long the lululemon athletica phenomenon would last and whether the company could keep its current performance in the future. - Whether the growth and expansion strategy of the company in the international markets would be successful. - Whether the company could carve out a sustainable market position for itself in the fitness and athletic apparel industry, especially against such competing names as Nike, Under Armour, adidas and …show more content…
Reebok.
B. Analysis and Evaluation:
I. Five -force Analysis: 1. Threat of New Entrants into Performance-based Yoga and Fitness Apparel: Threat of New Entrants is low because of high hurdles of entry. The industry is categorized by large capital requests, access to distribution channels, large economies of scale and product distinction. New entrants will require spending a lot of time and money to come in to the market, increase cost advantage, and establish loyal customer base. The product differentiation is high in this industry because different companies are trying to have it own identity. The switching cost to move from one supplier to another can be high due to the standards of quantity that they must maintain in every company. With the internet and in today’s globalize world the access to distribution channels are low. Another reason will be the numerous trades according between countries. 2. Threat of Substitutes for Performance Yoga and Fitness Apparel: Threat of Substitutes is quite temperate since customers do not face great substituting cost when substitute products are lower in price; the quality performance capability of substitute products is not greater. There are a lot of substitutes in this clothe business because some of them you can find at a low price. For example, free classes of yoga or Pilates, like Athleta is doing. 3. The Bargaining Power of Consumers of Performance Yoga and Fitness Apparel: The Bargaining Power of Buyers is low because the supplier is quite fragmented and less concentrated than the clothing retail industry. In the athletic and outdoor industry of clothe, buyers have a lot of power. In this business, even thought there is not a single buyer, the people have a lot of products and brands to choose from. For example, “Nike’s Salvation chain of athletic-wear stores is selling $64 training capris and features a yoga-studio format and logo similar to that of Lululemon. Gap’s Athleta stores sell $60 women’s yoga tops and offer free yoga classes—another innovation popularized by Lululemon. Nordstrom’s Zella line, dedicated to yoga attire, even hired a Lululemon alum to launch the effort”. The customers in this industry are very sensitive to the prices, giving a plus to the company that offers them a much better deal. The buyer is tried to be manipulated to face high switching cost with the creation of places to do Yoga. 4. The Bargaining Power of Suppliers of Performance Yoga and Fitness Apparel: Bargaining Power of Suppliers is low since the supplier segment is quite disjointed and less focused than the clothing retail industry. There is lot of choice for supplier substitution and buyers typically embody a significant customer group. Switching cost for the industry can be high because changing from one supplier to another will bring problem while it tries to meet the quality requirements and present delays in the orders. In these industries a forward integration will be much low due to the high cost of marketing that will need to face in order to compete with the current companies. 5. The Rivalry among Designers & Marketers of Performance-based Yoga and Fitness Apparel: The intensity of Rivalry among competitors in the Industry is high because there are currently a lot of rival companies. Athleta was bought by The Gap inc in 2008 and started competing with the big players, of the sportswear industry, like Nike, Lululemon, Nordstrom and ADDY. “Of Athleta’s 22 locations, 13 are about a mile or less away from a Lululemon, based on the addresses listed on both company’s websites”. The proposal of a “lifestyle”, more than a company that sells just clothe, is also getting more popular because this is building exit barrier for the customers. Increase the switching cost of their customers. Going from one place to do Yoga to another becomes problem for the reason that on their current place everybody is wearing one type of brand and in another it’s other type. “The $14.3 billion U.S. market for such gear is growing twice as fast as women’s apparel overall, according to market researcher NPD Group. Stylish yoga gear also commands higher prices and margins than other athletic apparel. As more women pursue sports, many are willing to trade up to pricier fabrics that wick away perspiration and reduce odors”
II. Strategic Group Map:
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Based on the strategic group map of Lululemon in the market, it could be seen that the company is well-positioned because in the area of the company’s location there are no close rivals. However, they could still consider moving their current position though they can face directly competitor because of 2 reasons. First of all, the range of product offering is narrow which means Lululemon does not give customers enough product choice as Nike, Adidas and Reebok despite Lululemon product’s quality is quite high. In the long run, this may lower the position of Lululemon in gaining customer loyalty and attract new customers. Secondly, Lululemon does not take advantage of all the distribution channels available which have been taken up by some of their competitors.
III. Key Success Factors: Founded in 1998, Lululemon's phenomenal rise to the top as the Yoga mecca of its hemisphere has baffled economic experts on its exponential increase in sales. Lululemon’s star quality did not happen by accident, however. The keys to success has been its philosophical approach to achievement which forms its foundation and which mimics some of the most famous business gurus of the past, including: Andrew Carnegie, Napoleon Hill, and Werner Erhard. 4 core principles that have fueled Lululemon’s meta-mission and impacted its stellar performance in the market are: Number 1: Educating employees At Lululemon, employees are referred to as “educators” frequently engaged in training to develop a professional cadre of staff. Educators are presented with a “learning library” that includes “The Seven Habits of Highly Effective People,” “The Phoenix Seminar on the Psychology of Achievement,” and Landmark Forum seminars, after their first anniversary as staff. Number 2: Authenticity Christine Day, Lululemon’s CEO says, “If you want to be successful in this industry, it is about being authentic.” The Yoga brand’s $52 tank top and $99 leggings are not cheap by any means, but clients have bought into the name; its reputation simply speaks for itself. Number 3: The Scarcity Model Customers know that only a limited supply of stock is kept at outlets, which translates to “buy items now or risk not seeing it again” culture of shopping. Scarcity creates “these fanatical shoppers” says CEO, Christine Day. Lululemon rarely offers sales, therefore at full price, a Yoga pants will cost from $75 to $128. Thrifty customers could easily get a similar product at Old Navy or Gap for $25. Number 4: “Fierce Loyalty” through Product Upgrade Call it the apple model– says Christine Day who “has worked out a strategy of improving the features and fabrics of Lululemon which is aesthetically pleasing, functional–and pricier.” These success principles have resulted in little need for aggressive marketing; Lululemon has been able to spread the word almost effortlessly through allure, good customer service, and a shift in cultural thinking as "the brand of choice."
IV. SWOT Analysis: 1. Strengths: - Product design efforts were led by a team of designers based in Vancouver and headed by the company’s founder, Chip Wilson. The team collaborated closely with various international designers. The design team included athletes and users of the company’s products who embraced design philosophy and dedicated to premium quality. - Ample financial resources to grow the business: Lululemon’s full fiscal year 2012 net revenue equaled $ 1.3 billion, earnings per share equaled $ 1.5 and stock trade in early May 2012 equaled $ 75 - Superior product quality: Innovative fabrics capable of stretch ability, moisture-wicking, color fastness, feel-good comfort and durability. - Strong brand name/reputation for Yoga apparels. - Proprietary technology, superior technological skills: + Develop the company’s trademarked fabrics (Luon, Luxtreme and Silverescent) + Use of advanced sewing techniques such as flat seaming. + Shortest lead times of only 2 months. - Strong bargaining power over buyers - Consumer focused - Sustainability + Providing people with components to live a longer, healthier and fun life + Retailed store employees, referred as educators, are required to develop a personal connection with each customer, help them lead a healthy lifestyle not just sell products. - Good distribution channel: + Retailed stores are mainly located on street locations, in upscale shopping centers, and malls. + Efficient e-commerce website which brought $57.3 million for the company in fiscal year 2010. - Niche market leader in Yoga practitioner’s products 2. Weaknesses: - Such narrow a product line relative to rivals (Nike, Adidas, and Reebok) - Strategies (e-commerce service, inviting famous athletes) that are easily copied - The company’s brand is perceived as for Yoga only - The company’s brand is mainly perceived as for females. 3. Opportunities: - International expansion - Promote growth in the US market and Canada - E-commerce development - New market segment Man-youth, old people who follow healthy lifestyle. - Strengthen US brand recognition 4. Threats: - Economics condition may decrease consumer spending - Competition from big rivals like Nike, Adidas and rivals of the same target customers, strategies (Athleta, Nordstrom, Lucy, Bebe’s store) - Lack of focus in the US market - Heavily focused word-of-mouth marketing strategy could lead to customer’s misunderstanding 5. Overall attractiveness of Lululemon: Lululemon has gained it stable position in the market of producing high-quality apparel for female yoga enthusiasts.
The company’s internal resources and capabilities such as effective brand connection with customers, its own distribution and high quality products enabled the company to offset a high threat of substitutes and intense rivalry among competing firms. Lululemon managed to offset the attractiveness of substitute products by offering high-quality product combined with unique and superior customer experience that is highly valued by its target group. This resulted in extremely loyal customer base and brand
popularity.
V. Value Chain: 1. Primary Components: a. Sourcing & Manufacturing: - Production was the only value chain activity Lululemon did not perform internally. Lululemon did not own or operate any manufacturing facilities to produce fabrics or make garments. - All products were sourced from a group of 45 manufacturers. During the fiscal year ending January 31, 2012,about 49% of apparel products were produced in China,41% in South/South East Asia, 3% in Canada and the remainder in the United States, Israel and other countries. - Lululemon transacted business on an order-by-order basis instead of long-term contract. - The company utilized the services of a leading inspection and verification firm to closely monitor each supplier’s compliance with: + Quality of manufacturing + Working conditions + Child labor and applicable laws + Code of ethical business conduct b. Distribution: - Lululemon shipped products to its stores from 3 modern and cost-efficient distribution centers: + A leased 102,000-square-foot facility in Vancouver, British Columbia & a leased 82,000-square-foot facility in Sumner Washington for North America + A leased 54,000-square-foot distribution center in Melbourne, Australia for Australia and New Zealand. - Merchandise was typically shipped to retail stores by third-party delivery service. - As of February 2012, Lululemon’s retail footprint included: + 47 stores in Canada, mainly located in British Columbia, Alberta and Ontario. + 108 company-owned stores in the United States + 18 stores in Australia + 1 store in New Zealand (opened in 2011) Typically, stores were leased and were 2,500 to 3,000 square feet in size. c. Sales, Marketing and Service: - In 2012 Lululemon had “showrooms” in 35 locations in the United States, 4 Australian locations, 2 New Zealand locations and 1 location in Hong Kong, functioning as a means of introducing the brand and culture to a community. - Marketed products to select yoga studios, health clubs and fitness centers for wholesale. - Lululemon launched its e-commerce website to enable customers to make online purchases in 2009, in addition to its already-functioning phone sales activity. Moreover, website visitors could browse information about what yoga was, what various types of yoga were and their benefits, learn about fabrics and technologies used in Lululemon’s products; read recent posts on its yoga blog and stay abreast of Lululemon activities in their community. - Every retail store held an in-store yoga class after of before regular shopping hours each week, complete with yoga mats and a professional yoga instructor. When the class concluded, the attendees were given a 15% off coupon to use for shopping for products in the store. - The company aimed to sell all of its products at full price. Special colors and seasonal items were in store for only a limited time – 3, 6 or 12 weeks life cycles so that frequent shoppers could always find something new. - Lululemon used community-based approach as a differentiating marketing tool. The company chose local fitness practitioners to be ambassadors introduced their fitness class attendees to the brand. Each yoga-instructor ambassador was also called upon to conduct a complimentary yoga class every 4 to 6 weeks at the local Lululemon store they were affiliated with. Every Lululemon store also had a dedicated community coordinator who developed a customize plan for organizing, sponsoring and participating in athletic, fitness and philanthropic events in the local area. In addition, each store had a community events bulletin board for posting announcements of upcoming activities and a chalkboard where customers could scribble comments, which were relayed to Lululemon headquarters every 2 weeks. - The company made little use of traditional advertising print or television advertisement.
2. Support Components: a. Product R&D: - Product design efforts were led by a team of designers based in Vancouver and headed by the company’s founder, Chip Wilson. The team collaborated closely with various international designers. The design team included athletes and users of the company’s products who embraced design philosophy and dedicated to premium quality. - Regularly worked at stores to interact with and receive direct feedback from customers. - Used various market intelligent sources to identify and track market trends. - Hosted meetings each year in several geographic markets to discuss the company’s products with local athletes, trainers, yogis and members of the fitness industry and gather their ideas for products improvements and innovations. - Worked closely with its apparel manufacturers to incorporate innovative fabrics and garments. Trademarked fabrics currently incorporated in Lululemon products included Luon, Luxtreme and Silverescent. - Used the services of an independent inspection, verification, testing and certification company to conduct test on fabrics before bringing out new products with new fabrics. b. Human Resource Management: - Lululemon’s store sale associates, referred as educators, received about 30 hours of in-house training within the first 3 months of their employment, which focused on leading a healthy and balanced life, exercising self-responsibility, setting lifestyle goals and to serve as knowledgeable references for customers about the products and yoga. - New hires that lacked knowledge about yoga were given subsidies to attend yoga classes so they could understand the activity and explain it to the customers. - Store personnel were taught how to “educate” guests about Lululemon apparel, not sell to them. - As of January 29, 2012 Lululemon had 5,807 employees and there had been no labor-related work stoppages.
VI. Strategy and its Key Elements: 1. Grow the company’s store base in North America: - The strategic objective was to add new stores to strengthen the company’s presence in locations where it had existing stores and then selectively enter new geographic markets in the United States and Canada. Plans were to open 20 to 25 stores in fiscal 2007 and 30 to 35 stores in fiscal 2008 in the United States and Canada. - Top management in 2010 determined that having franchised stores was not in the company’s best long-term strategic interests. A strategic initiative was begun to either acquire the current stores of franchisees and operate them as company stores or convert the franchised stores to a joint venture arrangement where Lululemon owned the controlling interest in the store and the former franchisee owned a minority interest. - Current store expansion efforts were concentrated mainly in the United States. The company’s plans for 2012 called for opening 30 new stores in the U.S., 2 ivivva athletica-branded stores in Canada and 5 new stores in Australia and New Zealand. - Lululemon management undertook ongoing evaluations of the company’s portfolio of company-owned store locations. Underperforming store locations were closed in 2009 and 2010. No stores were closed in 2011. 2. Increase brand awareness: - This initiative entailed leveraging the publicity surrounding the opening of new stores with grassroots marketing programs that included organizing events and partnering with local fitness practitioners. - Provide a distinctive in-store shopping experience, complemented with strong ties to fitness instructors and fitness establishments, local athletes and fitness-conscious people and various community-based athletic and fitness events. - In 2012 Lululemon had “showrooms” in 35 locations in the United States, 4 Australian locations, 2 New Zealand locations and 1 location in Hong Kong. They functioned as a means of introducing the brand and culture to a community, developing relationships with fitness instructors and enthusiasts, and hosting community-related fitness events, all in preparation for the likely opening of a new retail store in the near future. - As a wholesale strategy, Lululemon marketed its products to select yoga studios, health clubs and fitness centers as a way to familiarize the customers of these establishments with the Lululemon brand and give them an opportunity to conveniently purchase Lululemon apparel. - Lululemon launched its e-commerce website to enable customers to make online purchases in 2009, in addition to its already-functioning phone sales activity. Moreover, website visitors could browse information about what yoga was, what various types of yoga were and their benefits, learn about fabrics and technologies used in Lululemon’s products; read recent posts on its yoga blog and stay abreast of Lululemon activities in their community.
3. Introduce new product technologies: - Incorporate next-generation fabrics and technologies in the company’s products to strengthen consumer association of the lululemon brand with technically advanced apparel products and enable lululemon to command higher prices for its apparel products compared to the prices of traditional athletic apparel. - The company’s goal was to sell all of its products at full price. Special colors and seasonal items were in store for only a limited time – 3, 6 or 12 weeks life cycles so that frequent shoppers could always find something new. - Typically it took 8 to 10 months for Lululemon products to move from the design stage to availability in its retail stores; however, the company had the capability to bring select new products to market in as little as 2 months. Short lead times facilitated quick responses to emerging trends or shifting market conditions. 4. Broaden the appeal of Lululemon products: - Adding a number of apparel items for men, including tops, jackets and hoodles, shorts, pants and gear bag, etc. - Expanding product offerings for women and young females in such categories as athletic bags, undergarments, outerwear and sandals. - Adding products suitable for additional sports and athletic activities. 5. Expand beyond North America: - Over time, management expected to expand into additional countries, primarily Asia and Europe, either by opening company-owned stores or by emerging into join ventures with experienced and capable retail partners. - In near term, the company planned to expand its presence in Australia and Japan then, pursue opportunities in other Asian and European markets that offered similar, attractive demographics. In summary, Lululemon was pursuing the Focus Differentiation Strategy. Lululemon offered a diverse and growing selection of premium-priced performance apparel and accessories for women, men and female youths that were designed for healthy lifestyle activities such as yoga, running and general fitness. While many of its products were specifically intended for the growing number of people that participated in yoga, the company had for some years been broadening its product range to address the needs of other activities.
VII. Financial and Operating Performance: - From the end of fiscal year 2007 through the end of fiscal year 2012, lululemon’s net revenues grew from $148.0 million in fiscal 2007 to $1000.8 million in fiscal 2012, equal to a compound average growth rate (CAGR) of 46.6%. - From the end of fiscal year 2007 through the end of fiscal year 2012, lululemon’s net profit grew from $7.7 million in fiscal 2007 to $185.0 million in fiscal 2012, equal to a CAGR of 88.9%. - Lululemon’s gross profit margin was 56.9% in fiscal 2012, versus 55.5% in fiscal 2010 and 49.3% in fiscal 2009. - Lululemon’s operating profit margin in fiscal 2012 was 28.7% in fiscal 2012, versus 25.3% in fiscal 2011and 19.1% in fiscal 2010. - Lululemon’s net profit margin in fiscal 2012 was 18.5% in fiscal 2012, versus 17.1% in fiscal 2011 and 12.9% in fiscal 2010—these are very respectable increases from a shareholder perspective. - Lululemon’s diluted net income per share rose from $0.06 in 2007 to $1.27 in 2011, a very hefty compound average growth rate of 84.1% (albeit from a low base of $0.06). - Lululemon’s selling, general, and administrative expenses as a percent of net revenues were 33.4% in fiscal 2009, 29.9% in fiscal 2011, and 28.2%in fiscal 2012—such operating efficiency gains in SG&A expenses are highly positive suggest good expense controls are being exercised by lululemon’s top management. - Sales per gross square foot at lululemon’s corporate-owned stores open at least one full year grew at a compound average rate of 7.3% from fiscal 2007 through fiscal 2012. - Lululemon’s return on stockholders’ equity investment in fiscal 2012 was 30.5% in fiscal 2012 and 30.9% in fiscal 2011. - The balance sheet section of case Exhibit 1 indicates that lululemon has increased the size of its cash and cash equivalents significantly every year since 2007, and currently seems to have very ample cash on hand. - The cash flow section of case Exhibit 1 shows strong gains in net cash provided by operating activities and, perhaps more importantly, the net cash provided by operating activities greatly exceeds the amount the company is spending annually on capital expenditures. Therefore, Lululemon is generating ample cash flows to fund the company’s growth from internal funds rather than having to borrow money and incur growing amounts of long-term debt. - In the store data section of case Exhibit 1, Lululemon is generating very impressive gains in sales per gross square foot of store space at its retail stores open at least one year. - Likewise, average sales at corporate-owned stores open at least one year are growing (up 41.8% since 2009, despite tough economic conditions in North America). On the whole, it is quite impressed with lululemon’s growth and financial performance since 2007.
C. Recommendations:
- Lululemon should continue pursuing the Focused Differentiation Strategy. It had created a unique position in the strategic map group as well as a niche market for high-end yoga-inspired apparel. Lululemon should take advantage of this position to avoid direct confrontation with other rivals that have different target markets and market offerings. Therefore it could skim the profits in these open market segments.
- Expand the distribution channels into the international markets together with reinforce them with strong community bases, especially which related to yoga and fitness activities. In essence, the momentum for the lululemon phenomenon as well as the company growth and development came from the spiritual and core values of a healthier and happier life from fitness and athletic activities. Besides building showrooms, the company should using different approaches to spread this idea widely to the local community before setting up new stores... Therefore, lululemon could sustain its successful performance.
- With the momentum of its phenomenal growth over recent years as well as favorable supports from the investors and customers, lululemon should consider a competitive offensive into its rivals’ market positions in order to gain more sales and market shares.
- Focus on social responsibility to gain support from the community in general as well as customers. The company should keep serving the interests of the customers by providing them with quality products and how it meets its mission to help people live healthier lives by providing in store yoga classes. Lululemon should create specific and effective charity plans, which encourages people to use their products since they will know that money will go to charities. With lululemon entering the global market it will continue to achieve major success by being socially responsible in any location it operates in.