LULULEMON CASE ANALYSIS
Course: Managing Human Behavior in the organization
Professor: Young Mi Park
Team: Team 1
Sophia Cheng (sc4004)
Kuojia Feng (kf2588)
Hao Jiang (hj2472)
Mohamed Kaba (mk3887)
Yuxi Li (yl4155)
Yuru Luo (yl4035)
Shuang Wu (sw3346)
Yuru Luo
April 11, 2019
Lululemon case analysis
Part 1: Executive Summary
Lululemon multimedia case describes the company’s current situations and performance in
2008 with its new CEO, Christine Day, who aimed to build Lululemon as a “billion-dollar
company”. As details of stakeholders, company culture and management structure unfold in the
case, it is evident that Christine was facing new challenges related to human and real estate
issues to achieve the goal. Given the evolving situation, as Lululemon attempts to expand
globally, the question arises as to whether Christine can address issues related to human
resources, make effective decisions on future development at this critical moment, and finally
help Lululemon improve performance.
This paper was ordered in a Situation-Analysis-Action order. To let readers better
understand the issues addressed and recommendations given in the paper, a brief summary of
relevant background information is stated first. Then, SWOT and Porter’s Five Forces analysis
are conducted to evaluate inside and outside challenges of Lululemon and provide insight for
possible action plans. Finally, combining concepts in Organizational Behavior, recommendations
composed of communication, negotiation, and conflict solving with different groups of
stakeholders and expected results are given from Christine’s perspective.
Part 2: Introduction
•
History
Founded by Chip Wilson in Vancouver, Canada in 1998, Lululemon is a yoga-inspired,
technical athletic apparel company for women and men. The company went public in 2007 and
raised a total amount of $327.6 million. In January 2008, Christine Day, a former executive of
Starbucks International, was hired as SVP of retail and was identified as CEO Bob Meers’ heir
apparent.
•
Structure and culture
Running with a top-to-bottom structure and a vertical sale model, Lululemon has
developed the ability to control pricing and quality. Major decisions are passed from Store
Support Center (SSC), but store managers are still allowed to expand the brand and make local
decisions. Their performance is directly related to 20% of compensation.
With a vision of elevating the world from mediocrity to greatness and providing qualified
products for people to live longer, healthier and with more fun, Lululemon embraces a healthy
and active culture by emphasizing on integrity, work-life balance, and even the importance of
having fun. To make employees actively live and breathe its culture and lifestyle, Lululemon
requires every worker, from the C-suite to the accountants to the design team, to spend at least
eight hours a month working in stores.
•
Performance and problems
From 2005 to 2008, Lululemon has experienced a sharp increase by doubling sales every
year and prompting net income to $30 million. However, for Christine Day, there are still some
problems to be solved. First, the stock price of Lululemon, highly concerned by the board, is in a
huge fluctuation: from $18 at IPO to $60 and now to $31. Besides, due to persistent inventory
problems, its aggressive expansion to the U.S. led to a lot of store closures and thus high costs.
Last but foremost, the company is working at low efficiency because its leadership team was
pg. 1
Lululemon case analysis
demoralized and fragmented. The cultural shifts caused by bring-in of several outsiders by Bob
to form his upper management team caused growing pains to leadership and teamwork.
Therefore, professionals brought in failed to be on board and other board members failed to
cooperate with Bob’s management team.
Part 3: Company Analysis
Basic SWOT analysis of Lululemon plays an important role in determining the action plan
as this analysis enables the company to understand, interpret, and develop itself against its
competitors. The collected analysis should also provide insight into potential competitive actions
and prepare the company to address forthcoming threats and take advantage of opportunities.
SWOT analysis
Category
Strength
Illustration
Mission
Carry out “components for people to live longer,
healthier, more fun lives.”
Culture
Emphasis on integrity and work-and-life balance.
High demands-oriented
products
“F” factor in its sportswear: emphasizing “fit” and
“function,” but steering clear of the term “fashion”.
Employee management
Systemic and progressive training;
Motivated compensation structure.
Weakness
Underperforming stores: real
estate issues in the United
States
High-cost locations in many of the new U.S.
markets with little to no demand;
Inventory problems
Growth was outpacing the development of
infrastructure and operational systems;
Poorly supervised construction at many sites caused
escalating costs and quality concerns.
Pay extra to ship out-of-stock items by air and
struggle to implement new inventory systems.
Opportunity
pg. 2
Eroded teamwork (crossfunctional barriers)
Demoralized and fragmented leadership team
resulted in an inability to achieve compromise.
Local decision making
Customized brand extension by store managers
involved certain risks.
Cultural shift
The hiring of Former Reebok Chairman Bob Meers
as CEO, who in turn brought in several outsiders to
form his upper management team.
Lululemon case analysis
Company performance under
the current macro
environment
Fluctuated stock price: $18 at IPO to $60 to $31.
Decreasing consumer confidence and growing
uncertainties in global markets;
Cash-strapped U.S. customers.
Threats
Competitors
Inroads in the yoga apparel market by competitors
such as Nike, Adidas and Under Armour.
Further analysis of Porter’s Five Forces model reveals the intensity of rivalry in the sports
apparel industry.
•
•
•
•
•
Threat of new entry: Lululemon is facing high-level threats from new competitors mainly
due to relatively low entry barriers in clothes retailing. A large number of emerging
apparel companies might take up Lululemon’s market shares.
Threat of substitution: As Yoga enthusiasts need exactly the features of athletic apparel,
there are few alternatives. Lululemon faces low-level threats of substitution.
Bargaining power of suppliers: The key suppliers of Lululemon locate in the AsianPacific region, which poses potential environmental and political risks. The concentration
of suppliers increases their bargaining power and any disruption in supply or cost
increases might impede Lululemon’s ability to maintain its operation.
Bargaining power of buyers: Customers of Lululemon keep a moderate level of
bargaining power. They are facing low switching costs and a large number of product
options across the pricing spectrum. However, brand distinction and customer loyalty
enable Lululemon to charge premium prices for its products.
Competitive rivalries: The intensity of rivalries is increasing due to a large number of
new entrants, so competitive rivalries pose huge threats to Lululemon. Its main
competitors, such as Nike, have significant resources and staying power to earn a solid
share of the market, at Lululemon’s potential peril.
Porter’s Five Forces
Threat of
new entry:
high
Threat of
substitution:
low
Competitive
rivalries:
increasing
Suppliers
power:
high
pg. 3
Buyers
power:
moderate
Lululemon case analysis
In conclusion, Lululemon’s value proposition, its view of its customer, and its vertical
retail model set it apart in an industry sector largely dominated by wholesalers, such as Nike and
Adidas. At the same time, with Christine Day taking office as the new CEO, Lululemon is facing
problems with an aggressive extension to the U.S. and setting the tone of the management on a
new level. Christine is expected to carry out decisions based on evaluations about the current
performance and weakness of the company.
Part 4: Recommendations and Expected Results
Based on SWOT and Porter’s Five Forces analysis above, a general picture of situations
Lululemon is facing both inside and outside is generated. In a major context of Organizational
Behavior, the analysis is also helpful to make further recommendations. From the perspective of
new CEO Christine, there are mainly three components of recommendations to achieve the goals
stated.
Shareholders
Methods
Expected Results
Board members
and senior
management
Include all senior managers in
strategies making meetings
and take strategies to board
voting before putting into
practice.
Avoid errors and biases
on individual decision
making.
Accounting
department
Require financial analysis on
company performance against
its competitors and profits
breakdown based on all stores
in the U.S.
Shut down stores with
few revenues and high
costs in the U.S. and
solve inventory
problems.
Sales
department
Talk to representatives of
store managers and learn
history loss due to local brand
extension.
Control risks relating to
customized local
decisions made by store
managers.
Customers
Encourage store managers to
educate customers on values
and technical features of
Lululemon’s products.
Develop brand loyalty
and charge a premium.
Senior
management
Learn compensation structure
of all employees and adjust if
their motivations are not
aligned with the company’s
long-term goal.
Carry out a win-win
solution and set an
aligned culture across
the company.
Communication
Negotiation
pg. 4
Lululemon case analysis
Board members
brought in by
Bob Meers
Conflicts
Solving
Develop deep listening with
these board members: explore
their emotions and expand
their thoughts. It is important
to know the conflicts of
interest between them and
other members and align their
motivations with the
company’s values.
Increase trust between
each other and prevent
or defuse conflicts.
Finally, a good mix of
internal and external
experts is expected.
Part 5: Conclusion
Lululemon is at a critical moment in its expansion history with new CEO – Christine Day.
Outside challenges include aggressive expansion to the U.S. and an increasing number of
competitors in the sports apparel industry while inside challenges mainly relate to teamwork and
relationship with board members.
To address the problems and make Lululemon a billion-dollar company, Christine Day
needs to carry out effective internal control actions, which include communication, negotiation,
and conflicts solving with various stakeholders. These actions are expected to solve performance
and teamwork problems by applying Organizational Behavior concepts and improve
Lululemon’s performance in the market against its competitors.
pg. 5