2020
Internal Analysis, SWOT,
and Recommendations
for Lululemon
GROUP 6
ANDREW MATHERS
BRIAN STOVER
KURT SCHRON
AARON PRINCE
JAMES TOLLOTI
MAXWELL O’NEAL
Contents:
Executive Summary .............................................................................................................. 2
VRIO Framework .................................................................................................................. 3
Sustainable Competitive Advantages ................................................................................ 3
Brand Image .................................................................................................................. 3
Consumer Engagement ................................................................................................. 4
Temporary Advantages ..................................................................................................... 5
Product Quality .............................................................................................................. 5
Retail Network ............................................................................................................... 6
Competitive Parity ............................................................................................................. 7
Competitive Disadvantage ................................................................................................. 7
Lack of Manufacturing .................................................................................................... 7
VRIO Summary ................................................................................................................. 7
SWOT Analysis ..................................................................................................................... 8
Strengths ........................................................................................................................... 8
Brand Image, Equity and Organizational Culture............................................................ 8
Retail and Online Sales Network .................................................................................... 9
Product Quality, Innovation and Design ......................................................................... 9
Marketing and Consumer Engagement ........................................................................ 10
Strong Balance Sheet .................................................................................................. 11
Weaknesses .................................................................................................................... 11
Limited Global Penetration ........................................................................................... 11
Muted Brand Perception and Recall ............................................................................. 11
Dependence on Limited Suppliers for Higher Cost Materials ....................................... 12
Opportunities ................................................................................................................... 13
Expansion to International Markets .............................................................................. 13
Expansion of Men’s Market .......................................................................................... 13
Branding ...................................................................................................................... 14
Threats ............................................................................................................................ 14
Competition.................................................................................................................. 14
Economic Downturn ..................................................................................................... 15
Counterfeiting .............................................................................................................. 15
Rising Wages............................................................................................................... 15
Recommendations .............................................................................................................. 16
References ......................................................................................................................... 18
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Executive Summary
Lululemon Athletica Inc. (Lululemon) is a designer, distributor, and retailer of healthy lifestyle
inspired athletic apparel and accessories based in Vancouver, British Columbia, Canada. This
report focuses on the internal aspects of Lululemon including competitive
advantages/disadvantages and strengths, weaknesses, opportunities, and threats. The Valuable,
Rare, difficult to Imitate and Organized (VRIO) framework is used to identify and categorize
sustainable competitive advantages, temporary competitive advantages, competitive parity,
and competitive disadvantages. The items identified by the VRIO framework identified brand
identity and consumer engagement as the most impactful items. Each item meets all criteria of
the framework and provides a sustainable competitive advantage.
A Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis was also performed
with detailed discussion of the significant factors. Table 1 below summarizes the main SWOT
factors.
Strengths (S)
-
Weaknesses (W)
Brand image, equity, and
organizational culture
Retail and online sales network
Marketing and consumer
engagement
Product quality, innovation, and
design
Strong balance sheet
Opportunities (O)
-
-
Limited global penetration
Muted brand perception and recall
Dependence on Limited Suppliers
Threats (T)
Expansion to international markets
Expansion of men’s market
Branding
-
Competition
Economic downturn
Counterfeiting
Increased wages in manufacturing
and retail
Table 1 – SWOT Summary
Two recommendations for Lululemon are provided. Firstly, investigate the possibility of
establishing a new separate men’s brand. Establishing a new men’s brand may allow
Lululemon to capture more of the men’s athletic attire market. The second recommendation is
to investigate the possibility of vertical integration downward into the manufacturing supply
chain. Lululemon is exposed to risks by relying on a small number of suppliers for specialized
materials. Vertical integration downwards into Lululemon’s suppliers may help reduce risk and
bring more manufacturing expertise in house.
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VRIO Framework
The Valuable, Rare, Hard to Imitate and Organized (VRIO) Framework is used to classify
organizational resources into Competitive Disadvantages, Competitive Parity, Temporary
Competitive Advantages and Sustainable Competitive Advantages. Several of Lululemon’s
organizational resources were considered and summarized in Table 2 below.
Resource
Valuable Rare
Brand Image
Yes
Yes
Consumer
Engagement
Retail Network
Online Sales
Product Quality
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Marketing
Strategy
Distribution
Network
Strong Balance
Sheet
Global Sales
Yes
No
Hard Organized
Classification
to
Imitate
Yes
Yes
Sustainable Competitive
Advantage
Yes
Yes
Sustainable Competitive
Advantage
Yes
Temporary Advantage
No
No
Yes
Competitive Parity
No
Yes
Temporary Competitive
Advantage
No
Yes
Competitive Parity
Yes
No
No
Yes
Competitive Parity
Yes
No
-
-
Competitive Parity
Yes
Yes
No
-
Temporary Competitive
Advantage
Table 2 – Lululemon VRIO Summary
Sustainable Competitive Advantages
Brand Image
Lululemon’s brand image and resultant equity is the company’s primary sustainable
competitive advantage. Observers have even gone so far as to coin regular Lululemon
customers as “Luluheads”, that willingly spend hundreds to simply be a part of the brand image.
The brand is likened to living healthier and longer lives, motivating these “Luluheads” even
further (Beaird, 2018).
Valuable
Lululemon’s brand image is the primary factor allowing the company to sell its products at a
premium price. In 2018 alone, the company generated over $3.3 billion in sales. Lululemon
has also been recognized as the second fastest rising brand across all categories in BrandZ’s
list of the 100 Most Valuable Brands. Coupled with 77% year on year rise in value, Lululemon
also leads the apparel category in terms of growth (Gilliand, 2019).
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Rare
The Lululemon brand is unique, but this does not make it rare in and of itself. Most consumer
goods have a brand that tries to be unique. Lululemon has cultivated their brand image expertly
however, and their brand’s effects are rare. The Lululemon brand adds real value to its products.
This is evident in the fact that Lululemon is known for expensive products with many
substitutes, such as yoga pants, yet customers readily pay the premium. Simply, it is rare to
have brand that adds literal value to its products, above and beyond of simply being
recognizable and well known.
Hard to Imitate
Lululemon has a simple and easy to distinguish logo which is applied to all products and stores.
The name and logo are trademarked and cannot be used without Lululemon’s permission.
Lululemon is also considered by many to be the founding brand of yoga attire. This has been
accomplished using lifestyle marketing. This can be described as “A lifestyle brand is a brand
that attempts to embody the values, aspirations, interests, attitudes, or opinions of a group or a
culture.” They have solidified their image as a premium outlet for athletic wear, especially
regarding yoga/yoga related goods (Policella, 2019). Others may be able to imitate portions of
the brand such as its product offerings and pricing, but it is very difficult to supplant a healthy
and growing brand that is seen as a founder of a specific market.
Organized
Consumers viewing Lululemon this was is no accident. Lululemon spends a great deal of
resources fostering the brand image and is primarily aligned to compete and profit based on
this brand image. There are nearly countless outfitters with similar products in function, but
few with such strong intentional reliance on the brand itself. These organized efforts have
resulted in a brand image that is very difficult to compete against.
Consumer Engagement
Lululemon since its founding as a retail store inside of a yoga facility has worked to create
deeper connections to their customers than just retail sales (Clarke, J. 2017). Within each of
their retail stores there is a community board posting flyers about events. The staff are
encouraged to wear the stores clothing. While this is not rare for a retail environment it is very
important for Lululemon as associates are able to really show the versatility and function of the
clothing.
Valuable
All the effort Lululemon puts into connecting with their customers is extremely valuable. Their
consumer engagement allows for detailed, timely and valuable data on products and
promotions. This marketing can be provided to bring customer back into the store or drive to
one of their online presences. This engagement has driven their mobile app to be of the top 10
retail apps of 2019 (“10 Best Retail Apps”, 2019).
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Rare
While most athletic apparel brands utilize some combination of market data, focus groups and
other consumer feedback, Lululemon’s approach is more unique. They empower their local
markets to make changes and improvements to connect deeper into the community. The
communities respond by engaging more with the brand and increasing sales.
Hard to Imitate
Many local yoga studios are independent and not large national chains. Retail competitors to
Lululemon would need to penetrate a significant number of yoga studios to reach the same
number of users. Lululemon has grown as a retail seller and then connecting to the local studios.
It would be very challenging for competitors to imitate with their own retail stores or be the
exclusive provider in a fragmented market.
Organized
Lululemon is organized to used insights gleaned from this connection with customers. They
use it in multiple ways including refining their product offerings based on customer feedback,
additional marketing channels, and additional sales channels (“Lululemon Goes Beyond”,
2014).
Temporary Advantages
Product Quality
Valuable
The high-end materials and performance associated with Lululemon’s products provides
value for the brand. These features are a critical reason the brand is experiencing so much
success and has such a strong brand image. Perceived product quality allows Lululemon to
charge a premium for its products.
Rare
Lululemon’s high quality products are rare for the industry. Lululemon is known for being at
the top of the class in terms of quality and many competitors do not compete in terms of
quality.
Hard to Imitate
There are three ways imitation can occur, direct imitation, substitution, and a combination of
imitation and substitution (Rothaermel, 2017). In many fashion/clothing situations, it can be
easy to imitate in one of these ways, and Lululemon is no exception. Other clothing companies
could choose to invest in product quality and therefore product quality is labelled as only a
temporary advantage.
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Retail Network
At the end of fiscal 2019, Lulu had 491 stores in 17 countries across the globe (Lululemon,
2019). Table 3 below shows the distribution of those stores.
Table 3 - Lululemon store locations
Valuable
Many retailers are closing stores nationwide, however, Lululemon is opening new ones. This
strong retail network allows for high accessibility for their customers. 62.9% of all sales came
from brick and mortar locations in 2019 (Lululemon, 2020).
Rare
Lululemon’s unique approach to capture the value of its retail network is rare. They do not use
sporting goods stores or department stores to sell their products, which is unusual for
companies in the athletic apparel industry. Stores are located in prime urban locations to be
closer to the target market. Furthermore, in 2019, Lululemon announced a new strategy
regarding these retail spaces. The strategy includes four different types of shops that the
company is looking to open. Those four are: temporary, pop-up stores; 3,000-square-foot stores
to test markets; 5,500-square-foot typical store; and then a massive 25,000-square-foot
experiential store (Thomas, 2019). The first 25,000 square-foot store opened in Chicago in the
Summer of 2019 and it includes two stories of shopping space, three studios for workout
classes, and a restaurant offering healthy meals (Thomas, 2019). The experiential stores
combine a retail store with a fitness “sweat studio” and “fuel bar” for healthy refreshments. In
addition, experiential stores offer guests a chance to try-out selected Lululemon gear for classes
before they buy (Danziger, 2019).
Hard to Imitate
The retail network strategy used by Lululemon is certainly rare for the industry. However,
imitation can be accomplished in several ways. The ability directly imitate the approach of
having company stores in prime retail locations, while offering so much more than just
apparel, would be too costly for most competitors. However, substitution is another form of
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imitation and this is much easier for competitors. Companies like Nike and Under Armour
can successfully sell product through department stores and sporting goods stores, while
operating fewer company stores. Because it is possible to create a strong retail network via
substitution, it is fair to say the retail network is not hard to imitate.
Competitive Parity
Online Sales
Lululemon's online sales are a growing trend of their businesses. As with much of all retail
businesses their online presence has continued to grow along with the company's investment
in it. Direct to consumer online sales represented 28.6% of net revenue in fiscal 2019
(Lululemon, 2020). The retail mobile app of Lululemon is also a growing asset of the company.
Retail mobile applications drive a better customer experience as well as several other
advantages over a traditional mobile website. Apps can drive more interaction through push
notifications and better analytics (Williams-McGhee, n.d.). The challenge is getting user to
download the mobile applications. Ultimately most of Lululemon’s competitors also offer
online direct to consumer sales and the model is not rare or hard to imitate.
Competitive Disadvantage
Lack of Manufacturing
Lululemon does not own any fabric or product manufacturing facilities. While this does allow
the company to competitively shop for services, it opens up Lululemon to considerable risk.
Additionally, Lululemon shows dependency on a limited number of suppliers. This could put
the company in a vulnerable state should events unexpectedly occur in the supply chain.
VRIO Summary
Lululemon shares many of the key success factors with other retailers; and therefore, they are
not all rare. Many sporting goods manufacturers have similar distribution networks, and online
sales capabilities. The key VRIO factors for Lululemon are their brand image and consumer
engagement. Customers are driven to purchases because of these factors. There are also several
factors that currently are driving Lululemon to success but are at risk from challengers
including their retail network and product quality. Lululemon has relationships in place to keep
product quality a differentiating factor but that does not stop a competitor from potentially
copying their quality. The fact that Lululemon does not manufacture their own products, and
relies on a small number of suppliers, is a disadvantage to their competition.
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SWOT Analysis
Strengths
Brand Image, Equity and Organizational Culture
Lululemon has developed a strong lifestyle brand image and organizational culture. The brand
and culture are structured around a “community of like-minded individuals looks to lead
healthier, longer lives” (Lululemon, 2020) and connecting consumers with the products, tool
and experiences to be their best selves. "By promoting a lifestyle of health and wellness,
they’ve cultivated a strong cult-like community of active enthusiasts who desire premium
quality” (Policella, 2019). This applies to Lululemon’s employees as well. Employees are
carefully screened for organizational fit and expected to live the company’s values. Many
articles have been written about the strange rules that Lululemon “educators” (retail sales
associates) need to follow, however ultimately the company’s unique culture appears to be a
strength. The culture seeks likeminded, engaged employees and as “employee engagement
increases, so, too, does our client service levels, which leads to better financial returns and
growth” (Stoller, 2012).
Without a strong brand image and equity, Lululemon may struggle to position its products as
a premium good. “Proper branding can yield higher product sales, and higher sales of products
associated with the brand” (Boundless, 2015). Lululemon recognizes the critical importance of
their brand, with a clear statement in its annual report “Our success depends on our ability to
maintain the value and reputation of our brand” (Lululemon, 2020). Lululemon however has
been successful in fostering and growing its brand. According to BrandZTM, in 2019
Lululemon’s brand “was the second fastest riser, stretching to +77% growth year-on-year to
$6.92 billion” (Kantar, 2019).
There are several features which make up the Lululemon brand, including the logo, store design
and marketing material. A brand also represents the relationships between the company and
customers, staff and investors; this means that the brand includes items like the company’s
values, mission, vision and culture. The company is well known for its positive and
motivational messages and enthusiastic brand community. Lululemon collaborates with local
yoga and fitness instructors to help represent its brand and foster the community. Lululemon
makes its values well known. “Our core values of quality, product, integrity, balance,
entrepreneurship, greatness and fun are lived by our people every day and are at the heart of
our unique company culture” (Lululemon). The Lululemon manifesto, a pattern of inspiring
words, even adorns the company’s eco-friendly reusable bags. Lululemon also demonstrates
its values and culture through actions like hosting yoga classes, meditation seminars and other
health events. These softer aspects of the brand are very important. “64% of customers cite
shared values as the primary reason for purchase” (Freeman, Spenner, & Bird, 2014). One of
Lululemon’s strengths is making it easy for likeminded individuals to understand and get
onboard with the brand.
Many of the physical artifacts of the Lululemon brand are also strong. Lululemon’s logo is
simple, bold, colorful, and easy to identify. A logo with color “increases brand recognition by
up to 80 percent” (Morton, 2005) and a symbol is a good choice as symbols are processed
60,000 times faster by the human brain than words (Pokrant, 2019). The logo is applied to all
of Lululemon’s products, packaging and marketing materials, increasing the frequency
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customers encounter the logo. “It takes 5-7 brand impressions before someone will remember
your brand” (Moore, 2017) so increasing frequency can be beneficial. A review of the
Lululemon website and social media posts shows consistent application of colors, fonts and its
on-brand positive messaging. All the brand features need to work together, and be used
consistently, to build a strong and resilient brand. “Consistent brand presentation across all
platforms increases revenue by up to 23 percent” (Shaoolian, 2019). Like many companies,
Lululemon has branding guidelines which define the use of the Lululemon brand features to
ensure consistency.
Retail and Online Sales Network
Lululemon’s retails and online sales network is a strength. With 491 company owned retail
stores spanning 17 countries and a direct to consumer online store, Lululemon has excellent
accessibility to its target market and control over the sales process. 63.8% of Lululemon’s sales
come from its retail network, 28.6% come from online direct to consumer and only 8.6% from
wholesale and other distribution (Lululemon, 2020). Lululemon is also very effective at
generating returns off this retail network. During fiscal 2019, Lululemon’s sales per square foot
of retails space was $1,657 (Lululemon, 2020). Not many of Lululemon’s competitors generate
a significant proportion of their revenue from direct retail sales. Under Armour for instance
generates 60% of its sales “through wholesale channels, which include national and regional
sporting goods chains, independent and specialty retailers, department store chains,
institutional athletic departments and leagues and teams” (Under Armour, 2019) and only has
188 brand stores in North America. Selling directly to customers through retail and online sales
allows Lululemon to potentially retain a higher margin of revenue. This is apparent when
comparing Lululemon’s 33.5% selling, general and administration expenses to competitor
Under Armour’s 42.2%.
Retail store expansion is a key part of Lululemon’s growth strategy. The company opened 51
new stores in 2019, with 32 of those being outside North America. Retail stores are typically
located in upscale urban environments, close to the highest density of its target market. The
physical Lululemon locations are an integral part of Lululemon’s experiential lifestyle brand,
providing a local hub for the brand community.
Product Quality, Innovation and Design
Lululemon is a brand recognized for high quality, innovative and fashionable products.
Lululemon’s website includes a Quality Promise “Quality is the heart of who we are. Quality
shows up in our people, our conversations and of course, our product. If our product doesn't
perform for you, we'll take it back” (Lululemon). The company is also known as a product
innovator, introducing new materials and designs to the athleisure market. Lululemon has a
state-of-the-art research and development facility in Vancouver which works to develop new
products. Lululemon’s primary innovation in the space is finding a new way to categorize and
describe its products; by feel. The Lululemon “Science of Feel” currently lists five different
product feels: relaxed, naked, held-in, hugged and tight. Lululemon recognized that different
customers prefer different fits and materials depending on personal preference and activity.
These feelings help customers easily conceptualize and understand the various product lines.
Lululemon’s product quality has had some setbacks along the company's history; the infamous
“see through leggings” have haunted the brand for years. Yet, Lululemon’s customers are
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willing to pay for the perceived quality, innovation, and fashion of its products. Spending more
than $100 on a pair of yoga pants.
Marketing and Consumer Engagement
Lululemon has a very modern multi-level approach to its marketing strategy. The company
utilizes a mix of conventional and grassroots initiatives with a focus on generating community
engagement. Lululemon’s strategy is oriented towards word of mouth marketing using in
person, online and social media channels.
Lululemon uses various social media accounts to connect directly with consumers. Lululemon
has corporate accounts on Twitter, Pinterest, YouTube, Facebook, and Instagram as well as a
company blog. A summary of social media subscribers for Lululemon and a selection of its
competitors is shown in Table 4 below:
Company
Lululemon
Nike
Adidas
Athleta
Outdoor Voices
Facebook
Twitter
Instagram
2.1 million
1.0 million
3.3 million
34 million
8.2 million
113 million
37 million
3.7 million
25.7 million
600,000
50,000
0.6 million
120,000
9,000
0.5 million
Table 4 – Social Media Subscriptions
Pinterest
2.2 million
600,000
500,000
70,000
12,000
Table 4 shows that while Lululemon struggles to match the reach of major athletic apparel
companies such as Nike and Adidas, it is quite a bit more effective than other premium yoga
attire focused competitors. Lululemon’s apparent dominance in Pinterest is an interesting
anomaly.
A review of Lululemon’s social media posts shows imagery and messaging that are carefully
selected to align with the brands experience and lifestyle market. The vast majority of
Lululemon’s social media posts generally call into two themes: motivational posts and user
generated content. Motivational posts focus on reinforcing the Lululemon values and
encouraging customers in their own goals. These posts often do not even feature Lululemon
product but may include the company logo. User generated content features brand ambassadors
putting Lululemon products to work. In some cases, these ambassadors are celebrities and
athletes, but others are everyday people. User generated content is part of what makes
Lululemon’s marketing strategy effective. User generated content is more likely to ring true
with consumer as well as other benefits. “User generated content garners an average of 4 times
more clicks at half the cost per click, is 20 percent more influential on Millennial buying habits;
is 35 percent more unforgettable and 50 percent more trustworthy for Millennials” (Wolf,
2017).
In most cases, posts on Lululemon social media pages are a clear invitation to open a dialogue.
Customers are encouraged to reply with their own ideas, experiences and opinions. This active
participation is part of what gives Lululemon its community feel. Lululemon social media
pages do not just post and monitor content, company representatives spend time to reply to
comments, creating an interactive experience. Many local Lululemon stores also have their
own social media accounts to focus on communications with the local customer base. These
accounts share corporate messages but also serve to foster and individual store’s community.
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Lululemon’s strong consumer engagement also extends to other areas. Lululemon stores offer
free yoga classes in the store every Sunday. This is an artifact from
the beginnings of Lululemon where the clothes were often sold in yoga studios. By offering
yoga classes, Lululemon aims to transform the company’s locations from stores into
experience centers. Consumers and brand ambassadors are all encouraged to provide feedback
on products which Lululemon incorporates into its product development cycle.
Strong Balance Sheet
Lululemon has posted strong financial performance over the past few years. Net income has
risen from $258 million in 2017 to $645 million in 2019 (Lululemon, 2020). Key operating
efficiency measures like inventory turnover, return on invested capital, and gross margin are
strong compared with competitors like Nike, Under Armour and Adidas (Ballard, 2018).
Lululemon is also in a strong cash position with “$1.1 billion in cash, no debt, and an untapped
$400 million credit revolver” (Garcia, 2020). A total of 6 million shares have been repurchased
by the corporation over the past two years and the share price has grown more than 600% over
the past three years.
Lululemon’s strong financial performance allows the company to continue to invest in products
and growth and pursue any number of future strategies. Lululemon’s liquid assets may also
provide unique opportunities during the expected COVID-19 economic recovery. While other
retailers have taken significant financial hits, Lululemon has fared quite well and could use its
strong financial position as a temporary strategic advantage, expanding operations and
grabbing market share.
Weaknesses
Limited Global Penetration
Of Lululemon’s 491 stores, only 56 (or 11.4%) are outside North America, Europe, Australia
and New Zealand. Lululemon’s retail store expansion has focused predominately on North
America and countries with a similar western culture. While the similarities of these western
culture countries generally make it easier for Lululemon to expand, these markets have limited
growth compared to other parts of the world. “Going forward, the fastest-growing regions in
the clothing and apparel market will be Asia-Pacific and Africa, where growth will be at
CAGRs of 15.4% and 14.3% respectively. These will be followed by the Middle East and South
America, where the markets are expected to grow at CAGRs of 14.0% and 11.6% respectively”
(Businesswire, 2019). Lululemon has 56 stores in Asia-Pacific, but none in Africa, South
America, or the Middle East. The lack of international expansion means that Lululemon is not
positioned to take advantage of this predicted growth.
Muted Brand Perception and Recall
Lululemon is predominantly viewed as a yoga brand, which is fine when selling to yoga
enthusiasts, but they have had only marginal success in expanding its image past this
demographic. While there are certainly consumers who use its apparel for running, weight
training, and other physical activities, it still has work to do to inform their customers that the
apparel can be used for any physical activity, or even to simply wear out while running errands.
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Another problem the company is facing is that it has struggled to expand its reach past its core
women demographic. Menswear makes up roughly 16% of total sales, and with stiff
competition from Under Armour and Nike, it may be difficult for the company to make moves
on this front. In late 2019, Lululemon executives announced that their revenues were bolstered
by a 35% growth in sales for its men's products. Lululemon announced a plan in April 2019 to
double men's and online sales over the next five years (Winck, 2019). With these numbers
being posted in the last few quarters. It seems that Lululemon has recognized this weakness
and is working to grow an underperforming part of the business.
Lululemon also has an uphill battle to climb when it comes to brand recall. Since Lululemon
has historically been a North American company focused on Yoga, they have a strong cult
following of customer that fit into their space, but they are not widely known yet by the masses.
The following Chart 1 is a result of a survey done in August of 2018 asking 1,050 respondents
who have bought sports apparel online at least once in the last year (Kunst, 2019). The question
asked was “Which of the following brands do you know, even if just by name?” Lululemon
came in at a paltry 37% brand recall. The “Household Name” apparel brands like New Balance,
Skechers, and Puma came in at 75%-80% brand recall, and the global brands like Nike, Adidas,
and Reebok coming in at 80%+, with the first two nearly touching 90% brand recall (Kunst,
2019). This proves that Lululemon has a ton of runway to be able to further grow their brand
within the space they currently operate.
Chart 1 - Brand Recognition Survey Results
Dependence on Limited Suppliers for Higher Cost Materials
Lululemon’s use of technologically sophisticated fabrics and high-quality materials contributes
to its brand image and marketability, but it is also a weakness because the company depends
on a short list of third-party suppliers and manufacturers that meet their high standards
(MarketLine, 2016). In Lululemon’s case, this weakness is made worse by the fact that few
12 | P a g e
alternative suppliers and manufacturers exist with similar quality and technology capabilities.
Firms dependent on a low number of suppliers and manufacturers are highly susceptible to the
operational fluctuations, time delays, and quality standards of these companies (Desai, 2015).
Thus, while Lululemon’s proprietary blend of fabric technologies and exemplary quality
distinguish it from its competitors, the preservation of these factors lies in the hands of third
parties, with very few alternative options if things go wrong.
Lululemon spends a significant amount of time and money investing in research and
development to develop leading-edge fabrics for its apparel, prices are somewhat higher for its
products than for those of its competitors. Similar products at Nike or Under Armour sell for
much less. While this may not be hurting business with its core audience of higher-income
women, this could be a problem as the company tries to expand its audience, geographic
footprint, or if economic changes cause customers to become more price-conscious.
Opportunities
Expansion to International Markets
A big opportunity for Lululemon is in the expansion of the international markets. As of the
end of 2019, only 123 of Lulu’s 491 stores were located outside of North America. The
company has set a five-year strategic plan to quadruple sales outside of the North American
market by 2023 and to open 45-50 new stores with 30 of those being outside of North America.
There has also been a relaunch of ecommerce sites in the Asia-Pacific and European markets
(Hensel, 2019). The largest growing of these is the Chinese market where sportswear has been
growing for consecutive years and grew 16% in the first quarter of 2019. The Chines54e
government is pushing a fitness and wellness initiative because of the country’s aging
population, rising healthcare costs, and a depleting public pension system. This has given a
rise to an increase in fitness apps, fitness facilities, and gym memberships across the board.
Also, Chinese women are responsible for 81% more spending than in the past five years which
has helped push the consumer athleisure trend. With all these factors, Lululemon is expecting
a 25% revenue increase from the Asian market by the end of the year (Achim, 2019).
Expansion of Men’s Market
Lululemon also has an opportunity to expand further into the men’s market. Currently only
21% of the company’s $3.3 billion in total sales come from the men’s market (Scott, 2019).
However, the total men’s revenue grew by 38% in the third quarter of 2019, which outpaced
the growth in the women’s market. Lululemon plans to double their market share in the men’s
market by 2023 by continuing to add new offerings for men, which include running shorts and
shirts, yoga pants, underwear, and outerwear (Stank, 2019). The problem lies in the brand
awareness among male customers. Most male customers view Lululemon as a mostly female
brand or are unaware that the company even produces men’s clothing. To help combat this,
Lululemon hired Nick Foles (an NFL quarterback) to become the brand’s first male ambassador
and promote awareness among male consumers (Thomas, 2019).
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Branding
There are other opportunities for Lululemon to continue to expand, especially with branding.
Lululemon could consider opening or licensing its brand to high end fitness centers and yoga
studios. Although outside of its core competency of athletic attire, Lululemon does have some
experience in this space, offering yoga classes one day per week inside its stores and partnering
with yoga brand ambassadors. This expansion into fitness centers seems a good fit with the
“sweat life” brand and allows further engagement of its customers and diversification of
revenue sources.
Threats
Competition
The athletic apparel market is a highly competitive industry with many brands that have been
established much longer than Lululemon. Nike is the world’s leading athletic apparel
manufacturer with a brand value of over $34 billion and owns an 18.3% of the United States
market share (O’Connell, 2019). That percentage is more than the next four competitors
combined, including Lululemon. Chart 2 below shows this market share disparity. Nike also
spent $3.75 billion in advertising and promotion in 2019 which is an amount that Lululemon
cannot compete with (O’Connell, 2020). Brand such as Nike, Under Armour, and Adidas are
sold within a broad range of retailers and sporting goods stores whereas Lululemon can only
be purchased in Lululemon stores or ordered online. Brand awareness and product availability
threaten the company’s ability to compete with other industry leaders that have a more
established market presence.
Athletic Apparel Market Share in the US as of 2018, by Company
Chart 2 – Athletic Apparel Market Share in the US
Even though Lululemon has entered the male market launching high end men’s athletic apparel,
the company is more prevalent in the female market. This lack of a wider product
diversification could be a cause for concern as the men’s activewear industry accounts for 51%
of the total market. For three consecutive years in the United States, the men’s market has
14 | P a g e
grown faster than the women’s market, and within the United States, the women’s athletic
apparel market remained flat in 2019 from 2018. This outpacing holds true for the Chinese
market as well which is the second largest market behind the US. While both the men and
women’s market grew, the men’s market increased by 3% more than the women’s (“Men’s
Activewear.”, 2020). Lululemon might be forced to invest heavier in their men’s product line
to keep growing within the market.
Economic Downturn
The spread of the Coronavirus pandemic, as well as the shuttering of the global economy, has
majorly affected the apparel industry. As a premium good, Lululemon relies on its target
market to have sufficient disposable income. Any economic downturn, especially in North
America would threaten to reduce Lululemon’s revenues. With high fixed costs associated with
brick and mortar store locations, significant reductions in revenue could be very damaging to
the company. Lululemon has yet to gauge what the fiscal year 2020 will look like, but the
company has stated that sales have changed dramatically. Stores have been closed in North
America, Europe, Australia, and New Zealand and Lululemon is one of the few companies that
has not furloughed any of its employees nor will they through June 1. All these factors will
influence the company’s bottom line in a negative way. The one positive is that all of
Lululemon’s 38 stores in China are operating normally, except for the store in Wuhan (Moreno,
2020).
Counterfeiting
Counterfeiting is a big problem across the world. “The amount of total counterfeiting globally
has reached to 1.2 Trillion USD in 2017 and is bound to reach 1.82 Trillion USD by the year
2020” (Research and Markets, 2017). As the popularity of Lululemon products has increased,
so has the levels of counterfeiting. In 2018 Lululemon sued “an unidentified web of
counterfeiters for allegedly selling knockoff yoga pants online” (Channick, 2018) and in 2019
sued Ross Stores for allegedly selling $8 copies of Lululemon leggings. Counterfeiting is a
threat to Lululemon as it has the potential to reduce revenue, due to black market sales, and
impact the brand image, from low quality knockoffs.
Rising Wages
Manufacturing in the apparel industry is highly outsourced to facilities overseas as labor costs
are much cheaper. Lululemon faces potential exposure to rising wages in its manufacturing
and retail environment. While the company has a few manufacturing facilities in the United
States and Canada, the three of its biggest and most used ones are in Vietnam, Cambodia, and
China (Pugsley, 2020). In recent years, Cambodia and Vietnam have passed legislation to raise
minimum wages for manufacturing workers that they might have a livable wage. In 2017 and
2018 Vietnam saw wage increases of 7.3% and 6.5% respectively, while Cambodia saw
increases of 9.2% and 10% in the same time frame (Donaldson, 2017). Lululemon already
only uses facilities that supports workers welfare and pays a living wage but continually rising
wages will increase costs and lower profits.
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Recommendations
The first recommendation for Lululemon is to investigate starting a new separate brand
specifically targeting men. This paper identified the men’s athletic apparel market as both a
weakness and opportunity for Lululemon and is therefore a good candidate for focus.
Lululemon has also identified men’s attire as a key area for growth, but available public
documents like the annual report do not clearly outline the strategy to expand this market.
Historically, Lululemon only produced women’s attire and still tends to be positioned and
associated with women. Lululemon launched its men’s line in 2014 and many at the time “felt
the brand was too tightly aligned with women and that it faced an uphill battle to attract men”
(Danziger, 2020). A separate men’s brand would allow Lululemon to reposition its men’s attire,
potentially moving its focus away from primarily yoga to a broader range of physical activities
and sports. Yoga is “overwhelmingly perceived as a female-gendered activity, with 62 percent
of the 2,200 U.S. adults surveyed rating yoga as feminine and only 36 percent viewing it as
gender-neutral" (Danziger, 2020). While the number of yoga practicing males continues to
increase in North America, a broader appeal may be needed to capture a larger portion of the
market. Fortunately, Lululemon already possesses some experience in the male apparel market
having found moderate success with their men's’ products for surfing (Ballard, 2020). With a
brand dedicating equal focus to males, Lululemon has ample opportunity and ability to
replicate their past successes in an additional and growing market.
The second recommendation for Lululemon is to either expand their supplier base or begin
vertically integrating the manufacturing process and bring production in-house. As previously
mentioned in the weaknesses, Lululemon’s use of sophisticated fabrics and high-quality
materials causes them to depend on a short list of third-party suppliers and manufacturers that
meet their high standards and produce their specific fabrics (MarketLine, 2016). In
Lululemon’s case, this weakness is made worse by the fact that few alternative suppliers and
manufacturers exist with similar quality, technology, and sustainability capabilities. In total, as
of 2018, Lululemon had 55 finished goods suppliers for their products. To compare, Nike has
over 520 suppliers, and Adidas has relationships with over 800 factories (Lululemon, 2018).
Of the 55 Lululemon suppliers, five manufacturers produce about 63% of the company’s
products. In terms of geography, South and Southeast Asia accounts for 67% of production,
while 23% of products were produced in China. Lululemon also maintains 3% of its production
in North America, primarily to ensure speed to market for its products. Firms dependent on a
low number of suppliers and manufacturers are highly susceptible to the operational
fluctuations, time delays, and quality standards of these companies (Desai, 2015). While
Lululemon’s proprietary Luon fabric technologies, exemplary quality, and structured
sustainability standards distinguish it from its competitors, the preservation of these factors lies
in the hands of third parties, with very few alternative options if things go wrong.
Luon is a nylon/spandex blend fabric used in tanks, pants, bras, and jackets which is
trademarked by Lululemon and is an important part of the company’s secret sauce. The Luon
fabric is marketed as a four-way stretch fabric that is sweat-wicking and cottony soft, providing
16 | P a g e
serious stretch and recovery. The spandex ensure that the fabric will never “stretch or bag out”,
while the nylon provides coverage (Bhasin & Lutz, 2013). Luon is the preferred fabric of yoga
enthusiasts and is the largest fabric requirement for Lululemon, making up about 30% of the
company’s total fabric use (Soni, 2014). Lululemon sources the Luon fabric from only one of
their 55 total suppliers, The Eclat Textile Co in Taiwan, which they have used for the past
decade. The Eclat Textile Co. not only works for Lululemon, since Eclat developed a flexible
knit fabric and launched commercial production in 1983, it successfully developed long-term
relationships with big global names like Nike, Adidas, Under Armour. As Luon pants are
technical product to manufacture with the complex specs, the production process requires a
much closer professional supervision rather than electronics where errors are easier to spot.
Making strict specifications and diversifying the supplier base to decrease the dependency on
the single source, especially for the fabric they rely on the most may be both helpful to maintain
high-quality standards and increase market share.
17 | P a g e
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