lululemon supply chain case study

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Source: Lisa Byfield-Green

What makes Lululemon’s supply chain strategy so great?

Promotional research for Informatica and Maersk , By Megan Dunsby 2023-07-17T05:30:00+01:00

PROMOTIONAL RESEARCH

Lululemon is among the 15 global retailers and brands recognised by analysts for leading supply chain performance in the new  Retail Changemakers  report . Here we deep-dive into the athleisure company’s operating model  

Lululemon has pivoted its strategy recently. It had previously dabbled with tech alongside its core product offer after it acquired fitness tech company Mirror for $500m (£397.4m) at the height of the pandemic fitness boom in June 2020. 

However, in April 2023, the Canadian retailer started looking to offload that division, known as Lululemon Studio, and sale talks are still under way.

Now, with a change of approach, tech remains a key part of its supply chain operations, particularly around stock visibility.  

RFID technology aids improved fulfilment and staff efficiency 

Within its stores – 650 globally, with 20 in the UK – Lululemon uses RFID technology, aiding store stock-takes and inventory management.

According to the retailer, the implementation of RFID technology allows store staff to leverage “real-time, accurate data” when serving customers, while also supporting the company’s fulfilment offerings such as buy online, pick up in store. 

Lululemon had deployed this tech strategy, which it calls iD Cloud, to its North American stores by September 2022 and is rolling it out across Europe, the Middle East, Africa and Asia-Pacific in 2023. Work began at the start of the year. 

Lululemon’s sales forecast 

Total sales 2022/2023 estimate (Retail Week analysts): £6.6bn  Total sales 2027/2028 estimate (Retail Week analysts): £12.5bn – 10.5% five-year CAGR

The retailer has been a long-term advocate of product lifecycle management (PLM) software. This tech helps retailers ensure that the journey products take from idea stage to creation and development is tracked in one central place across different territories and departments, optimising supply chains as a result. 

Speaking in 2022 about the new user experience in its PLM provider’s latest tools, Lululemon director of product development Leith Irvine said it was going to “revolutionise the lives of our product developers” and provide greater transparency of the supply chain. 

Investment in Fashion Climate Fund helps cut emissions

When it comes to supply chain sustainability, in June last year Lululemon joined H&M Group as one of the backers of a $250m (£198.7m) fund aimed at accelerating efforts to cut carbon emissions in the fashion industry’s supply chain.  

Lululemon is backing the $250m Fashion Climate Fund

The fund will help finance expanding the use of renewable energy, ending the use of coal in manufacturing and improving energy efficiency, as well as developing next-generation materials and other initiatives. 

No results have yet been shared by the Apparel Impact Institute, which runs the fund, but US department store chain Target joined Lululemon in November last year.

The idea is to build momentum behind greener fashion by pooling resources and funds for research and worthy causes that can help the wider industry reduce its impact on the environment. 

Discover which other retailers have been named for world-leading supply chain performance, and why, in the Retail Changemakers  report . Access your free copy here to find out:  

• Each retailer’s major investment priorities, latest partnerships and sustainability efforts  
• Exclusive sales forecasts for the 15 global retailers – both for the current financial year and five years’ time 
• The biggest global supply chain trends and how these will play out in 2024 
• Sports, leisure & outdoors
• Supply chain
• Sustainability

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Lululemon SWOT Analysis

Before we dive deep into the SWOT analysis, let us get the business overview of Lululemon. Lululemon Athletica Inc. is a Canadian athletic apparel retailer founded in 1998 by Chip Wilson.

The company specializes in designing, manufacturing, and selling high-quality performance apparel and accessories, primarily catering to the yoga, running, and fitness markets. Lululemon is known for its innovative and stylish products, blending function and fashion, and has become a popular brand among athletes and fitness enthusiasts.

Headquartered in Vancouver, British Columbia, Lululemon has expanded its presence globally, operating both physical stores and an e-commerce platform. Its products are available in company-owned stores, through its online platform, and at select partner locations.

Lululemon’s core product offerings include the following:

• Women’s Apparel: Featuring yoga pants, leggings, shorts, sports bras, tops, jackets, and swimwear.
• Men’s Apparel: Including shorts, pants, shirts, jackets, and swimwear designed for athletic performance and everyday wear.
• Accessories: A range of items such as bags, headbands, yoga mats, water bottles, and other fitness-related gear.

Financial Performance:  Lululemon generated $7.6 billion in revenue in 2023 , up 42% from 2022.

Be human. Be well. Be planet. Lululemon’s Sustainability Strategy

Here is a SWOT analysis for  Lululemon :

A SWOT analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats of a business, project, or individual. It involves identifying the internal and external factors that can affect a venture’s success or failure and analyzing them to develop a strategic plan. In this article, we do a SWOT Analysis of Lululemon.

SWOT Analysis: Meaning, Importance, and Examples

• Brand Reputation : Lululemon has established itself as a premium brand in the athletic apparel market, known for its high-quality, innovative, and stylish products. This reputation has helped the company attract and retain a loyal customer base.
• Product Innovation : The company’s focus on research and development has led to the creation of unique and proprietary fabrics, such as Luon and Nulu, which offer exceptional performance, comfort, and durability. This commitment to innovation helps Lululemon differentiate its products from competitors and maintain a competitive edge.
• Community Engagement : Lululemon has cultivated strong relationships with its customers and local communities through initiatives like the Ambassador Program, local events, and in-store classes. These efforts foster brand loyalty and create a community around the Lululemon brand.
• Omni-Channel Presence : Lululemon has a robust retail presence through its physical stores, e-commerce platform, and select partner locations. This omnichannel strategy allows the company to reach a wide range of customers and provide a seamless shopping experience.
• Vertical Integration : Lululemon’s vertically integrated business model allows it to maintain control over its supply chain, ensuring quality and consistency across its products. This also enables the company to respond quickly to market trends and customer preferences.
• Diverse Product Offerings : Lululemon has successfully expanded its product portfolio beyond yoga apparel to cater to other sports and fitness activities, such as running, cycling, and training. This diversification has allowed the company to tap into new markets and broaden its customer base.
• International Expansion : The company has strategically expanded its global presence, opening stores in key markets like Asia and Europe. This international expansion has allowed Lululemon to increase its market share and capitalize on growth opportunities in new regions.

Weaknesses 

• High Price Points : Lululemon’s products are often priced higher than its competitors, which may deter some price-conscious consumers from purchasing them. Premium pricing can limit the company’s market reach, particularly among budget-conscious shoppers and in price-sensitive markets.
• Limited Target Demographic : Lululemon’s core target demographic has traditionally been affluent, fitness-oriented women. While the company has made efforts to diversify its product offerings to appeal to a wider range of consumers, it still has room for growth in capturing other market segments, such as lower-income individuals and a broader male audience.  By the geographical split, North America is Lululemon’s largest market, representing 85% of our 2021 net revenue .
• Dependence on Company-Owned Stores : A significant portion (~45%) of Lululemon’s revenue comes from its company-owned stores, making it vulnerable to fluctuations in foot traffic and consumer preferences for brick-and-mortar shopping. The COVID-19 pandemic highlighted the risks associated with an overreliance on physical stores, as temporary closures and reduced foot traffic impacted sales.
• Competition : The athletic apparel industry is highly competitive, with major players like Nike, Adidas, and Under Armour vying for market share. Additionally, there has been an influx of new entrants and fast-fashion retailers offering athleisure products at lower prices. This increased competition could put pressure on Lululemon’s margins and market share.
• Supply Chain Challenges : As a global business, Lululemon faces supply chain complexities and risks, including potential disruptions from geopolitical tensions, trade restrictions, or natural disasters. The company’s vertically integrated business model can help mitigate some of these risks but may not completely shield it from supply chain disruptions.
• Past Controversies : Lululemon has faced some controversies, including issues related to product quality, such as the  2013 recall of its sheer yoga pants  and controversial statements made by its founder, Chip Wilson. While the company has addressed these issues, they can harm the brand’s reputation if not properly managed.

Opportunities 

• Expanding Men’s Segment : Lululemon has been gradually increasing its focus on men’s apparel, but there is still significant potential for growth in this market. Lululemon can capture a larger share of the men’s athletic apparel market by developing innovative products specifically designed for men and increasing marketing efforts targeting male customers.
• Emerging Markets : Expanding into emerging markets, particularly in Asia and Latin America, allows Lululemon to tap into new customer bases and capitalize on the growing demand for premium athletic apparel in these regions. This expansion could help diversify the company’s revenue sources and fuel growth.
• Product Diversification : Lululemon can explore opportunities to expand its product portfolio beyond athletic apparel, such as entering the footwear market or offering a more comprehensive range of fitness accessories. This diversification could help the company reach new customers and strengthen its position in the overall fitness market.
• Digital Expansion and E-commerce : Strengthening the company’s e-commerce platform and enhancing its digital presence can help Lululemon better engage with customers and provide a seamless online shopping experience. By leveraging technology, the company can personalize the online shopping experience, offer virtual fitness classes, and develop a more robust loyalty program.
• Collaboration and Partnerships : Lululemon can explore strategic alliances and partnerships with other brands, athletes, and influencers to expand its reach and enhance its brand reputation. These collaborations can help the company access new markets and customers while also driving innovation in product design and marketing.
• Sustainable and Ethical Practices : There is a growing consumer interest in sustainable and ethically produced products. Lululemon can capitalize on this trend by adopting and promoting sustainable materials, fair labor practices, and environmentally friendly production processes. This commitment to sustainability and ethical practices could help the company differentiate itself from competitors and appeal to environmentally conscious consumers. 
• Integration of Technology : Lululemon can explore opportunities to integrate technology into its products, such as incorporating wearable devices, smart textiles, and other performance-enhancing technologies. This integration can help the company stay ahead of the competition and cater to the growing demand for tech-enhanced fitness products.

Be human. Be well. Be planet. Lululemon’s Sustainability Strategy

• Intense Competition : The athletic apparel market is highly competitive, with well-established brands such as Nike, Adidas, and Under Armour, as well as emerging players and fast-fashion retailers entering the athleisure space. This increased competition can pressure Lululemon’s market share, pricing power, and margins.
• Economic Conditions : Economic downturns or recessions can negatively affect consumer spending, particularly on premium and discretionary items like Lululemon’s products. A weak economic environment may lead to reduced demand for the company’s products and lower sales.
• Changes in Consumer Preferences : The athletic apparel industry is subject to changing fashion trends and consumer preferences. If Lululemon fails to anticipate and adapt to these changes, it may lose market share to competitors that are better able to cater to consumers’ evolving preferences.
• Supply Chain Disruptions : As a global business, Lululemon is susceptible to supply chain disruptions caused by geopolitical tensions, trade restrictions, natural disasters, or other unforeseen events. These disruptions can lead to production delays, increased costs, or product shortages, harming the company’s reputation and financial performance.
• Counterfeit Products : The popularity of Lululemon’s products has led to the emergence of counterfeit and knock-off items in the market. These fake products can damage the company’s brand reputation, erode customer trust, and result in lost sales.
• Regulatory and Compliance Risks : Lululemon operates in multiple countries, subjecting it to various local, national, and international regulations, including labor laws, environmental regulations, and tax requirements. Non-compliance with these regulations can result in financial penalties, legal disputes, or reputational damage.
• Data Security and Privacy : As Lululemon expands its e-commerce platform and collects more customer data, the company faces an increased risk of data breaches and cyberattacks. Failure to adequately protect customer data can result in financial losses, legal liabilities, and company reputation damage.

Check out the SWOT Analysis of Global Businesses

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Technology and Operations Management

Mba student perspectives.

• Assignments
• Assignment: RC TOM Challenge 2017

Supply chain digitization: From fabric manufacturing to downward dog

Lululemon, a Canadian athletic apparel retailer, has been focused on improving their supply chain with new technologies and data after inventory issues impacted margin in 2015.

Lululemon is a Canadian athletic apparel retailer specializing in yoga-inspired wear. Lululemon is constantly trying to innovate its product lines with new fabrics, new styles, and new colour palettes. Supply chain digitization is a trend that is meaningful to Lululemon as a large part of their value add to customers is being able to stay on top of and respond to new trends while offering these new trends quickly across all retail locations and online. Any issues or lag with its supply chain can directly impact the company’s performance. This was seen in 2015 when delays and cancellations in Lululemon’s supply chain resulted in significant costs for unused fabrics and other raw material waste. Many in the investment community believed this was one of the causes of raised retail prices that caused many customer complaints. 1

Another reason for the importance of supply chain digitization is that Lululemon does not manufacture any of its products or raw materials; relying completely on their suppliers. They also have a very fragmented supplier group with its top 5 suppliers making 63% of its products. 2 Additionally, products materials are sourced from 22 countries around the world, adding to the complexity. 3 As seen in the Beer Challenge, without vertical integration, it is difficult to manage the flow of goods across all these different parties. This is particularly a challenge when these goods require very quick turn-arounds to ensure the selection remains relevant (high demand products are restocked and production of low demand products are stopped).

Better supply chain management will be crucial, especially since Amazon has recently entered the athletic apparel space with two private label brands. In order to compete with Amazon, Lululemon will need to ensure it trendy athletic wear is available and delivered on-demand to its consumers. 4

Lululemon has made significant efforts towards improving supply chain management. It recognizes that in order to ensure adequate inventory supply, it must forecast consumer demand by product. Inventory levels in excess of demand can cause write-downs that has and will continue to affect its margin. 2

In order to manage supply chain and inventory issues, Lululemon rolled out and is improving RFID technologies across 300 North American stores. Lululemon sees inventory accuracy as crucial to its goal of delivering the optimal consumer experience. They are now able to report real-time inventory across all stores. It was initially piloted in 2013 and rolled out through 2015 and 2016. All products are tagged at the distribution center and then each product’s location is tracked to the time it is purchase. This helps store employees see what is in the backroom versus on the floor and order additional inventory. It also enables customers to order online and pick up in store. This not only ensures the right products are available for purchase, it also limits production of low demand products. This is important for Lululemon as it tries to strictly limit discounting. A credit Suisse study of over 3,800 Lululemon SKUs on the website, found that full-price and in-stock positions improved in early 2017.  5,6

Pathways to Just Digital Future

In the medium term, Lululemon wants to take the digitization of their supply chain further in order to introduce greater flexibility into their supply chain. They are looking to use data on consumer preferences and trends to better stage the development of products to respond more rapidly. One of the ways to they plan to do this is to stage the fabric development process in order to receive inputs on style and colour during the process and use these inputs to navigate the path the fabric takes after development has already been initiated. 8

In the medium term, I believe Lululemon should be taking actions to more greatly empower the parties upstream in their supply chain. At this point, the flow of information goes from the consumer through the retailer to the distributor to the manufacturer. Most of the technology advancements made have been to receive better data throughout the process so that the orders to the manufacturers can be more reflective of consumer needs. This still creates a significant delay in the chain to fill these orders. If the manufacturers were able to access, interpret, and directly make decisions based on consumer data, the time to deliver the goods will further decrease. This will then be an integrated supply chain ecosystem. 9 Lululemon will be able to react and adequately stock current trends while limiting discounting by having a quicker feedback cycle.

Open questions

• Should Lululemon try to consolidate their many global manufacturing partners to facilitate the digitization and communication across supply chain parties?
• Will Just-in-Time manufacturing ever be a viable option for an apparel retailer (can an individual consumer order trigger the manufacturing of the good)?

—————————

• Business insider, “Lululemon changes in 2016”, http://www.businessinsider.com/lululemon-changes-in-2016-2016-1 , accessed November 2017
• Lululemon 10-K, http://investor.lululemon.com/financials.cfm , accessed November 2017
• Lululemon, “Responsible Supply Chain” https://info.lululemon.com/sustainability/responsible-supply-chain , accessed November 2017
• Barrie, Leonie, “Amazon private label push to shake up sportswear?” Just Style, 19 October 2017, accessed through Factiva November 2017
• Dow Jones Industrial News “ Investors’ Soapbox: Lululemon, Coach: Doing What’s Right for Retail”, 23 October 2017, accessed through Factiva November 2017
• Marketwired, Lululemon, DICK’s Sporting Goods, PetSmart and Johnston & Murphy Recognized as Innovative Industry Leaders”, 11 January 2017, accessed through Factiva November 2017
• Event Brief of Q1 2017 Lululemon Athletica Inc Earnings Call, accessed through Factiva November 2017
• Wright, Beth, “Lululemon switches supply chain focus to speed” Just Style, 3 September 2017, accessed through Factiva November 2017
• Schrauf, S. and P. Berttram, Industry 4.0: How Digitization Makes the Supply Chain More Efficient, Agile, and Customer Focused, PWC Strategy& (2016)

Student comments on Supply chain digitization: From fabric manufacturing to downward dog

Thanks for the thoughtful post Lia! I find it very interesting to think about the challenges you raised in the context of international expansion.

Firstly, from a product development standpoint, I’m curious as to how they are beginning to manage the production of clothing for different seasons as they seek to distribute to different parts of the world. E.g., Would the Australian winter collection simply follow the US production months later utilizing the same specs and fabric procurement? How does the difference in scale between countries influence this decision?

Secondly, I think this also poses an interesting question on the strategic location of their suppliers and the possibility for consolidation. Likely they ought to be optimizing to have suppliers as close to the country of final sale as possible after solving for country specific manufacturing costs. This being said, to your point on diversification of supplier place, there are also added expenses in not consolidating sourcing of goods to capture economies of scale.

Given the focus on the athletic apparel space that Lululemon has vs. breaking into other product categories, I do think there is merit to consolidating their manufacturing partners, if not at the very least for certain key parts of their business be it for tops and bottoms vs. jackets and bags. As we have seen in several instances, e.g., Li and Fung, IKEA or Domino’s Pizza, the more control a company has over its supply chain, the more ability it has to ensure quality, timeliness and reduced cost.

That said, because Lululemon is not only creating the apparel but also often setting athletic apparel fashion trends, I would not recommend JIT manufacturing. While responsiveness to customer preferences is important both to capture sales and reduce inventory holding and/or discounting, I believe part of Lululemon’s value proposition is to show customers designs and outfits they otherwise would not think to purchase by having them modeled in stores or seen in major cities. Consequently, I would think having more control over its supply chain, either through consolidation or even building very strong relationships with suppliers, would be Lululemon’s best tactic to ensure it delivers on time at the highest quality for its customers vs. trying to respond one to one to customer demand.

Thank you for the article. Regarding the first open question: I believe Lululemon should actually not consolidate their global manufactures. It is true that such a move can create better information sharing throughout the supply chain. Having said that, as studied in Li & Fung there are many advantages to having many suppliers such as diversification of risks. I do believe, as mentioned, a single system monitoring operations should be in place.

Thanks you Lia!

I agree with you that integrated supply chains are critical to ensuring minimum stock and on-time delivery. Since vertically integrating is highly unlikely for LuluLemon, this is the next best thing, and potential a smarter business decision considering the expertise and assets required for vertical integration is usually not recommended for apparel. My concern with the approach is that RFID tracking and inventory control is still a lagging indicator. Fashion tastes change and can not always be predicted by algorithms. We saw this in the GAP case. How do we balance the efficiency of a integrated, efficient supply chain with the agility and intuition of a LuluLemon fashionista?

Rather than regarding vertical integration or suppliers consolidation to minimize the risk of inventory shortages in an industry with high-turnarounds, Lululemon may consider a the implementation of a “fast-fashion” like production process, like the one used by Inditex brands (Zara, Bershka, Massimo Dutti, etc.). In this business model, constant exchange of communication optimizes inventories by rapidly reacting to consumer tastes on limited items on display, focusing only on producing items with positive reaction from end-customers.

“In Zara stores, customers can always find new products—but they’re in limited supply. There is a sense of tantalizing exclusivity, since only a few items are on display even though stores are spacious. Such a retail concept depends on the regular creation and rapid replenishment of small batches of new goods. Zara’s designers create approximately 40,000 new designs annually, from which 10,000 are selected for production. This “fast fashion” system depends on a constant exchange of information throughout every part of Zara’s supply chain—from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on.” – HBS Working Knowledge ( https://hbswk.hbs.edu/archive/zara-s-secret-for-fast-fashion )

Fascinating read, Lia. I, for one, had no idea that Lululemon does not manufacture *any* of its products. So what is this company’s value-add? Literally the logo. This is highly disappointing considering that a pair of Lululemon stretchy long underwear costs upwards of $100. Capitalism at its finest, no?

RFID implementation is crucial! I totally agree with your point that “if the manufacturers were able to access, interpret, and directly make decisions based on consumer data, the time to deliver the goods will further decrease”. Lululemon needs granular insight into how their products are moving to even begin to understand how to improve operational inefficiencies, understand consumer tastes and trends, and innovate across the supply chain.

I am always so flabbergasted by products that I see in my favorite stores, often wondering how much of design choices are dictated by consumer tastes vs. designer inclinations. This definitely takes me back to our Gap case… if you’re not using data to inform product (and supply chain) design… you will inevitably lose.

Thanks for sharing this insightful piece on digitalization in the retail industry. I agree with Lululemon’s move toward RFID technology to increase inventory visibility throughout the supply chain. Not only will this allow the company to better track its inventory, it should hopefully lower out of stock incidents and may even improve sales in the process as item availability improves. To answer your question whether or not Just-In-Time manufacturing is a viable option for retailers, I do believe that it is a great option only if the company is vertically integrated to some extent. Fast fashion retailers like Zara do operate under the JIT principle, but I believe they are able to do this in part because they are vertically integrated (Zara manufacturers about 50% of its SKUs at company-owned factories), and can leverage information transfer more easily throughout the supply chain. Thus, Zara and other fast fashion rivals have achieved a truly pull model of supply chain management that Lululemon has yet to fully incorporate at this stage [1]. Now, whether or not Lululemon wants to take on the costly burden of integration is a question for management given that there current outsourcing model does hold some advantages as cases like Li & Feng have shown us in class.

[1] https://www.supplychaindive.com/news/retail-supply-chain-shift-turn-times-holidays/510607/

Thanks Lia, the questions you raise require immodest action from my perspective. Apart from just the well know impact of consolidation and digitization on inventory management and better ability to scale distribution, it is also important towards the brand core values. Lululemon is targeted towards active, aware, premium customers, who are always concerned with convenience as well as anything else, with its fragmented supplier base, Lululemon could suffer setback on the long term to satisfy the overall needs of the market in terms of service offering of the product and not merely its availability. Also, we have seen many brands hit by accusations of child labor, modern slavery and human trafficking, in that sense, having a less fragmented supply chain allows for more control and ability to maintain a certain level of customer promise.

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Lululemon: Building an omnichannel empire from scratch

Orkiv Retail Solutions

Lululemon: the company behind the athleisure trend sweeping over the world

My experience in a Lululemon store one early spring day inspired a lengthy story about this unique company and it’s grassroots starts. It was more out of function than fashion that I decided to stop in the Lululemon store again on Newbury street in Boston. I realized this might be a great gift for an upcoming family members birthday, and thought this could be just the place. It was only after I stepped inside and started to familiarize myself with what they had done that I became a bit more obsessed with how this company came to be. My shopping experience was, like I mentioned, more because of function (getting a present) than fashion (shopping for me), but this did not deter me from diving deeper. From the moment you step into one of their stores, you feel a part of something bigger. This was the experience I felt and it captivated me right off, as I can only imagine happens to millions of other shoppers all around the world. In this story, I’d like to share the experience I had and how this one of a kind brand has created a cult-like following with the right clothing technology, the right omnichannel capacity, and a super effective grassroots campaign to get the most loyal of audiences.

As mostly an outsider to the Lululemon fad, my experience left me wondering what was behind the scenes here? Not only did Lululemon build a great product, but they created a whole shopping experience and culture revolving around the community. Looking back on this it’s easy to see how the (mostly) women shoppers could be good friends with other Lululemon team members. It was clear to me they really thrived on combining the right product, centered around yoga, and the right market of an already active fitness related audience. If you’ve ever been to a Lululemon store, you probably got the feeling of high energy, fun and inviting community. This is mainly because their managers are likely active yoga students or teachers, and are regularly purchasing Lululemon clothing simply for themselves. For me one of the ladies helped to get something I knew she would want. I was confident she knew what would suit my needs. As we conversed about a few options, she helped me understand there was free Yoga daily in the Lululemon stores. In addition, she informed me of a couple clubs and active yoga communities nearby. I found this all very helpful, even if I had already known about the places, at least she helped me feel like there was a vibrant community around. As for her salesmanship, it was a subtle nudge in our conversation to some of the items she likes the best. I’m quite attentive when shopping so I don’t find myself falling trap to the upsell, and this was as smooth an upsell attempt I had seen. At this point, I gathered the Lululemon shirt, headed to the register and checked out. It was all very slick.

The Early Days and Chip Wilson

To understand Lululemon takes an understanding of Chip Wilson, the ambitious lifelong entrepreneur, and outdoorsman from Vancouver, British Columbia. Chip grew up with a mother who was a sewing machine operator, and his grandmother, a business women and early influence on Chip and his will to succeed. Given the opportunity to learn how to sew, Chip started building his own clothes. Before long Chip was selling pairs of his self-described “longer board shorts” to friends and others around the skate park. His early success building clothes and selling them out of his trunk eventually led to the creation of Westbeach Snowboard Company selling surf, skate, and snowboard apparel. Through the rise, stumble and eventual sale of Westbeach for $15 million, Mr. Wilson was able to accumulate $1 million in startup funding and most importantly 18 years of knowing what he didn’t want to do. What Chip realized in starting Lululemon was this widening gap in the market for a product specifically designed to be technical, while capturing the active wear capability, hence the category of athleisure. As Chip stated in a recent TedxVancouver talk “I knew in my mind there going to be a market segment of customer who had ever existed before, and I call that I’m going to get very specific like a 32-year-old athletically fit, well travelled, her own condo, and just about to get married.” As you can imagine, this market segment, developed through this exact profile, began to catch, primarily through word of mouth yoga moms, and younger athletically fit millennials who bought the brand because of the endorsements, functionality, and community behind the company. Not only did Chip build Lululemon to be one of the top employers of female executives, but throughout the whole entire company women are helping design and grow the business through a still very strong grassroots campaign in the community.

Lululemon Culture

Throughout building Lululemon, Chip was instrumental in making the culture of Lululemon unlike anything which has been done before. This was enhanced by the business model Lululemon incorporated, which kept their supply chain tight, cutting out middlemen and creating a vertically integrated clothing retailer. Not only this, but the management and control of each store is far more decentralized. By this I mean each store manager has the control needed to operate, market and advertise and they see fit. While this does fall under some guidelines, these are put in place at a high level to keep everyone moving in one direction, while attracting and acting as needed to succeed. By design it seems, the business itself has attracted the very people who buy their products, to come in a run key spots within the company. Chip Wilson did a great job building the very tools into the company that simultaneously sold the product and ensured he had the right people working. In the early days, and even still today Lululemon spread products by building a network of ambassadors, all who either worked in or were around the Yoga, Pilates, or Zoomba industry. This served as a near-perfect test for the market. Because of the incredible network of ambassadors, and I’m sure some crafty dealmaking with the instructors, Lululemon built up a community and reputation as the world’s premier athleisure brand. With this exposure and culture of a community, is there something to be said for community and culture as an omnichannel offering?

Grassroots as Omnichannel

Most won’t argue that operating as an omnichannel retailer means reaching your customers where and when they want to shop from you. Most of the times we are talking about the technology as a means of achieving omnichannel success, however, what if this means using the local networks of people as one of the channels? Mostly known as word of mouth marketing, Lululemon put an interesting spin on it, as the people using the product were actually the ones who were involved in selling the product. Ingeniously set up by Lululemon was a way of translating the people on who could spread the trend with the people who were willing to stock and organize the products in their own shops. Lululemon fashioned the first example of what became known as an “in-house” supply chain because their product passes through no distributors or wholesalers. Instead, Lululemon developed a partnership with Mas Active a premium supplier of design to delivery activewear, based out of Sri Lanka. Through this partnership, Lululemon takes delivery of it’s product directly to stores rather than having it distributed. This provides an interesting challenge from a technology perspective, as it must cope with the missing elements of the supply chain. A lot of what Lululemon achieved was from a technical perspective to have clear, real-time figures on the inventory directly from the manufacturer to stores. This involved true omnichannel sophistication with a network of independently operated clothing stores. In similar fashion to how Lululemon was built the first place their grassroots approach to marketing also worked in recruitment, and thus began an ownership responsibility in updating/ordering the inventory required to run the store. Through this flexibility, they achieved a truly efficient and cost-saving approach to managing the supply chain. This scalable platform has enabled a future which is bright with international expansion, extended product line, and new innovation.

In light of their success, the growth plans for Lululemon are nothing short of ambitious. On the short term horizon is their plans for colonizing the Lululemon story within countries such as China, Singapore, UK, and South Korea. The markets here are rapidly expanding and ever increasingly following the United States model of becoming healthier and more fit nations. Their product, which started with a functional aspect and grew the design after, will become a staple in other countries where they can sustainably build out their model of retail. Places where yoga is still an avid practice, and one in which women are more willing to pay more for a higher priced product if it means the brand behind it is really something that makes it stand out. In addition, you can see their international expansion becoming a bigger push within the company, coming straight from the current CEO Laurent Potdevin, who says “I do believe that to build a great culture, it’s not about Vancouver (where the company was founded). It’s about having the right people who are incredibly knowledgeable of the market and who are aligned with the culture, that’s when we succeed.” With the foundation laid in the women’s line, Lululemon will also begin to focus on another line which is their men’s line. As more and more men embrace the cultural and fitness aspect of what Lululemon represents, it has potential to become a $1 billion business as Laurent has mentioned in the past. They will use relatively the same system in place to push the men’s product, though keeping it geared more toward the active man rather than the active yoga man. This new line will represent and interesting challenge to a company who has almost always had a sole focus on women (which was clear to me as I shopped the store). Part of their men’s initiative comes from the company’s design and innovation labs, currently in Vancouver and NYC. These labs are responsible for the new product development and testing. Each lab includes 3 designers, 9 sample makers, and 5 sales people. Through this, the company is able to churn out unique product all led by their commitment to function first, design second, though this is a misnomer because both are of equal importance they simply integrate them so smooth you cannot tell where one leaves off and one begins. The Lululemon we have come to love is evolving, they have been through some rough patches but generally have remained the same company all the way through.

What the future holds for Lululemon will be an interesting one to watch as more brands enter the market and more trends come and go. They have worked hard and made an impression on this guy. From a retail technologist point of view, I have to admit it opened my eyes up to the possibilities of building the differentiating factor into the brand through the experience and culture. Lululemon has established a whole new category for itself, on the back of a pure grassroots campaign to drive a following for the brand. The takeaways for any brand should be to establish the base, as in your people selling your product. If you can create an efficient distribution, cutting out the middle man while still maintaining the core strength of your people in the process, you have a winning strategy. The culture of Lululemon is so strong that nearly anyone walking in off the street will be able to recognize it right away. I hope you will be able to grab some take aways from this article, and perhaps even reading between the lines you will be able to establish your own uniqueness as Lululemon has within their brand.

Written by Orkiv Retail Solutions

Creating irresistible shopping experiences through logic and AI powered commerce solutions. Orkiv.com

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How Lululemon Athletica Beat Nike By Creating A New Category

Table of contents.

How did Lululemon go from one tiny yoga studio to becoming the official brunch uniform of women everywhere? Read on to learn about the impressive growth story of Lululemon.

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The Retail Experience

Founder Chip Wilson had 18 years of retail experience prior to Lululemon, as he'd previously built a surfing and snowboarding apparel company-  Westbeach back in 1979.

The company was relatively successful in the early days; mostly because of the market in Japan. The sub-brand Homeless did particularly well (Chip believed it was because of the letter L in the brand's name, which is a clear sign of American brand authenticity to the Japanese.)

But it was struggling nonetheless, Chip decided to sell the company for $15 million from which he was able to keep $1M. That was the basis of Lululemon.

“In Westbeach I made 2 million in two small vertical retail stores and I lost a million dollars on this global wholesale business. If I can deliver through vertical business at a price women will buy in volume."

Since the founder has had experience in snowboarding, skateboarding, and niche fitness apparel, he did not only learn from previous mistakes in the field but also gained access to journalists in the same field. Being one of the first in the field gave him the permission to become a sort of a de-facto person in all things related to surf, ski, skateboard, and yoga business.

Key takeaway #1

Healthy cash flow will give you the freedom to source the best materials and develop a relationship with distributors who will respect deadlines.

Emerging Trend

Business meetings with cigars and steak dinners have been replaced by 45-minute cycling classes at spin class, as Jason Kelly describes in his book Sweat Equity .

To think about it, how much are you spending each month to break a sweat? It used to be a $20 gym membership or putting on high school shorts and going out for a run or a game of pickup basketball.

The professional segment started to embrace the premium fitness classes as the place of business development. And if you pay $34 per spinning class or yoga sesh with the potential strategic partner you better change your business suit to professional athletic apparel.

Keith Ferrazzi, author of Never Eat Alone, a book about networking, suggests taking business partners with you to create a stronger bond and close more deals. Yoga joined the trend of high-priced fitness memberships with upper-class clientele. 

Members preferred smaller fitness classes with dynamic instructors because they felt more significant - as a part of the tribe. Once you start being a SoulCycle member, a Yoga practitioner, or a CrossFit firebreather, you also need to dress the part.

The Yoga industry has been growing steadily and hit 16 billion worldwide in 2021.

Building the product quality

It’s almost redundant to talk about the quality of the product since this is always the prerequisite for any company to move forward. At Lululemon, they went all-in on the design and the quality that resonates with their target persona (chapter 5).

The product line

• Design - Shannon Wilson (Chip’s wife) and Chip were both coming from the apparel design background. Chip was adamant about having stitches on all the right areas . He doesn’t hide the fact that yoga pants are intentionally designed to be as comfortable and as flattering to the female body curves.

• ‍ The Tech - Primary function of performance and fit has been achieved by the construction of the garment which hugs and promotes performance. Lululemon's’ apparel includes reversible, brushed, and textured fabric with a water repellent finish and Silverescent tech. ‍
• Materials - to add a special flair and solidify the brand, big brands “invent” their own technology. Lululemon calls itself a technical apparel company. That’s why Lulu yoga pants are made from engineered fabric (Luon™, Luxtreme™, Nulu™, Nulox™) depending on the compression level and the intention of the garment (run, train, or yoga practice).

These names aren’t just an easy way to differentiate from the competition but they also carry unique features.

Luon is 86 percent nylon and 14 percent lycra. VitaSea fabric is made from SeaCell. SeaCell is a yarn made from seaweed and blended with spandex and cotton. VitaSea allows for an ultra-soft fabric that holds its shape and stays soft after many washes. This can be found in the company’s t-shirts and light layers. Silverescent is an odor-stopping fabric technology. The X-Static technology is woven into Silverescent fabric bonds 99.9% pure silver into the surface of each fiber.

• R&D - besides having the internal designers and innovators working on the designs and fabric options, Lululemon innovates through customer feedback and their retail staff. Some Lululemon stores have a blackboard where customers can leave suggestions or share them with the staff. The store managers translate the gathered qualitative info back to Lululemon’s HQ in Vancouver. There are no focus groups or website data collecting. This (conscious) lack of data collection works great for Lululemon in product innovation: however, it hurts them a little on the e-commerce shop (more on that in part 2).
• Price - the quality justifies a high price tag, the target profile, and creates a healthy margin for expansion. Just like Apple, Tesla, and other premium products on the price matrix (high quality, high pricing), Lululemon products don’t typically have discounts. As that would be detrimental to the brand image.
• The practicality of it - As much as it is frowned upon (especially for men) to wear sweatpants as streetwear, Lululemon yoga pants doubled the activewear as streetwear, thanks to the design aspects of the product. The new trend was born - athleisure - more on that in the Law of Category chapter)

The incredible part about Lululemon is that they have done such an incredible job with the product, they really don't need to over-advertise the brand. — Robyn Young

Key takeaway #3 Your product has to both appear and be of quality and design. Make the perceived value be an actual value.

Nailing The Niche

In the book, 22 Immutable Laws of Marketing , the law of category states: “If you can’t be first in a category, set up a new category where you can be first."

Example: What’s the name of the third person to fly over the Atlantic Ocean solo? You probably don’t know. Yet you do. It’s Amelia Earhart. But she isn’t known for that. She is known as the first woman to do so.

Lululemon completely embodied the law of category. They stepped into the emerging trend of premium athletic apparel and targeted it directly at the yoga industry.

They picked a narrow field and focused on the target persona of middle to upper-class women who appreciate comfort and designer clothing.

If they’d just become another athletic apparel they would have to compete against Under Armour, Nike, and Adidas, which would be waging a losing battle. The Law of Duality from the same source says that in the long run, every market becomes a two-horse race (e.g. Pepsi and Coke or Samsung and Apple).

Lululemon yoga pants became an iconic piece of clothing of the fitness economy. In its utility and ubiquity, sleek and expensive epitomizes how fitness has shifted from Old Navy practical running shorts to a piece of apparel that tells the person and the observer who we are.

Key takeaway #4

Find a unique angle only your product provides. Be the first one in your niche.

The Cultural Shift & Target Profiles

While it seems like the founder, Chip Wilson was just at the right place at the right time, he actually used demographic data to predict the ripe environment for his idea to grow.

According to TedX’s talk, Chip expected a gap in the market that would serve his company in the talent section as well as in the customer audience.

Ocean and Duke- Lululemon’s customer personas

Many companies identify and create a profile of a perfect client. To embed it into the marketing heads, this illusionary person has a name. In Lululemon’s, these muses are Ocean and Duke.

Ocean is a smart 32-year-old woman, who is well-traveled, athletically fit with her own condo, and just about to be married. In the NY article, Wilson explains the observations in yoga classes. As he looked around the mostly female yoga class, he noticed that women wanted well-fitting athletic clothing that was also easy on the eyes. In his opinion, there will be a market segment of women that fits a specific target persona.

Are they hitting their customer persona audiences?

Absolutely — one quick insight from the demographics section of their websites tells us the majority of visitors are coming from 25 - 34 years old women.

Key takeaway #5

Know exactly who your customer is. The more detailed the better.

Happy Employees

Happy employees definitely help with the growth of your business and the representation of your brand. Lululemon takes special care of their talent. In the retail section, they pay over 30% of the local rate . The higher wages also mean less turnover and progression up the chain of command.

These are mostly younger, educated women straight out of college.

Every “educator” is asked to write multiple-year goals and share them publicly. Chip Wilson is also known to be a big proponent of the Landmark Forum program — a self-help personal development program that is supposed to help with the growth of your integrity and leadership capabilities.

On the HR end, Chip created an environment for women who can grow the company with their skillset, resourcefulness, and grit while still having a family life and time off for maternity leave. Since retail workers are usually underpaid (especially women) he decided to pay them much better so the workers would have a financial incentive to come back and continue working for Lululemon.

For all those reasons, Lululemon was is in the top 10 Best Places to Work in 2018 according to Glassdoor.

Key takeaway #6

Keep your staff happy.

Brand Image

In retail, a brand is of the utmost importance. We’ve already mentioned that people buy the identity more than just a product. There’s a problem with branding since there are so many intangibles connected with the term.

Once the company knows what it stands for - its values, what its audience cares for, and who they are, the decisions will come naturally. It sets the tone of how the company behaves, what is its voice.

According to Scott Kraft (CMO of Menlo), the brands start with brand pillars, which serve as a foundation of the company — the core values. We all know what MVP stands for — a product that with just enough features to satisfy initial pain points for core clients. But there’s an idea about MVB — minimum viable branding.

The key components of MVB are Audience needs and functional needs are the products’ domain. Real branding starts with the emotional benefits - the fuzzy area where we are touching our audience. Then you have the personality which determines how the customers are going to perceive you.

The difficult part is that the emotion, personality, promise, and vision are intangible. Lots of companies just pulled the nice adjective from thin air and put them on the about page. As you are going to find out, Lululemon took branding extremely seriously.

And it paid off better than anyone could have imagined.

What are the brand pillars?

What are the 3 attributes that the company couldn’t exist without? If you’d have to choose what three adjectives describes your company the most - what would they be?

For example, if we put together: American, Free, and Badass a brand like Harley-Davidson comes to mind.

Lululemon branding breakdown and personality

Lululemon is a brand that triggers an emotional impact. The point of branding is to bring people to the point of making somebody feel.

When you’re wearing Lululemon you will feel more beautiful, protective, cared for.

• Branding Pillars : Quality, Fun, Empowerment
• Top Audience : Women who do Yoga. Narrower Audience: Successful Women in their Early 30’s Doing Yoga who need gear designed for modern practice
• Emotional benefits - Feeling Vibrant, Sexy, and Balanced

All those components combined lead to Lululemon’s personality: A Cheerleader of the New “modern” Yogi

Lululemon built an amazing brand. Their customers are proud to show off their product on social media. They strut on the walkways with the company’s branded shopping bag with the manifesto printed on it.

Key takeaway #7

Spend time to develop your own MVB. Decide what are your pillars of branding, your top customer audience, their top 3 needs, and top 3 emotional benefits.

The Customer Experience

If there’s something we have learned from the companies that made their name for customer service is that it solves two major problems

First, It creates a foundation for the company culture. If ridiculously good customer service becomes a keystone habit in the company, it starts pulling all other positive elements in the big picture.

And second, it starts the word-of-mouth effect among customers. Best customer-faced salespeople establish personal relations first.

Finally, they lighten the mood and really take the time to get to know the potential client. Once the solid foundation is established, only then they move into the sales section.

Lululemon, as is expected for their incredible focus on company culture, translated that into customer service. Shopping at Lulu’s is an experience. The customers are asked by their first name before they go into the changing cabins. The retail salesperson (referred to as ‘educator’ in Lulu’s naming convention) scribbles the name on a tiny whiteboard and proceeds to address the customer by their first name.

For the whole procedure of the sale (customer success journey), the customers are called by their first name by the entire retail staff.

Consider the product they are selling. There are cheaper alternatives. But one of the core values at Lululemon is to feel significant. Hence the first-name basis, hence asking about the needs.

Sometimes they turn the entire store into a free yoga studio. These social pop-up events start building even more positive connections to the brand. What was that one class-based fitness craze that has been growing like crazy in the last 10 years? Oh yes, CrossFit.

The Lululemon's In-Store Yoga Class led by one of the brand ambassadors. | source: DrapersOnline

Combined with the quality of a product and having a sense of being in the premium circle the experience becomes addicting.

Since every store has only limited stock of products (thus creating a sense of limitation).

Key takeaway #8

Go out of your way to create a meaningful personal shopping experience.

The Ambassador Program

Adidas is paying millions of dollars to dress the biggest icons in the sport. Crossfit athletes and UFC fighters are wrapped in Reebok from head to toe and Nike puts on track spikes on every track athlete in the Summer Olympics.

There’s a clear necessity of putting an influencer, an icon, or an archetype of an avatar in front of people. These are usually charismatic celebrities in sports, entertainment, and even business.

When you target a narrow niche, especially in a hyper-local environment you have to take the local stars and put them on the pedestal. This strategy worked out great because it works in symbiosis. The local yoga and fitness coaches got exposed in the store, got free high-quality products to wear, and started growing their business. In return, they have to put in a number of hours inside the Lululemon retail stores and run free yoga classes and represent the brand.

Since Lululemon's has such a large reputation, the ambassadors are getting a significant surge in business. Some of the trainers and coaches are trying hard to become ambassadors.

Key takeaway #9

Identify the leaders of the community you are serving. Recruiting them by making them look better.

Social Marketing

If you would have to pick a social media channel and your audience are women interested in fitness and design aged between 25 and 35, what would you pick?

That’s right, Pinterest is known to have a massive female audience and Lulu is making a killing on it.

While it’s arguably a tough channel for selling, it does well for branding and inevitably serves as one of the touchpoints that leads to a sale.

2+ million followers on Pinterest - a social media with strong women audience base.

However, even though those numbers look fabulous, it works mostly in branding perspective. Hence the photos are high quality, professional, and highlighting the design features — perfect for saving them in a lookbook for the next Lululemon haul.

Unfortunately, they are not utilizing it as much as they could (more on that in the second part). This might be the result of Wilson’s persistence in an ethereal, transcendental conviction on branding alone and abstinence for numbers and data. His replacement Laurent Potdevin (ex-top of Burton Snowboards) incorporated a more data-driven approach which resulted in increased sales and better social media presence. But there are still opportunities.

Facebook and Tumblr are also doing okay, however, nothing too earth-shaking. The one thing that works really well though, is the symbiosis with the ambassador program. Each ambassador has its own social circle of influence which extends to the online reach.

The Instagram control center

Instagram proves as one of the biggest opportunities. The social media channel has just reached 1.074 billion monthly users and is great for branding and impulsive decisions.

Their account is filled with live events, motivational sayings, and no sales posts whatsoever. Those product-pushing posts are now a part of the stories section where people are more inclined to impulsive purchases.

With a 3.7m Instagram follower base , Lululemon developed multiple destinations where the brand followers can turn to.

Over 3 million Followers on Lululemon's Instagram account. 

• The Spotify soundtrack. Goal: Brand affiliation The keyword 'lululemon' in Spotify and Apple Music leads to Lululemon created a playlist for various workouts.

Goal : Brand affiliation

• The Desktop Instagram Dashboard With a click on the explore Lululemon , the Instagram desktop app will curate and duplicate the content of the original post wall into CTA funnels for each image. This is the service Lululemon is using for each post — Curalate . This is a regular Instagram post on desktop and mobile:

And this is the post with Curalate add-on with CTAs that lead to the online shop:

Upgraded Instagram with software that leads to online purchases

Goal : Multiple — Brand Experience and sales through events and residual word-of-mouth points from attendees

• The Instagram stories. There's more to the brand than just clothes. Lululemon developed a wholesome lifestyle catered towards modern yoga :

Fuel - Light nutritional recipes 

Discover - Upcoming trends What We Love - In-house weekly news of new product arrivals Visio+Goals - Motivational, goal-setting stories Travel - Travel tips and styles mixed with travel destination's inspirational imagery Workouts - Yoga sessions, HIIT classes, movement What's New - New products

IGTV - On the Instagram mobile app you will also find the newly launched IGTV section where Lululemon's shows off longer 20 minutes Yoga flows

Key takeaway #10 

If you’re using Social Media in your marketing strategy then use the one that has your target profile base

THE PATH TO SUSTAINABLE SUPPLY CHAINS FOR LULULEMON

Take action.

Action Speaks Louder 2023.08.08

Big fashion companies have a long list of shortcomings when it comes to their climate impacts. From weak emissions reduction targets and a lack of investment in renewables to relying on carbon offsetting, insetting and renewable energy certificates, it’s easy to spot the problems with corporate sustainability strategies. But it’s not all bad news. By implementing clear, credible commitments and investing in commercially available solutions for fossil fuel-free supply chains, brands can create a pathway towards deep decarbonisation.

Throughout our  campaign targeting Canadian activewear brand Lululemon , we have shared practical, evidence-based solutions with the brand that would enable them to speed up the transition to 100% renewable energy in their supply chain. Here, we’ll explore some of those ideas in more detail.

1. Make a public commitment

The first step to any decarbonisation plan should start with a commitment to action by setting specific, measurable and time-bound targets that are grounded in climate science, such as 100% renewable energy in the supply chain by 2030, and a 50% reduction in absolute emissions from scope 3 by 2030. The commitments should be public-facing, for example published on the brands’ website and CSR reports, not just agreed internally. This is because it sends a strong signal to the sector that change is coming, including customers, shareholders, suppliers, industry associations and competitors, as well as those who can help enable this change to happen, such as energy suppliers and local governments.

Of course, targets alone are not enough without a credible strategy to accompany them, which includes interim goals along a realistic timeline, and clear commitments to financial investment to resource their level of ambition within the supply chain. Successful target-setting requires transparency and accuracy so that climate commitments can be scrutinised and held to account, such as reporting on scope 3 emissions using location-based accounting (emissions from energy consumed) rather than market-based accounting (emissions from energy purchased). As our campaign manager Ruth MacGilp expressed in her viewpoint for the  Fashion Transparency Index : “Climate targets are not just something to splash on an impact report while farms, factories and mills are left to pick up the pieces….We need transparency on the actions taken to reach targets and robust accountability mechanisms for false sustainability claims.”

When it comes to renewable energy in their supply chain, Lululemon has not yet made a time-bound, public-facing commitment. 

Even if there are some indications of work towards decarbonisation happening behind the scenes, Lululemon’s progress will not accelerate fast enough until they have at least publicly stated their pledge. If nothing is disclosed publicly about what they’re aiming for or how they plan to get there, we have to assume nothing is being done, and therefore Lululemon loses the trust of customers and broader civil society for failing to meet the climate challenge.

One area where bold commitments are being made is in the realm of ‘sustainable materials’, but we don’t see this same level of ambition for cleaning up the supply chain energy mix, where the  majority of emissions  can be attributed. For example, Lululemon has  publicly committed  to ‘make 100 percent of our products with sustainable materials by 2030’, which includes an interim target to ‘achieve at least 75 percent sustainable materials for our products by 2025.’ 

However, according to Changing Markets’  Synthetics Anonymous  report, 62% of the materials Lululemon currently uses in its products are fossil-fuel based fabrics like polyester.

This suggests that Lululemon has a long way to go to achieve their sustainable materials target, but they are showing early signs of progress, for example by investing in  plant-based nylon . This investment has clearly been driven by a public commitment that motivates action internally in the business and invites collaboration across the sector.  A public commitment has the power to catalyse a plan in motion and the allocation of resources. 

2. Provide real support for suppliers

The fatal flaw for the fashion industry’s climate action so far has been a lack of recognition of where the majority of climate impacts are produced, and most intensely felt: within the supply chain. This is why brands must match their sustainability goals with a Supplier Clean Energy Programme in order to help their suppliers transition to renewable energy. 

This programme must include a financial commitment — for example, we would like to see Lululemon invest in a Supplier Clean Energy Fund with at least 1.5% of their revenue (equivalent to roughly $121.5 million USD in 2022). It may sound like a lot, but there are large upfront costs involved in, for example, decommissioning coal-fired boilers and installing onsite solar panels. The good news is that there is a return on investment for brands, who not only enable their suppliers to help meet sustainability targets, therefore attracting ESG investment, but also receive payback on those initial costs over time with improved energy efficiency, reduced energy demand and waste, and the freedom from fluctuating fossil fuel prices.

In addition to financial support through the Supplier Clean Energy Fund, Lululemon must also provide technical assistance to suppliers, tailored by country.  

This may include training staff on new processes and equipment, and providing assistance in brokering shared investment in wind and solar projects which suppliers can benefit from. As part of this, Lululemon should develop a Supplier Clean Energy Procurement Policy that requires suppliers to purchase the highest quality renewable energy available. This will be local and additional wind and solar power, rather than relying on Renewable Energy Certificates, carbon offsetting or false solutions like biomass.  

Overall, purchasing practices must create an enabling environment for this programme to roll out across complex global supply chains. Many fashion brands engage in irresponsible purchasing practices, which include short term contracts, last minute changes and cancellations, short lead times, high-pressure price reductions and withholding of payments. This uneven distribution of power creates a barrier to successful decarbonisation, because in order to invest the time, money and resources necessary to transition away from fossil fuels, suppliers must be able to trust that their buyers will not abandon them and threaten the job security of their employees, and they must be assured that their efforts will attract and retain customers beyond simply meeting the specific targets of any individual brand.

3. Push for a green energy grid

The political landscapes of sourcing countries can be challenging for brands that want to invest in renewable energy, often due to the influence of the state over the national grid which favours the interests of fossil fuel companies. However, in all of the countries where Lululemon sources its products, onsite Power Purchase Agreements (PPAs) are available. This means that in their tier 1 and tier 2 factories in places like Vietnam, China, Sri Lanka, Cambodia and Indonesia, Lululemon could start the work of installing rooftop solar panels immediately. What’s more, in markets where Corporate Power Purchase Agreements (CPPAs) are available, such as Taiwan and South Korea, the brand can work with local authorities to procure energy from offsite wind and solar power, creating local and additional renewable energy capacity.

Where CPPAs are not available, Lululemon should engage in lobbying activities that advocate for corporate investment in renewable energy.  

Lululemon could start by developing a Climate Policy Engagement Programme with specific goals and mechanisms for each main sourcing country, again with a focus on enabling quality wind and solar energy. As part of this, Lululemon must provide detailed reporting on its climate policy engagement, which should include advocacy activities by country, both by Lululemon individually and as part of industry associations or groups of multiple brands. 

There are good examples of this type of advocacy from fashion brands, such as  a letter to the Vietnamese government  urging the country to introduce direct power purchase agreements, and  a letter to the Cambodian government  expressing concern about its plans to increase coal power generation. These efforts are impactful because global fashion brands have a significant financial influence in the countries they source from, such as in Bangladesh where apparel makes up  80% of all export earnings . When a government’s lack of progress on climate gets noticed by major corporations, this threatens their position as a leading sourcing country, and therefore their economic growth. 

4. Invest in low-carbon technology

More than half  of the fashion industry’s supply chain emissions come from Tier 2, which is the stage at which materials are processed, including washing, dyeing and finishing. The reason for this is that material processing at scale requires large quantities of hot water to produce steam, and traditionally this is heated by burning a fuel feedstock, such as coal. 

In order to tackle this problem, many factories are switching from burning coal to burning biomass, which describes bio-based feedstocks such as wood pellets and rice husks. However, we do not believe that this is a credible climate solution for Lululemon, because there is little evidence that biomass can be sustainably sourced at scale without threatening biodiversity. Above all, biomass still requires combustion, which produces harmful air pollution that may be toxic to the health of workers and local communities, and still generates carbon emissions despite claims that these are offset by trees or crops re-growing, therefore biomass cannot be considered ‘renewable’

The alternative to combustion-based boilers is, naturally, electrification.

You can think about it in a similar way to the benefits of  an electric stove vs. a gas stove . Of course, even with an electric boiler, the electricity supplying the factory may still be coming from a coal-powered national grid. But electrifying factories is the best way to future-proof for a net-zero future, while the climate policy engagement programme mentioned above comes in to fill the gap. What’s more, there are numerous technologies — such as onsite heat pumps and thermal storage — which can significantly reduce emissions. 

In addition, Lululemon can start working with new technology that reduces or even removes the need for these heating systems altogether. 

For example, several innovators as part of the  D(r)ye Factory of the Future programme  have developed dry processing technologies such as plasma and laser treatments, spray dyeing, supercritical carbon dioxide and foam dyeing. According to Fashion For Good, if these technologies were scaled up with the help of investment from fashion brands like Lululemon, dry processing has the potential to abate up to 26% of the industry’s greenhouse gas emissions.

Lululemon has the opportunity to lead fashion’s green transition

We believe that Lululemon’s influence as one of the largest sportswear brands in the world means that if it shifts to 100% renewables, it will accelerate demand for clean energy worldwide, and help develop the policy and finance solutions needed to support meaningful, systemic change towards a climate positive future. 

You can help us ask Lululemon to take action for people and the planet –  join our campaign !

Sign our petition asking lululemon to make a public commitment to 100% renewable energy

Into yoga? Join thousands of yogis in our open letter to lululemon

Opinion: We cycled across Canada to raise the alarm on nature loss — Lululemon must join our race to protect the planet.

What fuels fashion? Hidden data is delaying progress on climate action

OLYMPIC ATHLETES CALL ON LULULEMON TO GO FOR GOLD ON CLIMATE

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• DOI: 10.54097/hbem.v16i.10642
• Corpus ID: 261649680

Market Analysis of Lululemon: A Case Study in Sustainable, Ethical, and Social Marketing

• Liyuan Wang
• Published in Highlights in Business… 2 August 2023
• Business, Environmental Science
• Highlights in Business, Economics and Management

One Citation

Research on marketing strategies and business operation models of lululemon, 9 references, measuring the effects of online-to-offline marketing, impulse buying behaviour: an online-offline comparative and the impact of social media, introduction to the special topic forum: critical discourse: envisioning the place and future of diversity and inclusion in organizations, effective diversity, equity, and inclusion practices, sensory stimulation: theoretical perspectives and the evidence for effectiveness., is lululemon athletica’s turnabournd sustainable, shopping and the senses, 1800-1970, consumer preference and acceptance of food products, related papers.

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Decoding lululemon athletica inc (lulu): a strategic swot insight.

Strengths: Robust brand presence and innovative product offerings driving significant revenue growth.

Weaknesses: Concentrated supplier base and manufacturing locations could pose risks to operations.

Opportunities: Expanding men's product line and international markets present significant growth potential.

Threats: Intense competition and potential supply chain disruptions could impact market share and profitability.

Warning! GuruFocus has detected 3 Warning Sign with LULU.

On March 21, 2024, Lululemon Athletica Inc ( NASDAQ:LULU ) released its 10-K filing, revealing a financial landscape that underscores the company's robust market position and growth trajectory. The fiscal year ended January 28, 2024, saw a substantial increase in net revenue to $9.6 billion, up from $8.1 billion the previous year, indicating a strong consumer demand for Lululemon's products. Gross profit followed suit, rising to $5.6 billion from $4.5 billion, reflecting efficient cost management and premium product pricing. Net income also saw a significant jump to $1.55 billion, compared to $854.8 million in the prior year, showcasing the company's profitability amidst a competitive landscape. These figures paint a picture of a financially sound company with a solid foundation for future growth.

Brand Power and Market Position : Lululemon Athletica Inc ( NASDAQ:LULU ) has cultivated a powerful brand synonymous with quality and innovation in the athletic apparel industry. The company's net revenue growth to $9.6 billion, a testament to its brand strength, has been driven by a loyal customer base and a reputation for high-quality products. Lululemon's ability to command premium pricing is evident in its impressive gross profit margin, which stands at a robust 58.3% for the fiscal year 2024. This financial prowess is further bolstered by a strong balance sheet, with net income soaring to $1.55 billion, indicating efficient operations and a keen understanding of market dynamics.

Innovative Product Development : Lululemon's commitment to innovation is a cornerstone of its success. The company's product design and development team is relentless in sourcing technically advanced fabrics and crafting innovative features, which has led to a diverse and appealing product portfolio. This dedication to innovation not only satisfies the existing customer base but also attracts new customers, contributing to the company's revenue growth. Lululemon's strategic focus on expanding its men's product line, which represented 23% of net revenue in 2023, showcases its ability to identify and capitalize on growth opportunities within the athletic apparel market.

Supplier Concentration and Manufacturing Risks : Despite its financial success, Lululemon Athletica Inc ( NASDAQ:LULU ) faces potential risks associated with its supply chain. The company relies on a limited number of suppliers, with five vendors producing 55% of its products in 2023. This concentration could pose significant operational risks if any key supplier faces disruption. Additionally, the geographic concentration of manufacturing, with a substantial portion of products made in countries like Vietnam and Cambodia, exposes Lululemon to regional risks such as political instability, labor issues, and natural disasters, which could impact the company's ability to maintain consistent product quality and supply.

Operational Leverage and Fixed Costs : Lululemon's selling, general, and administrative expenses have increased to $3.4 billion, indicating a rise in fixed costs associated with its growth. While the company's revenue growth has outpaced these expenses, there is a need for careful management to ensure that these costs do not erode profitability, especially in the face of economic downturns or shifts in consumer spending. The company must continue to optimize its operational leverage to maintain its competitive edge and profitability.

Opportunities

Expansion of Men's Product Line : Lululemon has identified the expansion of its men's product line as a key growth pillar. With men's products accounting for 23% of net revenue in 2023, there is significant potential to increase market share in this segment. The company's focus on technical rigor and premium quality, coupled with innovative marketing strategies, positions it well to capture a larger share of the growing men's athletic apparel market.

International Market Penetration : Lululemon's operations span over 25 countries, with a strategic focus on markets such as China Mainland, APAC, and EMEA. The company's omni-channel retail model and regional market-based structure provide a platform for international growth. By leveraging its strong brand and adapting to local market preferences, Lululemon has the opportunity to significantly increase its global footprint and diversify its revenue streams.

Intense Industry Competition : The athletic apparel market is highly competitive, with established brands like Nike and Adidas, as well as emerging players, vying for market share. Lululemon's ability to maintain its premium brand image and innovate in product offerings is crucial to staying ahead of competitors. Any failure to do so could result in lost market share and pressure on profitability.

Supply Chain Vulnerabilities : Lululemon's reliance on international suppliers and manufacturers exposes it to potential supply chain disruptions. Geopolitical events, trade restrictions, and public health crises could impact the company's ability to procure and distribute products, affecting its operations and financial results. Proactive supply chain management and diversification strategies are essential to mitigate these risks.

In conclusion, Lululemon Athletica Inc ( NASDAQ:LULU ) presents a compelling case of a company with strong financial health, a robust brand, and innovative products that resonate with consumers. However, it must navigate the challenges of supplier

This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.

This article first appeared on GuruFocus .

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Understanding Lululemon's Business Model (LULU)

Lululemon Athletica, Inc.  (LULU) , a yoga and exercise apparel company, is another example of a company that has found success in marketing a lifestyle rather than a product. The company’s business strategy is based around promoting its “Lululemon Athletica” and “Ivivva Athletica”-branded products as stepping stones to an active and enjoyable lifestyle. This has been a successful strategy for Lululemon, as the company can price its products at a premium . People are even sporting the company’s products as fashion apparel and not just for exercise purposes.

For fiscal year 2022, the company reported net revenue growth by 30% to over $8 billion, with North America revenue growth of 29% and international revenue growth of 35%.

Although a significant number of stores were temporarily closed due to COVID-19 during the first two quarters of 2020, Lululemon continued to open new company-operated stores afterward, and only in 2022, it opened 81 stores, including 49 outside of North America. As of 2023, there is a total of 655 company-operated stores worldwide.

While Lululemon's strategies have helped establish a niche for the company in the athletic apparel industry, it hasn't always been a smooth ride for this Canadian retailer founded by Chip Wilson in 1998.  Lululemon has weathered its fair share of controversy along the way, including when it had to recall its flimsy Luon yoga pants in early 2013.

Key Takeaways

• Lululemon is a yoga and exercise apparel company, whose business strategy is based on marketing a lifestyle rather than a product.
• For fiscal year 2022, the company reported net revenue growth by 30% to over $8 billion.
• The company operates 655 stores worldwide, but products are also sold via e-commerce and digital sales, as well as in health clubs, fitness centers, and yoga studios.

Lululemon doesn't own or operate any manufacturing facilities. The company relies on a limited number of suppliers to provide fabrics or produce its merchandise.

What Products Does Lululemon Make?

The company’s offerings include articles of clothing such as pants, tops, shorts, and jackets that people can wear as they engage in fitness activities such as running and yoga. In addition to clothing, the company also sells accessories such as bags, socks, and yoga mats.

While the company’s products are mostly targeted at women who aim for a healthy lifestyle while balancing a busy life, the company has expanded its reach by also bringing men and youth into its fold. In fact, in 2014, the company opened its first store geared towards men in New York. A second men's-only store opened in Toronto in December 2016. However, the Toronto and New York stores were closed in 2017 and 2019 respectively. Although the men's business has been experiencing growth, Lululemon intends to market itself as a dual-gender brand.

Lululemon's offering goes beyond its athletic apparel: in an effort to build a stronger base of loyal customers, the company launched in 2022 a membership program with two tiers of memberships (one free and one paid) that provide exclusive access to items, events, and fitness classes.

Also in 2022, Lululemon brought technical innovations into its merchandise assortment, launching SenseKnit, a fabric technology offering zoned compression. The company also entered new categories with capsule collections for golf, tennis, and hiking. It also launched a new footwear collection for women.

How Does Lululemon Make Money?

Lululemon sells its products through a network of stores it owns and operates, as well as directly to customers through online sales. As of January 2023, the company operates 655 stores worldwide, with 350 locations in the United States, followed by China (117), Canada (69), Australia (32), and the United Kingdom (20).

Lululemon believes that its stores help the company connect with customers and solicit feedback on products, while also reinforcing its brand. However, customers can purchase products on www.lululemon.com or other country and region-specific websites, and use mobile apps, including mobile apps on in-store devices.

In addition to e-commerce and digital sales, the company sells its products to wholesale customers such as health clubs, fitness centers, and yoga studios as a way to enhance its brand image. Other sales avenues include warehouse sales and sales through showrooms and temporary locations.

Where Do Lululemon's Products Come From?

As of 2023, a group of approximately 45 vendors manufactures the products, five of which produced 56% of them, with the largest manufacturer producing 15%. During 2022, 39% of Lululemon's products were manufactured in Vietnam, 14% in Cambodia, 12% in Sri Lanka, 8% in Bangladesh, and 7% in Indonesia, and the remainder in other regions.

Who Are Lululemon's Main Competitors?

Lululemon has been successful with its business model. Still, investors should be aware that the company faces a variety of risks, such as fickle consumer tastes and a business model that is heavily dependent on suppliers. What's more, Lululemon faces growing competition in the athletic apparel industry from retail giants Nike  (NKE) , Adidas (ADDYY), and Under Armour  (UA) .

Why Is Lululemon So Expensive?

Lululemon uses high-quality materials and premium fabrics designed to be durable, resistant, and comfortable. The company also invests heavily in research and development, as well as in marketing, in order to build a strong brand image. All of the above contribute to a higher price point for its products.

Why Is Lululemon So Popular?

Demand for athletic wear has grown exponentially in the last decades, and Lululemon strived to be among the first ones to penetrate the yoga market. Through diversification and innovation efforts, the company has gradually penetrated into a wider range of categories, focusing always on high-quality products and its customer insights. Over the years, it has achieved to built a cult-like following.

Why Did Lululemon Closed Its Men's-Only Stores?

After testing out the menswear stores in New York and Toronto, the company found that customers responded better to the company as a dual-gender brand and decided to focus on its more productive stores. However, Lululemon plans to continue to grow into different categories, including menswear.

Lululemon’s business model has allowed the company to carve a niche for itself in a crowded market. Despite impressive quarterly earnings, the company does not pay a dividend to shareholders and retains its earnings to fund growth overseas. As Lululemon continues to expand, however, investors should be mindful of the risks the company faces from strong competition, fickle consumers, and potential supplier issues.

Lululemon. " Annual Reports ," Download 2022 Annual Report, Page 2 of PDF.

Lululemon. " Annual Reports ," Download 2022 Annual Report, Pages 2 and 6 of PDF.

Lululemon. " History ."

Reuters. " Lululemon prevails in lawsuits over yoga pants recall ."

SGB Media. " Lululemon Quietly Closes Men’s-Only Stores ."

Lululemon. " lululemon Membership: made for you ."

CNBC. " Lululemon will debut monthly memberships for clothes, events and classes in a bid for loyal customers ."

Lululemon. " Annual Reports ," Download 2022 Annual Report, Page 7 of PDF.

Lululemon. " Annual Reports ," Download 2022 Annual Report, Page 9 of PDF.

Latana. " How Lululemon Dominated the Athleisure Brand Category ."

CNBC. " How Lululemon built a multibillion-dollar athletic wear empire ."

StyleDemocracy. " Lululemon Has Closed All Of Its Men’s Only Locations ."

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Lululemon says sales are soaring but supply chain issues remain a concern.

Athleisure company, one of the few retailers to thrive during the pandemic, relies heavily on production from Vietnam.

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By Sapna Maheshwari

• Sept. 8, 2021

Even as Lululemon reported soaring sales on Wednesday and forecast a robust holiday season, the athleisure company sounded a note of caution because of pandemic-related factory shutdowns in Vietnam , echoing concerns about the global supply chain voiced by many apparel retailers in recent weeks.

“A third of our global sourcing does come from Vietnam so we are definitely in the market,” Calvin McDonald, Lululemon’s chief executive, said in an interview. “We are encouraged with the recent news of a phased opening in South Vietnam but we continue to work with our partners, shift, and if necessary, leverage airfreight and other ways to get our fall and winter goods in.”

He added that even while the company’s guidance called for robust sales and profit for the remainder of this year, “we could have stretched and achieved even more,” without the supply chain disruptions .

Lululemon has been one of few apparel retailers to thrive during the pandemic. Customers flocked to its pricey athleisure and exercise clothing while stuck at home, and the company made inroads in virtual fitness with last year’s acquisition of Mirror, a wall-mounted device for streaming workouts. Mr. McDonald said that Lululemon, which has more than 500 stores globally, would have 200 shop-in-shops featuring Mirror in North America by Black Friday.

The company said on Wednesday that its net revenue surged 61 percent to $1.5 billion in the second quarter as many customers returned to in-store shopping. Its net profit rose to $208 million from $86.8 million in the same period last year.

Lululemon is anticipating another boom year despite the supply chain woes and forecast that its annual net sales will be in the range of $6.19 billion to $6.26 billion. The company posted $4.4 billion in annual sales for the year ended Jan. 31, up from $3.98 billion the previous year. Its net profit declined to $589 million last year from $646 million in the prior period.

Sapna Maheshwari covers retail. She has won reporting awards from the Society of American Business Editors and Writers and the Newswomen’s Club of New York and was on Time’s list of “140 Best Twitter Feeds of 2014.” More about Sapna Maheshwari

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Why vertical integration is the path to strategic advantage.

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Marc Emmer is president of Optimize Inc. and an author, speaker and consultant specializing in strategy and strategic planning.

Tesla's ascent in the automotive world is a story of innovation, not only because of technology and engineering but also because of a shrewd business strategy. Spearheaded by Elon Musk, Tesla has not just revolutionized the automotive industry but also provided a masterclass in vertical integration. In a world where supply chains have gone from being long and slow to short and agile, Tesla controls almost every facet of production.

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This strategy not only allows Tesla to maintain quality control but also to innovate rapidly. By owning the supply chain, Tesla can bypass traditional barriers, accelerate its production cycles and maintain flexibility, which allows it to adapt quickly to new technologies or market demands.

The benefits of this approach became particularly evident during the global semiconductor shortage. While most automotive giants struggled with production halts, Tesla redesigned its software to support alternative chips, which showcases agility in its operations.

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The shift to shorter supply chains has broader implications than mere risk reduction. It marks a significant change in how companies approach production, impacting everything from innovation to consumer relations.

1. Enhanced quality control: With more control over their supply chains, companies can improve quality standards, as this direct oversight can allow for immediate rectification of issues and help ensure the end product consistently meets consumer expectations.

2. Local economic benefits: Shorter supply chains often mean more localized and regional production, which can have positive effects on local economies. By sourcing and manufacturing closer to home, companies can contribute to job creation and economic growth in their regions.

3. Accelerated innovation: Shorter supply chains facilitate quicker feedback loops, which can allow companies to innovate at a faster pace. This rapid iteration is crucial in today's fast-evolving marketplaces, where staying ahead often means being the first to harness new technologies or trends.

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Companies must be willing to invest in infrastructure, technology and talent to manage this transition successfully.

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Alongside the primary objective of risk mitigation, the adoption of shorter supply chains presents a myriad of supplementary benefits. These include an enhanced ability to swiftly adapt to evolving market trends and consumer preferences, leading to more dynamic and responsive business operations.

• Logistics: Companies may observe a reduction in transportation and logistical costs, as shorter supply chains typically involve less complex and more direct routes.

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As companies adapt to this evolving landscape, the insights from Tesla's model are invaluable. The future of business success increasingly hinges on adept supply chain management, a domain where Tesla has already set a precedent.

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