Will Lululemon’s Strategy Work Out? (NASDAQ: LULU)

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Welcome back to the revamped Fresh Roundup. We’ve taken inspiration from the lockdown here in Sydney to analyse Lululemon and it’s winning retail playbook. As always, we’ve released two episodes this week:

  • 🧘🏽 deep dive into Lululemon following our usual breakdown format
  • 🌱 And a Simple Sprout episode on Bad Management Teams
  • 🔜 And as a teaser, we’ve recently recorded an interview (yet to be released) with Dana Halevi, an Investment Analyst at Inspire Impact - an impact investing fund. Watch out for this episode dropping soon!

In our revamped newsletter, we’ve gone back to our longer length to give you more insights. Like the change or want us to change back? Just tell us in the Substack comments by hitting the 💬 button at the top and bottom of your email / this page.

This week:

  1. Analysing Lululemon and their playbook for success
  2. Links to some great analysis (for those of you who want extra reading 📚)
  3. Want to buy us some Lululemon activewear? Donate to Fresh Capital here!

What is Lululemon?

Lululemon Athletica is a designer, distributor and retailer of healthy lifestyle inspired athletic apparel and accessories. They have a vision to be the experiential brand that ignites a community of people through sweat, grow, and connect, which they call "living the sweatlife."

Sounds like a pretty good life if you ask us!

What does Lululemon do?

Lululemon sells a range of athletic apparel and accessories including:

  • Pants, shorts and tights
  • Tops and jackets
  • Yoga mats and other fitness accessories
  • And the digital interactive home gym - Mirror

Lululemon sells its products through more than 500 company-owned stores in 17 countries in three channels:

  • Online through their website
  • Through their retail stores
  • And Lululemon does limited wholesale (selling to gyms and yoga studios)

How has Lululemon performed?


Currently Lululmeon is a $4.4bn business generating a gross margin of 54%. Between FY17-FY21 Lululemon’s revenue grew ~17% CAGR. For comparisons:

  • Over the same period, Lululemon outpaced Nike’s revenue growth (5.15%)
  • In the past 15 years, Lululemon even outpaced Amazon’s growth, growing at 34% compared to Amazon at 15%

They’ve also managed to maintain (and even improve margins) while growing their revenue. Between FY16-FY20, they increased Gross Margin by 5pp, while Nike decreased by 1pp over the same time period.

Lululemon have also commanded much higher margins (~10pp) over Nike, showing their pricing power and ability to control costs


Where does Lululemon play?

Lululemon predominately played in yoga and women’s athletic apparel but has recently increased its customer footprint and is now playing in both menswear and mens athletic apparel. They’ve made some deliberate decisions about where they invest their efforts:

  • Products - Yoga and ‘athleisure’ but has recently increased its offerings into workwear, loungewear and home fitness
  • Geography - Lululemon started in Canada but the majority of its stores are located in the US. Their focus now is international expansion and plans to quadruple its international revenues by 2023
  • Channels - Lululemon is a direct-to-consumer brand offering their apparel through their website and retail stores which they own and operate

How does Lululemon win?

Lululemon should be the case study for how to successful run a 21st century retail and consumer business. They have carefully crafted a winning strategy based on several key elements:

  • Create a premium product that solves core customer pain points - If you’ve ever used an old shirt as a workout shirt, you’ll know the problems that it comes with. It's uncomfortable, it stretches or rips, it might even be discoloured and certainly won’t look good. Lululemon invested in premium fabrics to address these pain points, so you can look good in comfortable and fit-for-purpose clothing
  • Command a high price point - They don’t sell their clothing for cheap. Their premium tights average about $90 a pair and they do limited discounting. But because their product is much better than competitors, customers see the value in spending the extra for Lululemon
  • Exercise extreme control of your product Lululemon has meticulous control over their business. They have a very small amount of manufacturers and vendors (5 of 40 manufactures product 59% of their products, and 5 of 65 vendors supplied 65% of fabrics). In comparison, Nike has over 500 manufacturing partners and vendors. This extreme control enables them to carefully manage quality control and ensure their products are always of a high standard
  • Partner with people who love your clothing - Lululemon don’t sponsor any major athletes. The majority of their sponsorships are into local ambassadors who organise in-store yoga classes and healthy lifestyle classes. This ‘bottom up’ approach to marketing and brand sponsorship means they can leverage an ambassador’s on-the-ground relationships to help drive sales and connection to the product
  • Build a community around your brand - Lastly, Lululemon has done something that most other brands ignore or fail to do. They’ve built a community around their brand and their stores. They provide guides on yoga, running and wellness. They host events and facilitate their customers to connect with each other and the brand. In a word where retail loyalty is fleeting, Lululemon is bucking against this trend

What is Lululemon future?

Lululemon might become the leader in home and digital fitness. In July last year, the company acquired Mirror, a home workout and fitness device that offers digital workouts. With this acquisition, Lululemon has slowly moved to productise its brand and community. They’ve also recently experimented with subscriptions to shift their business model towards FaaS (fitness as a service).

We think Lululemon is a great business and their playbook should be studied closely by any retailers looking to build an enduring consumer product.

🎙️ Want to hear more about Lululemon and why we think it’s positioned to capture future growth? You can find the latest episode of Fresh Capital right here!

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