lululemon athletica case 1

S T E V E N B A Y L E Y E M I L Y B E A L E

Y A N A D U B I N S K Y E L I Z A B E T H P E E D I N

lululemon athletica, Inc.

MGMT 6722 Dr. Karriker

About lululemon….

�  Designer, retailer of high-end yoga inspired athletic wear with locations in Canada, US, New Zealand, and Australia

About lululemon….

�  Designer, retailer of high-end yoga inspired athletic wear with locations in Canada, US, New Zealand, and Australia

�  Began when Chip Wilson opened a design/yoga studio in 1998 in Vancouver, British Columbia

About lululemon….

�  Designer, retailer of high-end yoga inspired athletic wear with locations in Canada, US, New Zealand, and Australia

�  Began when Chip Wilson opened a design/yoga studio in 1998 in Vancouver, British Columbia

�  Community hub where people learn and discuss physical aspects of healthy living

What does the Lululemon customer look like?

“Other than their poise and perfect coifs, you can identify members of this gym robot army by their brand of clothing. You’ve seen them at your gym, at the Whole Foods and in line for green juices;

What does the lululemon customer look like?

“Other than their poise and perfect coifs, you can identify members of this gym robot army by their brand of clothing. You’ve seen them at your gym, at the Whole Foods and in line for green juices;

they’re the lululemon ladies!” Read more: http://www.blisstree.com/2013/08/14/fitness/optical-illusion-look-like-a-lululemon-lady-even-though-youre-poor/#ixzz2gOfyUCB7

What does the lululemon customer look like?

What does the lululemon customer look like?

�  Woman �  Fit �  Healthy �  Active �  Athletic �  Yoga

What does the lululemon customer look like?

�  Woman �  Fit �  Healthy �  Active �  Athletic �  Yoga �  Wealthy

What does the lululemon customer look like?

�  Woman �  Fit �  Healthy �  Active �  Athletic �  Yoga �  Wealthy �  Educated �  Sophisticated

Lucky LuLu

Lindsey Cooper •  32 •  Marketing Executive •  University of Richmond alum •  Married, No Kids (froze eggs at

29, just in case) •  Orders groceries from Whole

Foods online and has them delivered

•  2400 Sq. Ft. Condo in Chevy Chase, MD with her husband Reed, a senior analyst for The Brookings Institution

•  Just bought a 2014 Toyota Seqouia

•  HHI: 230K

Lululemon Manifesto

It is a lifestyle!!! �  The pursuit of happiness

is the source of unhappiness

�  Dance, sing, floss, and travel

�  Practice yoga so you can remain active in physical sports as you age.

The Insight

Lucky LuLu’s are addicted to Inconspicuous Consumption

Athletic Apparel Positioning

Under Armour

Athleta

Adidas

New Balance

Lulu-lemon

Pric

e/Pe

rcei

ved

Qua

lity

and

Imag

e

Broad v. Niche Market Niche Broad

Low

H

igh

Nike

Reebok

Old Navy

Prana

Competitive Forces

�  Competition from rival sellers – vigorous competition from multiple large companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple smaller ones such as Lorna Jane, Lole, and Gap Athleta

Competitive Forces

�  Competition from rival sellers – vigorous competition from multiple large companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple smaller ones such as Lorna Jane, Lole, and Gap Athleta

�  Competition from potential new entrants to industry – Vary: low from new players due to time and funds, high from current apparel designers and retailers like Gap

Competitive Forces

�  Competition from rival sellers – vigorous competition from multiple large companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple smaller ones such as Lorna Jane, Lole, and Gap Athleta

�  Competition from potential new entrants to industry – Vary: low from new players due to time and funds, high from current apparel designers and retailers like Gap

�  Competition from producers of substitute products – shorts, pants, or other clothing not intended for athletic use

Competitive Forces

�  Competition from rival sellers – vigorous competition from multiple large companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple smaller ones such as Lorna Jane, Lole, and Gap Athleta

�  Competition from potential new entrants to industry – Vary: low from new players due to time and funds, high from current apparel designers and retailers like Gap

�  Competition from producers of substitute products – shorts, pants, or other

clothing not intended for athletic use

�  Supplier bargaining power – in introductory phase, high bargaining power due to increased investment and desire to work with leading fabric suppliers; 90% of apparel production in Asia but will use US/Canada production facilities as needed

Competitive Forces

�  Competition from rival sellers – vigorous competition from multiple large companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple smaller ones such as Lorna Jane, Lole, and Gap Athleta

�  Competition from potential new entrants to industry – Vary: low from new players due to time and funds, high from current apparel designers and retailers like Gap

�  Competition from producers of substitute products – shorts, pants, or other clothing not intended for athletic use

�  Supplier bargaining power – in introductory phase, high bargaining power due to increased investment and desire to work with leading fabric suppliers; 90% of apparel production in Asia but will use US/Canada production facilities as needed

�  Customer bargaining power – high due to: low cost of switching, buyers ability to delay purchases, multiple other brands from which to choose

SWOT Analysis

Strength Trademarked fabrics Community involvement – offered free yoga class on monthly basis Employee training Innovation Style/comfort Multiple green initiatives Quality – products designed to sustain 5 years of intended use while maintaining functional Brand identity

SWOT Analysis

Strength Trademarked fabrics Community involvement – offered free yoga class on monthly basis Employee training Innovation Style/comfort Multiple green initiatives Quality – products designed to sustain 5 years of intended use while maintaining functional Brand identity

Weakness Narrow product line, High retail price Quality control/supply chain Marketing targeted to mostly yoga instructors/studios Loss of customer service with increased scale Weak brand recognition

SWOT Analysis

Strength Trademarked fabrics Community involvement – offered free yoga class on monthly basis Employee training Innovation Style/comfort Multiple green initiatives Quality – products designed to sustain 5 years of intended use while maintaining functional Brand identity

Weakness Narrow product line, High retail price Quality control/supply chain Marketing targeted to mostly yoga instructors/studios Loss of customer service with increased scale Weak brand recognition

Opportunity Expand product line Serve additional market segments Expand into additional geographic markets Increased demand in athletic apparel Fitness craze

SWOT Analysis

Strength Trademarked fabrics Community involvement – offered free yoga class on monthly basis Employee training Innovation Style/comfort Multiple green initiatives Quality – products designed to sustain 5 years of intended use while maintaining functional Brand identity

Weakness Narrow product line, High retail price Quality control/supply chain Marketing targeted to mostly yoga instructors/studios Loss of customer service with increased scale Weak brand recognition

Opportunity Expand product line Serve additional market segments Expand into additional geographic markets Increased demand in athletic apparel Fitness craze

Threats Increased competition from current large players in the market, Copy cats Economy New entrants Risk of banking on niche markets

SWOT Analysis

Strength Trademarked fabrics Community involvement – offered free yoga class on monthly basis Employee training Innovation Style/comfort Multiple green initiatives Quality – products designed to sustain 5 years of intended use while maintaining functional Brand identity

Weakness Narrow product line, High retail price Quality control/supply chain Marketing targeted to mostly yoga instructors/studios Loss of customer service with increased scale Weak brand recognition

Opportunity Expand product line Serve additional market segments Expand into additional geographic markets Increased demand in athletic apparel Fitness craze

Threats Increased competition from current large players in the market, Copy cats Economy New entrants Risk of banking on niche markets

Value Chain

Supply Chain Management: received real

time input from customers, short time to receive

and approve samples

Operations: streamlined design and

development processes.

Production is the only

activity that is outsourced to

low cost countries

Distribution: facilities in

Vancouver-BC, Sumner,

Washington, and

Melbourne, Australia;

online retail store

Sales and marketing: community based, yoga instructors

ambassadors, community

coordinators

Service: “educators”,

“guests”, lululemon manifesto

Profit Margin:

Net PM 17.1%

about 15% above

industry average

Value Chain

Supply Chain Management: received real

time input from customers, short time to receive

and approve samples

Operations: streamlined design and

development processes.

Production is the only

activity that is outsourced to

low cost countries

Distribution: facilities in

Vancouver-BC, Sumner,

Washington, and

Melbourne, Australia;

online retail store

Sales and marketing: community based, yoga instructors

ambassadors, community

coordinators

Service: “educators”,

“guests”, lululemon manifesto

Profit Margin:

Net PM 17.1%

about 15% above

industry average

Product R&D, Technology, and System Development • Innovation Driven, based in Canada and US – short time to market • Technology of new fabrics - so far introduced 3 new materials: luon, luxtreme, and silverescent

Value Chain

Supply Chain Management: received real

time input from customers, short time to receive

and approve samples

Operations: streamlined design and

development processes.

Production is the only

activity that is outsourced to

low cost countries

Distribution: facilities in

Vancouver-BC, Sumner,

Washington, and

Melbourne, Australia;

online retail store

Sales and marketing: community based, yoga instructors

ambassadors, community

coordinators

Service: “educators”,

“guests”, lululemon manifesto

Profit Margin:

Net PM 17.1%

about 15% above

industry average

Product R&D, Technology, and System Development •  Innovation Driven, based in Canada and US – short time to market •  Technology of new fabrics - so far introduced 3 new materials

Human Resources Management •  Customer oriented, coaches, through Yoga instructors, •  Community feeling with sales associates that share the passion

Value Chain

Supply Chain Management: received real

time input from customers, short time to receive

and approve samples

Operations: streamlined design and

development processes.

Production is the only

activity that is outsourced to

low cost countries

Distribution: facilities in

Vancouver-BC, Sumner,

Washington, and

Melbourne, Australia;

online retail store

Sales and marketing: community based, yoga instructors

ambassadors, community

coordinators

Service: “educators”,

“guests”, lululemon manifesto

Profit Margin:

Net PM 17.1%

about 15% above

industry average

Product R&D, Technology, and System Development •  Innovation Driven, based in Canada and US – short time to market •  Technology of new fabrics - so far introduced 3 new materials

Human Resources Management •  Customer oriented, coaches, through Yoga instructors, •  Community feeling with sales associates that share the passion

General Administration •  Founder – Wilson was CEO 2000-2005 •  Remained actively involved as head of innovation department untill2012

Key Success Factors

�  Community Based Marketing

Key Success Factors

�  Community Based Marketing

�  Superior Customer Interaction

Key Success Factors

�  Community Based Marketing

�  Superior Customer Interaction

�  Technological Innovation

Community Based Marketing

Strategy

�  Focused differentiation •  Focusing on lifestyle perception

Strategy

�  Focused differentiation •  Focusing on lifestyle perception •  Creating superior products (features, design, performance)

Strategy

�  Focused differentiation •  Focusing on lifestyle perception •  Creating superior products (features, design, performance) •  Striving for innovation and technological advances

Strategy

�  Focused differentiation •  Focusing on lifestyle perception •  Creating superior products (features, design, performance) •  Striving for innovation and technological advances •  Emphasizing marketing and brand-building activities

Strategy

�  Focused differentiation •  Focusing on lifestyle perception •  Creating superior products (features, design, performance) •  Striving for innovation and technological advances •  Emphasizing marketing and brand-building activities •  Pursuing continuous quality improvement

Growth

� GROWTH

Growth

� GROWTH

�  Net profit increase of 24x over past five years

Growth

� GROWTH

�  Net profit increase of 24x over past five years

�  EPS increase of 21x over past five years

Growth

� GROWTH

�  Net profit increase of 24x over past five years

�  EPS increase of 21x over past five years

�  Expanded # of stores by 133 in five years

Improved Operations

�  Operating profit increase of 17X in five years

�  Improved inventory turnover by 1.4 in five years

�  Cash provided by operations increased by $178.2M over past five years

�  Average sales per square foot increased by $593M in five years

Valuation Measures

�  Net profit increase of 24x over past five years

�  EPS increase of 21x over past five years

�  Return on equity increased by 10% in five years

�  Gross profit margin increase of 5.5% over past five years

Financial Highlights (Most Recent Quarter: Aug 4, 2013)

�  Profit Margin: 18.12% (2012: 18.49%)

�  Operating Margin: 26.50% (2012: 28.67%)

�  Return on Equity: 31.72% (2012: 30.52%)

�  Gross Profit: 762.83M (2012: 569.3M)

�  Gross profit margin: 5.11 % (2012: 5.69%)

�  Diluted EPS: 1.85 (2012: 1.27)

�  Operating Cash Flow: 287.52M (2012: 203.6M)

Central Issues/Problems

�  Quality control/supply chain – recent issues with recalls

Central Issues/Problems

�  Quality control/supply chain – recent issues with recalls

�  Narrow focus – primary target: sophisticated and educated women who understand importance of active, healthy lifestyle (although expanding into men’s and youth female athletic wear)

Central Issues/Problems

�  Quality control/supply chain – recent issues with recalls

�  Narrow focus – primary target: sophisticated and educated women who understand importance of active, healthy lifestyle (although expanding into men’s and youth female athletic wear)

�  Missing out on major markets (Europe/Asia/South America)

Central Issues/Problems

�  Quality control/supply chain – recent issues with recalls

�  Narrow focus – primary target: sophisticated and educated women who understand importance of active, healthy lifestyle (although expanding into men’s and youth female athletic wear)

�  Missing out on major markets (Europe/Asia/South America)

�  Lack of brand awareness/mass marketing

References

�  Gamble, J., Peteraf, M., Strickland, A., Thompson, A. Crafting and executing strategy (2014). McGraw-Hill Education.

�  http://www.lululemon.com/education/

�  http://finance.yahoo.com/q/ks?s=LULU+Key+Statistics