Read the Lululemon Case. Answer Question 1 through Question 4.Questions1. Analyze the impact of the general environment on Lululemon’s business. Highlight the demographic segment, global segment, political/legal segment, physical environmental segment, and sociocultural segment.2. Identify Lululemon’s internal strengths and weaknesses.3. What challenges will Lululemon face when expanding into Asia? Focus on factors such as culture, pricing, brand awareness, positioning, customer acquisition, distribution, etc. Given your analysis of the firm’s external and internal environments, what international corporate-level strategy would you recommend for Lululemon? Why?4. What ethical issues has Lululemon experienced over the last few years? Analyze the impact of the ethical issues by addressing the stakeholders involved and consequences of the ethical issues. How could Lululemon have handled these issues differently?
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lululemon athletica Inc.
Choose a Positive Thought
Based in Vancouver, Canada, lululemon athletica provides premium quality athletic
apparel at a premium price. One of lululemons signature items is its yoga pants,
typically sold by competitors for between $25 and $50. Yoga pants available in
lululemon stores and online range between $78 and $128 with its most popular pair
priced recently at $98 two to three times rivals prices. However, lululemons products
sell and they sell fast. Demand for lululemon clothing is so high that stores have trouble
keeping new lines in stock. Sheree Waterson, Lulus chief product officer conveyed this
example, saying, A hot-pink color named Paris Pink that launched in December (of
2011) was supposed to have a two-month lifecycle but sold out its first week. The
question then arises as to why customers, or guests as lululemon refers to them, are
willing to pay high prices for high fashion items that are destined to be soaked in sweat!
It seems the answer to this question resides in lululemons ability to connect with its
guests on a deeper level than just the typical sales associatecustomer relationship.
After all, other companies such as Nike, Adidas, and Under Armour not only produce
high-tech clothing with the same soft cotton feel, four-way stretch, and moisture-wicking
technology that lululemon touts, but do so much less expensively for their end
consumers. Ultimately, what competitors cannot duplicate is lululemons culture. It is
lululemons deep understanding of its target market, close relationships with its
communities, and an inimitable culture that transforms customers/ guests into diehard
loyalists. This is not to say that lululemon does not uphold the highest quality standards
in its products. Levisay states, People will save up if they need to in order to afford our
clothing because of the benefits they provide. She goes on to explain, Its silly to
spend that much on yoga pants if theyre not going to live up to their promise. Jennifer
Black, president of an investment research firm confirms this sentiment saying,
lululemon wont put stuff in its store just to sell it. They dont compromise on quality.
Friends Are More Important than Money
lululemon athleticas in-depth knowledge of its target audience is an important, firmspecific asset. Rooted in yoga but expanded into any sweaty pursuit you may have,
lululemon creates technical fabrics that work with you instead of against you. Plus, they
look cute! explains Levisay. The stores …guests comprise anyone living a physically
active life that strives to achieve balance, although the majority of shoppers are female,
have disposable income, and are in the 15- to 65-year-old range. Fitness blogs confirm
that lululemon …recognizes this niche market and combines high performance material
with attractive product design to create a committed brand following. One of the
strongest examples of lululemons focus on culture is the company manifesto, which
appears on multiple lululemon products, from bags to water bottles. Explaining the
companys perpetuation of its manifesto, Whitney, a store employee and lululemon
blogger writes, We are sharing a piece of our culture and inspiration as a company. We
have traditionally printed our [bags] with the lululemon manifesto, which is a series of
statements that embodies our companys vision, culture and beliefs… [as] a constant
reminder of our vision to create components for people to live longer, healthier and
more fun lives.
Observe a Plant Before and After Watering
Each and every store employee at lululemon is considered a steward of the companys
culture. From the beginning of the hiring process, throughout training, and continuing
throughout employment, each employee is expected to reflect the companys mission
and vision. lululemon athleticas …success is reflected in everything within the store
experience. The people who work there believe strongly in the lifestyle and what it
represents. A focus on employee development is a crucial component of the
companys strategy. In general, a lot of money and effort is put into training store
employees. Levisay comments, Employees dont exist just to fold clothes or set up
displays. They share their knowledge of the clothing and culture with every guest that
walks through the door. They have the ability to explain functions of the clothing you
would not necessarily recognize; items such as hidden pockets, body support, material
that protects against harmful UV rays, and special woven silver that makes the material
antibacterial. Another employee, Samantha Baldwin, clarifies the link between
employee and guest. If your employees are happy and feel supported in their goals,
your genuine nature comes across and this allows consumers to buy the experience,
buy the product. This caring-and-sharing culture bolsters the high-quality products.
Baldwin continues, It wasnt just about selling stretchy pants. It was about connecting
with people on an authentic level and finding out their story.
This Is Not Your Practice Life
lululemon athletica was founded in 1998 by Dennis Chip Wilson in response to
increased female participation in sports and in accordance with his belief in yoga as the
optimal way to maintain athletic excellence into an advanced age. Wilson, an avid surfer
and snowboarder, had previously parlayed his passions for these sports into building a
successful company Westbeach that sold snowboarding and skateboarding apparel.
After taking a yoga class, Chip fell in love with the practice. Once again melding his
athletic passions with his acumen for producing high-end performance apparel, Chip
saw the opportunity to produce higher-quality yoga attire. Wilson noticed that the cotton
materials used in yoga apparel were inefficient for the demands placed upon them. He
applied his knowledge of materials to design highly technical fabrics that would move
and breathe better. Chip opened a design studio and retail store that doubled as a yoga
studio at night to pay the rent. Yoga instructors at the studio became product testers,
wearing Chips designs while teaching, and providing feedback about the product. The
first official lululemon store was opened in 2000 in Kitsilano, a beach neighborhood in
Vancouver. The first store served as a community hub for multiple aspects of healthy
living including nutrition, running, biking, and of course yoga. Realizing the potential for
female-centric, high-quality athletic apparel, lululemon began to grow; expanding across
Canada for the next couple of years and entering the U.S. market in 2003. lululemon
athletica continued to expand both in North America and overseas and announced its
initial public offering in May 2007. In 2009, lululemon expanded its offerings by
launching an e-commerce channel and ivivva, a subsidiary specializing in athletic gear
for girls 4 to 14 years old.
Dennis Chip Wilson
The success of lululemon is attributable to the vision of Dennis Chip Wilson. After
taking the company public in 2007 and serving as Chief Innovation and Branding
Officer, Chip officially turned over the reins in January 2012. During his time with
lululemon, he helped the company grow to 147 stores, transformed the brand into a cult
following, and provided company focus by developing the lululemon manifesto. He
remains chair- man of the board and continues to represent lululemon at investor
meetings. His successor, Christine Day, has renewed the companys goals and
assembled an exemplary management team with a complementary mix of retail,
design, operations, product sourcing, marketing and information technology experience
from leading apparel and retail companies such as Abercrombie & Fitch Co., The Gap,
Inc., Nike, Inc., and Speedo International Limited.
Christine Day joined lululemon as Executive VP of Retail Operations in January 2008
and was promoted to CEO in June 2008. Day was with Starbucks for 20 years, most
recently serving as President of the Asia Pacific Group of Starbucks Coffee
International. Starbucks and lululemon are very similar in that both are high-growth,
international companies focused on cultivating their culture and brand loyalty. Day will
focus on brand expansion and developing long-term corporate and business-level
Dont Trust that an Old Age Pension Will Be Sufficient
In terms of financial strength, lululemon athletica (LULU) is positioned to weather
declines in the economic environment. The company has a significant amount of cash,
over 50 percent of assets and, although the company has a line of credit should it face
an immediate liquidity need, lululemon holds no debt. Companies such as Adidas, Nike,
and Under Armor all carry some debt and it is certainly noteworthy to see lululemon
operate with none. lululemon athletica has experienced tremendous growth in both
revenue and profitability over the last couple of years. Revenue grew by a compound
annual growth rate of 41.47 percent from fiscal year (FY) 2009 to FY 2012. lululemons
net profit margin improved from 12.87 percent
in 2010 to 18.39 percent in 2012, driven mainly
by improvements in the gross margin and
control over the growth in sales, general, and
administration expenses. As expected by the
growth in sales and profitability, both return on
equity and return on assets also increased
As seen in Exhibit 3, lululemon compares very favorably to some very well-known
companies within the performance apparel clothing industry. Because lululemon
operates primarily in a niche product market, it is able to compete against the likes of
Adidas, Nike, and Under Armour and still generate above-average returns, principally by
offering customers what it believes are higher- quality products. Historically, Adidas,
Nike, and Under Armour did not offer separate apparel lines for yoga activities;
however, all three have recently entered this particular market. Even so, lululemon is
the only publicly traded company focused solely on the yoga apparel market. While
lululemon does face competition from other companies with yoga apparel lines, none of
these competitors can demand the premium that lululemon has on its products.
The Pursuit of Happiness Is the Source of All Unhappiness
At the beginning of FY 2013, lululemon was forecasting that its revenue and profit would
continue to grow, albeit at a slower pace compared to the firms recent growth rates.
Management was forecasting that same-store sales would increase around 20 percent
in FY 2013 and that earnings per share (EPS) would be between $1.50 and $1.57. The
EPS expectation translates into a 16 to 22 percent growth range for net profit in 2013,
which is substantial given the economic condition of the United States. Even so, these
forecasts disappointed stock analysts that had expected the company would maintain
its breakneck pace of growth at least throughout 2013. As the first and sole potential
sign of trouble for the company, YE 2012 inventory increased nearly 85 per- cent from
$57 million to $104 million. This growth in inventory combined with a lower sales growth
forecast may reflect pressure from the economic environment, pressure that lululemon
has historically weathered unscathed. Additionally, with the increased popularity of yoga
and sustained above-average returns, new competitors are beginning to enter the
market. For instance, in late 2011, Nike, Gap, and Nordstrom launched their own lines
of yoga clothing to capture part of the growing market. The increased competition from
these major apparel retailers will pressure lululemon and test its ability to continue
generating desirable returns for shareholders as well as for other stakeholders such as
That Which Matters the Most Should Never Give Way to that Which Matters the
The general environment is particularly interesting for lululemon due to the niche nature
of its product offerings (yoga, and more recently, running gear). Although lululemon
offers products for males and even for children as young as four years old, its target is
females between the ages of 15 and 65. Given this broad, targeted band of the female
population, the potential market for lululemons products is over 105 million women in
the U.S. alone, representing over two-thirds of the U.S. female population. Not even
considering men, children, and international customers, it is evident that the potential
customer base for lululemon is substantial. Of course, other factors, such as the
medium to high price of its products and the fact that not all potential customers need or
want yoga apparel, cull from this potential customer base. The geographic footprint of
lululemon is growing every day. The company currently has 47 stores in Canada, 108 in
the United States, 18 in Australia, and 1 in New Zealand. Through distribution centers in
the United States and Canada, and the 2009 addition of its e-commerce business, the
company has been able to serve an increasing number of international markets. Since
its customer base encompasses such a large number of people, the ethnic mix of its
customers is quite diverse. Based on its product pricing, lululemon targets higher
income clientele. Given the global economic downturn, consumers worldwide have cut
their discretionary spending. The companys bottom line would be expected to decrease
due to the high priced, discretionary nature of its products; surprisingly, lululemons
sales have continued to grow for the past twelve quarters.
At this point however, it is unknown how the long-term effects of the changing global
economy will affect the firms profitability. Uncertainties in political and legal areas also
affect lululemon. The company has manufacturing facilities in the United States and
Canada, but it also relies heavily on its factories in China, Taiwan, South Korea, Peru,
Israel, Cambodia, Thailand, and Vietnam. International and country-specific rules and
regulations play a significant role in getting the companys products to market in a timely
manner. Ensuring compliance with lululemons internal, international, and countryspecific policies is a time and capital-intensive effort. Recently, the company has had to
deal with the California Transparency in Supply Chains Act of 2010. This law requires
retailers and manufacturers doing business in California to disclose their efforts to
eliminate human trafficking and slavery from their direct supply chains. This is just one
example of the many legal hurdles that lululemon must address to operate effectively
both domestically and globally while relying on foreign production facilities. Any potential
changes in international trade laws could have a detrimental effect on lululemons
Additionally, changes in international tax regulations and country-specific tax laws play
a large role in the variability of the companys earnings and are an area that the
company must continue to carefully evaluate. Technology has played a surprisingly
important role in lululemons operations. Many of its product features are technology
driven, including its use of silver thread in select products. Technology has also played
a key role in lululemons expansion. The introduction of e-commerce in April 2009 has
made it possible for the company to reach customers outside of its traditional bricksand-mortar locations. Virtually all of the companys employees, ambassadors, and
guests participate in yoga and/or running. Collectively, they provide a considerable
amount of valuable feedback on how to improve existing products and create potential
product line extensions. Guests are given the opportunity to provide feedback in stores
and online. Ambassadors are local athletes and yoga instructors recruited by lululemon
to help promote the brand and apparel. They are the focal point of the companys
unique grassroots marketing campaign, but are not paid by the company.
Ambassadors are given products to test so they can provide crucial feedback for the
company. In turn, they become fans of lululemons products and encourage potential
customers to visit a store. Finally, lululemons physical environment is taken into
consideration in the companys operations. Whether it is reducing paper use or
packaging waste at its corporate offices or gathering fabric remnants at its factories,
lululemon is constantly striving to reduce its environmental footprint.
Creativity IS Maximized When You Are Living in the Moment
lululemon athletica constantly scans its external environment to identify potential key
issues, including new trends that the firm might be able to serve by developing product
line extensions and/or entering new markets. Scanning keeps lululemon alert with
respect to identifying new potential competitors. After a thorough environmental
scanning, lululemon continues to monitor the environment and attempts to filter out the
noise in an effort to identify what is actually important. Upon identifying potential
issues, lululemon develops projections of anticipated outcomes should a potential issue
become a real problem. Finally, lululemon conducts an assessment of the timing and
importance of environmental changes and trends it observes. The implementation of
this comprehensive analysis process led the company to introduce its running apparel
segment and develop the ivivva brand for children. It also contributed to lululemon
adding its e-commerce option to serve its global customer base. This process also
keeps the company aware of potential competition, including the multiple entrants into
its product field since the companys founding in 1998.
Jealousy Works the Opposite Way You Want It to
The threat of new entrants within the yoga apparel industry is very high, and this poses
a threat to lululemons continuous efforts to succeed. Virtually every company that has
any semblance of active wear in its product lines and manufacturing capabilities is an
actual or potential competitor. As noted previously, leading global companies, such as
Nike and Adidas, and regional powerhouses such as Under Armour, have joined the
market.49 The ease of market entry has also opened the door for retailers such as
GAP, Nordstrom, Eddie Bauer, Macys, and many others in recent years. These new
entrants bring additional capacity that, theoretically, should reduce lululemons profits,
especially in an industry where switching costs are very low. As a testament to the
power of its brand and culture, this has yet to become a reality for lululemon. The
company has high standards for its suppliers and this requires a large investment of
lululemons time to ensure they are up to standards. In a retail setting, timing is very
important. Because lululemon champions product exclusivity as a main component of its
popularity, having an adequate and timely supply of product is crucial.
In addition, lululemon does not own any of its manufacturing facilities. In fact, more than
36 percent of its product offerings are produced by 5 of its 45 manufacturers. If
something were to happen to any one of these five manufacturers, it would have
devastating effects on lululemons supply chain. Additionally, 90 percent of its products
are produced in Asia, with 49 percent produced solely in China. Any global political or
environmental events that affect this part of the globe would have material ramifications
on lululemons product supply. The vast number of similar products available from many
different brands means that buyers have multiple choices available to them.
Additionally, lululemons products are on the high end of the price spectrum. A change
in buying habits or a large decrease in …
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