LululemonAthletica, 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 steppingstones to an active and enjoyable lifestyle. This has been a successful strategy forLululemon, 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 2020, the company reported total revenue growth by 11% to $4.4 billion—with 23% revenue growth in the second half of the year. It also doubled its e-commerce business, ending 2020 with $1.2 billion in cash and no debt.
Although a significant number of stores were temporarily closed due to COVID-19 during the first two quarters of 2020, Lululemon opened 30 new company-operated stores in 2020, including 21 net new stores outside of North America, for a total of 521 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.Lululemonhas weathered its fair share of controversy along the way, including when it had to recall its flimsyLuonyoga 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.
- In 2020, the company reported total revenue of $4.4 billion. It also doubled its e-commerce business.
- The company operates 521 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 late 2015, the company opened its first store geared towards men in New York. However, in 2019 its only two men's only stores located in New York and Toronto were closed. Although the men's business has been experiencing growth, Lululemon intends to market itself as a dual-gender brand.
How Does Lululemon Make Money?
Lululemonsells its products through a network of stores it owns and operates, as well as directly to customers through online sales. As of Jan. 31, 2021, the company operates 521 stores worldwide, with 315 locations in the United States, followed by Canada (62), China (55), Australia (31), and the United Kingdom (16).
Lululemonbelieves 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?
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. A group of approximately 40 vendors manufactures the products, five of which produced 59% of them in 2020, with the largest manufacturer producing 17%. During 2020, 33% of Lululemon's products were manufactured in Vietnam, 20% in Cambodia, 12% in Sri Lanka, and 9% in the PRC, including 2% in Taiwan.
Who Are Lululemon's Main Competitors?
Lululemonhas been successful with its business model. Still, investors should be aware that the company faces a variety of risks, such as fickleconsumer 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).
The Bottom Line
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 supplierissues.
