Written By: David Curtis, Lucas Hendee, Emily Mahoney, Jenna Weidman, Andrew Yuskevish
At 5:30 in the morning, Christine Day dons a pair of lululemon Silverescent® pants before heading out the door for a morning Yoga class at lululemon’s Vancouver, BC, campus. The CEO of lululemon, Ms. Day, has a lot on her mind besides the grueling workout immediately ahead of her. Lululemon Athletica [NASDAQ: LULU, TSX: LLL], founded in 1998 by Chairman Chip Wilson, has created a unique position in the athletic apparel market—luxury/high-end yoga apparel targeted toward women with a focus on grassroots marketing. Lululemon has capitalized on a newer market segment, as more women are embracing an active lifestyle, but the firm will face stiff competition from industry giants like Nike and Under Armour. The fears of emerging competition crowding this unique market nag at Christine. She takes a moment to reflect on how lululemon quickly became a market leader in a largely uncontested market space—yoga lifestyle outfitter. It is no secret that lululemon owes much of its rise to grassroots marketing strategies as well as a community of yoga enthusiasts that evangelize the brand.
Lululemon’s strategy has worked, and the company has achieved a $3 Billion US market valuation and the highest operating margin – currently 26.51% vs. industry average of 7.36% – among its direct competitors (Nike, Adidas, and Under Armour). Additionally, lululemon has built strong brand equity among its target market and has continued to achieve growth despite a struggling US economy. The lululemon brand is one that exudes an elite status over other athletic symbols such as the Nike “Swoosh” . The company has strategically located its retail stores in the US (142 stores in 13 states and Canada) as well as a few international cities, furthering its elite status. As Christine grabbed her yoga mat, she contemplated; ‘How can lululemon maintain success moving forward amid increasing pressures from New Entrants and Competitive Rivals? Will lululemon become a takeover target?’ With these thoughts circling, Christine headed out the door.
One her way to Yoga class, Christine thought more about the day-to-day activities at lululemon that have contributed to its success. Lululemon employs innovative clothing designers that anticipate the workout needs of women; The company also solicits feedback from “ambassadors” (including top fitness instructors and yoga teachers) and incorporates this feedback into future clothing designs. Additionally, lululemon partners with the Fashion Institute of Technology (FIT) in the ‘Urban Yogini design competition’, a student competition to “tap into and connect with new young talent who could inform [lululemon] on what is happening in yoga, fashion, and street life” . Christine believes these types of activities embody the lululemon manifesto – a collection of expressions and ideals that lululemon subscribes to. This collection includes statements such as “creativity is maximized when you’re living in the moment”. These ideals ultimately form the basis of lululemon’s organizational culture and selling the lululemon culture has been part of the company’s unique strategic position from the beginning .
With the threat of new entrants and competitive rivals, lululemon has positioned itself in such a way to diminish the power of buyers. Christine Day believes customers simply cannot get the lululemon experience or the company culture anywhere else in the market. Marketing director Eric Peterson once stated, “lululemon is not there to sell you something, [they] are there to educate on their personal values, the brand values and the benefits of our products. If people are learning, where they’re getting information from becomes a trusted source. They respect that person or company and that goes a lot further for the company in the long run” . Christine continued to think of the future of lululemon. How could they best succeed in ‘educating’ potential new customers about their products and culture?
After much consideration, CEO Christine Day realized lululemon must strengthen its unique position in the market and focus on those activities that create shared value for the company and its customers. The company could simply expand distribution across the US to increase market share, however lululemon’s leaders recognize they must be careful not to make the brand too “available”. Instead, they need to develop a plan to continue strengthening lululemon’s position as a luxury brand for high performance athletics. This plan needs to include the following activities: 1) Retail store expansion in top-tier cities, 2) Strategic grassroots marketing, 3) High-tech product development, and 4) Product line expansion into other athletics.
Retail expansion – lululemon currently operates 142 retail stores and showrooms in the United States, Canada, Hong Kong, Australia and New Zealand. Focusing on North American expansion has yielded the best results for lululemon and continued strategic growth is a key focus for CEO Christine Day . Lululemon has favored developing retail locations that fit with its healthy lifestyle mantra (think: Santa Barbara, California) over mall-style locations (lululemon, for example, has no presence in Tampa, Florida), which has proven successful (see Images 1 and 2 for example locations within the United States). Rather than making its apparel available everywhere like Nike or Adidas, lululemon’s leaders have worked hard to develop its unique position in the retail industry. The major benefit of this “luxury” strategy is that lululemon has essentially become recession-proof, as high income shoppers continue to buy products despite a downtrodden economy. To strengthen its position as an elite athletic brand, lululemon will need to develop a presence in other top-tier cities throughout Canada, the USA and across the globe (currently only presence in Hong Kong, New Zealand and Australia). In the near term, CEO Christine Day has publicly stated her focus is on North American expansion, and the expansion of the brand ivivva—a dance and gymnastics lifestyle brand targeted towards girls. In the long term, new product development and strategic international growth will power its leadership position. This combination strategy will allow LULU to increase market share and profits without compromising its position as a luxury brand, ensuring sustainable growth for many years to come.
Increased grassroots marketing – Lululemon’s grassroots strategy has allowed it to build rapport in local communities. The retail stores partner with local yoga studios and offer weekly classes right in the store, allowing lululemon to not only educate consumers on yoga and related Lululemon apparel but also build relationships with the local community. Rather than engage in widespread and costly marketing activities like Nike, lululemon’s senior management recognizes the company’s current strategy is a point of divergence that will be more effective in preserving the brand’s status. The company must continue its community based initiatives, and should also consider expanding its marketing sponsorships to local events such as road races and triathlons. This would provide an additional outlet for lululemon to market its brands and create awareness. The key to this initiative is to make the additional marketing events local and community-driven, allowing for a new customer base to be reached while still maintaining focus in high income areas.
Emphasis on R&D and unique textiles – Lululemon’s revolutionary Silverescent® technology – an anti-bacterial and “anti-stink” fabric – is a perfect example of implementing unique activities to gain a competitive advantage. Lululemon’s design team needs to maintain focus on developing rare products that are valuable to hardcore yoga enthusiasts; this will continue to draw more casual enthusiasts and consumers with active lifestyles. This strategy will help lululemon increase the market barriers to entry since such activities are costly to imitate. In order to complement this strategy lululemon’s marketing team must also focus on branding its clothing as more than just clothes, but rather as high-end equipment that enhances athletic performance. The best outlet for such an activity is featuring the clothing prominently on its brand ambassadors including Yoga instructors and event participants, allowing potential users to see the product in “action”.
Product line expansion – Lululemon’s design and marketing teams have focused primarily on women’s yoga apparel. Ms. Day recognizes lululemon can become the premier athletic brand for individual sports. The R&D and marketing teams will need to partner together in order to expand lululemon’s product lines, as technical expertise is central to the company’s brand recognition among customers. Additionally, Lululemon should expand its product offering into other individual sports – tennis, volleyball, and swimming. These sports will prove to be a key focus in the future and a major growth segment, since these athletes are accustomed to investing in high-quality equipment. Lululemon should continue to develop products for runners and expand to tri-athletes. Ms. Day can already imagine the day when her company competes with the Nike Women’s Marathon by sponsoring its own marathon or triathlon in large cities.
Furthermore, lululemon has already begun to tap into one nascent market with its ivivva brand by utilizing its strong set of core competencies. In the same vein of lululemon and its relation to yoga, ivivva designs and sells girls’ apparel for dance, ballet, and gymnastics. Like lululemon, much of ivivva’s products target the consumer from the moment she leaves her house to studio or class, and back home. By selling technical gear for in-studio sessions as well as lounge wear, bags, and rain jackets, ivivva replicates the Lululemon experience and builds brand loyalty from a young age. Currently, ivivva has five retail locations and launched its online store on August 15, 2011 . The ivivva brand should maintain separate retail locations in order to keep the product lines distinct, however the company can be developed with the same retail strategy lululemon used so successfully.
Overall, lululemon’s leadership must continue to focus on women’s apparel in order to maintain the company’s unique position. The company has been able to capitalize on a Blue Ocean—more women are choosing to live an active lifestyle than ever before — and lululemon has succeeded in being first to market this new segment. Nike, Under Armour and Athleta (owned by the GAP) will most likely look to enter this market and retake share. By continuing its focused retail campaign in North America with both its lululemon and ivivva lines, reinforcing its grassroots marketing campaign as a point of divergence, and challenging its customers to ‘do one thing that scares them every day’ lululemon will be positioned for continued growth. As Christine walks into the studio, she smiles knowing that once Yoga is done she will get back to the work of continuing to lead Lululemon towards sustainable growth by “‘replacing the words ‘wish’, ‘should’ and ‘try’, with ‘I will’ .
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