Lululemon Athletica – Case Report

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Lululemon’s slow and cold response and Wilson’s subsequent inappropriate remarks caused a lot of brand damage. The company will need to come up with a radical but effective solution to restore their image.

Decline in Business Growth and Financial Performance

As a result of the combined impact of the aforementioned key issues, Lululemon’s key financial indicators have declined significantly. As result of the pants recall, revenue was 16% in 2013 versus 37% in 2012. Net income as a percentage of sales (or return on sales) dropped from 19.8 % in 2012 to 17.6% in 2013, and there were similar declines in returns on assets from 25.8% to 22.4%, operating returns on assets dropped from 35.8% to 31.3%, and return on equity dropped from 30.6% to 25.5%, further indications of profitability erosion at Lululemon.

Whereas the decline in financial indicators does not represent a material issue to the organization, the change in performance turns out to be an issue itself, as after a significant high-growth period, such changes can be perceived by investors, analysts, and the general public as a negative turn and a potential of a new trend. Hence, in order to re-establish confidence in the organization, efforts have to be undertaken to either find a strategy that delivers similar returns and growth as seen in the past, or implement a communication strategy that can turn around the negative perception of financial indicators, which are still amongst the best in the industry.

Situational Analysis

Current Strategy

In February of 2014, Lululemon updated its strategic goals from five to seven key elements. The revamp in the company’s strategy revealed that Lululemon was moving from a focused to a broad differentiation strategy. The move to a broader product line signaled a major transition to other market segments. Lululemon will no longer focus on a narrow niche of female customers only. It will design products for everyone.

Industry Analysis[2]

The increase in the number of similar stores in recent years has intensified competition in the athletic apparel industry. In 2013, the fitness apparel industry grew 4% on average worldwide. Furthermore, Lululemon generated 77.3% global net revenue share by corporate-owned stores segment and 16.5% in direct to customer segment. Yoga participation in the U.S. increased from 24 million in 2013 to 25.26 million in 2014. Three major competitors are focusing on female athletic apparel and Zella has introduced their own product line of female active wear in 2014. Lululemon may still have an ability to maintain current market position in the female apparel industry, but the intensified competition may lead to loss of market share. [3]

Key Success Factors

In order to be successful, the key factors in the fitness apparel industry are:

- Strong brand awareness will help a company to attract new customers and maintain existing customer loyalty, which is a strong competitive advantage. For instance, the success of companies is largely attributed to their brand awareness.

- Product quality plays an important role because it will increase brand image and customer loyalty.

- Good locations and store setup will increase satisfaction of customer personal experience.

PEST Analysis[4]

Political

Since Lululemon does not own any manufacturing, it relies on developing countries such as China. As of February 2014, 67% of manufacturers were located in South and Southeast Asia, while 30% were in China (Yahoo finance). This makes the company vulnerable to tariffs regulation, labor rule and regulation, and trade embargo. The company needs to constantly monitor counterfeit in countries where laws against replication of a brand do not exist.

Economical

Exchange rates between US dollar and Canadian dollar may have potential effect on Lululemon international expansion. Also, consumers are more price sensitive due to a tough economic environment; Lululemon therefore needs to focus on how to differentiate their products to retain customers.

Social

Social trends show an increase in the number of people over the age of 60 focused on living healthier and engaging in more activities. Also, the number of people who practiced yoga in the U.S. has increased by approximately 5 million from 2008 to 2012. [5]

Technological

An increasing trend of online shopping has given Lululemon more distribution channels and reach more customer markets. Many companies have also started to advertise through social media to increase their brand awareness. For apparel industries, using advanced high-tech materials is becoming the way to getting competitive advantages for their companies.

Competitive Analysis[6]

Nike

Nike is a formidable competitor, and competes with Lululemon on high performance athletic footwear and apparel. They operate stores in 190 countries and have over 700 company-owned stores. In 2013, the company gained $25.3 billion, $6.8 billion of which were apparel sales. Nike is known to spend a lot of money on celebrities for promoting their brand.

Under Armour

Under Armour is one of Lululemon’s largest competitors. The company is already operating 25,000 retail stores globally, 18,000 of which are in Canada and the United States. The company product lines are men’s, women’s, and youth’s apparel. In 2013, they have generated total sales of $2.3 billion.

Adidas

The Adidas Group is similar to Nike, which is also a well-known global brand. The company mainly targets athletic and sports apparel. In 2013, they owned 1661 retail stores and gained $7.8 billion.

Athela

Athela is one of Lululemon’s rapidly growing competitors. The company has differentiation distribution channel (online store) to provide its comfortable and fashionable women’s apparel. In 2013, the company has grown 21% of online sales. In the following year, they owned 65 retail stores and had more apparel items and options on the website than Lululemon’s.

Financial KPI (Key