Lululemon Athletica (NYSE: LULU) is a retailer that sells yoga gear for women but is branching out into other kinds of active wear. The company operates 113 stores mostly in the US and Canada and sells products in specialty fitness centers through its wholesale segment. Lululemon's high product prices result in high margins for the company.
Lululemon's customers are typically high-income women who are relatively insulated to prices and downturns in the economy. This was evident in 2008 as Lululemon's sales continued to grow despite a sluggish economy in the U.S.. In addition to new store locations, the company is preparing to launch an e-commerce operation on their website in 2009 while expanding its product lines to include more men's apparel as well as different accessories such as underwear, sandals and bags.
Lululemon sells mens and womens clothing for yoga, dance, exercise and other sports, catering to high-income, trendy active adults willing to pay high prices. Lululemon apparel is sold in the company's own-branded stores (both Lululemon and two special OQOQO stores that focus on organic apparel) as well as in high-end lifestyle centers and yoga studios.
On June 27, 2011 LULU said it expects to reach $1 billion in sales for the fiscal year 2012. The company reported store productivity is up to nearly $2004 per square foot, confidently shaking off concerns of encroaching competition of high-end lines from large competitors such as Nike (NKE) and Adidas AG (ADDYY).
Lululemon was founded in 1998 in Vancouver, Canada by Chip Wilson when he recognized a growing number of women participating in sports and other fitness activities. The company's first store shared space with a yoga studio and has since continued to focus on yoga gear, providing customers with technical apparel designed to perform during activities such as yoga, dance, exercise and other sports. Since then, Lululemon's product line has expanded to include men's clothing as well. thx for reading
Lululemon apparel is sold in the company's own-branded stores (both Lululemon and two special OQOQO stores that focus on organic apparel) as well as in high-end lifestyle centers and yoga studios.
Most of Lululemon's stores are located in urban shopping districts, malls and lifestyle centers, and they cater to high-income, trendy active adults willing to pay high prices for Lululemon's apparel. LULU's growth has been dependent on store expansion. The company also has one of the highest sales per square foot figures in retail , averaging $1,700 of sales per square foot in its corporate-owned stores (compared to $489 at Abercrombie & Fitch Company (ANF) and $398 at Gap (GPS)).
Lululemon is unique in that it does not rely on television or print advertising to promote its product, but rather relies on building strong community relationships (e.g. building strong relationships with yoga studios and gyms in the communities in which it operates).
High-end retailers such as Lululemon appeal to customers in the upper-income bracket whose absolute spending power is less affected by macroeconomic downturns. Lululemon's high prices, around $50-60 for a t-shirt, cater to the upper-class consumer willing to pay premium prices for workout gear. While the wallets of the lower- and middle-classes are pinched during economic downturns, Lululemon's core customers typically have wealth that allows them to continue purchasing trendy and pricey exercise apparel despite downward trends in the economy.
A combination of small stores and high prices help to create large profit margins for Lululemon by increasing the difference between the company's operating costs (store operating expenses are lower for smaller stores: rent, utilities, number of employees needed to cover the selling floor, etc.) and overall revenue. The average Lululemon corporate-owned store size is only 2,900 square feet, compared to average store sizes of 7,089 square feet and 12,504 square feet at Abercrombie & Fitch Company (ANF) and Gap (GPS), respectively. With a significantly smaller store and its high priced items (over $60 for t-shirts), Lululemon is able to achieve sales per square foot of $1,700 in its corporate-owned stores, over three times as much as sales per square foot at Abercrombie & Fitch Company (ANF) ($489)and Gap (GPS) ($398). All of this translates into lower costs and higher revenue for Lululemon.
Lululemon is one of the only major retail chains and clothing manufacturers dedicated to yoga and fitness apparel, giving it a powerful position as a niche player in the apparel retail market. It's primary competitors are small businesses that operate individual yoga-wear shops and retail shops located in gyms and fitness centers, as well as sporting goods retailers such as Dick's Sporting Goods (DKS) which sell fitness apparel. It is nearly impossible to compare Lululemon to these competitors as the smaller stores are too small and sporting goods giants like Dick's Sporting Goods (DKS) derive most of their business from product categories, such as sporting equipment and footwear, that Lululemon does not carry. However, Lululemon's advantage over these smaller operations is the popularity of the Lululemon brand among yoga-enthusiasts that has risen with the company's tremendous growth over the past five years.
On a larger scale, Lululemon competes with sports industry giants Nike and adidas which produce athletic apparel and accessories. Each of these companies is incredibly larger than Lululemon in terms of sales and channel presence as they have their own stores in addition to being carried in a multitude of online and brick-and-mortar stores. Sports apparel and footwear manufacturer Under Armour is also a competitor of Lululemon as the company produces high-tech apparel for exercise and athletics. Under Armour (UA) is closer in size to Lululemon, although Under Armour targets young team sport athletes while Lululemon focuses on customers involved in yoga, running and other individual exercises.However, Nike, adidas and Under Armour all have significant footwear operations, which is not part of Lululemon's business.