Lululemon Athletica, Inc. (LULU), a yoga and exercise apparel company, has been successful at marketing a certain lifestyle rather than just a product. The company’s strategy is based on promoting its “Lululemon Athletica” and “Ivivva Athletica”-branded products as conducive to a fun and healthy lifestyle. Apparently, this has been a successful strategy for Lululemon as the company is able to price its products at a premium. People are even sporting the company’s products as fashion apparel and not just for exercise purposes.

As a result of its successful strategies, the company’s earnings per share were up to $1.66 for the fiscal year ending in February 2015, from $0.86 for the fiscal year ending in January 2011. Over this period, sales surged to about $1.8 billion from $711 million. While the company’s strategies have helped it create a niche for itself, it hasn’t always been a smooth ride for this company that was founded in Canada by Chip Wilson in 1998. Lululemon has weathered some controversy along the way, including when it had to recall its flimsy Luon yoga pants in early 2013.

Target Market and Offerings

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 mostly are targeted at women who aim for a healthy lifestyle while balancing a busy life, the company has expanded its reach by also bringing in men and youth into its fold. In fact, encouraged by the sales of its products geared to men, Lululemon is looking to open a New York City store geared to men only in late 2015.

Marketing and Sales Strategy

Lululemon sells its products through a network of stores it owns and operates, as well as directly to customers through online sales. As of early 2015, the company operated more than 300 stores in the United States, Australia, New Zealand, Canada, the United Kingdom, and Singapore. Lululemon believes that its stores help it keep in touch with customers and get their feedback, while also maintaining greater control of its brand.

The company’s online sales, which have been growing, help it reach a wider market. In addition, the company sells 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.

Outsourcing of Manufacturing 

Another aspect of Lululemon’s business model is that outsources its production. It has contracts with suppliers in South East Asia, South Asia, China, and other countries. Only a minuscule one percent of its products is manufactured closer to home in North America since Lululemon sees this as a way to respond quickly to changing market trends.

Risks Aplenty

Lululemon has been successful with its business model, but investors should be aware that the company faces a variety of risks, such as fickle consumer tastes. In addition, this is a competitive market and competitors in the fitness apparel space include Nike (NKE), Adidas (ADDYY), and Under Armour (UA). And the company’s business model makes it dependent on suppliers to a large extent.

The Bottom Line

Lululemon’s business model has made the company successful, and it has carved a place for itself in the market. Moreover, the company has growth plans, including plans for international expansion that could open up new markets for Lululemon. The company doesn’t pay a dividend and retains its earnings to fund its growth plans. However, investors should be watchful of the risks from strong competition, fickle consumers, and potential supplier issues.

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