Lululemon Athletica, 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 for Lululemon, 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.
Lululemon reported Q3 2018 earnings on Dec. 6, 2018. Bolstered by these strategies, the athletic apparel retailer saw revenues of $748 million this quarter, a 21% increase from the same time last year. 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. Lululemon has weathered its fair share of controversy along the way, including when it had to recall its flimsy Luon yoga pants in early 2013.
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 a 1,600-square-foot location in downtown Manhattan.
How Does Lululemon Make Money?
Lululemon sells its products through a network of stores it owns and operates, as well as directly to customers through online sales. As of Dec. 6, 2018, the company operates 426 stores in the United States, Australia, New Zealand, Canada, the United Kingdom, and Singapore. Lululemon believes that its stores help the company connect with customers and solicit feedback on products, while also reinforcing its brand.
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 outsources almost all of its production, with suppliers in South East Asia, South Asia, China, and other countries. Only eight percent of its products are manufactured in North America, which Lululemon sees as a way to quickly and effectively respond to changing market trends.
Who Are Lululemon's Main Competitors?
Lululemon has been successful with its business model. Still, investors should be aware that the company faces a variety of risks, such as fickle consumer 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 supplier issues.