Vancouver-based yoga-inspired athletic apparel maker Lululemon Athletica Inc. (LULU) has announced a minority investment in 7mesh Industries, a startup based in Squamish, British Columbia. (See also: Lululemon Stock Down 19% YTD: Time to Buy?)

7mesh, which offers $250 jackets and $140 shorts for its cycling customers, will fit well into Lulu’s portfolio of high-end, stylish fitness apparel that Millennials increasingly flaunt outside of the gym, in corporate workspaces and out for the day. As a wave of companies such as SoulCycle and FlyWheel attract clients looking for a high-intensity cycling experiences, Lululemon is hoping to find an overlap with its fan base. 7mesh’s team will work closely with Lulu’s research and development (R&D) arm called Whitespace.

Looking Beyond Yoga

The investment is part of the athleisure industry pioneer’s larger 10-year plan to generate 50% of net new profitability from businesses and product categories where the company does not currently compete. Lululemon says innovation is essential to keeping it competitive amid peers such as Nike Inc. (NKE), Under Armour Inc. (UAA) and other non-traditional players that are edging their way into the high-growth space. Others, such as H&M and Urban Outfitters, are trying to get in on the trend.

After a terrible fourth-quarter report in March, in which Lululemon’s disappointing guidance was blamed on a failed targeting of consumer preferences for bright colors and a weak overall retail space, Lulu recovered in June with Q1 results above the consensus. In May, the company signaled its move outside of yoga with an ad campaign rebranding its yoga focus as a lifestyle instead of a sport or activity.

Moving forward, investors can expect Lululemon to stay on the look out for investment deals in upstart brands across the athleisure space. (See also: Lululemon's Q1 Beat: Why It's Still No Turnaround.)


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