The Amazing Lululemon
Every once in a while a remarkable brand appears on the scene, one that stands out in the cluttered world we live in. Lululemon is one of those brands.
Chip Wilson founded Lululemon in Vancouver, Canada in 1998. Apparently Chip tried yoga and loved the experience but he couldn’t find good yoga apparel. So he created the company.
The latest financial results are simply astonishing. In its 2012 fiscal year (ending 1/31/12) Lululemon had revenues of over $1 billion, up more than 40% from prior year. Net income was $184 million, a remarkable 18.4% of revenue. Lululemon now has a market capitalization of more than $10.7 billion.
Last week I stopped by the Lululemon store on Halsted Street in Chicago to see what all the fuss was about. Almost an hour later I emerged from the store, quite taken with the brand. Joe, the nice fellow who helped me, simply gushed about Lululemon. He simply loved working there and loved the products. He explained all the various technical features.
The store environment was captivating; the employees were all young and fit and happy. Each one had their personal goals posted in the store. One fellow wanted to be a store manager in the next year, another wanted to be married with kids in five years. The clothes were displayed in an elegant fashion.
I ended up buying a pair of underwear for a remarkable $24 (the most expensive underwear I’ve ever bought, by far) but I felt great about the purchase because Joe recommended it (“This is simply the best underwear I’ve ever worn”) and it was fun to be part of the scene, albeit in a modest way. The bag alone, featuring the Lululemon manifesto, was worth the price.
If you get people to be thrilled about buying fairly ordinary looking underwear for $24 each you’ve really done something remarkable.
I might even stop by for the Sunday morning yoga clinic sometime, too. I’m not a huge yoga fan so that would be even more remarkable.
I work for a competitor of Lulu, though a full fledged athletic wear company. I think Lulu has done a great job of segmenting, targeting and marketing to their core customer group – women. And yoga wear is just an excuse to sucker the women into their stores and get them to love the experience and buy a whole lot of stuff. As a marketing major, I’m impressed with their approach and success…and I see all other companies now jumping into the space with their me too ‘yoga/studio wear’ collection. On the other hand, as a serious yoga practitioner myself, I find this all a disgusting noise. You don’t need yoga pants, or yoga gloves (!!) or any of that nonsense to have a good practice. When you see pictures of BKS Iyengar, who BBC called the Michaelangelo of Yoga, in yoga poses wearing nothing but a loose fitting shorts, you wonder what all this noise about yoga wear is all about.
“Lulu Light” already exists. It’s called “Target”.
Part of the key to their success is they’ve hired a lot of Strabucks folks, where external branding and internal/employee branding is highly valued.
Although Lululemon (or ‘Lulu’ as the brand advocates call it) was founded as a yogawear company, I think it’s astonishing growth the last few years has been fueled by it’s extension into other areas like running, biking, swimming and casual wear. It’s not just the brand image but the quality of the products that make Lulu stand out above the rest. Compare Lululemon to Athleta, a similar company owned by Gap, Inc. They have a very similar product selection and brand positioning but Lulu can easily charge 30% more. I believe it’s Lulu’s history of offering high quality products that helped the company get to where it is today. While they scale up, it’s essential that Lulu maintain it’s focus on quality. A ‘Lulu light’ would be a mistake in my mind.
It just seems to me that by charging such high prices, they are eliminating a major portion of the potential market. It’s just like what Apple used to be. Apple was only high-end (remember the first phones were $499 & $599) and everything that they sold was very expensive compared to similar products by the Windows gang (a quality Windows notebook could be had for half the price of a Macbook). They did well, just like Lulu is doing well, but Apple broke through all records and became the world’s largest company by market cap when it became so efficient that it could offer those same high-quality products at much more reasonable prices.
Now, a Macbook is only $200 more than a similarly spec’ed Windows notebook. The newest iPhone is only $199 with contract instead of $599 with contract.
It surely doesn’t cost $100 to make a pair of high-quality yoga pants, so Lulu doesn’t have to skimp on quality for “lulu light.” They simply have to create a sub-brand or maybe an outside brand that is almost as good in terms of quality, but maybe half the price. This way, the people who want the absolute best quality or the people who really want to associate themselves with the Lulu brand can keep buying the $100 yoga pants and the people who aren’t even customers because those pants are so expensive can now actually buy things from Lulu via lululight.
This will expand their customer base without cannibalizing their business too much. It may just be a different brand within their store (ala Poppy from Coach). Or, if they can keep the brand story together, they can do pop-up lululight’s at department stores nationwide, instantly expanding their footprint to mainstream penetration levels.
The more Lulu waits, the more it risks someone coming in and seeing how astronomically large the profit margins are and thinking, “I can do better.” After all, they have no patents, no trade secrets, no prized locations…they just have their brand. The quality is reproduce-able, and they are just leaving the door open for a competing brand to satisfy the middle 50% of the market.
It will be interesting to see if LULU can grow into a sustainable long-term company such as Coach rather than being just a fad-company capitalizing on the public’s fascination with yoga. I think it can, because yoga actually does have significant health benefits (think about the sustainability of the running shoe business).
Although with their sky-high prices, I think they are leaving a significant gap for a middle-market priced entrant. Maybe when yoga-wear was a low volume business, high margin products made sense. But as yoga gets more into the mainstream, somebody is going to have to cater to those who need to pick up a complete yoga outfit for less than the $200 LULU might charge. Although many companies do, there is room for a full brand here. Maybe Lululemon needs a Lulu “light”?
Maintaining the growth will be a challenge! I suspect finding store locations will become more and more difficult, especially locations with the right population. At some point the growth rate will need to slow as the company matures.
Interesting news! That could be a big problem for them long term…I think staff enthusiasm is incredibly important for the brand.
After your lecture and as I like yoga myself (and never heard of them over here in Europe), I checked it out in forums. I was surprised to see, though, that many complained about working conditions there. Apparently, there are a lot of perks of working there (e.g. free yoga classes) but the regular staff personal are rather underpaid. Again, cannot comment it myself but was surprised with many of such comments.