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LULULEMON ATHLETICA: AN ANALYSIS AND PROPOSED ACTIONS
A research project submitted to the faculty of San Francisco State University in partial fulfillment of the requirements for the degree
Master of Business Administration by
Matthew D. Fisher
San Francisco, California
June 26, 2011
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CERTIFICATION OF APPROVAL I certify that I have read LULULEMON ATHLETICA: AN ANALYSIS AND PROPOSED ACTIONS by Matthew D. Fisher, and that in my opinion this work meets the criteria for approving a research project submitted in partial fulfillment of requirements for the Master of Business Administration degree at San Francisco State University. _______________________________________
Robert C. Nickerson Professor
________________________________________ Nadine Tournois Professor
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ABSTRACT
LULULEMON ATHLETICA: AN ANALYSIS AND PROPOSED ACTIONS Matthew D. Fisher
San Francisco State University
June 26, 2011 The project aim is to explore the retailing business model of lululemon athletica, inc.
utilizing primary source financial reports and secondary articles to generate
insights into an unusual, relationship based, retailing business model.
The analysis of information technology use and the E-‐commerce project launch
illustrate a firm adapting to rapid growth and market challenges. The project
concludes with recommendations extending firm competencies to reinforce a
durable competitive advantage through marketing and organizational change.
I certify that the Abstract is a correct representation of the contents of this research project. _______________________________________ _____________________ Robert C. Nickerson (Date) Professor
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Table of Contents Chapter 1: An Introduction to lululemon athletica, inc. ............................................... 1 Company History: ...................................................................................................................................................... 2 Products and Services: ............................................................................................................................................. 3 Financial Position ....................................................................................................................................................... 9 Chapter 2, Marketing Plan: Biking Product Line Extension ......................................... 11 Executive Summary: .............................................................................................................................................. 12 Situation Analysis .................................................................................................................................................... 13
External: ..................................................................................................................................................................... 13 SWOT Analysis: ..................................................................................................................................................... 16
Marketing Objectives: ............................................................................................................................................ 19 Marketing Strategy: ................................................................................................................................................ 20 Positioning Statement: .......................................................................................................................................... 21 Marketing Programs: ............................................................................................................................................. 21 Financial Projections: ............................................................................................................................................ 22 Monitors and Controls: ......................................................................................................................................... 23 Chapter 3: Project Analysis: E-‐commerce ................................................................... 25 Situational Background: ....................................................................................................................................... 26 Project Definition: Challenges of Growth and Strategy .......................................................................... 27 E-‐Commerce Project: lululemon.com ............................................................................................................. 31 Deliverables: .............................................................................................................................................................. 31 Deliverables: .............................................................................................................................................................. 32 Subcomponents and Purpose: ........................................................................................................................... 32 Milestones: ................................................................................................................................................................. 33 Measurable Milestones ......................................................................................................................................... 34 Purpose ........................................................................................................................................................................ 34
Implementation and Estimates: .................................................................................................................... 35 Date of Reference .................................................................................................................................................... 38 Noted Actions ............................................................................................................................................................ 38
Project Risks: ........................................................................................................................................................... 39 Risk ................................................................................................................................................................................ 39 Likelihood ................................................................................................................................................................... 39 Impact .......................................................................................................................................................................... 39 Detection ..................................................................................................................................................................... 39 When ............................................................................................................................................................................. 39 September 2008: Enter Gap, Inc.: ..................................................................................................................... 40 Chapter 4: Information Technology Analysis .............................................................. 44 Information Technology and Lulu: An Emerging Role ............................................................................ 45 Strategic Application of IT ................................................................................................................................... 48 IT Recommendations: Strategic and Tactical .............................................................................................. 51 The Evolving Role of IT ......................................................................................................................................... 52 Chapter 5: Change Management Initiative, Yoga for Health ...................................... 54 Identifying Need: Yoga for Health .................................................................................................................... 55 Leveraging Strengths ............................................................................................................................................. 55 Change Diagnosis and Need ................................................................................................................................ 57
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Need for Change: Like Nothing Else… ............................................................................................................ 57 Resistance: Short and Long ................................................................................................................................. 61 Strategic Initiative Metrics .................................................................................................................................. 61 Organizational Design and Maintaining Change ........................................................................................ 62 Natural Strategic Fit ............................................................................................................................................... 64 Chapter 6: Lululemon Stretching Forward, A Study of Holistic Retailing. .................... 66 From Start Up to Segment Leader .................................................................................................................... 67 Lulu Cyclewear ......................................................................................................................................................... 67 Lulu E-‐commerce .................................................................................................................................................... 68 Organizational Efficiency Through IT ............................................................................................................ 68 Evolving Lulu ............................................................................................................................................................ 68 Conclusion .................................................................................................................................................................. 69 Bibliography .............................................................................................................. 71
Appendix 1: Industry Peers: Lululemon Athletics, Inc (LULU) ..................................... 78
Appendix 2: Pre-‐2008, lululemon website product database. .................................... 79
Appendix 3: Pre-‐2008, lululemon Website Menu and Function Bar. ........................... 80
Appendix 4: E-‐Commerce Project Management Gant Chart ....................................... 81
Appendix 5: Detailed Work Package Spreadsheet ...................................................... 82
Appendix 6: Timeline of technology events ............................................................... 85
Appendix 7: Lululemon Addict Blogpostings .............................................................. 86
Appendix 8: lululemon athletica, inc. manifesto ........................................................ 87
Appendix 9: Existing mobile store examples .............................................................. 88
Appendix 10: Gap Analysis ........................................................................................ 89
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Chapter 1: An Introduction to lululemon athletica, inc.
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Company History: Founded in 1998, lululemon athletica, Inc. (lululemon) is headquartered in
Vancouver, British Columbia. Company founder and board chairman, Dennis
ʻChipʼ Wilson, initially established the first Vancouver location as a design shop
doubling as a yoga studio in the evenings to defray the costs of rent.1
Wilson noted the cotton attire worn by yoga practitioners was a hindrance to
achieving proper form and balance. Wilsonʼs previous experience in snowboard,
skate, surf activities provided the inspirational basis to import design and material
elements of technical athletic wear, a classification of textile fabrics formulated
and used for specific athletic uses, to apply to yoga apparel.2 The advanced
technical fabrics materials used in form fitting wetsuits, used by surfers, and
performance winter wear, used by snowboarders, exposed a niche opportunity
leading to the formation of lululemon athletica, inc.
In 2000, the first lululemon branded store opened in Vancouver.3 Lululemonʼs
initial growth and successes were once concentrated within the Canadian
market, and, previous to going public, briefly offered a franchise model to
compliment their organic store expansion. In 2005, the infusion of venture capital
money and appointment of CEO, Robert Meers, marked a firm repositioning for
1 Lululemon athletica, inc., “About Us: Our Company History,” 2010. http://www.lululemon.com/about/history2010 (accessed November 12, 2010). 2 Ibid. 3 Ibid.
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an initial public offering and organizing management and logistics infrastructure
for expansion.4 In 2008, Christine Day replaced Meers, as CEO, to lead large-
scale expansion of operations and number of showrooms.5 In 2007, an initial
public offering provided the necessary capital for large-scale expansion, but the
economic slowdown of 2008 tempered the pace of new store openings.6
However, the economic downturn was not entirely harmful to the firm, and
resulted in a refocus on core strengths with regard to selection of store
locations.7
Products and Services: “Lululemon is... black stretchy pants.”
-Unnamed lululemon employee 2008 Annual Report Video8
Lululemonʼs initial focus on womenʼs yoga apparel is reflected in early statements
regarding products and target markets of both media and analyst descriptions.9
The female market concentration reflected the reality that yoga is at least 70%
4 Lululemon athletica, inc., “lululemon athletica inc. Continues to Gain Momentum with Strong Fourth Quarter and Fiscal Year 2007 Results Fourth Quarter Net Revenue Increases 101% to $105 million.” 5 Ibid. 6 Alex Sherman, “Lululemon Yoga-Wear Store Expansion 'Disciplined' After Recession Lesson,” Bloomberg.com, September 20, 2010, http://www.bloomberg.com/news/2010-09-20/lululemon-yoga-wear-store-expansion-disciplined-after-recession-lesson.html (Accessed September 25, 2010). 7 Ibid. 8 Lululemon athletica, inc.,“2008 Video Annual Review,” lululemon website. Vimeo. http://vimeo.com/4615267 6:24 (accessed on: November 1, 2010). 9 Solerina Ho, “ANALYSIS-Lululemon seen growing in lucrative niche market,” Reuters.com, November 2, 2010. http://www.reuters.com/article/idUSN0116446120101102 (accessed on November 20, 2010).
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practiced by women.10 The broader athletic apparel market illustrates that
women account for over 42% purchases.11
In addition to womenʼs yoga, Lululemon also markets a running and casual wear
line, as well as a line of menʼs active wear.
Lululemonʼs product pricing is aimed at the high-end consumer and utilizes a
vertical retail strategy to tightly control brand image and distribution. The vertical
retail strategy and grassroots marketing, through local community activity
leaders, yoga instructors and group running leaders, presents a unique challenge
to analysts seeking to benchmark performance and valuation, "I have not been
able to find any company that compares with what they do," stated Suzanne
Price, a retail analyst with ThinkEquity.12 Morningstar lists casual clothing
retailers as industry competitors, while others note Nike and Under Armour as
competitors, however none have a comparable business model or market
focus.13 Lululemonʼs tight control of product distribution, product design, and
community-focused approach to retailing emphasizes a business model that
10 Andrew Tilin, “Where are all the men?,” Yoga Journal, March 2007, 91-96 & 128-130. 11 Sporting Goods Manufacturers Association, “U.S. Sports Industry: Nearly a $70 Billion Business,” June 9, 2008, (Sporting Goods Manufacturers Association 2008) (accessed November 12, 2010). 12 Danielle Sacks, “Lululemonʼs Cult of Selling,” Fastcompany.com, April 1, 2009. http://www.fastcompany.com/magazine/134/om-my.html (accessed November 5, 2010). 13 Morningstar, Inc., “LULU: Lululemon Athletica, Inc. Top Competitors and Peers.” http://financials.morningstar.com/competitors/industry-peer.action?t=LULU®ion=USA&culture=en-us (accessed May 6, 2011).
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approaches customers as those, “interested in healthy living and the apparel that
goes with it.”14
Lululemonʼs form fitting apparel products are designed for specific activities
utilizing ʻtechnical athleticʼ fabrics to optimize the userʼs comfort and
performance.15 The ʻstretchy black pantʼ, or specifically the ʻGroove Pantʼ line,
has become the firmʼs de facto flagship product, characterized by the snug fit that
is meant to facilitate proper yoga poise. The ʻstretchy black pantʼ now enjoys
wide use for both yoga and everyday casual comfort.16 A major component of
the firmʼs popularity is based on unique product design aspects such as ʻcuffinsʼ,
discrete mittens integrated into the cuff of a long sleeved item, in which the
wearer conveniently utilizes during activity use, and consequently reinforcing
brand value and product experience.17 Since 2007, the firm has placed greater
emphasis on expanding their menʼs athletic apparel products, and the current
statement of target market reflects this new scope.18
14 David Dorf, “New Rules of Retail,” May 2010. http://www.oracle.com/us/industries/retail/oracle-retail-new-rules-wp-080053.pdf (accessed November 27, 2010). 15 Lululemon athletica, inc., “Education: Fabrics and care,” http://www.lululemon.com/education/info/care (accessed November 13, 2010). 16 Vito Racanelli, “A Lulu of a Valuation for Yogawear Chain,” Barronʼs, October 16, 2010. http://online.barrons.com/article/SB50001424052970204742304575546304162330036.html?mod=BOL_hpp_mag (accessed November 13, 2010) 17 Lululemon athletica, inc., “Education: Features and Benefits,” http://www.lululemon.com/education/info/features (accessed November 13, 2010). 18 Lululemon athletica, inc., “About us: Our frequently asked questions,” http://shop.lululemon.com/help.html (accessed November 10, 2010).
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This one's for all you students writing their research papers on us... hmm, target... what's that? Well if you want us to spout that marketing jargon, we admit that we aim our clothing primarily at active women and men: individuals that work, play and share our vision of creating healthier, happier and more fun lives!
-Lululemon Athletica Inc. Target Market19
The popularity of the product line has led many to wear the clothes outside of just
the yoga studio, therefore new designs seek to enhance the versatility of product
use.
Several articles have labeled the extreme level of brand loyalty as akin to a “cult
following”.20 The critical label maybe understood when reviewing that expansion
and marketing are based almost entirely on a grass roots approach that seeks a
very deep connection of product, yoga instructors, and yoga class participants.
New showroom research focuses around the recruitment of brand ʻambassadorsʼ
and the number of yoga studios of an area. What makes these ʻbrandʼ
ambassadors unique is detailed well by Bryant Urstadt, of New York Magazine:
Many of New Yorkʼs most-sought-after yoga teachers are Lululemon “ambassadors.” These ambassadors, usually yoga teachers with a big following, but sometimes triathletes or runners, are recruited in a target city before a store opens. They are outfitted in Lulu and thus spread the gospel to the customers. Though they arenʼt paid, ambassadors are featured prominently on bulletin
19 Lululemon athletica, inc., “Help: Frequently asked questions.” 20 Danielle Sacks, “Lululemonʼs Cult of Selling.”
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boards in the stores, lending the company credibility as a part of the “community.”21
The integration of brand ambassadors allows the firm to achieve an integrated
and holistic approach to their product as well as demonstrate a deeper
commitment to a company mantra, as laid out by CEO Christine Day, of
“community relations” and “raising the level of health”.22
Beyond the firmʼs tangible products is an intangible service of free in store yoga
classes that effectively integrates each lululemon showroom into its local
community. The free onsite yoga classes allow ambassadors to attract new
clients to studio classes through an informal channel and frequently result in
enhancing the ambassadorʼs clientele, further aligning lululemon with a healthy
living lifestyle. Lululemon also encourages local yoga studios to advertise
unaffiliated classes on bulletin boards within showrooms, and frequently features
ambassadors on large in-store marketing posters.23 The new emphasis on the
firmʼs ʻrunningʼ product line, in combination with ambassadors characterized as
runners first, who also enjoy yoga, has led to organized weekly runs based out of
each showroom.24
21 Bryant Urstadt, “Lust for Lulu, How the yoga brand Lululemon turned fitness into a spectator sport,” New York Magazine, July 26, 2009. http://nymag.com/shopping/features/58082/ (accessed on November 9, 2010). 22 Lululemon athletica, inc.,“2009 Video Annual Review,” lululemon website. Vimeo. http://investor.lululemon.com/ 12:00 (accessed on: November 1, 2010). 23 Urstadt, “Lust for Lulu, How the yoga brand Lululemon turned fitness into a spectator sport.” 24 Gina Kolata, “Train the Mind to Run Right Through the Winter,” The New York Times, November 10, 2009. http://www.nytimes.com/2009/11/12/health/nutrition/12best.html (accessed on November 8, 2010).
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While lululemon is still commonly known as a yoga retailer for women as noted
by Sharon Zackfia, an analyst for William Blair, she “argues that itʼs not just a
yoga company, but a company that makes quality athletic clothing for women,”
however the firm is actively seeking to broaden their customer base and segment
into new market niches.25 The firmʼs current customer base is 77% comprised of
women, however the percentage of male shoppers is increasing as the firm
focuses on expanding product lines and increased emphasis on menʼs attire.26
Additionally, the firm launched on September 1, 2009, the brand ʻivivva athleticaʼ,
aimed at adolescent and teenage girls, and currently operates five showrooms
across Canada.27
Lululemonʼs stated goal, via their 2008 annual review video, is to expand to at
least 300 North American showroom locations from its current 137 (44 in
Canada, 82 in the United States, and 11 in Australia).28
25 Urstadt, “Lust for Lulu, How the yoga brand Lululemon turned fitness into a spectator sport.” 26 Lululemon athletica, inc. 2009 Annual Report. (Vancouver, BC: lululemon athletica, inc., 2010), 29. 27 Lululemon athletica, inc.,“2008 Video Annual Review,” lululemon website. Vimeo. http://vimeo.com/4615267 6:24 (accessed on: November 1, 2010); Ivivva athletica: stores, lululemon athletica inc., http://www.ivivva.com/stores/ (accessed on November 14, 2010). 28 Lululemon athletica, inc.,“2008 Video Annual Review;” Lululemon athletica, inc. 2009 Annual Report. (Vancouver, BC: lululemon athletica, inc., 2010), 5.
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Financial Position Morningstar reports, lululemonʼs market capitalization currently tops 3.3 billion
(USD) based upon a November 12, 2010, market closing quote, and price per
share of $47.42 (USD).29
Enthusiasm behind the firmʼs current stock price has led skeptics to emphasize
the standard measures of company valuation. Brian Pacampara, a writer for the
“The Motley Fool”, recently noted the following quantitative statements, “The
stock is up 77% over the past year and trades at a lofty price-to-cash flow of 26 --
a premium to publicly traded foes Nike (15.2), Finish Line (5.6), and even the
high-flying Under Armour (24.2).”30
Following the July 27, 2007 initial public offering, the firm has increased the
number of stores and pursues a vertical retail strategy, controlling every avenue
their apparel is sold.31 The firm currently operates 137 showrooms each
generating sales exceeding $1,726.00 (USD) per square foot of retail space, a
company record.32 Net revenues topped 711.7 million (USD) for fiscal year 2010,
29 Morningstar, “Lululemon Athletica Inc.”, Morningstar, updated November 12, 2010, http://quote.morningstar.com/stock/s.aspx?t=lulu (accessed on November 14, 2010). 30 Brian Pacampara, “1-Star Stocks Poised to Plunge: lululemon?” Motley Fool on Msnbc.com, 26 Oct. 2010, http://www.msnbc.msn.com/id/39849037/ns/business-motley_fool/ (accessed on November 14, 2010). 31 “lululemon athletica (LULU) Founder to Ring the NASDAQ Stock Market Opening Bell.” lululemon athletica Inc., lululemon athletica, inc., Accessed on November 13, 2010, http://investor.lululemon.com/releasedetail.cfm?ReleaseID=256946 32 Lululemon athletica, inc., “lululemon athletica inc. Announces Fourth Quarter and Full Year Fiscal 2010 Results.”
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representing a 57% increase over 2009.33 Lululemon operates with an enviable
cash position and brand loyalty encouraging continued expansion, yet seeks to
temper shareholder appetites for growth and higher stock prices with the core
principles of the firm.
Firm performance is comparatively bench marked with the broader market and
concisely stated as follows, “Since lululemonʼs July 2007 initial public offering, the
company has posted a 165 percent return. The Standard and Poorʼs Index,
meanwhile, lost 20 percent in the same period.”34 In the peer report compiled by
Morningstar, lululemon rates as an “A” grade in the categories of growth,
profitability, and financial health (see Appendix 1).35 Benchmarking lululemonʼs
performance with other specific apparel retailers further emphasizes that the firm
is performing well and is financial secure. The resulting conclusion is of a firm
well poised to continue operations and growth, and not overburdened with
unprofitable showrooms nor encumbered with debt.
33 Lululemon athletica, inc., “lululemon athletica inc. Announces Fourth Quarter and Full Year Fiscal 2010 Results.” 34 Robert Schmidt, “Geitner Family Seeks Investing Nirvana in Yoga Retailer,” Bloomberg, November 11, 2010. http://www.bloomberg.com/news/2010-11-11/geithner-family-contemplates-portfolio-return-with-yoga-retailer-lululemon.html (accessed November 12, 2010). 35 Morningstar, “Industry Peers: Lululemon Athletics, Inc (LULU)”, Morningstar, updated October 29, 2010. http://quicktake.morningstar.com/stocknet/printreport.aspx?symbol=LULU&country=USA&culture=en-US (accessed on November 14, 2010).
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Chapter 2, Marketing Plan: Biking Product Line Extension
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Executive Summary: Utilizing the current grass roots marketing infrastructure, launch a focused
product extension aimed at mitigating competitor threats and addressing
competitive gaps. The plan strengthens brand appeal and achieves a seamless
integration of a holistic product experience.
The plan for biking apparel capitalizes on the strategic focus outlined by CEO
Christine Day, by appealing to each of the, “four pillars: of technical product, cool
stores, education and culture, and community relations”.36
Refining the lululemon website, focused on serving as a hub for healthy lifestyle
activities and community interaction, facilitates the conditions for a seamless
interactive experience that both reinforces strengths and addresses competitive
weaknesses.
Developing a mobile application serves as the channel to deliver the full
integrative experience to achieve the ʻfour pillarsʼ and a healthy living philosophy.
The cycling product line allows for effective capitalization on local community
efforts of bike lanes, fitness, and healthy living initiatives.
36 Lululemon athletica, inc.,“2009 Video Annual Review,” lululemon website. Vimeo. http://investor.lululemon.com/ 12:00 (accessed on: November 1, 2010).
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An implementation and evaluation period of 18 months allows at least two
outdoor cycling seasons in all markets.
Situation Analysis External: In 2008, the Sporting Goods Manufacturers Association (SGMA) measured the
United States wholesale athletic gear market at 68.4 billion (USD), reflecting
2.9% growth over 2006, while the Canadian sporting goods market totaled nearly
7.14 billion (USD), for 2008. 37
Mass-market firms, such as Nike and Reebok, dominate the overall athletic
apparel segmentation, comprised of 29.5 billion (USD) in wholesale sales, while
the Canadian athletic apparel, market totaled over 1.4 billion (CAD), 1.33 billion
(USD). 38
Launched in 1998, Lululemon athletica, inc., leveraged success within the
specialty niche market of womenʼs yoga apparel into an international brand.
Following the success of the first retail store in 2000, and an initial public offering
in 2007, the firm has experienced rapid growth leveraging a vertical retail
37 2008: 12 month average of USD to CAD exchange rate: .943575, http://www.x-rates.com/d/USD/CAD/hist2008.html (accessed on November 27, 2010); SGMA Website (2010), “U.S. Sports Industry is Nearly 70 Billion Business”; Trendex Sports Vision (July 2008), Annual Market Overview Statistics, Available online at: http://www.sportsvision.info/annual_stats.htm (accessed on November 27, 2010). 38 2008: 12 month average of USD to CAD exchange rate: .943575, http://www.x-rates.com/d/USD/CAD/hist2008.html Accessed on: 27 Nov. 2010; SGMA Website (2010), “U.S. Sports Industry is Nearly 70 Billion Business”.
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strategy, grass roots marketing, and value added pricing structure to achieve
niche leader status. Lululemonʼs focus on yoga serves a niche comprised of 15.8
million people in the U.S. market.39 Resulting from lululemonʼs unique
competitive approach, potential competitors encompass both wholesale and retail
firms. Lululemonʼs 2009 Annual Report cites competitor firms as:
We are in direct competition with wholesalers and direct sellers of athletic apparel, such as Nike, Inc., adidas AG, which includes the Adidas and Reebok brands, and Under Armour, Inc. We also compete with retailers specifically focused on womenʼs athletic apparel including Lucy Activewear Inc., The Gap, Inc. (including the Athleta collection), and bebe stores, inc. (including the BEBE SPORT collection).40
The 2009 Annual Report illustrates the pace of growth by stating; “Our net
revenue has increased from $40.7 million in fiscal 2004 to $452.9 million in fiscal
2009, representing a 61.9% compound annual growth rate.”41 Sales revenue
growth reflects a three-year growth rate of 45.2%.42
From 2000 to 2009, SGMA research data surmises “pilates” grew from 1.5 million
to 8.5 million U.S. participants (see Table 1).43 Lululemonʼs current yoga product
offerings serve the market reflecting the greatest growth, and the running apparel
line caters to the running/jogging segment (see Table 1). A product line
39 Yoga Journal, “Yoga Journal Releases 2008 ʻYoga In Americaʼ Market Study,” February 26, 2008. http://www.yogajournal.com/advertise/press_releases/10 (accessed on November 22, 2010). 40 Lululemon athletica, inc. 2009 Annual Report, page 9. 41 Lululemon athletica, inc. 2009 Annual Report, page 2. 42 Morningstar, “Quote: Lululemon Athletica Inc.”, Morningstar, updated November 12, 2010, http://quote.morningstar.com/stock/s.aspx?t=lulu (accessed on November 14, 2010). 43 Sporting Goods Manufacturers Association (2010), “U.S. Sports Industry: Nearly a $70 Billion Business.”
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extension bridges the two core activity lines catering to yoga/pilates and
running/jogging, as well as an opportunity to capture the stationary cycling
segment (see Table 1).
Table 1: Activity Growth.44
Both wholesaler and retail competitors rely primarily upon the traditional avenues
of mass-market advertising and celebrity endorsements to build their brand
44 Sporting Goods Manufacturerʼs Association, “Physically Active Americans Want ‘Better Return’ From Their ‘Exercise Investment’,” March 29, 2010. http://www.sgma.com/press/220_-Physically-Active-Americans-Want-%91Better-Return%92-From-Their-%91Exercise-Investment%92 (accessed on November 12, 2010).
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equity and market share.45 Lululemonʼs utilization of a vertical retailing model
allows for an effective grass roots marketing approach to both products and
guest experiences that maintains a competitive edge.46 Recruiting local opinion
leaders as ʻambassadorsʼ insulates lululemon with a barrier to entry that
competitors cannot quickly, or easily, emulate. Furthermore, the ambassadors
provide an important feedback point to evaluate levels of customer product
satisfaction.
SWOT Analysis: Lululemonʼs growth, from a specialty retailer focused on a single niche market to
a publicly traded international firm, is marked with significant strengths and
opportunities, however long term sustainability must mitigate the weaknesses
and threats posed by competitors and external market forces.
A Wall Street Journal article that cited, “Lululemon eschews the traditional
marketing strategy of hiring high-priced sports celebrities to model its outfits,
characterizes Lululemonʼs product and marketing strengths. Lululemon spends
almost nothing on advertising beyond occasional print ads in yoga and running
magazines.”47
45 Derrick Daye and Brad VanAuken, “Celebrity Endorsement Guide,” The Branding Strategy Insider Blog, entry posted October 2, 2010. http://www.brandingstrategyinsider.com/2010/10/celebrity-endorsement-guide.html (accessed November 27, 2010). 46 David Dorf, “New Rules of Retail.” 47 Kevin Helliker, “Lululemon Grows Fast on a Small Budget,” Wall Street Journal, September 13, 2010.
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Table 2: lululemon athletica inc. SWOT Analysis
Having built a successful business model leveraging grass roots marketing and
local opinion leaders; lululemonʼs strengths arise from their holistic niche market
approach as cited in their SWOT analysis (see Table 2).
Significant net margins, 14.9% versus an apparel retailer industry average of
5.8%, coupled with a lack of any product or design property rights present few
actual limitations to new niche competitors.48
48 Morningstar, “Morningstar Quicktake Report: Industry Peers: Lululemon Athletics, Inc (LULU),” Morningstar. http://quicktake.morningstar.com/stocknet/printreport.aspx?symbol=LULU&country=USA&culture=en-US (accessed November 14, 2010).
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While lululemonʼs array of strengths is formidable, enthusiasm for the niche
segment, particularly above average profit margins, represent significant
incentives for competitors. Low barriers to entry are of particular concern, when
considered in combination with high margins, because the firm holds no product
patents or textile factories.49 Focused mitigation of new competitor threats
delivers efficient customer value and focus on healthy lifestyle.
Inventory and logistics technology upgrades have shortened the development
cycle and streamlined operations efficiency, while vertically controlled retail
channels allow the capability to deliver new products in as little as 45 days.50
Lulu Lab, a new product design facility situated within a retail environment allows
direct access to consumers and product feedback.51
49 Lululemon athletica, inc. 2009 Annual Report, page 19. 50 Lululemon athletica, inc. 2009 Annual Report, page 8. 51 lululemon athletica inc., “The lululemon Lab: Vancouver,” http://www.lululemon.com/vancouver/lululemonlab (accessed November 28, 2010).
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The current balance of age and gender demographics illustrates the broad
appeal of lululemon products across age groups, but exposes a weakness to an
over-reliance upon a female clientele (see Figure 1).
Figure 1: yoga age and gender demographics.52
Marketing Objectives:
Launch of a biking apparel line serves as an integrative bridge to the core yoga
and running lines and furthers the holistic marketing experience of product,
experience, and healthy living.
52 Yoga Journal, “Yoga Journal Releases 2008 "Yoga in America" Market Study.”
72%#28%#
Yoga Gender Segmentation#
Women# Men#
41%#
41%# 18%#
Yoga Market Age Segmentation#
18-34 years# 35-54 years#55+ years#
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Quantitative success is measured by 3 objectives:
1. Increase brand awareness amongst male bikers, runners, and
yoga participants by 25%.
2. Obtain 200,000 subscribers to mobile application service.
3. Achieve 20 million (USD) in gross sales from biking apparel
product line.
The plan implements a mobile defense strategy that moves the firm into an
untapped market, while also shoring up existing competitive advantages, thereby
insulating the firm against competitor threats.
Marketing Strategy: The launch of the biking product line targets ʻurban commutersʼ and ʻfitnessʼ
riders. As noted earlier in the SGMA study, stationary cycling is a large
segmentation of what would be termed as ʻfitnessʼ riders (see Table 3).53
Targeting the ʻcommuterʼ appeals to community municipal efforts at furthering
healthy living, while the stationary cycling ʻfitnessʼ segment taps into the class
format of ʻspinningʼ that compliments lululemonʼs yoga base.
53 National Bicycle Dealers Association, “Industry Overview 2009: National Bicycle Dealers Association,” 2009. http://nbda.com/articles/industry-overview-2009-pg34.htm, (accessed November 29, 2010).
21
Positioning Statement: Lululemon biking apparel equips the active, health conscious consumer to extend
their physical activity beyond the yoga studio to connect with community
events… on the way to work, to the farmerʼs market, or home from yoga.
Marketing Programs: To achieve the objectives of the plan, the following actions achieve the stated
goals.
1. E-marketing newsletter campaign and online social activities organized to
feature bicycling events that encourage inclusion of spouses, and partners, of
the current customer base and achieve 30% male activity participation.
10
20
30
40
Biking Recreation
Fitness Commuter
Total Biking Market Segment 38.1 27.8 20.2 3.8
Mill
ions
of P
artic
ipan
ts
Table 3: Behavioral Biking Market Segmentation
22
2. Develop mobile application to effectively utilize location based features
that emphasize healthy lifestyle events, exercise routes, fitness tracking
feedback, and nearby studio classes.
3. Retool lululemon.com to serve as a fitness goal-setting monitor. Fitness
goals and routines integrate the lululemon experience and serve as a hub for
activity provider services and mobile application integration.
Financial Projections: Costs associated with design are budgeted within the normal scope of staffing
salaries, overhead, and material supply outlays and therefore do not constitute
new expenditures. Ongoing maintenance costs of online content are budgeted to
require four additional staff members to ensure continual improvement of the
guest to maintain valued added content.
Revenues Unit Price
Costs Revenue Units Sold
Net Revenue
Application Sales
4.99/year $1.50 $3.49 199,123 $694,939.27
23
Mobile application revenue projections are based upon the current measure of
social network followers, assumes distribution fees of 30%, and projects a first
year adoption of 75% of Facebook base (see Figure 2).
Figure 2:lululemon.com Facebook Followers, November 30, 2010
Maintaining a net margin of 14.9%, ignoring revenues from mobile application
sales, the plan achieves a break even of first year costs at 4.9 million (USD) in
sales.
Monitors and Controls:
The evaluation of plan success centers on participation rates for social biking
events, and unit sales by product.
Utilizing Internet analytic applications, the E-commerce channel quantitatively
measures participation and interest by customizing e-mail marketing to maximize
response rates. Customization of direct e-mail marketing enhances the guest
experience, by utilizing data mining of customer interests and lifestyle
24
characteristics, and achieves increased adoption of social networking site
aspects.
Physical counts of activity participation at the local level serves as a secondary
gauge of interest and insight to the qualitative aspects of the plan, while monthly
analysis of E-commerce traffic data and local activity participation provides
feedback to measure short term customer acceptance.
To ensure objective evaluation of results, external market research will
benchmark the plan at outset, and again at the end of the 18 months, to measure
the increase in male brand awareness. An increase in brand awareness
quantifies many of the qualitative aspects the plan is seeking to achieve.
Ultimately, plan success is measured primarily by increased sales figures,
however increases in both showroom and E-commerce traffic, as well as a
greater balance of sales by gender, achieves secondary goals. Markets noted to
be falling short of plan targets would necessitate additional local market analysis
to formulate marketing events and activities to spur results throughout the 18-
month plan.
Chapter 3: Project Analysis: E-commerce
26
Situational Background: Lululemon athleticaʼs rapid growth stands in stark contrast to the humble
beginnings of a Vancouver design firm formed in 1998.54 In 2000, the opening of
the first store featured a line of womenʼs yoga apparel comprised of performance
textiles, and touching off a retailing sensation that resulted in 130 stores through
September 2010.55 Double-digit sales growth has transformed, the small niche
retailer, into a major provider of performance apparel, but success bears its own
challenges of scale and capacity.
An analysis of lululemon athleticaʼs course reveals a firm benefiting from rapid
brand acceptance and growth opportunities, yet compelled to adapt to a reality of
its organizational limitations and increased competitive environment from rivals
seeking to encroach on a lucrative niche market. The focus of this project
analysis centers on the post-IPO period of 2007 to 2009, and the addition of e-
commerce channel capability.
Following their initial public offering in 2007, lululemon rapidly expanded its
showroom presence to capitalize on the success of it grass roots marketing and
54 lululemon athletica, inc. “our company history.” 55 Lululemon athletica, inc. Form 10-Q Quarterly Report, Vancouver, BC: lululemon athletica inc., Filed September 19, 2010, http://investor.lululemon.com/sec.cfm?DocType=Quarterly&Year=&FormatFilter= (accessed on November 10, 2010).
27
community based retailing strategy.56 The impact of the recent recession,
particularly within 2008, exposed the retailing industry to an erosion of consumer
spending, thereby adversely impacting financial performance, however
lululemonʼs continued sales growth and performance, within a higher price
product category, outpaced industry performance benchmarks.
A healthy cash position and sales performance, starkly contrasting national
trends, presented lululemon with opportunities to undertake projects to enhance
their competitive strengths and address limitations of operational infrastructure.
Project Definition: Challenges of Growth and Strategy
The infusion of capital, from the recent initial public offering, removed an to
obstacle many project undertakings, however emerging as a publicly owned
corporation entails external pressures for both rapid growth and performance.
Strategically focused projects center on leveraging growth to achieve long term
efficiency of operations countered in the context of necessary short term results.
In 2006, lululemon formed a partnership with Descente Ltd., a Japanese firm, to
form ʻlululemon Japan Inc.ʼ allowing for new international market entry.57
56 Lululemon athletica, inc. “(LULU) Founder to Ring the NASDAQ Stock Market Opening Bell.” July 26, 2007. http://investor.lululemon.com/releasedetail.cfm?ReleaseID=256946 (accessed November 13, 2010). 57 Lululemon athletica, inc. “lululemon athletica and Descente Ltd. form ʻlululemon Japan Inc.ʼ,” October 2, 2006. http://investor.lululemon.com/releases.cfm?Year=2006 (accessed November 14, 2010).
28
Limitations of logistics and management capabilities overtaxed the firm, and the
partnership discontinued after just two years.58
Expansion via franchise outlets had established the brand in markets within the
U.S., Canada, and Australia, however a new strategic focus centered on
regaining full control of distribution to achieve a vertical retail strategy.
A major component of lululemonʼs competitive strength lay in focusing on a
holistic brand experience integrating the product and the experience of its use.
The unique retail approach emphasizes a partnership with local opinion leaders,
yoga class instructors, and achieves a community integration that transcends the
traditional retail paradigm. In an effort to retain this competitive edge, lululemon
discontinued further franchise growth and began seeking to reacquire existing
operations.
Focusing on community integration and local yoga studios doesnʼt appear to
further the justification for the impersonal online experience, therefore e-
commerce represented a largely ignored component in lululemonʼs first ten years
of operations. E-commerce carries the lowest cost margins due to the lack of
location costs and extended hours, however absent a strategy to enhance value
this avenue could erode the brand experience, therefore management approval
would require a stratagem to mitigate this latent risk of poor execution. 58 Lululemon athletica, inc. 2009 Annual Report. Page 6.
29
Operationally, retail expansion increased to 35 locations within fiscal 2008,
however supply chain and inventory limitations exposed needs that would require
immediate attention. The supply chain issues prompted actions in 2007, and
noted by CFO, John Currie, in the second quarter of 2008 conference call as,
“last year in Q3, we were continually out of stock”.59 Recognition of vulnerability
to a specialty niche market and a heavy influence on a female customer base,
77.9% of sales, emphasized the need to expand product lines.60 Developing a
new product line could require as long as 10 months, therefore anticipating
customer needs is crucial to maintaining competitive position.61
The recent emergence of lululemon, from a regional specialty retailer to an
international public company, emphasizes the need to formulate a strategy that
ensures long-term viability. Firm limitations of human resources and time are the
two primary constraints to project management, and projects requiring specialty
skills of information technology are in particularly short supply to the young
apparel retailer.
The decision to allocate resources to an e-commerce channel is rooted in
identifying enhancement of both strategic and operational capabilities. Major 59 Goliath ”Q2 2008 lululemon athletica inc. Earnings Conference Call - Final.” September 11, 2008. http://goliath.ecnext.com/coms2/gi_0199-9028687/Q2-2008-lululemon-athletica-inc.html (accessed December 10, 2010). 60 Lululemon athletica, inc. 2009 Annual Report. Page 29. 61 Lululemon athletica, inc.,“2008 Video Annual Review,” lululemon website. Vimeo. http://vimeo.com/4615267 6:24 (accessed on: November 1, 2010).
30
wholesale and retail competitors offer e-commerce channel access to their
offerings; therefore, external analysts and shareholders are to expect this
capability as well. Furthermore, lululemonʼs net margins of 14.9%, over a retail
industry average of 5.9%, only augmented the need to undertake strategic
actions to reinforce its position from competitors seeking new and profitable
markets.62 E-commerce site implementation also achieves direct operational
efficiencies stemming from shifting resources away from traditional wholesale
ʻtelephone salesʼ.63
In 2007, implementation of retailing POS enhancements and “global sourcing
software” illustrates a management focus on addressing organizational limitations
and scalability associated with rapid growth.64 The internal development of
software, noted in the 2009 Annual Report, demonstrates internal technology
capabilities and continued management interest in achieving efficiencies.65
Approval of the e-commerce project is traced to April 2008, when, then CEO
Robert Meers statement regarding future goals, “focused on our top priorities
62 Morningstar, “ November 12, 2010 Quote: Lululemon Athletica Inc.”, Morningstar. http://quote.morningstar.com/stock/s.aspx?t=lulu (accessed November 14, 2010). 63 Lululemon athletica, inc. 2009 Annual Report. Page 35. 64 Micros Systems, “Datavantage/ CommercialWare Adds And Expands Relationship With Over 30 Retail Clients,” April 10, 2007. http://www.micros-retail.com/content1196 (accessed November 18, 2010); NGC Software, “NGC Expands New York Office to Meet Demand for Rapid Deployment of its PLM and Global Sourcing Solutions,” January 15, 2007. http://www.ngcsoftware.com/pressreleases/PressRelease_01-15-2007_1.htm (accessed November 18, 2010). 65 Lululemon athletica, inc. 2009 Annual Report. Page 63.
31
which are growth in the United States, where we plan to open 35 stores in 2008,
and the development of an e-commerce business”.66
E-Commerce Project: lululemon.com
Formulation and implementation of an e-commerce channel maintains the
strategic focus of lululemon and addresses several areas serving a value-
enhancing role to both firm and customer. An appropriate project scope
statement addressing the specific areas of need would read as follows:
Achieve efficient utilization of resources and operations that shifts telephone
sales to e-commerce channel, provides full 24-hour access, and extends
showroom reach, while enhancing the lululemon product experience and
stimulating further product demand.
The project completion date targeted October 2009 and from the first mention of
the project in 2008, resulting in an initial time budget of 18 months.67
Deliverables:
Packets of functional capabilities, or content, delivered from outside the project
team, represent specific items, necessary to the project. All of the deliverables
66 lululemon athletica, inc. “lululemon athletica inc. Continues to Gain Momentum with Strong Fourth Quarter and Fiscal Year 2007 Results Fourth Quarter Net Revenue Increases 101% to $105 million,” April 2, 2008. http://investor.lululemon.com/releasedetail.cfm?ReleaseID=302771 (accessed November 10, 2010). 67 Lululemon athletica, inc.,“2009 Video Annual Review.”
32
represent necessary items that could delay the projectʼs course, yet each of the
deliverables is beyond the direct control of a project manager.
The ʻonline paymentʼ and ʻsecurity and encryptionʼ deliverables represent key
components of infrastructure capabilities at the core of any e-commerce channel
(see Table 4). Ensuring the security of customer payment data and reducing
vulnerability to outside computer attacks is key to reducing liability and protecting
firm integrity.
Deliverables: Subcomponents and Purpose:
Online Payment Visa, MC, Paypal merchant approval
Security and Encryption
Required for online payments and protection
Product Descriptions Information sufficient to inform online customer of products and differentiating benefits.
Media Content Photographs and video to support product descriptions and enhance differentiation
Analytics Analytic capabilities and measures of performance
Branding Visuals Development and approval of aesthetic theme
Experience Content Goal setting and local community content to achieve enhancement of grass roots brand focus
Technology Upgrades
Server capability and bandwidth
Shipping & Logistics Shipping systems for small packages and charges Table 4: lululemon.com e-commerce project deliverables
33
Product descriptions and media content are all related to the core function of the
firm, selling apparel, yet represent necessary content that will be delivered by
product design and professional media services. Branding visuals represent a
deliverable from an outside firm that specializes in advertising and marketing,
and requires approval of management. Lululemon has frequently used the
services of “Cowie and Fox, Inc.”, for their advertising and much of their brand
imaging.68
Analytics and ʻexperience contentʼ represent tools for achieving the goals of
utilizing the e-commerce channel as a means of delivering a value added guest
experience that compliments the local experience of the product.
Infrastructure and shipping deliverables refer to necessary tangibles to facilitate
access and completion of e-commerce transactions.
Milestones:
Project milestones represent intersection points of task completion and
deliverables in which measurable progress to implementation can be gauged.
68 Cowie and Fox, “Case Studies,” 2010 http://www.cowieandfox.com/case-studies/lululemon (accessed December 12, 2010).
34
Measurable Milestones Purpose
Integrate product content and media
Forms basis for online commerce and fills underlying database of content
Vendor approval of online payment
Payment vendor integration for commerce
Security certifications Sufficient security measures for certification
Social media integration Connect social base to use site as activity hub
User review coding Coding of user interactions to products and enhancing user feedback loop to product design
Personnel hiring and training Hiring of content management and social networking team
Testing Ensure functionality and debugging Table 5: lululemon.com e-commerce project milestones.
The completion and integration of product content forms the backbone of the
project and serves the basis for constructing databases for menu structures and
product classification. Security and encryption coding are necessary
enhancements comprised of “SSL certificates” and integration of “128-bit”
encryption of data (see Table 5).69
Social media, user review, and personnel needs all focus on functionality that
emphasizes the corporate philosophy of healthy living and community integration,
69 Lynn Ward, “Hidden Costs of Building an E-commerce Site,” Ecommerce Times, April 28, 2003. http://www.ecommercetimes.com/story/21368.html?wlc=1292155067 (accessed November 16, 2010).
35
and particularly serve as the critical functionality that enhances the holistic
lululemon product experience.
Implementation and Estimates:
Project planning based simply upon a deliverable and milestone schedule would
result in a work based structure formulated from a top down perspective that
masks the complexities of work packets contained within each functional
component (see Table 6).
Table 6: lululemon.com Top Down Work Based Structure
The time budget for project implementation, 18 months, also lends credence to a
top down estimation approach, contrasting development estimates of 90 to 180
days from external website and e-commerce service providers.70
Lululemon athleticaʼs webpage was initially designed and managed by Cowie
and Fox Inc., and can be traced through one of its main contributors, Tyson Fritz,
70 WebFX, “How Much Should A Website Cost”, 2010. http://www.webpagefx.com/How-much-should-web-site-cost.html (accessed November 29, 2010).
36
to 2004.71 The portfolio screenshots indicate that much of the product database
was constructed, therefore a complete build of this component was not
necessary (see Appendix 2).
The wholesale functionality of the existing website is evidenced in appendix 3,
and illustrates that much of the content infrastructure was in place prior to the e-
commerce project (see Appendix 3).
Considering the existing website framework provided by the services of Cowie
and Fox, Inc., the hiring of Alaina Mars as “web content developer”, indicates a
very low project priority with significantly constrained resources, but serves as an
indication for in-house development.72 The included Gant chart further illustrates
a top down estimate that hinges upon staff hiring and infrastructure upgrades
(see Appendix 4).
The project is elevated to a priority status with the realization that a competitor,
Gap Inc., is positioning to encroach on the womenʼs athletic apparel niche market
in September 2008.
71 Tyson Fritz, “Resume: Tyson Fritz,” TysonFritz.com, 2010. www.tysonfritz.com/resume/tyson_fritz_resume_2010.doc (accessed November 19, 2010). 72 LinkedIn Corporation, Profile “Alana Mars”, LinkedIn.com, 2010. http://ca.linkedin.com/in/alanamairs (accessed November 16, 2010).
37
A timeline of technology upgrades sketches a clearer picture of project priorities
and serves to illustrate a growing firm stretched thin in its attempts to scale its
operations. Five months after the first disclosed goal of developing an e-
commerce channel, Gap Inc. announces acquisition of Athleta, a womenʼs
athletic apparel and internet only retailer, in a move that could quickly insert the
competitor into lululemonʼs market segment of womenʼs athletic apparel.
Lululemon reacts to Gap Inc.ʼs acquisition in an interview, the very same day, in
which CEO, Christine Day, states, “We did look at Athleta as a potential to enter
into the e-commerce arena”.73 Referencing online resumes of key personnel
associated with the e-commerce operations, from their ʻLinked-Inʼ profiles,
questions the project priority and allocated resources up to that event (see Table
7).
The timeline also highlights the threat of competitor entry into the market elevates
project priority and prompts a significant shift in resources.
73 Wojtek Drabrowski, “Lululemon CEO says looked at buying Athleta,” Reuters, September 28, 2008. http://www.reuters.com/article/idUSN2339843820080923 (accessed December 12, 2010).
38
Date of Reference
Noted Actions
2004-2005 Tyson Fritz employed with Cowie and Fox, Inc. develops lululemon website applications for wholesale functions
Jan. 22, 2007 NGC: Global sourcing software system.
Apr. 10, 2007 Point-of-Sale (POS) systems upgrade and implementation
Feb. 2008 Alaina Mars resume, Web Content Development
Apr. 2, 2008 Stated goal of developing “e-commerce business”
Aug. 2008 Carolyn Coles resume, Social Media Strategy
Sept. 23, 2008 Gap Inc. acquires Athleta
Sept. 2008 Bree Stanlake resume, Retail E-commerce
June 10, 2009 Onestop.com, press release of outsourced e-commerce services for lululemon athletica, inc.
Nov.17, 2010 Kathryn Harris hired as CIO, previously with Gap Inc. Table 7: Timeline of technology events.74
74 LinkedIn Corporation, Profile “Carolyn Coles,” LinkedIn.com, 2010. http://ca.linkedin.com/in/carolyncoles (accessed November 16, 2010); LinkedIn Corporation, Profile “Bree Stanlake,” LinkedIn.com, 2010. http://ca.linkedin.com/pub/bree-stanlake/10/35a/310 (accessed November 28, 2010); Lululemon athletica, inc., “lululemon athletica Appoints Kathryn Henry as Chief Information Officer,” November 17, 2010. http://files.shareholder.com/downloads/LULU/1299313751x0x419973/df4f42a8-493b-4281-8916-002108a89b89/LULU_News_2010_11_17_General_Releases.pdf (accessed November 19, 2010). (lululemon athletica, inc. 2010)
39
Project Risks:
Prior to Gap Inc.ʼs acquisition of Athleta, the e-commerce project risk assessment
would represent a firm concerned with eroding their primary competitive
advantage by degrading a guest experience characterized by local guest contact
and showroom presence (see Table 8).
Risk Likelihood Impact Detection When
Poor Execution 2 3 2 Coding: Content Integration
Cannibalize Local Sales 3 2 1 Post Launch
Tech. Infrastructure 4 4 2 Install
Customs Delays 2 2 1 Post Launch
Competitor Entry 2 5 4 Anytime
Logistics: shipping/returns
1 2 1 Post Launch
Alienate Base 4 4 2 Post Launch
Inventory Limitations 4 4 5 Post Launch Table 8: Risk Assessments
Technology upgrades in 2007 along with inventory concerns address the higher
ʻlikelihoodʼ and ʻimpactʼ ratings of risks that the guest might experience in the
immediate term. Risks posing a threat to guest experience or harming the
business model are mitigated thru planning. Competitor entry is the primary
40
external environmental concern to the firm, and represents retained risks.
Lululelmonʼs vertical retail model and marketing represent difficult to duplicate
competitive strengths, therefore competitor entry is determined as minimal.
September 2008: Enter Gap, Inc.:
In September 2008, Gap Inc.ʼs acquisition poses an external threat to lululemonʼs
market. Re-estimation of the work packages reveals a project significantly more
complex than the initial top down estimate (see Appendix 5). The addition of
additional human resources, Carolyn Coles and Bree Stanlake , represents
ownership of the project and addresses the ongoing maintenance needs of social
marketing (see Table 7). Lululemonʼs public response by CEO, Christine Day,
“We felt it was a smarter strategy for us to go out and build our own e-commerce
channel,” represents a public relations maneuver by the firm to mitigate the
perceived affect to the business.75 Disclosure of outsourcing activities, evidences
the new priority to ʻcrashʼ the project quickly, “Lululemon plans to launch its e-
commerce website in the next 12 months. Parts of it will be kept in-house, while
underlying e-commerce and order fulfillment technology will be outsourced.”76
Disclosure of outsourcing, twelve-month launch of e-commerce capabilities, and
the public statements of Christine Day all indicate that lululemon had some
advance knowledge of Gap Inc.ʼs announcement.
75 Wojtek Dabrowski, “Lululemon CEO says looked at buying Athleta.” 76 Wojtek Dabrowski, “Lululemon CEO says looked at buying Athleta.”
41
Outsourcing represents the contingency plan of action to minimize the effect that
Gap Inc. can capitalize on beating lululemon to e-commerce presence. A press
release by Onestop.com in June of 2009 reveals outsourcing of much of the e-
commerce infrastructure.77 Competitor entry, and the inherent risk to market
position, replaces the project resource constraints with time priority focus.
Image 1: “Shop Nude” E-commerce Advertisement Image Source: http://thestring.wordpress.com/2009/04/23/lululemon-finally-lets-us-shop-nude/ Lululemonʼs e-commerce site launched on April 15, 2009, with the slogan, “Shop
Nude” (see Image 1), and reflected a scaled back project scope. The press
release cites one future component not present at launch, “It will also ultimately
host an active community of users who are keen to share information about
healthy living.”78
77 Onestop Internet Inc., “Internetʼs E-Commerce Platform Leveraged for Launch of lululemon athleticaʼs First Web-Based Store”, Onestop, June 10, 2009. http://www.onestop.com/news_06_10_09.html (accessed November 18, 2010). 78 Lululemon athletica, inc., “lululemon athletica Challenges You to Shop Nude,” April 15, 2009. http://files.shareholder.com/downloads/LULU/1017275513x0x287299/f802e92c-422f-4c1e-b803-dc9dd5464bd2/LULU_News_2009_4_15_General_Releases.pdf (accessed December 13, 2010).
42
Project launch has resulted in shifting some resources away from telephone
sales operations, thereby achieving greater operational efficiency, and resulting
in 4% of total sales within the first year.79 The complexity of e-commerce
management and the necessary infrastructure resulted in the forward looking
position stated by CEO, Christine Day, “I think from an IT complexity right now, I
donʼt see us in the short-term taking on the commercial side of that site for
another few years,” and implicitly acknowledging the limitations of internal IT
capabilities.80 In the recent third quarter conference call, the growing value of the
e-commerce site is noted by its measures, “our site carries and sells a larger mix
of technical product and has proportionately fewer markdowns than do our
stores, e-commerce also added to our gross margin and operating margin in the
quarter.”81
The success of lululemonʼs e-commerce and e-marketing efforts illustrates a
complimentary aspect that online content can provide to achieving the holistic
product experience. The scaled back project scope represented closure to get
the project to market, however further upgrades are planned for an enhanced
guest experience. Customers and lululemon followers have noted limitations of
79 Zak Stambor, “LuLuLemon.com hit its stride with online shoppers in 2009”, Internet Retailer, March 30, 2010. 80 Seekingalpha, “Lululemon Athletica Inc. Q1 2010 Earnings Call Transcript,” June 10, 2010. http://seekingalpha.com/article/209485-lululemon-athletica-inc-q1-2010-earnings-call-transcript?part=qanda (accessed December 13, 2010). 81 Seekingalpha, ”Lululemon Athletica Inc. Q3 2010 Earnings Call Transcript.”
43
the website, and in blogs have listed a litany of shortcomings and bugs.82 In
2011, lululemon notes plans for further upgrades, “We will also expand our sales
reach through our e-commerce channel with our planned transition to a new
platform in the first quarter.”83
82 LuluAddict [pseud.], comment on “Lululemon's Website Issues,” Lululemon Addict Blog, posted June 12, 2010. http://luluaddict.blogspot.com/2010/06/lululemons-website-issues.html (accessed November 26, 2010). 83 Seekingalpha, “Lululemon Athletica Inc. Q3 2010 Earnings Call Transcript.”
44
Chapter 4: Information Technology Analysis
Information Technology and Lulu: An Emerging Role The role of information technology utilization within lululemon represents an
evolution of use and the escalating benefits of IT (see Table 9). 84 Lululemonʼs
early years are most notable for product design, niche targeting, and a unique
retailing business model focused on relationship and experience. Information
Technology (IT) is never cited as a key component in any retelling of the firmʼs
formative years, however founder Dennis ʻChipʼ Wilson is noted as having,“20
years in the surf, skate and snowboard business,” and, “whose passion lay in
technical athletic fabrics,” implying an embrace of design and product
innovations. 85 Product design and fabric innovations were likely developed via
computer application assistance, however the role of information technology is
simply procedure based. IT systems were not a key focus of the firm, and
lululemonʼs small scale limited the benefits of digitization and automation at the
time.
As the firm begins to scale operations, beyond the single Vancouver boutique,
adopting information technology applications enhances management capabilities
and the benefits of information feedback begin to emerge, waves 1 and 2.
84 McNurlin, Sprague, Jr. and Bui, “Information Systems Management In Practice, Pearson International Edition,” 22. 85 Lululemon athletica, inc., “lululemon athletica: our company history 2011.”
Change of IT Use lululemon example 1. Reducing Costs POS assists in inventory and
accounting 2. Leveraging Investments PLM streamlines logistics 3. Enhancing Products or Services
Online feedback channels directly influence product designs
4. Enhancing Executive Decisions Analytics from social media and content management.
5. Reaching the consumer Online blogs and email campaigns allow new product info to be pushed to consumers.
6. Leveraging Partnerships Facebook location based services partnership
Table 9: Waves of Innovation: IT use within lululemon attletica, inc.
Outsourcing was the main channel employed to enhance the firmʼs capabilities,
with the first evidence of extranet development in 2004, through Crowie and Fox
Creative.86 The first evidence of significant information technology use utilized an
independently developed system, constituting a legacy system, however the
pitfalls of long-term use and scaling were avoided with a standardized solution
replacement, soon after. 87 The initial extranet application provided inventory and
process management capabilities to maintain franchise operations as well as
information and evidence of working across to franchisees. 88
86 Fritz, “Resume: Tyson Fritz.” 87 McNurlin, Sprague, Jr. and Bui, “Information Systems Management In Practice, Pearson International Edition,” 374. 88 McNurlin, Sprague, Jr. and Bui, “Information Systems Management In Practice, Pearson International Edition,” 99.
In 2007, as lululemon prepared for an initial public offering, a strategy shift aimed
at scaling operations and efficient cost management of inventory resulted in the
purchase of third-party vendor solutions. Implementation of transaction
technology from Datavantage/CommercialWare enabled point of sale information
thru hardware and software integration that delivered insights to inventory flows
and sales revenues, and providing foundational data for IT to soon serve as
effective decision support and business intelligence applications. 89 The point of
sale application represents implementation of a retail “best practice” solution and
a focus on working inward, while avoiding the technology pitfalls of continuing
with the original incompatible extranet solution.
Lululemon then transitioned to utilizing IT to better achieve business strategy
goals, marking a shift in the strategic use of information systems play in the
firm.90 Furthermore, the standardized application enabled efficient scaling of
“procedure based” transactions, and a basis for future “knowledge based”
applications of information technology. 91 Lululemon then implemented two more
information systems solutions from New Generation Computing noted as
enabling:
89 McNurlin, Sprague, Jr. and Bui, “Information Systems Management In Practice, Pearson International Edition,” 426-433; Paul Demery, “Datavantage/ CommercialWare Adds And Expands Relationship With Over 30 Retail Clients,” Internet Retailer, April 10, 2007. http://www.internetretailer.com/2007/04/10/datavantage-commercialware-adds-and-expands-relationship-with-o (accessed April 21, 2011). 90 McNurlin, Sprague, Jr. and Bui, “Information Systems Management In Practice, Pearson International Edition,” 99. 91 McNurlin, Sprague, Jr. and Bui, “Information Systems Management In Practice, Pearson International Edition,” 22.
Product Lifecycle Management (PLM), and enterprise resource planning (ERP) software for the apparel and sewn products industries “gain real-time visibility, improve speed to market and enhance quality control throughout their supply chain.”92
The significance of the ERP and PLM applications is the need to have scalable
and standardized solutions, yet the software is customized for specific industry
use. The role of information technology, within lululemon, remained focused on
internal operations through 2008.
Strategic Application of IT In September 2008, the acquisition of Athleta, an online womenʼs athletic apparel
retailer, by Gap Inc., represents the first major competitor to position a move into
lululemonʼs niche market.93 While the firm publicly denied the acquisition as a
competitive threat, lululemon sped development of an E-commerce site and
made significant hiring moves in 2008 and 2009 (see Appendix 6).
Lululemonʼs focus on utilizing IT for scaling operations and efficient supply chain
delivery resulted in superior inventory controls, as noted in Canadian Business
magazine, “'There are rarely discounts, so you always feel as though you're
paying the item's true value, as opposed to one of these ʻ60% off' stores where,
when you pay full price, you feel like you're getting cheated.”94 The efficient use
92 Kurt Peters, “NGC Expands New York Office to Meet Demand for Rapid Deployment of its PLM and Global Sourcing Solutions,” Internet Retailer, January 7, 2007. http://www.internetretailer.com/2007/01/22/ngc-expands-new-york-office-to-meet-demand-for-rapid-deployment (accessed April 20, 2011). 93 Wojtek Dabrowski, “Lululemon CEO says looked at buying Athleta.” 94 Jacqueline Nelson, “Loco for Lulu,” Canadian Business, April 29 2011. http://www.canadianbusiness.com/article/21711--loco-for-lulu (accessed April 29, 2011).
of IT to achieve superior inventory management clearly marks technology
enabling the achievement of business strategy, as well as IT alignment with
strategy. 95 The threat of a large retailer acquiring an online competitor
represented a catalyst to transform the role and value of information technologies
to the highest levels of firm strategy. Lululemonʼs use of technology to achieve
business goals and influence future strategies represents strength of the firmʼs
implementation, as well as a pragmatic approach to adopting new technologies.
A core competency of the firm is represented in their effective use of feedback
information to develop new products, styles, and fit to remain ahead of
competitors and working outward. Utilizing social media has enhanced the
dynamic of the feedback loop, and CEO, Christine Day, noted its effectiveness by
stating,
We learn on Facebook and through social media what are our guests are really screaming for, and we actually use the feedback” and specifically using the information to adjust products, “where pockets sit on pants to the placement of waistbands on running shorts, and even learned that it needed to stock more small sizes, based on online customer feedback.96
While some aspects of lululemonʼs IT use may compel conclusions of a
competitive strength, further analysis is less convincing. The reactive and late
entry into E-commerce is the most evident example of a firm lacking adequate IT
management. Other core competencies, product and business model, as well as
95 Itami and Numagami, “Dynamic Interation between Strategy and Technology,” Strategic Management Journal, 119-135. 96 Leah Bourne, “Social Media Is Fashion's Newest Muse,” Forbes.com, September 7, 2010. http://www.forbes.com/2010/09/07/fashion-social-networking-customer-feedback-forbes-woman-style-designers.html (accessed on April 23, 2011).
successful growth have compensated for lululemonʼs IT shortcomings. Further
evidence of weaknesses is evident in a Lululemon Addict blogpost criticizing E-
commerce channel shortcomings and smaller rivals superior functionality (see
Appendix 7).97
However, lululemon remains focused on their core competencies and the rapid
deployment of E-commerce, via outsourcing, closed a strategic gap and direct
threat to the firmʼs market position.98 Furthermore, lululemon has committed itʼs
IT personnel to focus on content management and frequent updating of their
social media channels, while outsourcing functionality beyond their
competencies.
Lululemon management has since addressed their salient technology
shortcomings and elevated the role of IT management by hiring their first CIO,
Kathryn Henry, away from GAP Inc. and CEO, Christine Day, noted the focus is
on:
We put her to work right away. So really the first project that she's focusing on are really, are whole e-commerce transitions because she's really making sure that that platform is going to be ready to go for us, making sure that we work through any security business processes as well as profitable organizations. So she's really been
97 LuluAddict [pseud.], comment on “Lululemon's Website Issues,” Lululemon Addict Blog, posted June 12, 2010. http://luluaddict.blogspot.com/2010/06/lululemons-website-issues.html (accessed November 26, 2010). 98 Onestop Internet, Inc., “Onestop Internetʼs E-Commerce Platform Leveraged for Launch of lululemon athleticaʼs First Web-Based Store.”
tightening up our risk management, I guess all the professional systems that you need…99
The promotion is a significant step forward in recognizing the potential of
effective IT governance and security on impacting strategy and operations,
however Dayʼs last statement falls short of convincing that IT is a recognized
core competency and strategic strength of the firm.
IT Recommendations: Strategic and Tactical Lululemonʼs utilization of a holistic business model presents a multitude of
opportunities to cement the firm as key to healthy living and maintain the market
leader position. Tactically, the firm can enhance product awareness by
developing a data warehouse and more acute tools of business intelligence.
Current online marketing informs customers of new products, but makes no
distinction of gender in product placement and female products are always
displayed first. Male customers should receive customized email content that
places products corresponding to gender before female products to enhance
response. In an effort to enhance the online experience for male customers, one
of the content management staff should focus on developing content aimed at
men, so as to ensure lululemonʼs online experience is not eroded to only serving
women.
99 Seeking Alpha, “Lululemon Athletica CEO Discusses Q3 2010 Results - Earnings Call Transcript.”
Strategically, lululemon can leverage its growing hub of healthy living followers to
actively market local activity leaders, beyond running and yoga, to broaden the
appeal of the firm. Mobile applications can provide notification of local yoga
classes, running trails, farmers markets, and other components of a healthy
lifestyle. The use of subtle marketing, coupled with little need for discounted
sales events to drive store traffic, maximizes brand awareness without over
saturation. Mobile and location based services should also provide new data to
develop ever greater business intelligence models.100 Aggressive adoption of
new technology connecting customers and partners will keep the firm well ahead
of competitors and strengthen the holistic business model, and maximizes the
sixth wave of innovation (see Table 9).
The Evolving Role of IT Lululemon demonstrates a firm whose origins focused on core product and retail
strategy. The implementation of technology, hardware and software, aimed at
enhancing the utilization of information to achieve business goals, mimicking the
Waves of Innovation model. 101 In the early years, from 1998 thru 2004, the
presence of technology was not noteworthy as delivering a strategic advantage
or core competency (see Appendix 6). Scaling operations necessitated IT, and
while some shortcomings are present, the firm is more aggressively moving to 100 Ian Paul, “Facebook Gets Serious About Mobile and Location-Based Services,” PC World, November 3, 2010. http://www.pcworld.com/article/209675/facebook_gets_serious_about_mobile_and_locationbased_services.html (accessed November 13, 2010). 101 McNurlin, Sprague, Jr. and Bui, “Information Systems Management In Practice, Pearson International Edition,” 46-48.
the later waves of using innovative information systems to achieve business
goals and formulate new strategies.
Lululemon remains a firm in transition as it grows, and IT capabilities will only
increase in importance to future operations. Lululemon has successfully utilized
IT applications to coordinate an efficient supply chain that is responsive to
customer feedback, noting that, “enables us to bring select new products to
market in as little as one month,” and, “our lead times are shorter than a typical
apparel wholesaler due to our streamlined design and development process as
well as the real-time input we receive from our consumers and ambassadors.”102
The new CIO provides a basis for optimism regarding IT emerging as a core
competency, however the fact that Henryʼs past employment was with GAP, Inc.
compels skepticism of a firm simply addressing weaknesses and missteps of the
present, but provides little basis to firmly conclude the firm will drive innovation in
information systems use.
102 Lululemon athletica, inc. 2009 Annual Report, 8.
Chapter 5: Change Management Initiative, Yoga for Health
Identifying Need: Yoga for Health Lululemon exhibits a synthesis of capitalism and collectivism, achieving superior
results, which is best characterized as, “doing well, by doing good.”103 The firm
philosophy, or manifesto (see Appendix 8), extolls activities and sayings
associated with both physical and mental well-being. Sheree Waterson,
executive vice president, concisely states the lululemon focus as, “Our mission is
to create components for people to live longer, healthier, and more fun lives.”104
As competitors increasingly eye the yoga-wear market, lululemon is compelled to
seek new channels to leverage their core strengths to enhance its market leader
position. Lululemonʼs effective use of a holistic, or systems, approach to product
transactions and experience utilization departs significantly from the linear retail
model of competitors. Focusing a strategy on product design and marketing
activities that support and integrate yoga practitioners delivers benefits to
stakeholders outside of the normal retail value chain and positions the firm as a
community hub of healthy living.
Leveraging Strengths Yoga, a low-impact activity, delivers benefits balanced between the physical and
the mental. Promoting yoga and health together benefits from an independent
study by the American College of Cardiology, an appeal to authority argument, 103 Chris Laszlo, Sustainable Value: How the Worldʼs Leading Companies Are Doing Well by Doing Good, 2008, Stanford Business Books, Stanford, CA. 104 Lululemon athletica, inc.,“2009 Video Annual Review,” lululemon website. Vimeo. http://investor.lululemon.com/ 12:00 (accessed on: November 1, 2010).
“Yoga, already proven to lower high blood pressure and cholesterol levels, can
cut in half the risk of a common and potentially dangerous irregular heartbeat.”105
Just as lululemon partners with community ambassadors, local activity leaders of
running, yoga, or other healthy lifestyle promoters, the compounding science
presents an opportunity to leverage partnerships, whose common mission lies in
furthering the cause of healthy lifestyles. 106 Insurance carriers facilitate health
fairs and provide incentives to adopt healthy lifestyles, commonly known as
wellness plans, therefore a first order, incremental, strategic shift allows
lululemon to penetrate a nascent customer base with both a wellness plan
solution and a mobile store channel (see Image 2 and Appendix 9). 107
Mobile stores allow lululemon to
continue strengthening the
association of healthy living with
yoga through health fairs and
farmerʼs markets in the mind of
both current and potential
customers. The mobile store
105 Pierson, Randall, and Bill Berkrot, “Yoga halves irregular-heartbeat episodes: study,” Reuters, April 2, 2011. http://www.reuters.com/article/2011/04/02/us-heart-yogaidUSTRE7312AP20110402 (accessed April 6, 2011). 106 Lululemon athletica, inc., “Ambassadors,” 2011. http://www.lululemon.com/community/ambassadors?sli=1 (accessed April 29, 2011). 107 Palmer, Ian, Richard Dunford, and Gib Akin, Managing Organizational Change. 2nd Edition. New York, NY: McGraw Hill, 2009.
Image 2: Mobile Store Rendering. Source: http://t3ds.com/8349
strategy allows community ambassadors to demonstrate yoga and reach new
customers by laying the foundation for wellness plan demand at both the
enterprise and individual level. The dual approach ensures lululemon is
instrumental in fostering community networks of healthy living and implicitly
building brand equity.
Formulating a wellness plan solution leverages the push strategy of mobile stores
to cement the lululemon brand within organizations aiming to promote healthy
living and limit care costs.
Change Diagnosis and Need Yoga for Health is a first order change initiative emphasizing the community
connection of lululemon products, stores, and community ambassadors aligning
with both company mission and values. Capitalizing on the value added benefits
of yoga, a push market retail strategy coupled with a service solution entails a
strategic shift differentiating the initiative from a simple marketing campaign.
Additionally, an organizational reconfiguration aligns the initiative with the
overarching brand strategy and mission.
Need for Change: Like Nothing Else… Lululemonʼs retailing success is noted as an, “international retail phenomenon”
and surmised from, “The message and the product have spread like rippling
water across demographics and regions through clever use of what can only be
described as holistic guerrilla marketing.”108 Retail strategy firm JC Williams
Group notes, “They go beyond simply putting the right merchandise out in a
store. They really connect with the customer in terms of being part of a
community.”109 The unique strengths of the business model provide an
opportunity to enhance the momentum of the firm and insulate the brand as,
“Competitors were slow to catch on to the fact that Lulu wasn't selling workout
clothes so much as they were selling membership to a club with a very appealing
uniform.”110
Lululemon is uniquely positioned as a yoga-inspired athletic apparel retailer to
capitalize on health studies that expound the benefits of yoga activities. A GAP
analysis illustrates the alignment of Yoga for Health change initiative with the
lululemon mission (see Appendix 10). Furthermore, lululemonʼs successful
partnerships with local yoga instructors utilize a latent infrastructure necessary to
penetrate the larger network communities of health minded organizations and
individuals. Ultimately, successful execution results in organizational
sponsorships of yoga wellness plans that reward participants with lower health
care costs and financial incentives to participate. Sponsored wellness plans
allow lululemon to counter price criticisms without lowering product prices and
establishing a competitive advantage that is difficult for competitors to emulate.
The mobile stores are key to demonstrating greater community awareness within 108 Jacqueline Nelson, "Loco for Lulu." 109 Ibid. 110 Ibid.
health insurance events and serving to further root the brandʼs commitment to
healthy living.
The pervasiveness of high blood pressure (see table 10), illustrates a large
market receiving no coordinated attention from competitors.
Table 10: American Heart Association.111
111 American Heart Association, “High Blood Pressure Statistics,” 2006. http://www.americanheart.org/presenter.jhtml?identifier=4621 (accessed April 29, 2011).
A PESTEL analysis illustrates the Yoga for Health initiative within the external
marketplace and further illustrates the strategic opportunity to lululemon (see
Table 11).
The low-impact nature of yoga is both accessible and convenient, and the well-
documented benefits of physical and mental well-being allow the uniquely
positioned firm to continue, “doing well, by doing good”.112
Table 11: PESTEL Analysis: Yoga for Health Change Initiative
Political Economic -No political solution appears likely to rein in health care costs.113
-Rising health care costs and positive ROI for sponsored wellness plans.114
Socio-Cultural Technological -High blood pressure affects 74.5 million people in U.S. over 20.115 -Awareness: “Of those people with high blood pressure, 77.6 percent were aware of their condition.”116 -Company sponsored wellness plans reduce health risks.117
-Studies support yoga as means to reducing high blood pressure.118
112 Chris Laszlo, “Sustainable Value: How the Worldʼs Leading Companies Are Doing Well by Doing Good.” 113 New York Times, “Health Care Reform,” New York Times, March 4, 2011. http://topics.nytimes.com/top/news/health/diseasesconditionsandhealthtopics/health_insurance_and_managed_care/health_care_reform/index.html (accessed April 29, 2011). 114 Stephen Miller, “Participants in Wellness Programs Had Lower Health Care Costs,” Society for Human Resource Management. January 25, 2010. http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/WellnessCosts.aspx (accessed April 29, 2011). 115 American Heart Association, “High Blood Pressure Statistics.” 116 Ibid. 117 Martha Lynn Craver, "Wellness Plans: What Actually Works," The Kiplinger Letter, December 24, 2009. http://www.kiplinger.com/businessresource/forecast/archive/wellness-plans-what-actually-works.html (accessed April 29, 2011).
Resistance: Short and Long Championing Yoga for Health as a strategic change initiative entails anticipating
resistance issues and mischaracterization as a marketing campaign. Thorough
analysis and evidence exposes the opportunity to leverage the lululemon
business model to further the corporate mission. The alignment of corporate
mission to strategy is latent in the change initiative, however the metrics of
success present the most likely source of resistance in both the short and long
term.
Challenges to mobile retailing, such as information systems, shrinkage, and
vehicle maintenance, are compounded by logistical and community event
planning concerns latent to both short and long term operations.
Strategic Initiative Metrics Success of the Yoga for Health strategic initiative is rooted in maintaining a
mobile store fleet capable of tallying sales and increasing the number of social
network followers. The mobile stores are a key component to delivering the
lululemon experience to new customers and establishing relationship contacts to
validate and implement yoga wellness plans. Coordination of local store
showroom personnel and community ambassadors are key to executing offsite
activities. The mobile storesʼ aim is to act as an extension of local showrooms,
118 Pierson, Randall, and Bill Berkrot. “Yoga halves irregular-heartbeat episodes: study.”
therefore the goal in not measuring stand-alone profitability, but serving as the
gateway to larger networks and implementation of wellness plans.
Measuring the success of the initiative must focus on establishing a long-term
competitive advantage and a buzz behind the mobile stores. The measures of
the initiative must encapsulate both the short-term impact of mobile stores with
the long-term goals of establishing wellness plans. The mobile stores cannot be
measured by sales alone due to their inherent limitations of product, inventory,
and short time on location, however uniquely designed products can be offered to
create a buzz around local visits.
Wellness plan success metrics is focused on rates of organizational enrollment
and limiting health care insurance costs. Wellness plans have the secondary
goal of lowering participant health risks, however the presence of outlying and
multiple variables eliminate consideration as an appropriate measure of initiative
performance.
Organizational Design and Maintaining Change The difficulty of establishing appropriate initiative metrics, coupled with complex
logistical and relationship management aspects, necessitates an organizational
structure providing the necessary freedom, resources, and management focus
for effectiveness. A 7-S Framework review of the change strategy emphasizes
the need for a supporting organizational structure independent of retail
operations (see Table 12). 119
Table 12: 7-S Framework, lululemon change planning
Superordinate Goal
Utilize nascent channels to reach large pools of consumers and insulate the lululemon from competitors through wellness plan sponsorship.
Structure Dedicated management and staff. Independent budget and cost responsibility. Answer to CMO.
Strategy Leverage health science date of to promote yoga and expand customer base. Utilize push marketing strategy to cement yoga and lululemon as synonymous with healthy living.
Skills Guerilla marketing, relationship management, negotiation, event planning, fleet maintenance.
Staff Community event coordinators, wellness plan sales staff, marketing staff.
Style Retro styled mobile stores. Uniquely designed small batch products available only thru mobile stores.
Systems Mobile store vans and maintenance schedule. Local store communication and personnel planning tools. IT systems to allow retailing, GPS tracking, and customer database entry.
After analyzing the holistic components of Yoga for Health, the initiative clearly
emerges as a strategic competency, and not simply a marketing campaign.
Successful implementation necessitates active feedback and ʻfine tuningʼ
schedules to follow each event through the first year. As a history of event
participation is compiled from mobile stores, less frequent reviews are necessary.
Semi annual reviews of wellness plans will provide data on organizational
enrollment and an opportunity to improve communication, formulation, and
execution.
119 Waterman Jr., Peters, and Phillips. "Sturcture is not organization." Business Horizons, June 1980. 14-26.
Structuring Yoga for Health within an outreach division, reporting to the
triumvirate of directors: Dennis Wilson, Delaney Schweitzer, and Sheree
Waterson, ensures long-term alignment of mission as well as effective
enhancement of brand equity (see Table 13).
Table 13: Outreach Design Chart, Yoga for Health Change Initiative
Natural Strategic Fit The opportunity to implement a change initiative that aligns with lululemonʼs
mission presents itself as an organic extension of operations and strategy.
Successful execution bolsters the brand and extends the reach of lululemonʼs
social networking competencies. The opportunity to deliver stakeholder value
throughout all parties of the change plan present few opportunities for resistance,
if management recognizes the unique strategic opportunity Yoga for Health
Dennis Wilson, Chief Innovation &
Branding Of^icer
Sheree Waterson, General Merchandise Management &
Sourcing
Wellness Plan Outreach
Wellnes Plan Administration
Mobile Store Operations
Fleet Maintenance
Design
Community Event Coordinators
Delaney Schweitzer, Retail Operations North
America
presents and the symbiotic nature of the mobile stores, wellness plans, and
outreach department in establishing lululemon athletica, inc. as, “thee yoga
authority.”120
120 Lululemon athletica, inc.,“2009 Video Annual Review,” lululemon website. Vimeo. http://investor.lululemon.com/ 12:00 (accessed on: November 1, 2010).
Chapter 6: Lululemon Stretching Forward, A Study of Holistic Retailing.
From Start Up to Segment Leader The study of lululemon athletica yields insight into the multitude of challenges an
upstart firm faces when scaling from a local boutique to a multi-national retailer.
Initially, the overview of the firmʼs sales performance and financial returns may
compel a conclusion of a firm endowed with superlative management, financial
resources, and a competitive edge over industry rivals. The exploitation of an
overlooked market, both yoga and women, through focused product design and
innovation are key to the firmʼs past, present, and future. However, any
conclusion of firm success based solely on either end product or stock market
return demonstrates a myopic and topical view.
Lulu Cyclewear After analyzing the sales and marketing activities of lululemon, areas of
vulnerability emerge between the yoga and running line, which present
opportunities in underserved niches. The market perception of lululemon, as a
ʻwomenʼs yoga retailer,ʼ could limit future success, therefore product line
extensions reaching beyond yoga, or the female centric customer base, reinforce
the long-term viability of the firm. Furthermore, the above average profit margins
will attract niche market entry by competitors. As a result of the current core
competencies of lululemon, the marketing plan presented appeals to the nascent
market of bike commuters, allowing lululemon to extend their market reach into
an overlooked segment and further positioning as a purveyor of healthy living.
Lulu E-commerce The launch of the lululemon E-commerce channel provides the first real evidence
of a firm struggling challenged with the realization of limits upon its capabilities,
as well as the threat of a large competitor positioning to challenge the firm.
Publically, lululemon sought to reassure the market that the acquisition of Athleta
by Gap Inc. was not a competitive threat, however analysis of hiring, project
crashing, and ultimately outsourcing reveals a firm reactively maneuvering to
counter a direct market threat. The launch of lululemonʼs E-commerce channel
ultimately has allowed the firm to extend their market leader position, as well as
enhance their relationship based selling experience.
Organizational Efficiency Through IT The evolving role of information technology use within lululemon illustrates
integration of new tools to enhance core competencies and organizational
efficiency. Applications developed to enable efficient inventory tracking now
allow data collection for business intelligence, allowing management to gain a
front line view of operations. The hire of a dedicated CIO illustrates the firmʼs
recognition of technology as key to achieving the lululemonʼs strategic goals.
Evolving Lulu A strategy embodying lululemonʼs mission enables change supporting healthful
living, and not simply selling athletic apparel. Lulu for Health extends the
organization beyond retailing activities to extend into actively facilitation lifestyle
change. Lululemonʼs competitive advantage is based on the holistic connection
between customers and experience. Lulu for Health capitalizes on the firmʼs
capabilities to strategically insulate from imitability.
The organizational reorganization proposed focuses on the facilitation of activities
to achieve healthy lifestyles. The proposal partners lululemon locally within
communities, and under the scope of insurance company endorsed wellness
plans. The community involvement component is achieved through mobile
stores, whose aim is to connect the brand with a complete healthy living
approach of neighborhood, diet, and exercise. The wellness plan component
leverages community involvement with business organizations aimed at
controlling health care costs.
Conclusion Finally, Lululemon athletica, inc. is a firm that understands their durable
competitive advantage is rooted at the community level of relationship selling.
While the firm was slow to enter E-commerce, early adoption does not
necessarily result in competitive advantage. Competitors are likely to move into
the market segments lululemon serves, however there is little evidence of any
competitor making the trade-offs necessary to develop a relationship selling
model.
End products may be copied or prices undercut, however lululemon succeeds as
a result of a holistic approach to their core competencies. Until competitors
genuinely embrace relationship selling, lululemonʼs competitive advantage will
remain unchallenged by any serious external forces.
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Appendix 1: Industry Peers: Lululemon Athletics, Inc (LULU)
Appendix 2: Pre-2008, lululemon website product database.121
121 Tyson Fritz, “Portfolio Applications,” TysonFritz.com, 2010. http://www.tysonfritz.com/_img/code/screenshot_lulu_productcategories.gif (accessed December 12, 2010).
Appendix 3: Pre-2008, lululemon Website Menu and Function Bar.122
122 Tyson Fritz, “Portfolio Applications,” Tysonfritz.com, 2010. http://www.tysonfritz.com/_img/code/screenshot_lulu_imageupload.gif (accessed December 12, 2010).
Appendix 4: E-Commerce Project Management Gant Chart
Appendix 5: Detailed Work Package Spreadsheet
Appendix 5: Continued
Appendix 5: Continued
Appendix 6: Timeline of technology events
2004-2005 Tyson Fritz employed with Cowie and Fox, Inc. develops lululemon website applications for wholesale functions
Jan. 22, 2007 NGC: Global sourcing software system.
Apr. 10, 2007 Point-of-Sale (POS) systems upgrade and implementation
Feb. 2008 Alaina Mars resume, Web Content Development
Apr. 2, 2008 Stated goal of developing “e-commerce business”
Aug. 2008 Carolyn Coles resume, Social Media Strategy
Sept. 23, 2008 Gap Inc. acquires Athleta
Sept. 2008 Bree Stanlake resume, Retail E-commerce
June 10, 2009 Onestop.com, press release of outsourced e-commerce services for lululemon athletica, inc.
Nov.17, 2010 Kathryn Harris hired as CIO, previously with Gap Inc.
Appendix 7: Lululemon Addict Blogpostings June 12, 2010: Lululemon's Website Issues: They said so themselves right here in the [quarterly] report that their customer
wants the Lululemon experience- why are they not giving it to them online?
The website is the worst - by far - of any retail site I visit. Like a first-pass bad
student project. Items are not grouped correctly (5 colors of power y tanks here, 1 or 2 more over there), the feature photo is often of a color that is not even available in any size, non-loot stuff in loot, mispricing, etc, etc, etc. Not to mention that they don't have realtime stock availability (you can't breathe easy until you get that shipped notification, especially on loot items). Plus, I pay via paypal and I've had it happen that if I buy a bunch of loot items and ONE item turns out to be out of stock guess what - my WHOLE order is cancelled. And then guess what, I can't reorder the other items because they sold out quickly. This has happened to me more than once (lulu insists it is paypal's fault - i highly doubt it as this never has happened to me anywhere other than lulu). And the website is SLOOOOOOOW.
Poor quality photos - item doesn't look attractive on the model, or model is at a
bad angel which doesn't show meaningful product detail. In addition to angled shot, please add a full-on or nearly full-on backside shot of the pants. Women want to know how their rear will look in the pants. We can't tell that at a 45-degree angle. Also, why doesn't Lululemon use professional fitness models and photographers? I think Lululemon thinks they are quirky by using employees but it comes across as cheap and unprofessional.
Wrong photo used for the item - happens many, many, MANY times. Where's the quality control? Poor organization of items makes it hard to find the color and style you are
looking for. Instead of one Scoop Neck photo that clicks through to all the color choices there
are multiple Scoop Neck photos that click through to a subset of the color choices. And, they are scattered around the tank page. The Search feature is not always comprehensive so you can't rely on that.
Lack of meaningful product information. People have been screaming for inseam numbers on shorts, particularly the very short shorts, for quite awhile now. What's
the problem?
Appendix 8: lululemon athletica, inc. manifesto
:
Appendix 9: Existing mobile store examples Source: http://www.itechbahrain.com/
Source: http://oaklandfocus.blogspot.com/2009/06/oaklandish-hosts-salsa-by-lake.html
Appendix 10: Gap Analysis
Maintaining “Authority”, Leveraging a Nascent Customer Base 1. Where is lululemon athletica, inc. now?
Lululemon athletica, inc. is the niche market leader for yoga athletic apparel. Corporate focus is more broadly stated as focusing on “healthy living and the apparel that goes with it.”123
2. Where is it that lululemon wishes to be?
“Thee authority in yoga” –Sheree Waterson, Executive Vice President of General Merchandise Management and Sourcing124
3. How can lululemon get there?
Fostering alliances with health insurance providers to facilitate sponsored yoga wellness plans. Insurance sponsored health fairs provide a channel to connect with individuals, expose yoga instructors to new clientele, and open communication avenues aimed at achieving actuarial sponsored discounts for health care premiums. Successful alliances open brand to co-marketing of customer base and further brand equity over rival athletic apparel retailers. “Another secret of our success is community relations, basically itʼs built on building lasting authentic relationships…” –Delaney Schweitzer, Executive Vice President North America Retail Operations125
123 David Dorf, “The New Rules of Retail.” 124 Lululemon athletica, inc.,“2009 Video Annual Review,” lululemon website. Vimeo. http://investor.lululemon.com/ 12:00 (accessed on: November 1, 2010). 125 Ibid.