Steven Bayley

Emily Beale

Yana Dubinsky

Elizabeth Peedin

lululemon athletica, Inc.

MGMT 6722Dr. Karriker

Short Overview

Designer and retailer of high end yoga and athletic apparel founded by Chip Wilson in Canada.

Targeting upper and upper middle classes, mostly women with health and yoga lifestyle awareness

Promoting community hub feeling in its stores and designed to develop high brand loyalty

Operates in North America, Australia and New Zealand

Main competitors: Nike, Adidas, Under Armor, Athleta and New Balance

Operations HQ in British Columbia, Canada with main design team Preliminary manufacturing in North America with mass

production in low cost countries - China and Taiwan Reaches out to potential clients via yoga studios and

instructors

Key Success FactorsCommunity Based Marketing

Superior Customer InteractionTechnological InnovationGrowing market of Fitness and Yoga

apparel consumers

Gamble, J., Peteraf, M., Strickland, A., Thompson, A. (2014). Crafting and executing strategy. McGraw-Hill Education.Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/about/

Value Chain Analysis

Supply Chain

Management

45 different

manufacturers,

no long-term

contracts – can

improve quality

control and lower

costs by

decreasing # and

agreeing to

contracts

Operations

Tighten

inspection and

verification

processes to

ensure another

recall does not

occur (see-

through pants

issue)

Distribution

Facilities only in

Vancouver-BC,

Sumner,

Washington, and

Melbourne,

Australia limits

company’s reach

Growth in online

sales can offset

Sales/

Marketing

Depend on word

of mouth and

community based

marketing - can

increase

marketing via

media (television,

magazines, etc.)

and other

avenues

Current Stock Price

http://finance.yahoo.com/echarts?s=LULU+Interactive#symbol=lulu;range=5y;compare=addyy+nke+ua;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Financial Performance vs Competitors

http://finance.yahoo.com/* Data retrieved on November 12, 2013

Column1 LULU ADDYY NKE UA IndustryMarket Cap: 10.00B 24.42B 68.64B 8.47B 451.58MEmployees: 6383 40168 48000 1900 3.09KQtrly Rev Growth (yoy): 0.22 -0.07 0.08 0.26 0.16Revenue (ttm): 1.49B 18.62B 25.81B 2.16B 1.05BGross Margin (ttm): 0.55 0.49 0.44 0.48 0.35EBITDA (ttm): 442.86M 1.77B 4.03B 295.60M 55.00MOperating Margin (ttm): 0.27 0.08 0.14 0.12 0.05Net Income (ttm): 270.43M 678.42M 2.66B 147.91M N/AEPS (ttm): 1.85 1.62 2.96 1.38 0.08P/E (ttm): 37.28 36 26.04 58.22 13.85PEG (5 yr expected): 1.91 -4.38 1.99 2.54 1.18P/S (ttm): 6.71 1.31 2.66 3.87 0.5

ChallengesQuality control issues impacting brand image

Narrow focus in both consumer segment and product line

Limited brand recognition and limited geographic market

References:Gamble, J., Peteraf, M., Strickland, A., Thompson, A. (2014). Crafting and executing strategy. McGraw-Hill Education.Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/about/

Challenge - Quality Control Issues

March 18th – Lululemon recalled yoga pants that were stretching too thin and becoming see-through lululemon CEO of 5.5 years stepped down 3 months later

Estimate cost of recall - $67M in Revenue

November 11th – A second quality issue surfaced with yoga pants Chip Wilson blames wearer’s “thick thighs” for stretching the

limits of Lulu pantsBhasin, Kim. "Christine Day Steps Down As Lululemon CEO." The Huffington Post. TheHuffingtonPost.com, 10 June 2013. Web. 20 Nov. 2013. <http://www.huffingtonpost.com/2013/06/10/christine-day-steps-down-lululemon-ceo_n_3417495.html>.

By Jeff Macke Retrieved November 11th, 2013http://finance.yahoo.com/blogs/breakout/lululemon-latest-flap-exposes-ceo-sozzi-130053275.html

Peterson, Hayley. "The Sheer Yoga Pants That Lululemon Recalled Are Back In Stores And Selling For $92." Yahoo Finance. Business Insider, 12 Nov. 2013. Web. 01 Dec. 2013. <http://finance.yahoo.com/news/sheer-yoga-pants-

lululemon-recalled-211224149.html>.

Recommendation - Image Damage Control Producing most of its items in low cost countries like

China and Taiwan requires certain attention to quality if the company wants to continue benefiting from high operating profit due to low costs of good sold. That’s associated with certain risks.

Having company’s employed quality inspectors on payroll that clearly understands and comply with company’s standard is one way to address it.

Costs – average salary for US quality inspector: $31,000 x 45 facilities = $1.39M Insulting potentials customers should not be company’s

motto when they seek growth.

Asking Chip Wilson not to go on the record.

Costs - $0.

Recommendation - Image Damage Control

• The Proforma estimate was based of 42% average growth of Net Revenue• 35% on average growth of Costs of Good Sold• 35% on average growth of Selling, general and administrative expenses

Gamble, J., Peteraf, M., Strickland, A., Thompson, A. Crafting and executing strategy (2014). McGraw-Hill Education.

Selected Income Statement Data

Proforma quality

Proforma w recall

Proforma

Year 2013 2013 2013 2012 2011 2010 2009Net Revenues 1421 1354 1421 1001 712 453 354Cost of Goods Sold 584 583 583 432 317 230 174Gross Profit 837 771 838 569 395 223 179Selling, general and administrative expences 381 381 381 282 213 136 118Operating profit 456 390 457 287 182 87 61

Historical Data From LULU income statament

Challenge – Narrow Focus

SWOT Identified limited consumer base and narrow product

line as weaknesses

Missing opportunity for potential revenue growth by meeting broader range of consumers and broader range of customer needs

Five competitive forces analysis Strong competition from rivals so taking advantage of

any and all opportunities to meet or surpass them is imperative

Recommendation – Narrow Focus Expand more into the men and children consumer

segments & into fitness activities other than yoga and running In 30 days:

Using current business processes gather information from ambassadors, r&d team members and market intelligence sources to identify fitness activities other than yoga and running for women, men or children Stick to focused product strategy and

premium positioning Take advantage of patented fabrics and

product technologies

Complete cost-benefit analysis for the top three fitness activities identified

Cost is negligible since processes and people are already in place

Recommendation – Narrow Focus Expand more into the men and children consumer

segments & into fitness activities other than yoga and running In 31-150 days:

Introduce new products to market Cost: Minimum (design occurs within; developed using

existing fabrics; can use existing manufacturers and distribution system)

Projected Revenue: at least 5% of total sales within two years

Successfully executed for men’s clothing and ivivva (children’s clothing) Men’s 15% of sales (8% less than 2 yrs ago) Ivivva (children’s brand) opened at MOA in October

certified yoga & fitness instructors: team research and development. (n.d) retrieved Dec 01 2013, from lululemon athletica Web Site: http://www.lululemon.com/community/rd_teamNgo, N (2013, Oct, 21). Lululemon sibling ivivva opens at Mall of America. retrieved Dec 01 2013, from Saint Paul pioneer press Web Site: http://www.twincities.com/shopping/ci_24355967/lululemon-sibling-ivivva-opens-at-mall-americaWarnica, R (2013, Apr, 8). Lulu for Him?. retrieved Dec 01 2013, from Canadian Business Web Site: http://www.canadianbusiness.com/companies-and-industries/lulu-for-him/

Challenge – Brand Recognition and Limited Geographic Market

Missing out on major markets (Europe/Asia/South America) Lack of brand awareness/mass marketing Although Lululemon has a solid grasp of their consumer in

the North American market, in order to facilitate further growth, international expansion is a must

Because the value of the brand itself is built on a cultural connection with its North American consumer base, it will be difficult to translate these brand values to other cultures in Asia, Europe, and Latin America without altering the brand’s meaning

Recommendation - Brand Recognition and Limited Geographic Market Markets chosen for expansion should be

carefully selected to ensure the brand maintains its air of exclusivity and aspirational price point.

The social climate of potential markets should also be investigated to ensure the values of the upscale market segment are aligned with the company’s vision.

South Korea, Brazil, and Russia may be a better cultural fit than Western Europe

Because the value of the brand itself is built on a cultural connection with its North American consumer base, it will be difficult to translate these brand values to other cultures in Asia, Europe, and Latin America without altering the brand’s meaning.

Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/financials.cfm

Recommendation - Brand Recognition and Limited Geographic Market - RUSSIA

• Continuing growth in Russian Apparel Market• Open Markets continue to lose share, in line with governmental strategy, increased activities among developers, and rising living standards and disposable income in Russia• Growing childrens-wear market, that has become more differentiated and

segmented, much like apparel for adults (Recommend expanding ivivva)• Russians are increasingly interested in sporting activities• Sports apparel purchased for everyday wear due to influence of fashion

trends• Sportswear in Russia increased by 20% in 2012 to reach RUB 228 Billion. • Sportwear apparel category in Russia outperformed Western Europe in both

2012, and across the 2008-2012 period.

"Sportswear in Russia." Weblog post. 7756414. Euromonitor International, 28 Aug. 2013. Web. 01 Dec. 2013.

Recommendation - Brand Recognition and Limited Geographic Market – SOUTH KOREA

• International Specialty Retailers of Private Label Apparel (SPA)

continue to record rapid growth in terms of both retail value and outlet numbers• SPA’s setting trends, forcing domestic manufacturers to

change brand concept to keep up• Private label brands from CJO Shopping (SL RIAHHA,

Fidelia) winning market share with high functionality items like heat generating underwear & licensing agreements with designer labels to enhance image.• Despite a mature market, internet retailing continues to grow rapidly• Advanced Mobile Commerce shopper capabilities present

dynamic opportunities• $2.5 Billion Sportswear market "Apparel in South Korea." Apparel in South Korea. Euromonitor International, July 2013. Web. 01 Dec. 2013.

Recommendation - Brand Recognition and Limited Geographic Market - BRAZIL

• Growing sales of sophisticated Value-added products• Super Premium and Luxury apparel players entering market targeting upper middle class and wealthier consumers• Unique opportunities for long term market exposure and solidifying positioning in the athletic apparel market provided by 2014 World Cup and 2016 Olympics• $35 Billion dollar sportswear market that is growing with Brazils rapidly expanding middle and upper classes

"Apparel in Brazil." Apparel in Brazil. Euromonitor International, July 2013. Web. 29 Nov. 2013.

Summary

Lululemon should stick with its current strategy of community based initiatives as it expands to new markets.

Because only the portions of the brand manifesto that relate to the local culture will be highlighted in each market, and marketing instituted at the store level, opportunities for misunderstandings will be minimized.

References* Apparel in Brazil." Apparel in Brazil. Euromonitor International, July 2013. Web. 29 Nov. 2013.

* Certified yoga & fitness instructors: team research and development. (n.d) retrieved Dec 01 2013, from lululemon athletica Web Site: http://www.lululemon.com/community/rd_team

* Gamble, J., Peteraf, M., Strickland, A., Thompson, A. Crafting and executing strategy (2014). McGraw-Hill Education.

* "Salary Search." Job Search. N.p., n.d. Web. 30 Nov. 2013. <http://www.indeed.com/salary>.

* Ngo, N (2013, Oct, 21). Lululemon sibling ivivva opens at Mall of America. retrieved Dec 01 2013, from Saint Paul pioneer press Web Site: http://www.twincities.com/shopping/ci_24355967/lululemon-sibling-ivivva-opens-at-mall-america

* Warnica, R (2013, Apr, 8). Lulu for Him?. retrieved Dec 01 2013, from Canadian Business Web Site: http://www.canadianbusiness.com/companies-and-industries/lulu-for-him/

* Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/about/

* "Yahoo Finance - Business Finance, Stock Market, Quotes, News." Yahoo Finance. N.p., n.d. Web. 12 Nov. 2013.

* Peterson, Hayley. "The Sheer Yoga Pants That Lululemon Recalled Are Back In Stores And Selling For $92." Yahoo Finance. Business Insider, 12 Nov. 2013. Web. 01 Dec. 2013. <http://finance.yahoo.com/news/sheer-yoga-pants-lululemon-recalled-211224149.html>.