Lululemonathletica, Inc Case Study

1. Summary of Case:

Background information:
Lululemon is a Vancouver based company with over 201 locations most of them located in North America, the rest in Australia, New Zealand and Japan. The company is valued $ 1.59 Billion dollars. The company was founded in 1998 by Chip Wilson, one year after selling his surf, skate and snowboard apparel company, he started taking Yoga classes which he really enjoyed but found the cotton clothes completely inappropriate for this type of physical activities. Passionate about technical athletic fabrics, he opened a design studio to create yoga clothing, the studio was also used as real yoga studio at night to help pay the rent. This is where the roots of Lululemon started growing, Chip Wilson developed new product and was in direct interaction with the Yoga community and continued to interact with anybody who was willing to try his new Yoga apparel. The First store opened in 2000 in Vancouver and since then the same core value and culture has driven the company to success.

Responding to the increased number of women participating in Yoga, lululemon has created products with new innovative fabrics and technology to fit, and feel better which helps women improve their fitness goals. They have provided a culture that increased awareness of the health benefits of doing yoga in daily life. Lululemon’s mission statement is to help people live long, healthy, and fun filled lives. They focus on ensuring that their products are of the highest quality and that their store experiences are one of a kind. lululemon invests money in training to educate their staff on effective and creative ways to create a unique experience in each individual store. With deep rooted ties in each community, lululemon created the charitable giving program, where guests of each location decide which local charities they would like to support. lululemon then chooses up to eight of these charities to be part of the program. Market environment:

Lululemon found its place in the market by differentiation, taking advantage of a niche market. Higher price standard, premium quality, unusual marketing and selling strategy. However, they have strong competitors such as Nike, Adidas and Under Armor and others such as Gap, Athleta, Prana those two position themselves in the same kind of strategy, niche market, premium quality and prices. However, Lululemon keep a competitive advantage by their production efficiency and their community based marketing. After opening the first store back in 2000, they weren’t able to follow this customer relationship model because of their success, too many people on the store.

They start expanding and opening more stores in Canada and in the US. From 2000 to 2007 the company grew significantly, in 7 years they opened around 200 locations. They reach around $150 million revenue and $8 million net profit in 2007, the owners decide to take the company public the 2nd of August, selling 2,290,909 shares to the public and various stockholders selling 15,909,091 shares of their personal holdings. Nowadays, the company represent $1.6 billion revenue and around $240 million net profit. Feedbacks from the market are positive, the company is still growing. Issues:

Quality control issues sometimes with the supply chain, demand a great amount of work and a constant attention to keep the standards with the 45 different manufacturers of the company. Narrow focus, the primary target is sophisticated and educated women who understand the importance of a healthy life. The company will have to open their consumer segment to new targets such as men and youth. As well as a narrow product line, should open to others sport activities (tennis, golf, hiking…) Limited brand recognition. Lack of brand awareness and mass marketing. Limited geographic market, European and Asian market are waiting.

Key points to the case study:
– Sourcing methods, 45 different fabrics, flexibility + high quality. – Marketing methods, community, direct interaction with the customer, make it familial, comfortable for each. – Personnel, trained to fallow the value, creative, interactive, contact direct with the community, flexible hours. – Customer relationship, core value, community, network with fitness industry. Events, interactive. – Product, premium quality technically advanced and innovative.

2. Review of the strategy:

Differentiation focus, lifestyle culture perception. Superior products (features, design, performance), striving for innovation and technological advanced apparel. Emphasizing marketing and brand building activities. Pursuing continuous quality improvement. Development & Objectives:

– Grow store base in North America and additional outside in NA new markets (Japan, Australia, New Zealand, Asia and Europe). – Increase awareness of the Lululemon brand, spread visibility. – Product line development, keep striving for better quality. Next generation fabrics and technologies in order to strengthen the brand association with technically advanced products, keep high prices rate. – Opening to broaden a bigger range of athletics activities. – Keep striving for the core value of the company, the customer relationship based on a community perspective by working with fitness professionals, establishments and athletes. Method of implementation:

Concerning the expansion of the store base, the company did reacquire most of their franchised store or converted it as join venture which is better for long term expansion. Lululemon plan to open 30 new stores in the US, 2 Ivviva stores in Canada and 5 in Australia and New Zealand. Overtime, the company plan to expand in new market such as Asia and Europe. All those locations will be retail stores places in dense demographic locations, in cities where people have a dynamic life, in the main shopping streets or in malls. From 2500 square foot to 3000 square foot, well ambiances decoration and managing of the space that will permit once a week to do complimentary Yoga classes in the store after the regular hours (customer can get discount). To implement in new areas, Lululemon use the showroom strategy to introduce the brand to the community.

To increase their visibility they are also present in wholesale stores and they opened their website in 2009. The product development is handle by the design team, international collaborations with people of the fitness industry and other similar fields who share the philosophy of the company and dedication to premium quality. Inputs from fitness ambassadors (testing, evaluating), feedbacks from customers as well in direct contact with the designers in addition to market intelligence sources. The design team and other ambassadors (athletes, trainers, yogis and people from the fitness industry) do meetings every year to debate on all kind of decisions; fabric selection, develop new products for new targets (men, youth) as well as new athletics activities (Running, tennis, golf…) and adjust in the fit, style and functions of existing products. The supply chain, production is the only activity that is outsourced to low cost countries. The product development team work closely with the manufacturers. Efficient fabric technology, it takes 8 to 10 moths usually from design to availability in stores but capable of 2 months design and production finalize.

There are 45 external manufacturers most of them are in China or South East Asia. Five of them represent 67 % of the production. The company keep all their manufacturers in short term contract for more flexibility in the development. All of them as to be committed to quality and ethical business conduct. Lululemon plan to open new fabrics, more modern and technologically advanced in the future, the next generation fabrics for a better quality. To increase the brand awareness, the company will still striving for their community based marketing (word of mouth). They already spread a strong core value to share with all their customers. To live a healthy, dynamic, balanced, joyful and peaceful life, Lululemon can help you.

They are in friendly interaction with their customers, whom they call “guests”. In addition they built a wide network of yogis, fitness trainers and establishments, athletes and health conscious people. This community is interacting around yoga classes most of the time. However, they develop a customized plan for organizing, sponsoring and participating in athletics, fitness and philanthropic events in local area. To increase the brand visibility, Lululemon also work on placing their products in more wholesale stores, doing more showrooms and developing the website and web marketing.

3. Solutions and analysis:
In my opinion, the strategy of differentiation of Lululemon is very good. Specially, their customer and community oriented way of doing marketing. However, I can point some weak point that can create issues in the future. First of all, the product line is too narrow that can limit the growth at one point. I say that in a sense, if you sell apparel only for yoga, you won’t reach a larger demography than yogis. Specifically this demographic target of the modern middle age dynamic women, health conscious. It’s a good target for the beginning and that brought good values with the community oriented marketing that come with. Now the next step is too open to new target related to this first one, the husband, the children. Those people don’t necessarly do yoga (it isn’t the only way to live an healthy life), the difficulty is to open and develop a new target marketing with new athletics product by keeping the same style and culture in the way. Second, the company as to expand its geographical market and go to Europe, Asia and even South America. Growth come with a worldwide expansion, and we face the same problem here, we have a specific marketing model that is cultural and communitarian and you don’t want to lose control of that by expanding where people will not answer positively to the concept.

I say, Lululemon have to take the risk, do a meticulous market search analysis and demographic search and a good community implementation plan. I come from France, I can say this brand won’t have any problem to implement in Paris or some cities in south of France. The thing is to know where it will be well received. I would advise to keep the roots of the business, which means to target modern sophisticated women and the first original and more successful line of products to start implement in those new cities. With still the customer oriented marketing,and then if the demand is there develop the new products in those new markets too. Third, I would recommend to open the company to mass marketing. I would prioritise web marketing, but also started to have more media coverage to be able to reach more people.

References:
Crafting & Executing Strategy: The quest for competitive Advantage: Concept and cases, Thompson, Strickland and Gamble, McGraw-Hill/Irwin, 2009, 19th Ed. Lululemon extra case. http://www.lululemon.com/media/press_kit/lulu_media_kit.pdf

http://www.marketwatch.com/investing/Stock/LULU?countrycode=US http://www.fastcompany.com/1208950/lululemon%E2%80%99s-cult-selling http://www.huffingtonpost.com/jessica-marati/behind-the-label-the-ideo_b_1922