Lululemon Essay

Chip Wilson began his operations catering to the yoga community, in both clothing and with practice. When he first launch his clothing line he also doubled his stores as a place of practice for the ones known as yogis. Lululemon is known as a top class brand that’s matched with a hefty price tag if you wish to sport their products. In the market with popular brands such as Nike and Under Armor, Lululemon’s high-tech products, knowledgable staff and their yoga reputation provide their competitive advantage over the rest. Also, with certain products having limited life cycles it keeps the customers checking the stores more frequently for new material. This way of business has laid a good platform to build upon. Now with 174 corporately owned

stores, Lululemon has been on the rise on the balance sheet as well as across continents over the past few years. While they are spreading across the globe, their locations in North America are not yet very diverse. This has allowed for the competitors with lower prices but lower quality brands to gain some ground. However, this is also a good sign of there being room for further growth.
Strategic Profile and Case Analysis Purpose
Lululemon athletica, Inc.

has been on the cutting edge of the apparel market since 1998 when Chip Wilson realized that what was available for practicing yoga was not up to par. He began offering yoga apparel made of performance fabrics to local instructors and asked for their feedback to improve the product. This is just the beginning of what will become a multibillion dollar business model of creating a product and asking professional yoga instructors for their opinions. However, while the business was still in its infancy he had to have his store double as a studio to be able to pay the rent. This model almost forced him into many habits that major retailers are beginning to embrace with just in time delivery and carrying a more narrow selection. Also, this practice of stores doubling as studios would become a calling of Lululemon athletica, Inc. Wilson incorporated this model into his stores as he began to expand Lululemon into an international brand overcoming many challenges along the

way.
The athletic apparel industry is extremely crowded with gigantic multinational firms controlling the lion’s share of sales and revenue. However, through targeting niche market that these corporations were not serving particularly well, Lululemon has managed to capture a sizable share of their own market. This targeting strategy is known as a focused differentiation strategy; the book defines this strategy as, “concentrating on a narrow buyer segment (or market niche) and outcompeting rivals with a product offering that meets the specific tastes and requirements of niche members better than the product offerings of rivals.” A major cause of Lululemon becoming such a niche company is their aforementioned product development with yoga professionals.
Situation Analysis
General Environmental Analysis
Lululemon had 174 corporate owned stores as of 2012 mostly focused in the United States and Canada. There are ongoing efforts to expand in Eastern Asia, Oceania, and Europe the expansion was slowed slightly by the harsh economic climate of 2007-2010, but the company continued to grow during this period and has since blossomed. A major reason for this continued growth when most premium brands were struggling is the fitness market was exploding at this time. Also, Lululemon is a responsible company capitalizing on shifting public interest towards people wanting to feel better about how they spend their money.
Lululemon is taking advantage of being a 21st century corporation through an emphasis on social media marketing relying on word of mouth. Wilson is confident that his guests will have such an amazing experience that they will want to tell all of their friends to try his company. Not only is this a very effective form of marketing, it also is much cheaper than the Nike route of sponsoring events, sport leagues, teams, and athletes. Lululemon has the potential for enormous reach which coupled with them working with local charities captivate their consumers to buy and feel good doing it.
Industry Analysis
Lululemon competes in a mature industry with major corporations such as Nike, Adidas, Puma, and Under Armour controlling the majority of sales. However, there are many other competitor such as The Gap subsidiary Athleta, Nordstrom, REI, and Patagonia. Not all of these firms are direct competition due to the market they attempt to serve within the industry; for example, Athleta focuses more on providing goods at a lower price while Nike and Under Armour target mid-to-high price range featuring a wide variety of products. There are also niche companies such as Patagonia and Lululemon that focus on providing top quality merchandise at a premium price. This level of competition makes the threat of substitution a very real possibility that must be addressed daily. Lululemon sets themselves apart through their specialty fabrics, excellent customer service, and environment. The threat of new entrants is ever present in the athletic apparel industry with there being very few barriers to entry.
Competitive Environmental Analysis
Despite the large number of competitors at every level Lululemon has managed to capture a sizable share of the market. Lululemon has achieved this by offering a product that no one else does with many of their own fabrics designed for athletic benefits such as cooling and odor-free materials. Then coupling their superior product with exceptional customer service and environment has pushed Lululemon to the forefront of this industry segment. Nike is by far the largest firm in the athletic apparel industry boasting total revenues of $20.9 billion in 2011. This dominance comes largely due to their sponsorship with Michael Jordan in the 1990’s that pushed them past Reebok and Adidas in sales. The Jordan line of sneakers is the best-selling line of all time. Under Armour is a relatively new company when compared to the other controlling firms in the industry. They lack some of the brand recognition but they are quickly growing into a major player in this industry through their research and development of fabrics that revolutionized the industry.
Internal Analysis
Lululemon has a firm grasp on their target market and how to cater towards these individuals. What is most impressive is their organic growth strategy to enter markets by targeting instructors and studios to become certified partners or potentially opening a company owned store in the market. The firm experimented with having franchised locations but came to the realization that company owned stores and certified partners fit better into their business model. While the discovery period of how to expand more effectively was taking place, Lululemon targeted the key demographic in the yoga industry of affluent Caucasian women. This targeting took place in their design and through their localized marketing to promote yoga studios and more importantly, local philanthropies. Furthermore, Wilson realized that the customers were more likely to ask their instructor for recommendation for clothing if the class was not taking place in one of the company stores. This advantage of having the instructors involved with the Lululemon is paramount to the rapid growth they experienced over the past decade and a half. This growth is also very sustainable as long as there is a market for upscale yoga equipment due to Lululemon’s strategy including offering classes while certifying partner studios to sell their goods. They are considered in the “in group” by showing their passion
One of Lululemon’s advantages are the employees or “educators” who are not there to sell, rather they teach clients about the product and lifestyle. The firm ensures that new hires are knowledgeable about yoga through offering subsidies to those who are not familiar with the practice. This understanding allows the employees to accurately describe the benefits of the clothing and be more relatable and insightful to their “guests” rather than being just another salesperson. Lululemon’s mission statement of, “providing people with the components to live a longer, healthier and more fun life” shows their dedication to be more than just another apparel company. Their dedication to be more than just another apparel company is reflected by their core values and company culture. Lululemon encourages their employees to have highly “’a written set of professional, health, ad personal goals” then the company strives the so help employees achieve these goals. The firm encourages employees to read books such as The Seven Habits of Highly Effective People by Steven Covey and The Psychology of Achievement by Brian Tracy among many others. Then to celebrate employees’ one year anniversary with the company, Lululemon pays for a three-day weekend at the Landmark Forum seminar. This seminar helps employees realize their own potential and break down barriers to their own success. All of this culminates in none of their employees unionizing thus reducing labor costs and having happier employees to better serve guests. Happy and knowledgeable employees produce a better experience for guests and ultimately creates a unique environment that keeps guests coming back for lessons and shopping.
SWOT Analysis
Strengths
Lululemon is a very strong company whose focus on being socially, ethically, and environmentally friendly.

The Lululemon manifesto sets out guidelines for employees to live by and features advice such as exercise daily, don’t trust a pension, and live near an ocean for the salty air. They focus on keeping their employees happy and motivated. This leads to a unique experience for their guests that keep them coming back for more lessons and equipment. The inventory turnover rate is extraordinary and is truly a distinct advantage.

Short lead time for new products helps keep up with a changing market. Lululemon can have a product from design to store in less than two months even though their average time is eight to ten months. This short time allows them to keep up with the constantly changing market and their customers’ demands. More importantly, this is a sign of an extremely efficient firm.

Weaknesses

They offer a premium product at a premium price with the service to match. Their health is directly tied to the health of the economy through their reliance on individuals’ disposable income. Their reliance on disposable income coupled with their narrow product offering and target market creates is a weakness due to the reliance on healthy economic

conditions.
Opportunities
There is a vast number of opportunities open to Lululemon athletica, Inc. The first opportunity I believe they should capitalize on is expanding into France, Spain, and Italy while continuing their existing expansions. According to the store locator found on Lululemon’s website there are currently no stores, showrooms, or certified partners in those three major population hubs. Lululemon’s certified partner also presents many opportunities for expanding their business without incurring as much risk as opening a company owned store in each market in which they wish to have a presence. Also, I believe there are many other product lines they could introduce that fit well into their portfolio such as expanding men’s apparel, hiking apparel, and other outdoor apparel. Furthermore, the Internet is a major opportunity for the firm to increase sales volumes without the overhead of physical store locations, thus reducing overhead costs.
Threats
The largest threat to Lululemon is the threat of consumers opting for a lower price, lower quality product. They are considered a premium product provider and their prices reflect this superior quality. Furthermore, with increasing demand, their distribution centers in North America being clustered so closely in the Washington State and British Columbia could cause complications and time constraints when moving products to the East Coast. There are also other up and coming premium quality vendors such as REI and Patagonia
Strategy Formulation
Strategic Alternatives
A promising alternative that is in accord with the company’s strengths, capabilities, and core competencies is expanding into Europe. Another potentially advantageous alternative of similar caliber is to manufacture their own products rather than outsourcing the task by constructing manufacturing facilities in the United States. Furthermore, expanding distribution centers to include a more eastern location could potentially cut delivery time and efficiency. These alternatives should help increase the market share possessed by the company and profits to establish sustainable success for years to come.
Alternative Evaluation
A promising alternative for Lululemon Athletica Inc. is expansion into Europe. When expanding into a foreign country it is important to consider the language barrier. In addition to a language barrier, a company should expect to adapt to the cultural and social norms of the country in some capacity. Communication must be clear and concise to avoid misinterpretation but also remain consistent with the company’s vision. This communication must also convey an appropriate marketing message. Utilizing the established growth strategy of teaming up with local instructors could help ease many of these potential issues while also creating a sense of community and belonging between the firm and existing culture. This could be the safest and quickest way to increase their market share, thus increasing their expansion budget. This should produce a sustainable strategy for a sizable period of time.
Expanding manufacturing facilities in the United States is another promising alternative. This alternative has the potential to grow the business in many ways. Larger manufacturing facilities would employ a higher number of individuals, therefore increasing the brand awareness of the company. Also, by adding the ability to manufacture products on a large scale, the company would lower its product input costs as well as gain the ability to increase their product assortment relatively cheaply. This would prove valuable before expanding company stores into geographically and demographically foreign areas. Most importantly, having manufacturing facilities closer to the company’s largest market lowers transportation costs thus offsetting some of the costs of expanding the facilities.
Alternative Choice
Investing in manufacturing facilities is the better of the two alternatives. It has the advantage of successful certainty and that it will supply stores that are already successful rather than investing in a demographically foreign area. Expansion into Europe may be a good strategic option later in the company’s lifetime. However, they must assess if they can afford to make an investment that will yield uncertain results. By choosing this alternative, the firm helps ensure increased profit over its lifetime and provide financial security for later expansion opportunities. In the long-term, if Lululemon desires to compete with the larger companies such as Nike, manufacturing their own products is essential.
Strategic Alternatives Implementation
Action Items
A few physical requirements must be met to make this alternative possibility a reality. First, one or multiple manufacturing facilities must be erected or expanded depending on the location’s cost efficiency for deliveries to company stores. The manufacturing facility must be of sufficient size in order to shelter the machinery as well as the delivery vehicle loading bays. Furthermore, the building should be designed to maximize efficiency and minimize the cost of the facility.
A second physical requirement that these manufacturing facilities must meet is the sheltering of the machinery that will constitute an assembly line. These machines must be highly adaptable to reduce proto-type production cost and assemble new and creative product lines. The machines must have the ability to manipulate all current and potential fabrics used in existing and future product lines.
The last physical requirement for the manufacturing facilities is the investment into vehicles that will deliver the newly manufactured products into company stores. These vehicles should operate at high-efficiency to incur the lowest possible cost of operation while being environmentally responsible. The vehicles should apply the most advanced aerodynamics, energy efficiency, and technological safety features. While electric delivery trucks are a higher initial investment than diesel powered trucks, it will have lower cost of operation before the end of its useful life. This also remains consistent with the company’s commitment to a clean earth. The electrical supply to the trucks’ charging stations would be supplemented by windmills and solar panels located on the roof of the manufacturing facility to further reduce costs and negative impact on the environment.
Action Plan
An efficient plan of action would be to triangularly locate three manufacturing facilities in North America to ensure the lowest cost of delivery for the newly manufactured products. The company could invest its previous year’s profits into all three manufacturing facilities at once, or it could construct one facility at a time while diminishing the outsourcing cost of manufacturing and delivering as the other two manufacturing facilities are completed. If the latter, the newly earned profits would be useful immediately in financing the other two manufacturing facilities. Once this investment has broke even from either variation of this alternative, expansion into Europe now becomes a more desirable and plausible investment by proportion because there will be potential higher profits to invest while profits are inflowing at a higher rate. Due to the triangular position of the manufacturing facilities, it is now a cost efficient option to consider expanding southward into Mexico or potentially manufacture some goods there due to NAFTA. This is the most financially sound order in which to implement the two alternatives as supported by the financial certainty and stability acquired in doing so.