Lululemon rivals get perspiration and inspiration
Lululemon Athletica Inc. shares are not far off the record they hit in June — and for good reason.
The yoga apparel chain delivered blockbuster first-quarter results and significantly bumped up its earnings guidance for the full year.
Plus, as I noted earlier this week, the short-term outlook for clothing retailers is better now than it has been in years, and Lululemon is well-positioned to take advantage.
The recent sizzle at Lululemon makes for a good occasion to step back and acknowledge just what a force it has become in the apparel business — and why that should be simultaneously scary and encouraging for other players in the specialty format.
The Vancouver-based company has done something truly remarkable in the last several years. Despite operating in the hypercompetitive athletic segment and enduring no shortage of leadership drama, Lululemon’s sales have vaulted past those of some of the most prominent names in the old guard of specialty apparel.
Lululemon, notably, has reached this sales threshold in a healthy way. It had just 274 stores in the U.S. at the end of the latest quarter, a manageable portfolio in the digital era. And its e-commerce growth in the last quarter was especially strong, hinting that it is gaining momentum in that channel.
And Lululemon’s gross margin is most likely the envy of many of its counterparts. In some ways it is only logical that it would look better on this measure than chains that sell everyday clothes. After all, Lululemon carries gear made of technical fabrics, and it’s simply easier to get customers to pay premium prices for that than for commodity items like T-shirts or cotton underwear.
But it even looks good on this measure compared with Nike Inc. and Under Armour Inc., which make more comparable products. Lululemon wouldn’t be able to achieve that hefty margin without the work it has done to shore up its supply chain and to become more reactive to fashion trends.
Lululemon’s success, on some level, should be the stuff of nightmares for other apparel executives. The chain has persuaded throngs of shoppers to pony up $128 for leggings or $58 for sweat-wicking tank tops — in many cases, most likely replacing the purchase of a pair of jeans or a blouse. It’s a sign of the extent to which the emphasis on health and wellness is shaping all kinds of purchases. The chain will likely vacuum up more spending in international markets and the men’s category in the next several years.
At the same time, though, legacy clothing retailers should take some measure of comfort in Lululemon’s swift rise. For one, it shows that the specialty format can still thrive. Sometimes shoppers are looking for a curated selection, even when Amazon.com Inc. gives them practically bottomless choice.
It also bears out a principle that the retail industry loves to evangelize: value is not necessarily defined as rock-bottom prices. At times in recent years, it sure has been hard to maintain faith in that dogma. Shoppers were flocking to fast-fashion outposts and were staying on the sidelines at chains like Loft or Gap if they didn’t have a coupon for 40 per cent off.
But Lululemon has grown by offering unique products that customers perceive to be worth their high price tags. That lesson can be applied to chains that sell everyday clothes: women might be willing to pay full price for goods if they were truly excited by the designs or felt confident they weren’t going to pill and shrink after three trips through the dryer.
Lululemon’s ascendance should make other retailers sweat. But it also should give them ideas for how not to get left behind.