Lululemon Case Analysis

Lululemon Case Analysis

Aubrey Bailey – 11439951

GBA490-901

1.  Five forces analysis for lululemon:

1. Rivalry among Competing Sellers:  Main rivals – Nike, Reebok, Adidas, and Under Armour.  Competition is very strong amongst competitors.  Therefore, this force would be considered strong.  With the rising popularity of yoga / fitness, especially amongst women, this encourages competition in such a market.   All of the other competitors also are well known for athletic wear and products with large operating capital.  This makes competition amongst rivals even that much stronger in such a small slice of the athletic wear industry.  Especially one that could end up being a “fad” and who’s existence could be short term.
2. Potential New Entrants: Athleta, Lucy, and Bebe are the main new competitors that specialize in this niche market directed towards women.  All of these new entrants are subsidiaries of larger firms, therefore, giving them the operating capital needed to compete as a new entrant.  Also, all of the new entrants offer their athletic wear in a larger variety of sizes compared to Lululemon, and are usually 10-25% cheaper than comparable Lululemon products.
3. Suppliers:  Lululemon has short term contracts with all of their suppliers.  This puts them in a very good situation to be able to re-negotiate contracts regularly, and gives them the upper hand when negotiating price of raw materials.  Therefore, this force would be rated as weak.  Lululemon also holds the patents for all of their materials used in their products.  Therefore, they have total control over any proprietary technology regarding the use, sell and/or manufacture of their materials.  This again, puts them in a very good position regarding suppliers.
4. Firms in Other Industries Offering Substitute Products:  There are no other industries that supply these same products or a substitute.  Therefore, this force would be rated as low.
5. Buyers:  Buyers have extremely strong bargaining power.  Therefore, this force would be rated as strong.  With all of the numerous providers of the same type, or adequate merchandise, buyers have an unlimited selection to choose from.  Any drastic change in price, or bad PR, can easily turn customers off to one brand, and onto another.  This was evident when Lululemon went through bad PR due to their Lumon based yoga pants.  On top of that, they seemed to continue to make the PR worse and worse.  As a result, their sales dropped off, as well as their stock price.

1. The key success factors in the market for performance-based yoga and fitness apparel is based on style, fit, and performance.  The majority of the target market is women, ages 18-44.  While price and value will play a factor, most of the women that are in this target market are educated, in the work force, have limited time, and are willing to pay more for the right style, fit, and performance.
2. The primary components of lululemon’s value chain are: 1) offering a limited range of apparel sizes.  This enables lululemon to keep production costs to a minimum, thereby offering the consumer more value.  2) keeping short term contracts with suppliers.  This gives them the upper hand in pricing raw materials.  3) merchandise is put on a 3-, 6-, or 12-week life cycle, so shoppers could always find something new in the store.  4) in store complimentary yoga classes.  5) community-based marketing approach.  6) hiring educated and experienced store personnel.
3. The recommendations that I would make to CEO Laurent Potdevin are that I would stop expansion of brick and mortar retail stores.  The income generated from retail stores is on a downward trend.  Whereas sales from online shopping has increased every year.  I would concentrate more on distribution center expansion, and start building small retail showrooms in the distribution to cater to prompt deliveries of on-line orders. I would do more investigation as to why revenues are steadily dropping in the Company’s home country of Canada, and devise a strategy for combatting that issue.
4. SWOT Analysis:  

1. Strengths – Designing and patenting its own materials used in production that are appealing to consumers.  Having technical and exercise savvy personnel in store to answer questions.  Similar to how Apple has a very tech savvy staff in their retail stores, this is a huge strength for their brand and consumers normally have many questions when it comes to fitness, yoga, and the apparel in general.
2. Weaknesses – Trying to recover from bad PR due to old CEO’s original remarks, and then shallow apology.  It’s bad enough that lululemon only manufactures their clothing line in certain sizes, but basically saying that “fat women shouldn’t wear our clothes” is going to be a hard reputation to shake.  Expanding too much in the retail store sector versus the online selling and distribution sector is another weakness.  Building retail stores in major, affluent cities is expensive.  MUCH more expensive than distribution space.
3. Opportunities – Consider expanding the apparel sizes to cater to ALL sizes like all of the other manufacturers.  While raw material costs will rise, so will sales to another market of “fat women” who WANT to be skinny.  This will also confirm that the corporation DOES really care about larger people’s health as well, and will be helpful in forgetting the shallow apology of the past.
4. Threats – While it would appear that the yoga trend is still trending up, this also draws more and more competition to the market.  Someone is going to eventually try to do it better, and cheaper.  Again with the over expansion of retail space.  As consumers make more and more of their purchases online, I would be aware of the over investment of expensive retail space versus cheap distribution space.

Synopsis – While lululemon separated itself similar to UnderArmour, by offering their apparel with state of the art, high tech materials and fabrics, it still mainly concentrates on the yoga influenced side of the market.  This is very narrow, and what if there were a new fad tomorrow?  Lululemon needs to continue expanding their product lines in keeping with market trends.  They have key strengths like technology and know-how, but have also tarnished their reputation by labelling a large majority of the population as not “good enough” to buy and wear their clothing.  However, they have an opportunity to rectify this situation once and for all, by expanding their sizes to accommodate ALL body types.  Doing this may also fend off new entrants and threats into the industry, by taking away that portion of the customer base that they have not been catering to, but probably should.  After all, over weight people are the ones who NEED to be inspired to take up a fitness lifestyle.