Lululemon Case Study

[pic 1][pic 2]

[pic 3]_[pic 4]

[pic 5]

TABLE OF CONTENT

Executive Summary        3

Overview        4

I.        Question 1:        4

II.        Question 2:        6

III.        Question 3:        7

IV.        Question 4:        7

V.        Question 5:        9

VI.        Question 6:        11

VII.        Question 7:        11

VIII.        Question 8:        12

IX.        Question 9:        14

X.        Question 10:        15

Executive Summary

This report is commissioned to evaluate current situation of Lululemon Athletica Inc. in the light of damaged brand image in 2013 due to product quality problem, thus, provide the ground for tackling the question whether the company can get back on track and pose recommendations on how the company can improve its current position.

The report first starts with a five forces analysis framework to assess the overall competitive conditions of yoga and fitness athletic apparel industry. Next, a strategic group map is used to reveal the market positions of industry competitors relative to that of Lululemon Athletica Inc. Then the report points out six key success factors that are essential to surviving and winning in the athletic apparel industry.

Next sections focus on evaluating Lululemon Inc.’s resources, capabilities, and competitiveness using a S.W.O.T analysis, an investigation on value chain components, and a financial ratios assessment. From the output collected, a discussion of the company's strategy is held.

Results of data analyzed show that Lululemon has considerably good growth speed, strong cash position, strong expense management, low debt level, however a weakness in inventory management.

The report also finds the prospects of the company in its current position are not too negative and could be improved. Despite the company’s internal weaknesses, and strong competition and other threats come from the industry, there are some reasons to be optimistic about Lululemon’s business future. Firstly, Lululemon has strong brand equity. It has strengths in aspects such as unique product quality and features, widely-known and be-loved culture, and distinct marketing approach that make customers became loyal and willing to pay a premium for its products. Secondly, Lululemon is now run by an experienced management team. In 2013, Lululemon’s CEO, Christine Day left the company, and replace for her was Laurent Potdevin who was credited with leading global expansion, growing the product categories and scaling internationally as well. Besides, the brand has also hired a new chief product officer. The new management team is expected to have a positive impact on Lululemon. Last but not least, the company still has room for growth. Most of Lululemon’s stores are now based in North America. The company’s growth strategy indicating that they are planning to expand beyond the U.S.

Nevertheless, the major areas of weakness require further investigation and remedial action by management. Recommendations involve:

• Improving quality control program

• Researching on product innovation and improvement
• Expanding product offerings
• Improving inventory management
• Adopting think-global, act-local approach to international expansion

Overview

Lululemon Athletica Inc., founded in 1998 in Vancouver by Chip Wilson, is a design and produce company which offers high-end yoga and fitness athletic clothing. The company has operated primarily in North America and Australia; initial target educated woman who embraces an active and healthy lifestyle. Lululemon’s first store was opened in Kitsilano in BC in November, 2000 and intended to become a community hub where people could learn and discuss about the physical aspects of a healthy life, in addition to selling yoga clothing. However, as new stores opened, it become hard to see these store as only community hubs, and there is need to turn one-store company to a multistore enterprise. This change requires them to focus more on training their staff. One of the company’s biggest goals was to train their people so well that, at the end, they could positively influence their families, communities and customers. Lululemon’s mission was to provide people with the components to live longer, healthier, and more fun life. To achieve this, they seeks to partnered with the right people and focus value quality more than quantity. Besides producing high quality yoga and athletic clothing, they integrated high quality in building relationships with their partners.

In 2013, the company operated 218 store locations worldwide in addition to its online store. Revenues first peaked $1 billion in fiscal 2011 and reached almost $1.6 billion in 2013. However, 2013 was no a happy year for Lululemon due to product quality problem and management uncertainty. The problem resulting lost sales and additional cost incurred, and the write-downs on the affected inventory had serious negative bottom line impact which caused Lululemon’s net income to rise a meager 3.3 percent in fiscal 2013 after increasing a roughly 47 percent in fiscal 2012 . Christine Day, the CEO of Lululemon, announced in June her intention to resign. Replace her position is Laurent Potdevin became Lululemon’s new CEO in early December 2013. Besides product quality problem, the company also faces strong competition from the athletic apparel industry and the threat of losing market share to its rival.

1. Question 1:

How strong are the competitive forces confronting Lululemon in the market for performance-based yoga and fitness apparel? Do a five-forces analysis to support your answer

1. Rivalry among existing competitors

The rivalry among competitors in the athletic and fitness apparel industry is vigorous. Lululemon faced intense pressure from both perennial leading brand names, particularly, Nike, Adidas, and Under Armour and from redoubtable emerging brands, namely Athleta, Lucy, and Bebe stores. In addition, there are also considerable competitions come from national and regional retailers of women’s garments. The huge competitors like Nike and Adidas have advantages over Lululemon in terms of stronger brand recognitions, wider range of target customers, greater financial capabilities and access to resources, and the benefit of economics of scale while also offering well-designed, high quality and technically advanced products. Meanwhile, new rivals is bringing in a new wind regarding their unique customer value proposition, distinct value chain with added unique features, extended functions and cheaper price ranges. The key point here is that many of Lululemon’s rivals are offering customers similar or even more superior products at a cheaper price.