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Strategy: Fitness Apparel Industry Analysis & Recommendation
1. Fitness Apparel Industry
Porter’s 5 Enforcers:
Nahar Chowdhury,
Xuanying (Shirley) He,
Rishi Daryanani,
Xi (Lorraine) Chen,
Ailin (Eileen) Chen
2. OverviewAgenda
• Introduction
• Industry analysis
• Firm analysis
• Technology
• Resources
• Scope
• Issues and recommendations
Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
1
3. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Fitness Apparel Industry
Clothes specifically sold and marketed to be worn during fitness or wilderness
related activities; i.e. playing sports, running, yoga, camping, hiking
Top Industry Firms
Industry Size
$153 Billion Global Market Cap1
Industry Trends
“…active wear is suddenly chic”2
Fitness clothing is no longer limited to the gym and gym related activates.
Industry Overview
2
4. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Leader Firm
“ A designer, distributor, and retailer of
technical athletic apparel…which create
transformational experiences …
leading a balanced and fun life ”3
3
5. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
“As one of the largest outdoor and active lifestyle
apparel and footwear companies in the world, our
products have earned an international reputation
for innovation, quality and performance. ” 4
Client Firm
4
6. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Industry Profitability
– Industry average profitability : average ROS Years 2010-2014
– Positive industry influence on profits
Analysis of Financial Performance (Based on Return on Sales)
4.00%
Economic
Average
Industry
Influence
Client
Strategy
Influence
5.88%
Colombia's
Profitability
Industry
Profitability
17.18%
Lululemon's
Profitability
Leader
Strategy
Influence
7.99%
+3.99%
+9.19%
-2.11%
Analysis of Financial Performance - Industry
5
7. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Firm Facts
2 Geographic Categories: US & Canada
Profitability: ROS 17.18%
Sales Revenue: 2.06 Billion in 2015
Key Products : Yoga Pants and Mats
Brand Image: Healthy Lifestyle
4 Geographic Categories: US & Canada, Latin
America, Asia Pacific, Europe & Middle East
Profitability: ROS 5.88%
Sales Revenue: 2.3 Billion in 2015
Key Products : Skiing and Snowboarding
Apparel
Brand Image: Tough & Durable & Affordable
All Facts and Figures are taken form annual reports and 10-K fillings
6
8. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Analysis of Financial Performance - Industry
• Key buyers:
•Department stores, consumers
• Low Brand loyalty5 ↑
• Low switching cost ↑
• High price sensitivity ↑
High Buyer Power
• Key Rivals:
•Nike, VF, Adidas, Under Armour, Columbia,
Lululemon,
• Concentration C6 = 15.4% ↑
• CAGR 5.2% ↓
• Brand Recognition ↓
• Comparison shopping6↑
Moderate Rivalry
7
9. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Trends & Dynamics Impact on 5 Forces
• Rivalry ↓
• Substitute ↑
• Buyer Power ↓
• Rivalry ↑
Total Impact on
Industry P
Trend #1
Fitness clothing to becoming more casual
and fashionable7.
• Substitute ↑
• Rivalry ↑
Trend #3
Less sports participation in the U.S
market8.
Trend #2
Companies are developing fitness apps and
other wearable technology9.
Advanced 5 Forces Analysis (I) - Industry
8
12. $-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
Average Lululemon Columbia
Industry WTP and Cost
Other R&D Marketing Costs Cost of Goods Sold Margin
$68.75
$51.94
$77.75
$46.36
$63.82
$61.74
Total
Cost
Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
WTP & Costs Drivers - Industry
WTP
Quality
Technology
Brand
Trends
Retail
Experience
Costs
Marketing &
Sales
Production
Distribution
Networks
R & D
Patent
Expenses
WTP and Cost figures come from the average of the best selling product lines
11
13. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Strategic Activities
• Building brand image: healthy lifestyle
• Building a community
• Thorough product testing
• Design:
• Trademarked fabric
• Luon, Swift, Luxtreme10
12
14. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
WTP & Cost Drivers
WTP
Quality
Community-
based
Marketing11
First mover in
athleisure12
Free yoga &
self defense
classes
Cost
Grassroots
ad campaign
Low
distribution
Partnership
in R&D
Less legal
expenses
13
19. Production TechnologyIndustry Production Technology
Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Disruptive
Sustaining
Complementary
asset
Product Design → Manufacturing → Distribution → Wholesale & Retail → Customers17
Columbia’s Patented Technologies, Process & Design:
• Omni-Tech, Outdry, Omni-Wick Evap, Omni-Heat18
Omni-Heat Electric (Columbia):
• Traditional vs. Conductive material
• + electronic elements
• Discontinued in 201319
Fitness tracker/Smartwatch:
• Workout accessories
Marketing Channel:
• Columbia’s weak brand image
• Hard to capture full value of
innovations
Industry is
subject to
incremental
innovation
18
20. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Valuable Rare
Costly to
imitate
Capture
value
Sustainable
competitive
advantage
Firm-level Analysis: Resources
• Omni Heat Technology Patent
• Global Presence
• Design Patent
• Brand Value
19
22. $0.00
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
1999 2012 2013 2014
Net Sale
Acquired Brands
Columbia
Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
55%
32%
54%
35%
0%
20%
40%
60%
COGS/Rev S&G/Rev
Cost/Revenue Ratio
1999
2015
Better-off Test ✔
No Cost Savings
• Little impact on cost saving
Increase in WTP
• Positive incremental net sales
Wide Horizontal Scope
Ownership Test ✔
Ownership benefits > Contract benefits
• Confident to allocate capital
• Costly to enforce contract
• Avoid binging up new competitors
21
All Facts and Figures are taken form annual reports and 10-K fillings
23. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Manufacture
Distribution
Consumers
Better-Off Test✔
Increase WTP
• Build brand connection with
customer
• Marketing purposes
Vertical Scope
Ownership Test✔
Increase WTP
• Control layout
• Improve retail experience
• More control over customer
service
22
Product Design
Retail
Wholesale
Owned
Contract
Retail
22
24. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Assessment of Strategic Issues
Industry-Level Issues
• Be a leader in innovation
• More focused acquisitions
New
technology
• Partner up with media channels:
Discovery & National Geographic
• Emphasis on adventurous
lifestyle
Less sports
participation
23
25. Assessment of Strategic Issues
Firm-Level Issues
Key Challenges
• Higher buyer power
• Weather constraint
• Weak brand image
Key Horizontal Scope Issues
• Acquire professional fitness sporting goods brands
Key Vertical Scope Issue
• Stockouts at department stores
How can Columbia respond
• All-around professional sporting goods brand
• Develop summer sports-related product lines
• NEW MARKETING STRATEGY
• NEW APPROACH TO MANAGEMENT
Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
24
26. • Retail stores with trained employees
• Control customer service
New Marketing Strategy
Marketing
Community
Retail
• Focus on adventurous lifestyle
• Interaction between customers and the firm
• Host events or trips to popular skiing/fishing spots
Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
25
27. “We're a family business gone global.”23
• Mother
GERT BOYLE24
Chairman of
the Board
• Son
TIM BOYLE
Chief Executive
Officer, Director
• Grandson
JOSEPH P. BOYLE
Senior VP Brand
Merchandising &
Design
• Snowboarder,
surfer
Laurent
Potdevin26
Chief executive
officer
• Skier, runner,
cyclist
Stuart Haselden
Chief financial
officer
• Runner, cyclist,
iron man triathlon
Duke Stump
Executive VP,
community and
brand
“We are passionate about sweating every day
and we want the world to know it.”25
Assessment of Strategic Issues
Firm-Level Issues - Management Team
Columbia should hire executives with sports experience
Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
26
28. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
• Strategic position
Failing cost leadership strategy
Columbia’s quality & innovation does not drive up
WTP
• Recommendations
Leader in innovation
Marketing with focus on adventurous lifestyle
New talents in management
• Columbia is vulnerable to imitation
North Face(VF) and Patagonia could imitate
Assessment of Strategic Issues
Conclusion
27
30. From SI 422 Course Packet
• Internal Analysis: Resources, Capabilities and Activities
• Choosing Corporate and Global Scope
• The Five Forces
1 Statista. “Global Sports Apparel Market from 2015 to 2020.” Accessed March 10, 2016 http://www.statista.com/statistics/412667/global-sports-apparel-
market-projected-development/
2 Fortune. “Athletic Apparel: Outperforming the competition in 2014.” Accessed March 10, 2016 http://fortune.com/2014/12/25/athletic-apparel-top-
performer/
3 Lululemon. “Annual Report 2015.” Accessed March 10, 2016 http://investor.lululemon.com/secfiling.cfm?filingID=1397187-16-89&CIK=1397187
4 Columbia . “Annual Report 2015.” Accessed March 10, 2016 http://investor.columbia.com/secfiling.cfm?filingID=1050797-16-20
5 Mintel. “Fitness Clothing – Issues & Insights.” Accessed March 10, 2016 http://academic.mintel.com.ezproxy.bu.edu/display/679801/
6 Nike. “Annual Report 2015.” Accessed March 10, 2016 http://s1.q4cdn.com/806093406/files/doc_financials/2015/ar/docs/nike-2015-form-10K.pdf
7 Fortune. “Athletic Apparel: Outperforming the competition in 2014.” Accessed March 10, 2016 http://fortune.com/2014/12/25/athletic-apparel-top-
performer/
8 IBISWorld. “Sporting goods stores in the US.” Accessed March 10, 2016
http://clients1.ibisworld.com.ezproxy.bu.edu/reports/us/industry/default.aspx?entid=1079
9 Certona. “Hitting a Home Run in the Athletic Apparel Industry.” Accessed March 10, 2016 http://www.certona.com/hitting-a-home-run-in-the-athletic-
apparel-industry
10 Lululemon. “Fabrics and Technologies.” Accessed March 10, 2016 http://www.lululemon.com/education/fabricsandtechnologies
11 Market Realist. “ Lululemon Builds Brands Through Unique Marketing Strategies.” Accessed March 10, 2016 http://marketrealist.com/2014/12/lululemon-
builds-brands-unique-marketing-strategies/
12 Business Insider. “Lululemon’s Secrets for Beating all the Competition.” Accessed March 10, 2016 http://www.businessinsider.com/lululemon-and-the-rise-
of-athleisure-2015-7
Bibliography
31. 13 Columbia Sportswear Company. “Columbia Sportswear Previews Omni-Freeze ZERO.” Accessed March 10, 2016
http://investor.columbia.com/releasedetail.cfm?ReleaseID=681955
14 Youtube. “Columbia Sportswear CEO Timothy Boyle-Mad Money-CNBC.” Accessed March 10, 2016 https://www.youtube.com/watch?v=SYXb14dnunM
15 The Oregonian. “Columbia Sportswear’s Biggest-ever ad Campaign.” Accessed March 10, 2016 http://www.oregonlive.com/playbooks-
profits/index.ssf/2015/10/columbia_sportswears_biggest-e.html
16 Vault. “Columbia Sportswear Company Overview.” Accessed March 10, 2016 http://www.vault.com/company-profiles/general-consumer-
products/columbia-sportswear-company/company-overview.aspx
17 Wikinvest. “Columbia Sourcing and Manufacturing.” Accessed April 10, 2016
http://www.wikinvest.com/stock/Columbia_Sportswear_Company_(COLM)/Sourcing_Manufacturing#toc
18 Columbia Sportswear Company. “Technologies.” Accessed April 10, 2016 https://www.columbia.com/technology-landing.html
19 Snewsnet. “Columbia Suspends Future Omni Heat Electric Program After Recall.” Accessed April 10, 2016 http://www.snewsnet.com/news/columbia-
suspends-future-omni-heat-electric-program-after-recall/
20 Columbia Sportswear Company. “Company Profile.” Accessed March 10, 2016. http://investor.columbia.com/index.cfm
21 Lululemon Athletica. “Products.” Accessed March 10, 2016. http://shop.lululemon.com/products/category/women?mnid=mn;Uswomen
22 Slideshare. “Lululemon Strategy Report.” Accessed March 10, 2016. http://www.slideshare.net/azizghani0/lululemon-strategy-report-51426773
23 Columbia Sportswear Company. “Columbia History.” Accessed April 10, 2016 http://www.columbia.com/About-Us_History.html
24 Columbia Sportswear Company. “Officers and Directors.” Accessed April 10, 2016 http://www.columbia.com/About-Us_Officers-And-Directors.html
25 Lululemon. “The Lululemon Manifesto.” Accessed April 10, 2016 http://www.lululemon.com/about/manifesto
26 Lululemon. “Management & Board of Directors.” Accessed April 10, 2016 http://investor.lululemon.com/management.cfm
27 Encyclopedia. “Columbia Sportswear Company History.” Accessed March 10, 2016
http://www.encyclopedia.com/topic/Columbia_Sportswear_Company.aspx
28 The Oregonian. “Columbia Sportswear Files Omni Heat Patent Infringement Lawsuit.” Accessed March 10, 2016 http://www.oregonlive.com/playbooks-
profits/index.ssf/2013/12/columbia_sportswear_files_omni.html
29 Fortune. “Smart Apparel.” Accessed April 10, 2016 http://fortune.com/2015/09/11/smart-wearables-fitness/
30 Lululemon Athletica. “Strategic Sales.” Accessed March 10, 2016 http://info.lululemon.com/about/stratsales
31 Vault. “About Columbia Sportswear Company.” Accessed March 10, 2016http://www.vault.com/company-profiles/general-consumer-products/columbia-
sportswear-company/company-overview.aspx
Lululemon, “Annual Reports.” Accessed March 10, 2016 http://investor.lululemon.com/annuals.cfm
Columbia Sportswear Company. “Annual Reports.” Accessed March 10, 2016 http://investor.columbia.com/annuals.cfm
Bibliography
35. Firm Infrastructure: 3 main executive offices and 4 distribution centers
Human Resources: Strong networking support for Lululemon Brand ambassadors.
Inbound Logistics
Research and
Development teams
focus on the
development of new
designs and testing
out the fabric and
material for quality
maintenance.
Operations
Distribution centers
in Ohio, Washington,
British Columbia
and Melbourne
transport products to
Lululemon retailers
and directly to
customers through e-
commerce sales.
Marketing and Sales
Sales are made
in Lululemon
retailers. Brand
ambassadors
promote the
brand across
the three
countries.
Grassroots
marketing
campaign.
Technology Development: Development of e-commerce information systems.
Procurement: Lease of some retail locations and short term contracts with suppliers.
Outbound Logistics
Service
Lululemon sends its
designs to different
suppliers for
different products.
Manufacturing is
outsourced to
carefully selected
firms. Finished
products are
shipped Lululemon
to distribution
centers
Free
information
sessions on
health. Free
yoga and self
defense
classes.
Value Chain Analysis
36. Intro
Industry
Analysis
Firm Tech Resources Scope Recommend
ation
Industry
Rivalry
Suppliers Buyers
Potential Entry
Substitutes
Power of Suppliers – Low
key Suppliers
• independent manufacturers in
Indonesia, China, Vietnam,
Mexico, Taiwan, India and
Bangladesh and etc.
• Very low supplier concentration ↓
• Low amount by each supplier ↓
• Commodity inputs ↓
• Firms contracts with numerous
suppliers ↓
• Suppliers could forward integrate ↑
Threat of Entry – Moderate
Potential entrants:
• Casual apparel companies
• Fashion companies
• Apparel Manufactures
• Light regulation ↑
• Low capital Intensity ↑
• Economies of scale & scope ↓
• Low technological change ↑
• Hard to access department stores ↓
Extent of Rivalry – Moderate
key Rivals
• Nike, VF, Adidas, Under Armour, Puma,
Colombia, Lululemon
• CAGR 5.2% ↓
• Low concentration C3=32% ↑
• Brand Recognition ↓
• Companies often engage in price wars ↑
Power of Buyers – High
Identify key Buyers
• Department stores and consumers
• Low switching costs ↑
• Low brand loyalty ↑
• Low chance of backward integration ↓
• High price sensitivity ↑
Threat of Substitutes – Moderate
Identify key substitutes
• Casual apparel
• Low switching cost
• Large amount and variety of substitutes
• Force costs up
• Lower buyer propensity
Analysis of Industry Environment
37. Valuable
•Well-known in yoga fans, first mover in yoga apparel industry, brand loyalty
Rare?
•Hard to imitate the entire brand due to the established reputation in the
industry
Costly to
imitate
•Brand value is costly to imitate
Capture
Value
•Loyal customers allow Lululemon to capture value
Intro
Industry
Analysis
Firm Tech Resources Scope
Non-
Market
CSR Recomme
ndationIntro
Industry
Analysis
Firm Tech Resources Scope
Non-
Market
CSR Recomme
ndation
Valuable
• Higher WTP
Rare
• With patent protection
Costly to
imitate
• Other firms have to work around the patent
Capture
value
• Long-term contract with Taiwanese supplier and distributor
✔
✔
✔
✔
Sustainable Competitive Advantage
Firm-level Analysis
Resource #1 Patented Design
✔
✔
✔
✔
Sustainable Competitive Advantage
Firm-level Analysis
Resource #2: Brand Value
38. Valuable
• Revenue from oversea market constitutes about 40% of the overall
revenue
Rare
• Limited sports apparel companies entering markets overseas due to the
high capital requirement
Costly to
imitate
• Need large amount of resources and coordination
Capture
value?
• Distribution and retail network is well structured.
• Distribute in over 30 countries27
Valuable
• Water proof, breathable material that increase customers WTP
Rare
• With patent protection28
Costly
to
imitate
• Other firms have to work around it
Capture
value
• Contributed to firms’s growth in net sales
Sustainable Competitive AdvantageSustainable Competitive Advantage
Firm-level Analysis
Resource #1 Global Presence
✔
✔
✔
✔
Firm-level Analysis
Resource #2 Patent: Omni-Heat Reflective material
✔
✔
✔
✔
Intro
Industry
Analysis
Firm Tech Resources Scope
Non-
Market
CSR Recomme
ndation
39. Columbia’s Production Technology
• Role of innovation
• Industry is subject to incremental innovation
• Companies constantly develop innovative technologies & products that provide better
performance benefits needed by consumers
• Sustaining innovation
• Fitness Tracker/Smartwatch29
• Work-out Helper
• Most recent disruptive innovation
• Omni-heat Electirc
• Traditional Fabric vs Conductive Fabric + Electronic Elements
• Delivering heat on demand
• Columbia should be a leader of new technology
• “…To earn an international reputation for innovation, quality and performance…” – Columbia’s
Mission Statement
• 2013 Columbia suspended its Omni-Heat Electric program after having to recall its jackets due
to a wiring malfauncing and possible hurn hazard
• Risk averse management
• Complementary assets
• Marketing Channel
• Columbia’s ineffective marketing campaign
• Hard to increase WTP of its innovative products
40. Save Cost? – No
Higher R&D
Lower distribution and sales costs
Boost WIP? - Yes
Higher increase in Revenue than in
Cost
High quality products
Strong brand image & brand loyalty
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
2009 2010 2011 2012 2013 2014
Net Revenue COGS SG&A
Better-off Test ✔
Ownership > Contract
Confident to allocate capital
Costly to make contract when acquired
business units become profitable
Avoid binging up new competitors
Ownership Test ✔
Intro
Industry
Analysis
Firm Tech Resources Scope Recommenda
tion
Narrow Horizontal Scope – Lululemon
All Facts and Figures are taken form annual reports and 10-K fillings
41. Intro
Industry
Analysis
Firm
Analysis
Tech Resources Scope Recommendation
Manufacturing
Distribution
Consumers
Better-Off Test✔
Increase WTP
• Product Design
Key factor in
success of products
• Manufacturing
Control on product
quality
• Retail
• Build brand connection
with customers
• Marketing
Vertical Scope
Ownership Test✔
Cost Saving
• Owned - Design Team
Control innovation
• Contract – manufacturers:
CapEx.,Labor Cost
Increase WTP
• Owned – Retail Store
• Control layout
• Improve retail experience
Product Design
Retail
Wholesale
Owned
Contract
42. Columbia Sportswear Company
Wholesale > Retail
❖Primarily sold through
wholesale distributors to
specialty outdoor and sporting
goods stores31
Lululemon Athletica
Retail > Wholesale
❖Primarily sold through
Lululemon-owned stores as
well as online
❖Selectively strategic sales
(Wholesale Program) through
certified partners to offer its
products to high-end health
club and yoga studio30
Advantage:
large degree of control over merchandising
and marketing
Brand message is strong and consistent at
all consumer touching points
Disadvantage:
Not too recognized within the mass market
Recommendation:
With its wide range of distribution,
Columbia can put more effort in its
retail stores
Creates a stronger adventurous
community feeling
Intro
Industry
Analysis
Firm Tech Resources Scope
Non-
Market
CSR Recomm
endation
Difference in Vertical Strategy
44. • Be a leader in innovation
• More focused acquisitions
New
technology
• Partner up with media channels:
Discovery & National Geographic
• Emphasis on adventurous lifestyle
Less sports
participation
• Other firms such as Adidas & Nike
follow consumer preference
• Lobby for more PE classes
Fitness
clothing going
casual
Changing Trend