East Carolina University strategy presentation. Lululemon. Problem Identification.

1. lululemon athletica, Inc.
STEVEN BAYLEY
EMILY BEALE
YANA DUBINSKY
ELIZABETH PEEDIN
MGMT 6722
Dr. Karriker

2. About lululemon….
— Designer, retailer of high-end yoga inspired athletic
wear with locations in Canada, US, New Zealand,
and Australia

3. About lululemon….
— Designer, retailer of high-end yoga inspired athletic
wear with locations in Canada, US, New Zealand,
and Australia
— Began when Chip Wilson opened a design/yoga
studio in 1998 in Vancouver, British Columbia

4. About lululemon….
— Designer, retailer of high-end yoga inspired athletic
wear with locations in Canada, US, New Zealand,
and Australia
— Began when Chip Wilson opened a design/yoga
studio in 1998 in Vancouver, British Columbia
— Community hub where people learn and discuss
physical aspects of healthy living

5. What does the Lululemon customer look like?

6. What does the lululemon customer look like?
“Other than their poise and
perfect coifs, you can identify
members of this gym robot
army by their brand of clothing.
You’ve seen them at your gym,
at the Whole Foods and in line
for green juices;

7. What does the lululemon customer look like?
“Other than their poise and
perfect coifs, you can identify
members of this gym robot
army by their brand of clothing.
You’ve seen them at your gym,
at the Whole Foods and in line
for green juices;
they’re the
lululemon
ladies!”
Read more:
http://www.blisstree.com/2013/08/14/fitness/optical-illusion-look-like-alululemon-lady-even-though-youre-poor/#ixzz2gOfyUCB7

8. What does the lululemon customer look like?
— Woman
— Fit
— Healthy
— Active
— Athletic
— Yoga

9. What does the lululemon customer look like?
— Woman
— Fit
— Healthy
— Active
— Athletic
— Yoga
— Wealthy

10. What does the lululemon customer look like?
— Woman
— Fit
— Healthy
— Active
— Athletic
— Yoga
— Wealthy
— Educated
— Sophisticated

11. Lucky LuLu
Lindsey Cooper
•
•
•
•
•
•
•
•
32
Marketing Executive
University of Richmond alum
Married, No Kids (froze eggs at
29, just in case)
Orders groceries from Whole
Foods online and has them
delivered
2400 Sq. Ft. Condo in Chevy
Chase, MD with her husband
Reed, a senior analyst for The
Brookings Institution
Just bought a 2014 Toyota
Seqouia
HHI: 230K

12. Lululemon Manifesto
It is a lifestyle!!!
— The pursuit of happiness
is the source of
unhappiness
— Dance, sing, floss, and
travel
— Practice yoga so you can
remain active in physical
sports as you age.

13. The Insight
Lucky LuLu’s are addicted to
Inconspicuous Consumption

14. Lululemon
Under
Prana
Armour
Athleta
Nike
New
Balance
Reebok
Old
Navy
Low
Price/Perceived Quality and Image
High
Athletic Apparel Positioning
Niche
Adidas
Broad
Broad v. Niche Market

15. Competitive Forces
— Competition from rival sellers – vigorous competition from multiple large
companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple
smaller ones such as Lorna Jane, Lole, and Gap Athleta

16. Competitive Forces
— Competition from rival sellers – vigorous competition from multiple large
companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple
smaller ones such as Lorna Jane, Lole, and Gap Athleta
— Competition from potential new entrants to industry – Vary: low from new
players due to time and funds, high from current apparel designers and retailers like
Gap

17. Competitive Forces
— Competition from rival sellers – vigorous competition from multiple large
companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple
smaller ones such as Lorna Jane, Lole, and Gap Athleta
— Competition from potential new entrants to industry – Vary: low from new
players due to time and funds, high from current apparel designers and retailers like
Gap
— Competition from producers of substitute products – shorts, pants, or other
clothing not intended for athletic use

18. Competitive Forces
— Competition from rival sellers – vigorous competition from multiple large
companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple
smaller ones such as Lorna Jane, Lole, and Gap Athleta
— Competition from potential new entrants to industry – Vary: low from new
players due to time and funds, high from current apparel designers and retailers like
Gap
— Competition from producers of substitute products – shorts, pants, or other
clothing not intended for athletic use
— Supplier bargaining power – in introductory phase, high bargaining power due
to increased investment and desire to work with leading fabric suppliers; 90% of
apparel production in Asia but will use US/Canada production facilities as needed

19. Competitive Forces
— Competition from rival sellers – vigorous competition from multiple large
companies such as Nike, Under Armour , Adidas, Reebok, in addition to multiple
smaller ones such as Lorna Jane, Lole, and Gap Athleta
— Competition from potential new entrants to industry – Vary: low from new
players due to time and funds, high from current apparel designers and retailers like
Gap
— Competition from producers of substitute products – shorts, pants, or other
clothing not intended for athletic use
— Supplier bargaining power – in introductory phase, high bargaining power due
to increased investment and desire to work with leading fabric suppliers; 90% of
apparel production in Asia but will use US/Canada production facilities as needed
— Customer bargaining power – high due to: low cost of switching, buyers ability
to delay purchases, multiple other brands from which to choose

20. SWOT Analysis
Strength
Trademarked fabrics
Community involvement – offered free yoga class on monthly
basis
Employee training
Innovation
Style/comfort
Multiple green initiatives
Quality – products designed to sustain 5 years of intended use
while maintaining functional
Brand identity

21. SWOT Analysis
Strength
Trademarked fabrics
Community involvement – offered free yoga class on monthly
basis
Employee training
Innovation
Style/comfort
Multiple green initiatives
Quality – products designed to sustain 5 years of intended use
while maintaining functional
Brand identity
Weakness
Narrow product line,
High retail price
Quality control/supply chain
Marketing targeted to mostly yoga instructors/studios
Loss of customer service with increased scale
Weak brand recognition

22. SWOT Analysis
Strength
Trademarked fabrics
Community involvement – offered free yoga class on monthly
basis
Employee training
Innovation
Style/comfort
Multiple green initiatives
Quality – products designed to sustain 5 years of intended use
while maintaining functional
Brand identity
Opportunity
Expand product line
Serve additional market segments
Expand into additional geographic markets
Increased demand in athletic apparel
Fitness craze
Weakness
Narrow product line,
High retail price
Quality control/supply chain
Marketing targeted to mostly yoga instructors/studios
Loss of customer service with increased scale
Weak brand recognition

23. SWOT Analysis
Strength
Trademarked fabrics
Community involvement – offered free yoga class on monthly
basis
Employee training
Innovation
Style/comfort
Multiple green initiatives
Quality – products designed to sustain 5 years of intended use
while maintaining functional
Brand identity
Opportunity
Expand product line
Serve additional market segments
Expand into additional geographic markets
Increased demand in athletic apparel
Fitness craze
Weakness
Narrow product line,
High retail price
Quality control/supply chain
Marketing targeted to mostly yoga instructors/studios
Loss of customer service with increased scale
Weak brand recognition
Threats
Increased competition from current large players in the
market,
Copy cats
Economy
New entrants
Risk of banking on niche markets

24. SWOT Analysis
Strength
Trademarked fabrics
Community involvement – offered free yoga class on monthly
basis
Employee training
Innovation
Style/comfort
Multiple green initiatives
Quality – products designed to sustain 5 years of intended use
while maintaining functional
Brand identity
Opportunity
Expand product line
Serve additional market segments
Expand into additional geographic markets
Increased demand in athletic apparel
Fitness craze
Weakness
Narrow product line,
High retail price
Quality control/supply chain
Marketing targeted to mostly yoga instructors/studios
Loss of customer service with increased scale
Weak brand recognition
Threats
Increased competition from current large players in the
market,
Copy cats
Economy
New entrants
Risk of banking on niche markets

25. Value Chain
Supply Chain
Management:
received real
time input from
customers, short
time to receive
and approve
samples
Operations:
streamlined
design and
development
processes.
Production is
the only
activity that is
outsourced to
low cost
countries
Distribution:
facilities in
Vancouver-BC,
Sumner,
Washington,
and
Melbourne,
Australia;
online retail
store
Sales and
marketing:
community
based, yoga
instructors
ambassadors,
community
coordinators
Profit
Margin:
Service:
“educators”,
“guests”,
lululemon
manifesto
Net PM
17.1%
about 15%
above
industry
average

26. Value Chain
Supply Chain
Management:
received real
time input from
customers, short
time to receive
and approve
samples
Operations:
streamlined
design and
development
processes.
Production is
the only
activity that is
outsourced to
low cost
countries
Distribution:
facilities in
Vancouver-BC,
Sumner,
Washington,
and
Melbourne,
Australia;
online retail
store
Sales and
marketing:
community
based, yoga
instructors
ambassadors,
community
coordinators
Profit
Margin:
Service:
“educators”,
“guests”,
lululemon
manifesto
Net PM
17.1%
about 15%
above
industry
average
Product R&D, Technology, and System Development
• Innovation Driven, based in Canada and US – short time to market
• Technology of new fabrics - so far introduced 3 new materials: luon, luxtreme, and silverescent

27. Value Chain
Supply Chain
Management:
received real
time input from
customers, short
time to receive
and approve
samples
Operations:
streamlined
design and
development
processes.
Production is
the only
activity that is
outsourced to
low cost
countries
Distribution:
facilities in
Vancouver-BC,
Sumner,
Washington,
and
Melbourne,
Australia;
online retail
store
Sales and
marketing:
community
based, yoga
instructors
ambassadors,
community
coordinators
Profit
Margin:
Service:
“educators”,
“guests”,
lululemon
manifesto
Product R&D, Technology, and System Development
• Innovation Driven, based in Canada and US – short time to market
• Technology of new fabrics - so far introduced 3 new materials
Human Resources Management
• Customer oriented, coaches, through Yoga instructors,
• Community feeling with sales associates that share the passion
Net PM
17.1%
about 15%
above
industry
average

28. Value Chain
Supply Chain
Management:
received real
time input from
customers, short
time to receive
and approve
samples
Operations:
streamlined
design and
development
processes.
Production is
the only
activity that is
outsourced to
low cost
countries
Distribution:
facilities in
Vancouver-BC,
Sumner,
Washington,
and
Melbourne,
Australia;
online retail
store
Sales and
marketing:
community
based, yoga
instructors
ambassadors,
community
coordinators
Profit
Margin:
Service:
“educators”,
“guests”,
lululemon
manifesto
Product R&D, Technology, and System Development
• Innovation Driven, based in Canada and US – short time to market
• Technology of new fabrics - so far introduced 3 new materials
Human Resources Management
• Customer oriented, coaches, through Yoga instructors,
• Community feeling with sales associates that share the passion
General Administration
• Founder – Wilson was CEO 2000-2005
• Remained actively involved as head of innovation department untill2012
Net PM
17.1%
about 15%
above
industry
average

29. Key Success Factors
— Community Based Marketing

30. Key Success Factors
— Community Based Marketing
— Superior Customer Interaction

31. Key Success Factors
— Community Based Marketing
— Superior Customer Interaction
— Technological Innovation

32. Community Based Marketing

33. Strategy
— Focused differentiation
•
Focusing on lifestyle perception

34. Strategy
— Focused differentiation
•
Focusing on lifestyle perception
•
Creating superior products (features, design, performance)

35. Strategy
— Focused differentiation
•
Focusing on lifestyle perception
•
Creating superior products (features, design, performance)
•
Striving for innovation and technological advances

36. Strategy
— Focused differentiation
•
Focusing on lifestyle perception
•
Creating superior products (features, design, performance)
•
Striving for innovation and technological advances
•
Emphasizing marketing and brand-building activities

37. Strategy
— Focused differentiation
•
Focusing on lifestyle perception
•
Creating superior products (features, design, performance)
•
Striving for innovation and technological advances
•
Emphasizing marketing and brand-building activities
•
Pursuing continuous quality improvement

38. Growth
— GROWTH

39. Growth
— GROWTH
— Net profit increase of 24x over past five years

40. Growth
— GROWTH
— Net profit increase of 24x over past five years
— EPS increase of 21x over past five years

41. Growth
— GROWTH
— Net profit increase of 24x over past five years
— EPS increase of 21x over past five years
— Expanded # of stores by 133 in five years

42. Improved Operations
— Operating profit increase of 17X in five years
— Improved inventory turnover by 1.4 in five years
— Cash provided by operations increased by $178.2M
over past five years
— Average sales per square foot increased by $593M in
five years

43. Valuation Measures
— Net profit increase of 24x over past five years
— EPS increase of 21x over past five years
— Return on equity increased by 10% in five years
— Gross profit margin increase of 5.5% over past five
years

44. Financial Highlights (Most Recent Quarter: Aug 4, 2013)
— Profit Margin: 18.12% (2012: 18.49%)
— Operating Margin: 26.50% (2012: 28.67%)
— Return on Equity: 31.72% (2012: 30.52%)
— Gross Profit: 762.83M (2012: 569.3M)
— Gross profit margin: 5.11 % (2012: 5.69%)
— Diluted EPS: 1.85 (2012: 1.27)
— Operating Cash Flow: 287.52M (2012: 203.6M)

45. Central Issues/Problems
— Quality control/supply chain – recent issues with recalls

46. Central Issues/Problems
— Quality control/supply chain – recent issues with recalls
— Narrow focus – primary target: sophisticated and
educated women who understand importance of active,
healthy lifestyle (although expanding into men’s and
youth female athletic wear)

47. Central Issues/Problems
— Quality control/supply chain – recent issues with recalls
— Narrow focus – primary target: sophisticated and
educated women who understand importance of active,
healthy lifestyle (although expanding into men’s and
youth female athletic wear)
— Missing out on major markets (Europe/Asia/South
America)

48. Central Issues/Problems
— Quality control/supply chain – recent issues with recalls
— Narrow focus – primary target: sophisticated and
educated women who understand importance of active,
healthy lifestyle (although expanding into men’s and
youth female athletic wear)
— Missing out on major markets (Europe/Asia/South
America)
— Lack of brand awareness/mass marketing

49. References
— Gamble, J., Peteraf, M., Strickland, A., Thompson, A.
Crafting and executing strategy (2014). McGraw-Hill
Education.
— http://www.lululemon.com/education/
— http://finance.yahoo.com/q/ks?s=LULU+Key+Statistics