Lululemon Case Analysis
Lululemon Athletica, Inc. Created by: Kelsey Davis GBA 490-901 March 21, 2014 Table of Contents Executive Summary To: Laurent Potdiven Chief Executive Officer Lululemon Athletica Inc. This report has been created with the intent to analyze the athletic apparel industry with a specific focus on Lululemon Athletica, Inc. , further refered to as Lululemon. In this report you will find that the strengths and weaknesses of Lululemon’s current strategies and future goals are analyzed and compared to that of its closest competitors.
In conclusion to the analysis, recommendations have been made to potentially guide Lululemon Athletica, Inc. in a positive direction in regards to its future endeavors. The following tools were used to examine Lululemon Athletica, Inc. : An overview of Lululemon’s external environment An evaluation of the competitive forces within the athletic apparel industry.
An evaluation of the rivals within Lululemon’s industry and analysis of a strategic group map for athletic apparel industry An overview of Lululemon’s internal environment A S. W. O. T. analysis of Lululemon An analysis of the key success factors within the yoga-inspired athletic apparel industry An evaluation of the driving forces of change within this industry An assessment of Lululemon Athletica Inc. ’s current strategy An analysis of Lululemon Athletica Inc. ’s strengths, weaknesses, opportunities, and threats A weighted competitive strength assessment of Lululemon Athletica Inc. and its two closest rivals in the industry An assessment of Lululemon Athletica Inc. ’s competitive advantage An evaluation of Lululemon Athletica Inc. ’s most recent financial results The findings of this report show that Lululemon Athletica Inc. is in a niche market that is becoming ever more competitive. Although this is the case, Lululemon has been able to hold on to a majority of this niche market share due to its ongoing efforts to develop athletic apparel that possess a envious dynamic of style and practical fit. Because of the strategies and goals Lululemon has set in place they have strategically and successfully positioned themselves to reap the rewards of great success and growing popularity.
In order to maintain this high in the years to come, Lululemon must work hard to maintain strong management, pricing power, and a budget focused on constantly providing new technology within the realm of athletic wear development. External Environment As we have noted previously, Lululemon operates in the athletic apparel industry. Just like many of Lululemon’s competitors, they outsource the production of their products to manufacturers in other countries.
The majority of the apparel being manufactured in Asia where it is most cost efficient to produce. By producing in under developed countries where labor is cheap and selling their final products at grossly marked up prices in highly developed countries they are able to achieve the substantial profit that they have consistently seen for the past few years. Although it may be cheaper to outsource production to under developed countries, it can be difficult to maneuver through their political constructs and manufacturing regulations or lack thereof.
In addition to manufacturing in foreign countries, outside of Lululemon’s home base of Canada, it also has retail stores that are currently located in the Australia, New Zealand, and the United States. (Thompson, Peteraf, Gamble, and Strickland 39-52) By selling products to consumers in multiple countries, you always have to consider the state of their economy. This can greatly affect current sales and how Lululemon will project sales there in the near future. Because athletic apparel, especially high end athletic apparel, is not a necessity, Lululemon has to rely on consumers having a disposable income to purchase their products. Since Lululemon is a brand centered on healthy living, they must keep up with the current trends of maintaining a healthy lifestyle and make an effort to incorporate that into their product’s look, feel, and all together vibe. In the athletic apparel industry, as in any industry, it is key to stay in touch with the current trends in order to keep your products relevant. With Lululemon focused on such a niche activity it will be important that they explore other markets within the sports apparel industry in the future so as to stay relevant.
We can see the company’s first steps in doing just this when they recently introduced their men’s apparel line. A summary of the athletic apparel industry’s external environment are listed in Exhibit 1. Driving Five Forces Lululemon faces constant competitive pressures from the five main driving forces: rivals/competitors, new entrants, substitute products, suppliers bargaining power, and buyers bargaining power. ( Thompson, Peteraf, Gamble, and Strickland) Below is a detailed analysis of the competitive forces noted in Exhibit 2.
The rivalry among existing competitors is strong. It is becoming increasingly harder to develop new and unique products based solely around a small niche activity. There are only so many aspects of yoga that can be explored and that products can be developed to accompany. Although Lululemon was the first, new competitors are seeing the profit to be had in this niche market and are entering with the goal of creating new more creative strategies to compete with Lululemon and take part of their large market share. (Morning Star) The threat of new entrants is moderate.
Although this niche market is attractive, it takes a substantial initial investment to create, develop, and market, this high end performance wear. It is also hard to gain a share of the market when having to compete against already existing large chains. What causes there to still be a potential threat of new entrants is that consumers’ demand have consistently been increasing and they will have to be met by someone. If the existing companies in the industry can’t keep up with demand created by the consumers this will leave an opening for new entrants.
The threat of substitute products is low due to the consumers demand for the highest quality products and their strong loyalty to the already existing brands in the industry. It is nearly impossible to duplicate the performance of the high quality materials these products are made for a lower cost or lower quality material. (Morning Star) The bargaining power of the suppliers is strong because very few suppliers offer the quality materials and fabrics needed to produce these products.
Consequently, the bargaining power of the buyer is low because there isn’t much room for negotiation on the price of the products due to the need for such quality. (Morning Star) Rivals and Industry Leadership There are many competitors within the athletic apparel industry. With such a diluted market it can be hard to obtain and maintain a sizable portion of the market share, but Lululemon does just that by focusing its brand on the niche yoga market segment. The top two industry leaders with in the athletic apparel market are Nike and The Adidas Group as noted in Exhibit 9.
Though these two have the greatest market share, they do not have focus on one segment of the market. By Lululemon focusing on the yoga market segment they are able to allocate a greater percentage of their resources to the research and development of their yoga apparel making Lululemon a top ranking rival within that market segment. With that in mind, Nike and The Adidas Group have had to focus on the marketing campaign of their yoga apparel line to stay competitive in that market segment. (Morning Star) Lululemon’s apparel is tailored to suit the wants and needs of the niche yoga buyer.
Although Lululemon started off producing on a small scale their production has quickly grown over the last several years due to its ever growing popularity. By focusing on creating athletic apparel for one particular activity, yoga, Lululemon has cornered that market making it hard for rivals who create athletic wear for many sports to compete. (Thompson, Peteraf, Gamble, and Strickland) Internal Environment: Strategy & Business Model It takes very little research to find out that Lululemon possesses a rare cult phenomenon that exudes a status symbol among people who practice yoga.
This all comes rightfully so due to the fact that from the beginning founder Chip Wilson focused on developing a premium line of yoga inspired athletic apparel. In 2007, after taking the company public, Lululemon announced a growth strategy that had five key elements: 1. )They aimed to grow the company’s store base in the United States while continuing to expand in Canada. 2. ) They focused on increasing brand awareness via grassroots marketing programs like organized yoga-focused events.