Branding, The New Rules of Retail

lululemon: A Cult, a Phenomenon or Just a Great Brand

The Robin Report - lululemon

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A few years ago, I noticed a woman in Central Park with what I thought was a tag or store sticker on the outside of her pants. “You still have the tag on your pants,” I told her as I passed her on the track. “That is the label, it belongs there!” she explained. This was the first time I noticed the Lululemon brand icon. The logo is featured on pant legs in a way that looks like it was stuck there. An rounded A shape that appears like an upside down U, it is inconspicuous, but, for those in the know, it is the sign of membership in what is one of today’s most powerful brands.

Lululemon was founded in 1998 in Vancouver, British Columbia by Chip Wilson, a 20-year veteran of the surf, skate and snowboard business, who noted a need for a more technical and performance-based product after he took, and loved, his first yoga class. Wilson, now a Forbes ranked ‘Yoga Billionaire,’ stepped down from his role as CEO and passed the reins to Christine Day, a former Starbucks executive. Wilson remains Chairman. Together Wilson and Day hold approximately 32% of the company’s outstanding shares. “We like that management has skin in the game,” a Morningstar report noted recently.

Lululemon opened its first store in 2000. The company now has 147 stores in North America. Lululemon is one of the fastest growing companies in the retail and apparel space and is outperforming the industry on almost every level. Lululemon management is projecting FY 2012 growth of 25% with same store sales growth at 25% and direct to consumer growth, which accounts for 14% of sales of 179%. Last year the company reached a billion dollars in sales; this year the company is projecting revenue in the range of $1.3 billion. And it holds no debt.

Lululemon scores higher than 87% of all companies for which an S&P Report is available. With sales of $1731 per square foot, Lululemon is the fourth highest among retailers, according to RetailSails, behind Apple, $5626; Tiffany, $2974; and Coach, $1820. The company announced second quarter earnings were up 56.6% year over year driven by 25% comp store increases and 30 new store openings. Lululemon pays its employees at near the top of its retail peers and competitors. At $12 per hour, Lululemon’s army of well outfitted, athletically proud, smiling, energetic and friendly associates earn more than the Apple geniuses who make just $11.91 per hour.

So, what is the secret sauce? The recipe is simple: a strong brand premise and articulation; somewhat unique product; sharp consumer knowledge and focus; committed, invested management who are supporting a corporate culture with shared values; and, superior execution on all fronts. Easier said than done and Lululemon seems to be doing it.

The brand is designed and positioned for the new age. Lululemon understands that today, their core customer—upscale, urban and suburban 30-something women—walk around in exercise clothes much of the day and still want to look good and feel good in what they are wearing, whether they are exercising, practicing yoga, or not.

More and more women don’t draw a line between active wear and work wear. And, even if they wear a suit or dress by day, and exercise wear on weekends and after work, they want to look good, feel good and strut their stuff. Lululemon helps them achieve this. First, the clothes fit well and are figure flattering. Next they wear well. They are expensive and have the status appeal of an aspirational brand. The brand is an idea, and a community and lots of women, and men, want in.

The brand is built on high-quality, relatively highly-styled and high-performance merchandise suitable for most active sports. Lululemon is the Patagonia of the new century. The brand has a creed, its Manifesto, written by its founder, and evokes, at least in his view, some of the qualities and complexities of a life well lived. “Lululemon Athletica creates components for people to live longer, healthier, and more fun lives. If we can produce products to keep people active and stress-free, we believe the world will become a much better place.”

Lululemon positions itself as a community. Nearly all Lululemon stores offer free yoga classes once a week, usually at 10:00 on Sunday morning. Lululemon has ‘ambassadors’—local athletes, instructors, and role models in Lululemon store communities who embody the Lululemon lifestyle. Ambassadors meet regularly with managers to provide feedback on product in exchange for free clothing. Ambassadors also appear as models on the Lululemon website, on posters in their local stores, and volunteer to teach in-store classes.

Lululemon promotes its brand, its community and its culture with local events, some quite large in scale. In New York this September, an event entitled, “The Gospel of Sweat” was staged at Riverside Church inviting people to “Come together to build community, engage spirituality, and celebrate fitness!” Lululemon’s corporate vision and culture, along with its supporting, multifacted and largely grass-roots promotional strategy combine to create and nourish a unique and well-defined brand personality. CEO, Christine Day recently said, “While others may try to mimic parts of our business, it is impossible to copy a personality.”

The power of the Lululemon, and what has gone into building it from the ground up, can not be underestimated. Surely Lululemon has attracted its share of competitors. Most importantly, Gap’s Athleta, in my opinion, an also-ran, but with the retail and financial clout of Gap behind it. Athleta has done its best to emulate Lululemon in brand positioning, product line and some promotional activity. Athleta product is less expensive than Lululemon, though still pricey: pants at Athleta range from $69 to $98, Lululemon’s are mostly $98, with some biking styles as high as $128. But, Lululemon’s assortment is rational and focused, well presented in store, in packaging and on-line. Lululemon’s “Astro Pant,” a $98 style with a unique banded waist, designed to minimize “muffin top,” has been copied by Calvin Klein. Lululemon is suing for infringing on its design patent. Athleta, very simply, is all over the lot.

So, are customers buying a personality or are they buying expensive, somewhat performance related athletic products?  The answer to both is yes. Yoga pants, like much of the merchandise that is in the market place today, is distinguished by its brand and what that says about the customer. Note that while Lululemon insists its products are technical, and goes a long way to explain in merchandise tagging and by in store educators the performance criteria of the fiber, none of the fabric is patented. But what does exist is a powerful affiliation between the brand and the customer.

The clothes perform. Generally the fit is flattering and comfortable. The shopping experience, both in-store and online, reinforce the value proposition.  In store associates are knowledgeable, friendly and helpful. Basics are usually in stock, but fashion items are sold through and not replenished. Credit Suisse’s August equity research report stated, “Demand still running ahead of supply as Lululemon can’t keep product in stock and discounting remains modest.” Credit Suisse tracked the availability of product in store and on line and reported that “only 67% of Lululemon’s product is available online at any given time, 33% sell out rates are high relative to peers…discounting remains modest…significantly below other specialty retailers.”

Analysts estimate that Lululemon can reach 300 stores in North America comfortably and maintain their position over the next decade. International expansion is in the works with show-rooms in Hong Kong and London. The product line, still focused on active wear including yoga, running, biking and dance, seems to be experimenting with fashion in color and product detail, but, remains intent on its niche: “I want to be really clear,” the CEO recently stated: “We aren’t shifting the brand to fashion. What we do better than anyone in the world is create such a beautiful athletic product that it can be used for multipurpose.”

Of course there are always naysayers and critics. Myself, occasionally, one. I don’t love their tops and cannot really justify the price points. Other consumers I interviewed agreed. One California mom/attorney thought it was too pricey and too trendy: “People say it’s the uniform of the moms at our school (though only among certain people), and not worth the price for workout clothes!”

In the end, Lululemon is a collection of pants, tops, jackets, underwear, socks and accessories. And a compelling brand that appeals to a group of customers willing to pay more for a product they can buy somewhere else, but, happily, buy at Lululemon. So far, they are doing all of it well. Stay tuned to see how it continues.

Jane Singer is a consumer product marketing consultant specializing in branding and marketing strategy. She began her career at Grey Advertising, has held senior executive positions at BBDO, Bozell Worldwide, and Marc USA, and has worked with clients including Kmart, Neiman-Marcus, Rite Aid Drug Stores, Office Depot, The Sports Authority, Visa, Liz Claiborne, VF Corporation, Gold Toe, and others.

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