Lululemon Strategic Management Study

This is an exercise in applying concepts and techniques critical to strategic management in analysis of Lululemon Athletica, Inc.

The world moves at such a rapid pace that waiting to implement strategy will leave you two steps behind. Do it now, do it now, do it now! – Implementing Strategy

Filed under: Chapter 13 — ddstuber at 3:09 pm on Saturday, December 8, 2012

I couldn’t have chosen a better subject company for my strategic management portfolio this semester.  I have LOVED researching Lululemon and learning about their products, people, strategy and success.  (Imagine my surprise earlier today when I was doing some Internet research and my own blog showed up in my search results!)  A lot of analysts have had serious doubts about how Lululemon was going to implement their corporate strategy based on their grassroots business model and their zealous global expansion plans.  I really think that they have had a lot of “haters” out there who didn’t want to see a company with Lululemon’s blatantly idealistic culture and vision realize success on such a grand scale without compromising.  Am I the only one who finds it amusing when political commentators on MSNBC, like Chris Hayes, end up in conversations about Lululemon?  Those interviews literally have Mr. Hayes making statements like, “In the future, we will all be either yoga instructors or a retail sales clerk.”  (See blog “Sources” for transcript of MSNBC’s Finance Wire, Oct. 14, 2012.)  Most of us who have been watching Lululemon, feel they deserve recognition for their entrepreneurial success to date.  Let’s talk about how they have implemented a strategy to achieve that success.

Lululemon has kept their key focus on what they do well – women’s yoga apparel.  Customers appreciate that.  “At Lululemon, they don’t just take a men’s extra-small shirt and call it a women’s medium,” says Chicago insurance broker Holly Kleiman, a fitness fanatic who in the past year started buying all her workout apparel at Lululemon.  Because they compete in just one industry, there isn’t a need to structure the company like a multidivisional corporation.  However, they are challenged with competing in multiple countries.  The structure that has best served the vertical integration and global aspects of the company is a modified global product group design.  By focusing on one industry and selling related product lines, they are able to overcome typical weaknesses in customer responsiveness and sharing of information between product groups that other companies might encounter.  That is the beauty of their vertical integration.  See below to get a visual of what this looks like.

Inventory flow continues to be what drives Lululemon’s sales, so a crucial implementation issue for Lululemon is how to get the right product mix into their stores and on their websites worldwide.  Integration mechanisms that Lululemon has invested in that help them with inventory flow is the PLM (product lifestyle management) solution and POS (point of sale) system that we discussed in detail in the Chapter 7 blog.  Their CFO, John Currie, recognizes how crucial the implementation of the IT system is to  inventory flow and how that impacts ROIC.  He has stated in quarterly earnings calls that it is literally the biggest part of their increased spend in the store support center.  He estimated that Lululemon spent $2 million just in the background work to prepare for international expansion such as setting up their legal structure, distribution networks, regulatory compliancy, etc.  Now that this is in place, Lululemon is investing in partnership with Dashe & Thompson, Inc. to help the get their personnel trained so that communication flows from design table to supply partners to production partners to distribution and finally to the retail stores.

The next big implementation challenge for Lululemon has been the roll out of their strategy and corporate culture to their many locations.  They are still a relatively new company that has been growing rapidly so hiring and attracting the right leaders to manage this properly has been imperative.  Lulu has implemented ‘People’ strategies that allowed them to remain true to their founding corporate culture rather than taking shortcuts and giving in to pressures typical of high demand, rapid growth and other agendas investors might have.  When asked about hiring, Christine Day, CEO, has said, “So we think that’s really the next important area that we invest in.”  “We are starting to bring in people who have more international and global experience in every position, as part of that strategy. So that we are building a team of people running a global operation, so that’s one of the qualities we look for in every hire that we do. So, I think we are getting ourselves ready for the things that are critical and important to us.”  As discussed in the Chapter 13 blog, Margaret Wheeler, Senior Vice President, People Potential of Lululemon leads this function and it all begins with goal setting and then moves on to building a future leader from the inside out.  Lululemon has a slow hiring process, which is laid back and relaxed.  It may involve taking a yoga class with the interviewer or meeting at a coffee shop to “get to know each other.”  Their goal is not to hire someone, but to hire the right someone because at Lululemon culture is not important, it is HUGE.

Corporate level strategies are based on growth that supports demand for their differentiated products, serves communities globally for health, wellness and sustainability, and provides employment for a workforce committed to the company’s cultural mission and values.  Increasing their e commerce business supports this by making more products available worldwide to customers.  Growing the number of retail stores and entering new communities supports this by creating brand awareness and providing opportunities to share education and cultural values.  Introducing products for young girls (Ivivva) and men supports the strategy by exposing new market segments to products and culture.  Integrating communication vertically throughout the organization supports real insight being filtered to product development.  Refining and perfecting the guest experience promotes the brand and creates interest.  Grassroots marketing (stealth marketing) creates an authentic buzz and is inexpensive.  These are just a few of the ways that strategy affects the way Lululemon does business.

I’d like to end my strategic management portfolio by discussing where Lululemon is going with their international strategy and how their structure and controls will serve in this pursuit.  With a strong presence in Canada, US, New Zealand and Australia, Lululemon are taking baby steps to enter the market in Hong Kong and the United Kingdom.  As of this year, 2012, they have two stores up and running in Hong Kong (China) and one in London (United Kingdom).  They have twelve ambassadors supporting their presence in Hong Kong and are integrating with the community with events like their Merry Yoga scheduled for December 10th and Fun Runs every other Tuesday night at a local racecourse.  Lululemon had key visibility at the 2012 Olympic event where athletes like the men’s volleyball competitors were seen wearing their products. This provided great media for the new store and they are serving up community interactions weekly with store classes and offsite runs and events.  Corporate structure and controls for retail stores in Hong Kong and London will remain the same as exists for all retail stores.  This provides the store managers with controls over their inventory, store layout, hours of operation, displays and community interactions.  Busting bureaucracy like this allows stores to “exercise their creative muscle” so to speak.  All retail locations are in turn supported by the corporate store support center in the Retail Operations function.  Product specifications are basically standard worldwide, so very few adaptations are required for international expansion.  Since products are mostly produced in the Asia Pacific region and the company has already expanded globally, logistical controls are already in place and very little adaptation is required for this function.  Similarly, the international stores use the same corporate website, which is supported by the corporate office.  I look forward to Fourth Quarter Earnings Call transcript so that we can see how 2012 winds up for Lululemon in their new international locations.  Typically the holiday season is the cycle bringing in the most retail sales worldwide, so fourth quarter should be exciting.

Hong Kong Store

This concludes my strategic management portfolio project.  Thank you for your interest and I hope you enjoyed my perceptions and analysis.

A daily hit of athletic-induced endorphins gives you the power to make better decisions, helps you be at peace with yourself, and offsets stress. – Implementing Strategy

Filed under: Chapter 12 — ddstuber at 10:08 pm on Thursday, December 6, 2012

Lululemon uses a functional organizational structure and really tries to keep their organization as flat as possible.  One of the primary reasons is feedback throughout the company is so critical to their product and their strategic focus on innovation and differentiation.  As you can see from the organizational chart, their primary functional areas are Information Technology, Retail Operations, Product and Finance.  Chip Wilson, founder and Chairman of the Board reinforces the importance of cross-functional communication in the company’s Annual Report video on the investor website.  (You can view this report using the link provided under ”Sources” on this blog.)  Cross functional communication accounts for horizontal structure, but communication within the vertical structure is just as critical.  It is the ability to funnel feedback directly from the company stores (customers, ambassadors and retail staff) to the senior management, which allows Lululemon to act upon information quickly.  Sheree Waterson, Chief Product Officer, attributes Lululemon’s ability to get product from design to shelf in 45 days to this smooth flow of information.  In response to these strategic goals, the structure at Lululemon is further enhanced by grouping by product or project horizontally within functions.  For example, you will find e-commerce within the IT function, administration and asset protection within Finance and brand experience/communications reporting to Retail Operations.  Use of cross functional teams and committees has been very effective within the organization and mentioned frequently on their website in job descriptions for open positions.

Lululemon Organizational Structure – Perceived

Lululemon’s corporate control systems ensure company budgets are met, strategic merchandising plans are established, accurate risk forecasting is assessed, quality standards are realized and external regulatory requirements are met.  Store support controls are based on inventory management and retail sales performance.  As John Currie, CFO, expressed in the company’s Annual Report video, these controls motivate all employees toward financial accountability so that the company can continue to reach their goals for expansion, e commerce, and increased productivity while providing for future investment in employees.  Lululemon wants to shape their employees by “developing people from the inside out, not the outside in” per Sheree Waterson.  Human resources use periodic reviews as a control to monitor performance of employees.  Goal setting, personal development and accountability are specific behaviors that the company hopes to encourage in their employees.  They promote the company as building leaders that believe in the corporate vision and their mission. Controls in place for factory partners are audits, inspections and performance rating.  Here, Lulu hopes to create long-lasting manufacturing relationships that share their core values.

As shared throughout this analysis of Lululemon, the sources of distinctive competencies are their community based approach to retail, their culture, the store experience and brand identity as customers relate it to lifestyle driven values, quality and status.  The functions that deliver on these strengths are product, retail operations and information technology.  That is why you will find employees in these functional areas working closely together.  Lululemon has structured their organization so that there is an opportunity for open communication between the most senior level managers and those personnel who perform support activities.  One of the ways they do this is to encourage employees to take a break daily for a yoga class or group activity, such as a run outside.  This fosters a healthy camaraderie which supports authentic conversation.  It also reinforces the company’s commitment to a healthy mind and body.  Employees are also encouraged to engage in community activities that center around exercise, giving, and environmental concerns.  There is a special location on the Lululemon website that lists many of the employees and what they are doing outside of work to support their “causes”.  One of the most important support functions for the company are their ambassadors.  These are the people who teach classes, interact with customers, wear (model/market) the clothing, scout out new store locations and basically embody the Lululemon lifestyle and live the culture.  On the website you will find all of the ambassadors listed with a brief profile.  It is a really unique approach to branding a product because ambassadors can reach so many people on a personal level, compared to, for example, one Michael Jordan.  These are real people that inspire and potential customers can relate to, exercise with and befriend them. In addition, the ambassadors provide feedback and ideas that provide for innovation, customer responsiveness and benefits quality.  Sheree Waterson, Chief Product Officer, states on the Annual Report video that the company thrives on this feedback as it helps them “understand function as fashion” and “provide elegant solutions not asked for that customers don’t even know they want yet”.  Another form of control that Lululemon grants each store manager is freedom to experiment with the layout of the store, the displays, the amount of stock that they inventory and even the hours of operation.  Busting down bureaucracy like this allows the manager to structure their store to be the most efficient that it can be as every community is somewhat unique.  Information technology has controls in place for social media interactions.  This is a really huge task to take on as it involves monitoring many social media websites as well as the entire ecommerce website.  Not only does the company have to stay on top of this task, they have to keep it fresh and inviting because they really do very little print or traditional media advertising, preferring instead to use this grassroots marketing approach.  The social media interaction has also become a form of monitoring quality and often you will see a reply from a Lululemon rep to address an issue, question, or just let someone know that they are emailing them to discuss an issue further.

To support the Lululemon business model Lululemon employees a unique (there is that word again) culture.  Some specific examples are, all Lulu corporate employees are encouraged to work at least one day per month in a retail store to keep them close to the product, the customer and the culture that their brand is built upon.  This provides an exclusive experience with the customer and product that probably is not accommodated in other companies.  This is one way that Lululemon promotes a culture to enhance behaviors that benefit customer responsiveness.  Chip Wilson’s founding vision was to stimulate and motivate community members to take control of their physical and mental health by using exercise and healthy lifestyles to improve their overall wellness.  The structure of the Lululemon business model is designed to incorporate retail stores into the community where they reside so that store staff, also referred to as “educators”, build relationships.  Margaret Wheeler is Senior Vice President, People Potential of Lululemon and she also states in her video interview for the Annual Report that the goal is to “develop people from inside out, not outside in” – a common theme among the senior leaders.  She feels Lululemon approaches this using company vision and goals, training educators and store managers, employing goal setting, and encouraging each employee to be “mindfully global and effectively local”.  Delaney Schweitzer – Retail Operations – shares that customers “help teach us what is important in each community”.  She describes this relationship as a partnership because the guest experience varies from store to store based on the community.  Of course, as we mentioned earlier, encouraging employees to practice what they preach by participating in daily yoga classes offered on campus or a quick run to clear the mind is another way Lululemon provides for a culture that supports their business model.  This is especially effective when senior leaders of the company are exercising with the rest of the organization.  I would be remiss if I did not mention that employees are also encouraged to wear their favorite Lululemon products to work – a really nice bonus.  Most of the pictures or news you will find on Lululemon employees and leaders will definitely show them in the fitness wear for which the company is so well known.

 

What we do to the earth we do to ourselves. – Corporate Performance, Governance and Business Ethics

Filed under: Chapter 11 — ddstuber at 10:10 pm on Thursday, November 15, 2012

To build on this thought borrowed from the Lululemon manifesto, what a company does to stakeholders reflects back on the company.  The main stakeholder groups of Lululemon are:  customers, employees, stockholders, suppliers and local communities.  There are other stakeholders, but for this post we will focus on the main groups and the claims they place on Lululemon and how the company tries to satisfy those claims.

Lululemon’s customers pay premium prices for the products they purchase, which converts to revenue for the company.  Lulu customers differ in what they expect from their purchases.  Some are motivated by the design or function of the apparel, some are motivated by the perceived status or prestige of wearing the brand, some are driven to purchase based on the culture or values they believe the company promotes and some are motivated by the guest experience.   In return, Lululemon provides reasonable policies for returns and exchanges, commits to the technological and sustainability component for fabrics by investing in research and design, considers customer and ambassador feedback in design of apparel, keeps their inventory refreshed and delivers an educational and unique guest experience.

Employees at Lululemon are many and varied.  They have guest educators, retail store and e-commerce labor, management and leadership, warehouse personnel, engineers, designers, research and marketers, plus many more.  These stakeholders expect that in exchange for their labor and skills the company will provide equitable pay, good benefits, career paths, merchandise discounts, and safe and satisfactory working conditions.  Some of the Lululemon employees are interested in working for the company based on perceived commitment to health, or yoga, or a focus on goal setting and motivation.  If you visit the Lululemon website you will find a complete list of corporate commitments to employees and also a list of what Lulu expects from their employees.  This is a company that, from all indications, takes their code of business conduct, ethics and integrity very seriously.  Their corporate manifesto provides more insight to their unique corporate atmosphere.  I think from the beginning, Lululemon had a focus on growth to support their employees.  As published on their website, “Although the initial goal was to only have one store, it was soon obvious that to provide a fulfilling life of growth, family, salary and mortgage for our amazing staff, we would have to provide more opportunities.”  And so they have all over the world.

As of 2007, Lululemon added stockholders to their many stakeholders.  As we know, stockholders provide risk capital for Lululemon.  In exchange, Lululemon has used that investment to grow the company and increased the value of each share of stock.  If you had invested in Lululemon when they went public and purchased 100 shares on July 27, 2007 at a purchase price of $2,800.00 you would now own 200 shares at a value of $13, 238.00.  Lululemon has consistently outperformed both the Nasdaq and the S&P 500 and has been one of the top performing apparel industry stocks over the past 5 years.

Suppliers are a key stakeholder group for Lululemon and provide the inputs that allow Lululemon to have products to sell.  In return they place a claim on Lululemon for revenues back to their companies and depend on Lululemon for additional business to sustain future revenues.  Lulu is very careful in selecting the suppliers they partner with and as a result they are able to satisfy those claims and support their supply partners in acquisition of specialized assets required for manufacturing the specialized fabrics and sewing techniques required for production of their apparel.  This is a win-win for both partners as manufacturing competencies deliver distinctive product offerings.

Local communities are a stakeholder group for Lululemon and provide a place for the company to conduct business in exchange for expectations that Lululemon will be a good corporate citizen.  Lululemon delivers on this by educating their guests on yoga and other healthy lifestyle activities, sponsoring events and local athletes, providing employment and classes that are unique to the neighborhood.  They also deliver on their claims of corporate social responsibility through many recycling efforts.  From the Lululemon website, “Our stores are designed to be a hub of activity and action in the community. If we can positively influence the health of our communities, then we will further our goal of elevating the world from mediocrity to greatness.”

In 2007, a business situation impacted Lululemon that had ethical implications.  Shortly after Lululemon went public, a large controversy was raised over one of their fabrics, VitaSea, and the labeling Lululemon attached to their apparel.  As labeled, the fabric would “release marine amino acids, minerals and vitamins into the skin upon contact with moisture.”   The New York Times came out with an independent lab test report refuting the content of seaweed in the fabric and publicly accused Lululemon of fraudulent advertising.  Initially this news caused a major drop in Lulu’s stock and things were not looking too good for Lululemon.  The big surprise to everyone was that most consumers didn’t seem to care!  Most customers who had purchased the apparel said, “So what, these clothes are really comfortable and I like wearing them when I work out.”  Lululemon really never apologized for their claims, instead, they took the stand, “We don’t make the fabric, we just go by what the manufacturer tells us and that is what they told us.”  Customers kept buying their apparel and visiting the stores; the stock price rebounded; they changed the labeling, and guess what?  They are still selling VitaSea fabric in garments today and it is a big seller.  The ethical implications of this situation could have been huge.  Due to strong distinctive competencies and maybe some luck, the brand survived the negative publicity.  Lululemon didn’t come out with a huge apology and ban use of the fabric; they just amended the labeling and proceeded with business.  Five years later, Lululemon’s VitaSea® labeling indicates “it is made with SEACELL®, the yarn derived from seaweed, and blended with cotton and spandex. The end result is an ultra-soft, preshrunk fabric that retains its shape and stays soft after you wash it. We use it primarily in T-shirts for women and men.”  Most customers overlooked the incident and accept VitaSea as part of the fabric line today without question.  I think Lululemon was naïve in 2007, accepting their supplier’s claims about VitaSea, but in the end it was probably a valuable lesson learned.  Now they have more stringent policies in effect for testing and certification of their materials and hopefully won’t get caught unaware by something like this in the future.  Companies do make mistakes and customers can be forgiving if they perceive value in the product.

 

Jealousy works the opposite way you want it to – Related and Unrelated Diversification

Filed under: Chapter 10 — ddstuber at 10:45 pm on Wednesday, November 14, 2012

What does jealousy have to do with diversification and why did I choose this for my blog heading?  If you think about it, restructuring, diversifying, entering a new industry, new ventures and/or acquisitions, are all similar to the quote, “the grass is always greener on the other side.”  These strategies are hardly chosen out of jealousy, but perhaps you will see my point.  Lululemon is a relatively young company.  They only went public five years ago and have not entered any new industries to date, staying strictly in the fitness and apparel retail industry.  They have done some corporate restructuring though and that is what we will discuss.  Probably the first big restructuring event in their brief company history occurred shortly after the company was formed when Chip Wilson entered franchise agreements and then a joint venture.  The rationale for this restructuring strategy was based on growing the brand to meet consumer demand while conserving financial resources.  This was a very effective strategy and served Lululemon well in establishing themselves as a multinational company, helping to build on economies of scope, increasing brand awareness and building a larger customer base.  In 2011, Lululemon finally repurchased all the franchise organizations and now all of their stores are corporate owned.  The ultimate motive for closing out the franchise business was to preserve and maintain control over branding.  I believe this was a superior strategic move in that brand image is huge for the company and a driver of their competitive advantage.

Another strategic restructuring move occurred in 2008, when Lululemon opened a new branch of street wear in strictly organic fabrics called OQOQO.  Just a year later the products were rolled back into the Lululemon line and using that retail space, Lululemon rolled out their sister store, Ivivva.  This brand is part of Lululemon and is structured on the same business model although targeting the market for pre-teen and teenage girls in dance, gymnastics and figure skating apparel.  As of January 2012, the Lululemon 10K financial statement boasted five Ivivva branded stores with plans to open two more in 2012.  The driving force behind creating the Ivivva brand was customer requests.  This new business unit has increased profitability for the company.  Lululemon may have underestimated the benefit that shared general organizational competencies and economies of scale their supply chain would contribute to the success of Ivivva.  They certainly have acted on the realized benefits because if you visit the Ivivva website today, you will see that they have nine Ivivva locations in Canada, five in the US and plans for several more to open in both countries after the first of the year.  This is quite a bit more robust than predicted in January this year.  (Of note, Lululemon has come under criticism from some investment analysts who complain they tend to internally underestimate anticipated financial earnings and growth.)

One other instance of corporate restructuring that I have mentioned in past blogs, is worthy of noting in this discussion.  That is Chip Wilson’s decision in 2005 to sell 48% of his ownership in the company to private equity investors and hire Robert Meers as the new Lululemon CEO. This was a superior management decision because Mr. Wilson recognized that he didn’t have the skills required to take Lululemon to the next level and strategically put someone in place that could accomplish this goal.  The growth of this company really has been quite explosive.  I admire a founder of a company who sets pride aside to act in the best interest of his employees and brand and then realizes the rewards of that decision.  A manager like that really does publish thoughts like, “jealously works the opposite way you want it to.”

Breathe deeply and appreciate the moment. Living in the moment could be the meaning of life. – Vertical Integration, etc.

Filed under: Chapter 9 — ddstuber at 7:41 pm on Tuesday, November 13, 2012

This statement from Lululemon’s manifesto may not seem strategic, but for organizations – being able to appreciate “the moment” – typically is preceded by excellent strategic decisions by leadership.  Lululemon has never pursued a horizontal integration strategy, they are a vertically integrated retailer involved in design, marketing, distribution and retail stages of the value chain.  Lululemon owns their retail stores and controls the apparel, fitness related equipment and provision of guest education, classes and community events associated with the brand and store fronts.  Lululemon has one partner in the UK that they wholesale through (it represents 2% of their net revenue) and they use that channel to build brand awareness, especially in new markets.   Lululemon are also vertically integrated in their e-commerce business.  At one time they were vertically integrated through limited franchising, however they have since purchased the franchise operations.  Although they do not manufacture or produce any of their fabrics or garments, they have established very close relationships with their supply chain partners and are deeply involved in decisions regarding inventory, shipping, production rates and specialized assets required for production and sewing of the apparel.

Some analysts might visualize potential for Lululemon to increase profitability through backward vertical integration by entry into the production and fabric manufacturing industry.  Based on the core values and mission of the company and given their established distinctive competencies, I do not think that it would be in Lululemon’s best interests to pursue this strategy.  My primary justification is attributable to the technological component of the clothing materials and construction; secondary to that is uncertain consumer demand and Lululemon’s commitment to inventory control.  My analysis of Lululemon has revealed that strong relationships exist with the companies that manufacture the fabrics and the companies that sew the apparel.  This diminishes the strategic need to pursue a backward vertical integration at this stage.  Especially, given that the apparel industry by nature requires economies of scale to create competitive advantage.  Competitive strengths for Lululemon have been:  their ability to partner with suppliers to develop differentiated manufacturing techniques that require experienced sewing operators and equipment; their work with leading fabric producers to develop and trademark innovative fabrics; the incorporation of organic elements such as seaweed, cotton and bamboo into their apparel; and their partnership with a leading independent inspection, verification, testing and certification company for quality and performance.  These partners have competencies that benefit Lululemon and I feel the bureaucratic costs to vertically integrate further by acquiring these functions are too high.  At this life cycle stage Lululemon’s management should remain focused on strategies for growth and sustaining competitive advantage through distinctive competencies.  In a recent quarterly earnings call, Christine Day commented, “… we are not ready to commit to opening that market (wholesaling) until we really get our supply chain systems in place so that we can handle the complexity that we know that that takes to execute. We are really trying not to do a lot of ancillary things that detract from our ability to really get the infrastructure right, right now. So even though we see tremendous opportunity in those markets and great demand coming through on e-commerce, we are trying to stay disciplined and not add any more complexity to the work that the team is doing right now.”

Regarding outsourcing, for the past year Lululemon has been in the process of in drawing some functions that had previously been outsourced.  For instance, with their increased focus on the e-commerce segment they invested in new and legacy information technology systems to grow and capitalize on the e-commerce opportunity. This increased expenses for their administrative budget, but overall was offset by a decrease in costs of $6.1 million primarily associated with a reduction in professional fees resulting from bringing e-commerce operations in-house in the first half of fiscal 2011.  Lulu now has the ability to make changes to their website efficiently and interact with web visitors and social media sites directly rather than going through a third party.  As revealed throughout this analysis, Lululemon is a very unique company and one of their corporate values is to work with people with the same core values.  Therefore, I don’t think outsourcing corporate functions such as HR, IT, design or e-commerce would be as effective for their business as having those functions performed by their own employees.   However, Lululemon does outsource some quality functions such as auditing factories for compliance and quality inspection and testing functions.  Another reason that outsourcing is not a key strategy at this time is that they are realizing competitive advantage with their current strategies.  This is supported by a second-quarter announcement that profit rose to $57.2 million or 39 cents a share, from $38.4 million or 26 cents a share in the same period a year-ago.  Adjusted profit totaled 34 cents a share.

Lululemon has maintained long-term cooperative relationships with their third-party suppliers.  Per their most recent 10K financial statement, they correctly identify supply operations as a risk and confirm, “We have no long term contracts with our suppliers or manufacturing sources, and we compete with other companies for fabrics, raw materials, production and import quota capacity.”  In 2011, approximately 67% of their products were produced by their top five manufacturing suppliers.  Lululemon has had a special sourcing team since 2006 and since then they have structured the following five-step process to select their supply chain partners.

  1.  Identify potential factory partners – based on capability, capacity, quality and social and environmental responsibility values and actions
  2. Audit and inspect factories – using a third party auditor to monitor and manage supplier compliance
  3. Complete corrective action – if issues are identified during the audit they partner with the factory to identify root cause, solution and timeframe to implement solutions then follow-up
  4. Create goals for production – including commitment to Lululemon’s supplier agreement.  Factory partners are rated on social and environmental responsibility, delivery capability, price value and quality assurance and those that score highest are the ones Lululemon works with each season
  5. Establish a frequent presence – a small manufacturing base allows greater visibility to the factory environments, twice yearly third party auditing and multiple sourcing team visits

As indicated earlier, throughout my analysis of Lululemon I have noted only value added through their partnerships with production and manufacturing sources.

Dance, sing, floss and travel. – Strategy in the Global Environment

Filed under: Chapter 8 — ddstuber at 10:32 pm on Thursday, October 11, 2012

Travel, or in this case, taking your business traveling, makes perfect sense when your business model is strong and you are seeking growth.  Which is exactly why Lululemon made the decision to expand to the US and Australia.  As a vertical retailer, Lululemon’s early strategy was to open enough stores to create the necessary volume required to be able to realize economies of scale and avoid the middleman in production.  In this way they could work directly with the fabric manufacturers and factories where the apparel was sewn.  However, as their growth increased, Canada didn’t have the mills or manufacturing facilities to support their needs and that is how they made the shift to manufacturing and milling in the Asia Pacific region, although some production is still done in Canada.  By using a franchise entry mode, Lululemon was able to transfer the distinctive competencies of their retail store experiences, products, grassroots marketing and build on brand recognition all while allowing the franchisee to bear part of the cost of entry into the US and Australian markets.  Mr. Wilson has stated in interviews, such as his “Ask the Legends” 2010 interview for Profit, an entrepreneurial publication, that his primary goal for growth (aside from realizing economies of scale) was not to grow prosperous so much as it was to retain and grow his employee base and be able to offer them more.  As a multinational company, Lululemon was able to lower the cost of value creation by realizing greater cost economies through increasing demand for product and increased sales revenue.

When Chip Wilson chose to sell a big piece of his company and take a secondary position in the company, he did that because he wanted to bring on someone with the skills to take Lululemon to the next level, which was to be a truly global company.  One of the reasons he chose Robert Meers as CEO, was because of his expertise in doing business in the US.  In my research I ran across a comment that explained why he might have been thinking that way, “The road to the U.S. is littered with Canadian retailers and manufacturers who failed in their US expansion attempts.”  (Profit magazine)  Wilson has stated, “The reason I sold to private-equity people was not because I needed the money. It was really to bring in expertise and a U.S.-centric thinking to the business so that the perception in the U.S. was that Lululemon was almost like a U.S.-funded, U.S.-conceived brand. But probably the most important thing is that we had a distinctive product, and we had the cash cow from Canada to be strong in those beginning years in the U.S.”  So, I definitely think that Lululemon is responsive to differences among nations and catering to those differences in expanding globally.  Because of the product and the culture and community-based business approach, Lululemon has not had to vary its product and marketing message from country to country.  Sports like yoga, running and dance are cross-cultural and don’t really vary between Canada the United States, Australia and Asia.  However, one of the key motivations for growing in the US and Australia was because that was where the franchise locations were based and so the brand recognition was already in place.  There were also established ambassadors of the company in these locations who are very effective at scouting out potential communities for growth opportunities or events to be involved in that help to promote the brand.

Of note, a joint venture in Asia, era 2005-2007, was not as successful as Lululemon had hoped and the venture was later terminated.  Since that time, the company has promoted Christine Day to CEO, who had previous experience as an Asia Pacific division leader for Starbucks and who recently shared her take on the yoga market as “very strong and growing in Asia.”  Ms. Day is looking forward to taking on the growth potential of the Asian markets, especially given current economic forecasts in China where one of the Lululemon stores has already been opened.

Creativity is maximized when you are living in the moment. – Strategy and Technology

Filed under: Chapter 7 — ddstuber at 10:46 pm on Tuesday, October 9, 2012

When discussing technology, competitive advantage and strategic moves, you don’t want to find yourself living in the past or failing to exercise creativity.  The dominant product technology for Lululemon is their fabrics.  Luon®, Luxtreme®, Transluxent™, Silverescent®, Vitasea®, to name a few, are fabrics that they have worked with suppliers to design and sell under their trademarks.  They are formulated for performance and differentiate Lulu from the competition.  Other technology, in the clothing industry surrounds software and systems that support PLM or product lifecycle management.  PLM is a means to an end to get a product from the design table to the store by integrating communication and data to all areas of the business. (see below)  There are multiple vendors for PLM such as Oracle, Siemens and SAP.  Lululemon has recently implemented Flex PLM and partnered with an enterprise training consultant, Dashe & Thomson, Inc., to assist them with their post go-live implementation.  For Lululemon, who doesn’t actually manufacture the clothing or source the fabric but uses manufacturing partners for these activities, it is still very important to maintain strong communication with their supply chain and share information efficiently.  As stated in Lululemon’s annual report for 2011, they are also increasingly dependent upon their information systems in operating their e-commerce website, processing transactions and responding to guests.  This part of their business accounted for more than 10 percent of their net revenue in 2011 and offers a higher operating margin.  Therefore, plans are to invest in new and legacy information technology systems to grow the e-commerce segment and capitalize on that opportunity.  Lululemon was outsourcing this task, but did in draw that function in 2011 at an increased expense to their administrative budget.  They use Oracle’s ATG Web Commerce Merchandising product.  However, they have stated that overall they are realizing a savings by this move.

The primary technology standard in the retail apparel business is RFID tagging (radio frequency identification) also knows as electronic product coding.  This is the use of electromagnetic fields to transfer information from the tags attached to items so that that information can be used for logistics, inventory management, point of sale information, tracking of returns, and reduced shrink to name just a few of the benefits.  So basically, RFID contributes data, accuracy and visibility, as explained in an interview for Apparel Magazine in July 2012 with Prasad Putta, an expert in this technology.  This is a standard that provides for uniformity and efficiency in supply chain management.  Specifically due to the investment in supply chain systems, PLM and point of sale systems, during a conference call discussing Q2 financial results, Lululemon’s CFO, John Currie said, “We have one of the busiest IT departments of anyone, probably.”  However, technical standards for the apparel industry
might also be interpreted as size specifications.  This is how manufacturers and retailers can standardize the products they sell to make it easier for customers to know what size product will fit them.  Of course, there is always some variation, but generally speaking size standards are universal by country for each segment of the market:  For instance, in the US:  women’s, misses, juniors, men’s, girls, boys, toddlers and infants.  Another technical standard might be considered product descriptors, such as jackets, dresses, pants, etc.  These standards that we take for granted also help consumers do business with apparel retailers.

Lululemon customers definitely fit the attributes of the innovators, early adopters and just now reaching the early majority.  Their typical customers are active women and men who appreciate the innovative and technical characteristics and differentiation of their products.  Their customers are also willing to pay more for the fashion, durability and brand image of the product.  These consumers also appear to be interested in social responsibility and global sustainability (goals of the Lulu brand) and subscribe to social media websites.  Given these attributes, I would predict that the Lululemon customers are also technologically savvy, purchase on-line and will continue to be interested in innovative and cutting edge fashion, trends, and everything that is “now and happening”.  So the strategic pitfalls Lululemon will want to avoid would be to lose their edge.  Lululemon’s success will depend on their ability to identify with their customers and changing consumer demands and remain original in the products they offer.  If they are not able to introduce new products or new fabrics technologies ahead of competitors it could hurt their competitive advantage.  They currently have a very interactive and interesting website; they should continue to focus on anticipating customer preferences and introducing innovative changes with regard to the website and e-commerce experience.

The dominant product technology for Lululemon, its high tech fabrics, has diffused.  The apparel industry is fragmented so competition is significant.  I believe Lululemon’s success and fame for their IPO has driven the speed of the diffusion.  Obviously, there are many entrepreneurs who see what Chip Wilson has accomplished and would be happy to get just a small piece of that pie.

I believe when Lululemon entered on the yoga scene and made that initial shift from cotton clothing to special fabrics like Luon® that was a paradigm shift for women’s yoga apparel.  Under Armour was founded in 1996, and they had some technology going with men’s products, but hadn’t made the cross over to women’s and Nike had been gaining momentum with their Nike F.I.T. apparel.  What Chip Wilson brought to women and yoga with Lululemon was monumental, which accounts for their success.  I don’t think we will see another paradigm shift for some time.  There is a lot going on right now with all the sustainable products that can be introduced into wearable fabrics, as well as alternative products like silver, which is what Lululemon weaves into their Silverescent® fabric.  The benefit of this fabric is it keeps clothes from retaining bacteria that make them stink after a few times of sweaty exercise.  In my assessment, I would say this industry is about midway on the S-curve of the successor technology curve based on the established/successor graph.

Intellectual property rights are very important to Lululemon, however, the rights for the fabrics they use are owned or controlled by their suppliers.  Lulu has to rely on copyright, trademark, confidentiality agreements, licensing agreements and laws and regulations to protect their intellectual property rights. Their strategy thus far has been to set a strong example for those who would challenge their intellectual properties by being aggressive and unyielding in pursuing lawsuits against design patent infringements.  They did that with Calvin Klein and their v-waistband yoga pant and it made big news in the apparel industry.  Another part of their strategy is to focus on creating long-lasting and healthy relationships with manufacturers that share their core values.  Other than the factory in Canada, most of these facilities are located in the Asia-Pacific region, as to be expected in the apparel industry.  Admittedly, if Lululemon had to challenge intellectual property rights due to a damaged relationship in some of these countries it could pose a problem due to foreign laws or the enforcement of laws.  If that should happen it could expose Lululemon’s dominant product technology to risk from competitors.  In summary, I do believe they are doing a good job of managing intellectual property rights at this time through their supplier relationships and leadership focus on auditing and staying involved in this facet of their business.

Successful people replace the words ‘wish’ ‘should’ and ‘try’ with “I WILL”. – Industry Environment

Filed under: Chapter 6 — ddstuber at 9:32 pm on Monday, October 8, 2012

The growth exemplified by Lululemon since their first store opening in 1998 authenticates this statement from their company manifesto.  Although the apparel industry as a whole is viewed as somewhat mature, the sports and fitness wear segment of the industry is in the growth stage.  As we have discovered through this analysis, technological advances in fabrics, innovative designs that provide for better fit and comfort and use of materials considered to be socially responsible are the key factors driving growth in this industry.  Another key contributor to the growth of this industry segment is the increased awareness, worldwide, to the role health and exercise play in improving quality of life.  Lululemon Athletica, Inc. is applying strategies to their business model characteristic of a company operating in a growth industry.

Although Chip Wilson claims that his initial goal was to open one only store, the timing for his venture into yoga apparel was superb.  As a result, Lululemon has experienced explosive growth over the past 15 years, and attracted a mass market of consumers.  An evolution of business strategy has supported this growth and allowed the company to remain true to their vision.  Early in the company timeline, stores were opened in major Canadian cities, the primary product was the yoga clothing and accessory line and revenue doubled every year in spite of the fact that they did little traditional marketing.  Profits were sustaining growth although the company did use a franchise strategy to assist with expansion in markets in the US and Australia, offsetting expense and allowing them to maintain control of the business model and brand.  This was a smart and protective strategy at the time.  It not only funded expansion, it kept entrepreneurs who were interested in the concept from imitating the Lululemon business model and getting a foothold in these markets.  In 2005 with revenue of $60 million and more than 15 stores on 4 continents, Mr. Wilson sold 48 percent of his interest in the company to two venture capital firms and stepped down as CEO.  This strengthening strategic move provided Lululemon with the funding needed for continued expansion and brought Robert Meers on board, who was formerly with Reebok.  Mr. Meers had the experience needed for this type of growth and thus by 2006, Lululemon had revenue of around $225 million and 40 stores.  Lululemon saw other yoga apparel specialists entering the market at this time and although their products were priced higher, they still maintained competitive advantage.  Strategically, the next step was the Lululemon initial public offering in 2007.  In a few short months in that year, their stock price jumped from $18 to $60.  Lululemon continued with their expansion strategy while remaining true to their vision and building brand loyalty to their yoga products through authenticity, awareness, community and education. As a result their competitive advantage was strong.  Christine Day, replaced Meers as CEO at Lululemon in 2008.  Ms. Day had formerly been with Starbucks and there were strong similarities between the companies such as global awareness, aggressive global expansion strategies, and products that were positioned at the high end of their markets. Ms. Day has been a successful leader in building the supply chain and logistics side of the business, maintaining the nontraditional marketing approach and keeping products positioned where they are.  This is especially tactical in light of the economic situation worldwide for these past four years.  Lululemon tenaciously controls the amount of product in their stores so that they are not forced to offer their products at clearance prices like traditional retail stores.  This maintains their profit integrity and “trains” customers to buy at full price.  Ms. Day and the other leaders at Lulu value Chip Wilson in his current role as Chairman of the Board for the passion and energy he provides that support the Lululemon brand image.  This brand image and the philosophy represent the distinctive competencies that provide sustained competitive advantage for Lululemon.  Noting a departure from the Lululemon philosophy in the franchise organization toward a fashion focus prompted Lulu to repurchase all the franchise stores.  Going forward they are following a chaining strategy with their storefront expansions.  Now that Lululemon has become better known, their customer base has grown providing opportunity, but requiring changes in strategy to outperform others in their strategic industry group.   By expanding their product lines they have successfully branched into product lines for other sports such as running, men’s clothing lines and young girls’ activity wear and are seeing good consumer response.  Another competitive strategic focus is reducing the time required to get from design table to retail shelf.  Ms. Day’s team has focused on logistics and alternative production schedules to realize these goals.  Although the growth forecast anticipated for store openings has been stinted by economic pressures, Lululemon is moving forward with projects within their supply chain and production to concentrate on delivering as many cost savings as possible to support improved profitability now and in the future.  Lululemon has also stated in their annual reports that their investment strategy is about reinvesting in areas that affect both the technology and innovation of their products rather than paying dividends to stockholders at this point.  They are more interested in building competitive advantage as a differentiator and increasing market share.  Fortunately, their stock sales have been very profitable positioning them for the growth required to compete with large companies like Nike, Under Armour and Gap’s Athleta line.  Last, but not least, the e-commerce business will be a focus strategically for Lululemon.  They realized over 10 percent of their net revenue from e-commerce sales in 2011 and this sales channel offers a higher operating margin to them so they will grow this part of their business in the future.

Lululemon has been serving customers who closely fit the characteristics of innovators and early adopters, however with their growth and continued success through international expansion and their IPO, it appears that they have crossed the competitive chasm to reach those consumers classified as the early majority.  I have noticed that Lululemon is not catering to size 14 and 16 women (they barely have any size 12 clothing available on their website) and if they want to reach the mass population they should consider the potential of that market.  I also think that Lululemon should consider branching into ladies golf clothing.  This is another market segment that predictably would be open to paying for high end sportswear that is functional and fashionable with the specialty pockets and features that Lululemon is famous for.  A 2008 study by Golf Datatech, LLC revealed that women who play golf enjoy being outdoors, spending time with friends, are interested in improving themselves, and at least 45 percent are members of some social media group such as Facebook, Twitter or LinkedIn.  These are all factors that seem to lend themselves to Lululemon’s vision and differentiator capabilities.

I believe Lululemon will continue to replace ‘wish’ ‘should’ and ‘try’ with “I WILL” and continue to maintain competitive advantage in the future.  First of all, they have strong leadership and a workforce culture that supports what the company stands for.  In other words, they have buy-in from their employees to the vision of the leaders.  Next, they have prioritized their capabilities well and built upon their distinctive competencies.  By first building on brand loyalty and their yoga line they established this very strong customer base.  By promoting their products through community events and local ambassadors they further established this customer foundation.  They have used the grassroots marketing technique well and they have been lucky to enter the market as the interest in yoga was setting off, as well as social media.  Now as they expand into other product lines and continue to focus on their innovation, quality and efficiency they are building functional strategies that should continue to support their growth goals.  Their expansion into the Asia Pacific market is well-timed and they have been there and done this already, so they have lessons learned to draw from and should be better positioned for this challenge.  I think Lululemon has great potential ahead of them; there are a great number of potential large cities and markets yet to enter.  The number of other sports available to branch into also presents growth potential.

Mediocrity is as close to the bottom as it is to the top, and will give you a lousy life. – Business Level Strategy

Filed under: Chapter 5 — ddstuber at 10:32 pm on Wednesday, September 19, 2012

There is no room for mediocrity at Lululemon.  For Lululemon, differentiation is a vision that became a strategy.  The basis of their differentiated appeal is their focus on community, the technical product, keeping their stores fresh and their people.  Managing these points of differentiation is what provides their competitive advantage.  Functional strategies based on innovation, quality and responsiveness to customers contribute to brand loyalty.  The products and brand carry a psychological appeal for most of the customers, further differentiating them.  Lululemon customers are really serious about their Lulu collections.  A quick search on YouTube will yield any number of videos featuring customers happily sharing their coveted (and very large) wardrobe of Lulu purchases.  Most can offer the name of the product, like “Groove Pant” and the clever colors, such as “Angel Blue.” (Pretty impressive for a pair of yoga pants you bought five years ago.)  These gals, and most of them are gals, are exuberant about sharing the quality and satisfaction they get from their Lulu purchases and often remark that they wish the company would bring certain items back, just one more time.  So who watches these videos?  Apparently, thousands of people have viewed the videos.  All this allows Lululemon to charge a little more than their competitors.  Even so, becoming more efficient in logistics and inventory turnover is a key goal and, per their most recent earnings call, they are making critical headway.

Yoga is the sport that put Lululemon on the map, but listening to customers and growing the business to meet customer demand has induced the company to differentiate their products for other market segments.  Those segments are yoga, running, cycling, women, men and young girls.  Interestingly, they have still been able to rely heavily on their existing customer base to introduce these new segments of the market to their product.  For example, rather than sponsor a famous male athlete to advertise, they rely on women who are already fans of the products to purchase items for the men in their life as gifts.  Once men wear the product and acknowledge the fit, comfort and quality of the item, they become customers.  Likewise, women introduce their daughters to the products.  In this way, Lululemon is able to spend less on advertising, relying heavily on that grassroots marketing that has worked so well for them so far.  As the company is growing, they are looking at more segments that will be a good fit for their products.  Many customers participate in multiple sports activities, so using design and innovation to develop products for skiing, skateboarding and swimming are some of the segments that Lululemon would like to grow.  They are also learning that customers are interested in products that move from the workout to everyday activities,so they have ventured into additions to the product line such as dresses, scarves and coats.  This is a segment that they are, basically, dipping a toe into the water on.  Fashion is part of their innovative pursuits in the athletic wear products and they do not have plans to cross over into fashion clothing at this time, per CEO, Christin Day.

From the beginning, the generic business model Lululemon has pursued was a focused differentiation strategy.  They are targeting a specific category of customers.  These are customers who want variety in their athletic wear, are fit, are willing to pay more for quality and status products and embrace a socially responsible lifestyle.  Most customers are women, however, they are branching into the male market.  You will find Lululemon positioned at the top of the value creation frontier.  The formula they are using to climb to that position is a business strategy made up of innovation, quality, and responsiveness to customers.  However, they are implementing new strategies in efficiency to bolster the competitive advantage they have already achieved.  Growth is another business level strategy they are pursuing, and they have been very successful in making good decisions regarding the communities they enter and the neighborhoods where they open stores.  Specific goals for growth in the future are to open more stores in the US and in Asia and growth through new product lines.

There are many strategic groups that make up the retail clothing industry.  According to the Investor’s Business Daily report of industry analysts, “Active wear is the fastest growing apparel sector and performance wear is the fastest growing sub-segment.”  You will find Lululemon there, competing in a strategic group of athletic and fitness clothing manufacturers who incorporate technology into the design and fabrics of their products.  These competitors are companies like Nike, Athleta and Under Armour.  CEO, Christine Day said recently on a conference call with analysts, “…while others may try to mimic parts of our business, it is impossible to copy a personality.”  Touché, Christine.

From the outside looking in, Lululemon is employing a superior business model and their strategies are effective.  They currently have a strong competitive advantage over their many rivals and frequently make the news for their superior stock market performance.  Therefore, it is hard to say what they could do to improve.  More focus on efficiency as a business level strategy is imperative.  Especially given the organizational goals for growth and because it seems to be their weakest suit at this point.  Earnings reports indicate that Lulu is making headway with efficiency in getting product from design table to store shelves faster and more affordably through calendar cycle changes and logistics.  The key here will be to continue to build their leadership with more quality people, like Sheree Waterson, their Chief Product Officer.  Another recommendation would be continued growth in the children’s athletic wear segment.  A small revelation reported in Investor’s Business Daily just this month, “Women’s active wear in the US grew faster than men’s in the last year, with $13.7 billion in sales to men’s $12.7 billion….children’s grew even faster.”  Although it is a smaller piece of the overall pie, the customer base who would purchase these garments are already Lulu customers.  In summation, rock on with the focused differentiation strategy – there is a market for this product and as the brand gets more exposure from growth into new communities there should be an abundance of customers who “get” Lululemon.

Listen, listen, listen and then ask strategic questions. – Functional Level Strategy

Filed under: Chapter 4 — ddstuber at 5:13 pm on Sunday, September 16, 2012

Lululemon has used this phrase from their manifesto in determining how to use their limited resources most effectively in support of functional strategies that build a competitive advantage for their company and product.

EFFICIENCY

Enhancing efficiency has to be a key objective for Lululemon because of their rapid growth.  Their focus for efficiency is about getting from the designer’s drawings to the store as quickly as possible.  One strategy they are employing to provide more flexibility is through multiple supply chains and, as shared in their second quarter earnings call, they believe this is providing a competitive advantage.  Partnering with suppliers and manufacturers in multiple countries has allowed them to build an aggregate of several supply chains.  Sheree Waterson – EVP, General Merchandise Management & Sourcing, has commented that they were seeing a better flow of product and less air freight, which was getting product into the stores at their “desired cadence.”  Efficient management of logistics and “smoothing deliveries” to the stores allows them to get product to the floor faster.  Efficiency for Lululemon is not about trying to just get more stuff on the shelves to meet sales demand, it’s about strategically bringing in new product in limited quantities so you don’t tire the guest out and don’t have to mark it down.  This is their strategic model of induced scarcity, which is another differentiator or divurgence from most retail selling strategies.  That’s not to say that they don’t want their stores to be stocked adequately, they just never want to stock too much of a good thing.

QUALITY

Developing the highest quality products is just one component of the core value set that Lululemon drives to in order to remain true to their mission.  Quality has been a key differentiating factor.  Brand loyalty is associated with high quality and maintaining that reputation is imperative.  To enhance quality, Lululemon requires all manufacturing partners to commit to a code of conduct based on quality and ethics, which carries over to work conditions and social concerns.  Christine Day, CEO, has shared that while Lulu works with manufacturers and factories in several different countries, those facilities are owned by a small number of people or organizations.  This is a strategic move so that they have more control over the quality of the fabric and construction.  They also do multi-year capacity exercises with these suppliers so that they don’t have any surprises in terms of meeting demand, which further enhances quality of the products produced.  When products turn out to be lemons, Lululemon makes lemonade through their relationship with Debrand, a Canadian recycling company.  This furthers the quality of the brand through social consciousness, which is valued by their customer base.

Another aspect of quality is the Lulu guest experience.  To enhance this Lululemon strives to train and mentor their employees to be their best using goal setting, career planning and emphasizing mental well-being and healthy life styles.  They believe this carries over to the guest experience and enhances the brand image.  Employees are also allowed/encouraged to invest in the company through stock purchase options.

Investing in quality people carries over to the ambassadors Lululemon has formed partnerships with.  These are local athletes and yoga instructors who Lululemon provide with gear and clothing in exchange for their affiliation and networking.  They advertise, scout out new markets, provide feedback and help to build a customer base through grassroots marketing and community involvement.  Selecting quality representatives for this role is an ongoing enhancement to Lulu’s strategy and ambassadors are featured prominently on their website.

INNOVATION

Using innovation to enhance the products sold by Lululemon is one of the strongest of Lululemon’s competitive advantages, if not the strongest.  Search the web for Lululemon and you will find any number of blogs written by athletes extolling the virtues of their innovative fabrics, design and fashion in athletic gear.   Lululemon has delivered on innovation through designing gear and clothing with special fabrics, seams, pockets and features that make their customers more mobile, more comfortable and more competitive.  In the most recent quarterly investor call, Christine Day, CEO, confirmed that innovation is not about reinventing what is working.  She said, “the first innovation that we focus on is in the existing product.”  Other innovative enhancements are about “future growth in concepts and it’s not our primary growth lever.”  She also talked about moving from a 10-month calendar to a nine-month calendar to allow time to bring fashion detailing and elements from the runway and new trends into stores on an expedited cycle to provide additional competitive advantage.   This strategy will be further supported by enhancements in efficiency and is essential to remain ahead of competitors.  Protecting that innovation is also important and Lululemon realizes that they are subject to a threat from competitors who attempt to mirror their products.  That is why they have committed to do whatever is necessary to protect their assets.  Recently they filed a patent infringement related to their Astro Pant and a few years ago they took on Calvin Klein for another patent infringement related to a waistband design.  Protection of intellectual property is imperative when you are an innovative leader in your industry and want to retain that differentiation.

RESPONSIVENESS TO CUSTOMERS

The grassroots marketing concept and community focus of Lululemon’s business model are practices based on customers and being responsive to customers.  Christine Day, CEO, recently commented, “From an economics perspective we are very pleased from a growing brand desire, but it is always our desire to grow organically and be pulled into the market rather than do things that would push.”  Lululemon uses social media effectively in their marketing strategy to monitor the customer’s pulse.  Through the strength of those relationships they are able to communicate directly with customers on quality issues, new products, and upcoming events.  From the beginning they have made feedback from the stores and communities a core practice and used that information to evolve the business model and products as they grow.  Recently they acted on feedback from customers through their website and Facebook to make the business decision to bring back a particular line of products.  The company website has a special pages for, feedback, education, product care, fabrics and technologies, size charts, a to z product features, goal setting and yoga info 101.  This is one more way that Lululemon is strategically differentiating themselves – being responsive to customers.

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