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