What is Lululemon?
Lululemon launched in 1998 as a yoga apparel brand. It’s grown to develop an international presence with its products available in almost 500 stores worldwide, along with its e-commerce site. The brand has its headquarters in Vancouver. Its main customer demographic is in North America, but with the focus shifting to developing its presence in the Asian and European markets.
The Brand’s Aesthetic
When Lululemon began, it was a design studio by day, that transformed into a yoga studio at night. This space in Vancouver’s Kitsilano neighbourhood would eventually become its first flagship store.
Lululemon’s mission is to promote mindfulness amongst its customers by emphasising the benefits of an active lifestyle, particularly involving yoga. As the brand began as a yoga apparel store, it’s no surprise that they heavily incorporate yoga into their marketing and product ranges. Lululemon often offers complimentary yoga classes in their stores.
Their product range has since expanded to incorporate other sports, such as cycling, running, and general training. The brand is a favourite amongst celebrities and influencers alike, developing a loyal fan base that is vocal on social media. It’s considered to be one of the most sought-after athleisure apparel brands, incorporating a large target demographic. The brand utilises global ambassadors, primarily from the world of fitness and sports, to promote its products.
Lululemon describes their global community as “where you’ll find our soul”. Their designs focus on innovative technical athletic wear with minimalistic silhouettes and prints. Lululemon promotes its core values as being courage, connection, personal responsibility, inclusion, entrepreneurship and honesty.
Lululemon Products
The name ‘Lululemon’ was chosen to create a Western impression for customers in the Japanese and larger Asian markets. The first standalone Lululemon store launched in 2000.
In 2005, Lululemon trademarked their first original fabric, Luon. It uses a higher-than-average percentage of nylon microfibers. One of their main selling points is their research and development, which has led to the creation of a series of patented fabrics that provide moisture-wicking and compression features.
Lululemon’s yoga apparel was designed as a way to ensure the wearer would get the most benefit out of their mediation and yoga. It ensures proper alignment of the body, with innovative fabrics that are quick-drying and reduce discomfort.
Lululemon is one brand that is responsible for the return of yoga pants as a must-have activewear essential. The brand filed a lawsuit against Calvin Klein for infringement involving the design patents for yoga pants. While the case was settled out of court, it was unique for a designer to attempt to assert an intellectual property right over a clothing design through patent rights.
This focus on innovation has led Lululemon to maintain their ‘Whitespace’ lab at their Vancouver headquarters, employing around 50 scientist and physiologists.
Thanks to the popularity of Lululemon, yoga pants went from being something you could pick up at a grocery store to a top-ticket item. In the mainstream market, Lululemon’s yoga bottoms are amongst the most expensive, with a cult-following that often sees styles sell out instantly.
In 2019, the brand capitalised on the growing popularity of streetwear by launching its ‘Lab’ brand in several stores.
The best-selling product within the Lululemon brand remains their yoga pants, along with their matching tops and sweaters. They’ve expanded to include accessories such as bags, yoga mats, and water bottles.
Leadership
Chip Wilson, the brand’s founder, has a particular view of the brand’s ideal customer. He describes the target demographic of Lululemon as the thirty-something established single woman who makes around $100,000 a year, with the ability to splurge on athleisure to facilitate her daily workouts. It’s worth noting that Lululemon has since separated itself from the brand’s founder due to some of his comments regarding women. His name now rarely appears on any corporate content produced by Luluemon.
Lululemon has had several CEO’s, including the former co-President of Starbucks, Christine Day. She took on the position in 2008 after LULU stock was first released. After Chris Wilson resigned as Chairman, Laurent Potdevin of TOMS Shoes became the brand’s CEO. In 2018, Potdevin resigned from Lululemon due to issues of misconduct. After their departure, the brand’s current CEO, Calvin McDonald, was appointed CEO.
The athleisure brand made its first steps to creating an international presence by launching its London Covent Garden flagship store in 2014.
Lululemon is one of several athleisure brands that have experienced accelerated growth thanks to its digital strategy. The brand utilises what is described as “holistic guerrilla marketing” by creating a sense of an online community that customers can join by buying into the brand. The main Lululemon Instagram account has over 3.6 million followers. The brand promotes their customers to use the hashtag #thesweatlife, which has over 1.3 million posts, which heavily feature users wearing Lululemon’s products. Its marketing strategy puts it in direct competition with the likes of Gymshark and Girlfriend Collective.
Lululemon’s LULU Stock
Lululemon’s IPO came in July 2007, selling 18.2 shares to raise $327.6 million. The brand appeared on Fortune’s Fastest-Growing Companies list for three consecutive years from 2013.
After Lululemon purchased the at-home fitness software Mirror, their shares jumped by 6%. While the Mirror start-up generated $170 million of revenue last year, Bank of America has predicted the acquisition could make Lululemon $700 million in revenue with potentially 600,000 subscribers by 2023.
In March, Lululemon reported higher than expected earnings for the previous quarter, causing speculation as to whether now is the time to invest in LULU stock. The brand’s revenue saw expectational growth in Q4, with a 24% cashing in $1.73 billion compared to the expected $1.66 billion.
This growth has been fuelled by the spike in Lululemon’s online sales, which have become a focus of the brand’s CEO Calvin McDonald. Online sales jumped 94%, now making up 52% of Lululemon’s total sales. While this growth is largely due to the impact of the pandemic, it follows a well-established trend for the brand as it focuses on the digital side of Lululemon.
The driving force behind Lululemon’s recent growth in international sales, which has risen by 47% in Q4, compared to 17% in North America. The expansion plans for Lululemon are focused on growing its international presence and developing its menswear brand. Its target markets are Asia and Europe, expanding their online stores and developing physical stores.
Wall Street may have underestimated the potential of Lululemon’s digital sales by instead focusing on the impact the pandemic had on in-store sales.
The future of LULU stock looks bright, with Lululemon stating that they are on track to double the revenue from their men’s department by 2023 while continuing to expand their women’s and accessories segments. The brand expects to quadruple its international sales while doubling digital revenue.
With its focus on developing its menswear segment, Lululemon looks set to put itself in direct competition with the likes of mainstream athleisure brands like Nike and Under Armour, which have a more even customer base. Although Lululemon started its life as a yoga apparel brand, its customer base has become more diverse since it first introduced its menswear section in 2019.
Lululemon sits at No. 11 in its industry grouping according to IBD Stock Checkup, which puts it in the same grouping as Revolve Group (RVLV) and Citi Trends (CTRN).
It hasn’t always been smooth sailing for LULU stock in recent times. At the beginning of the pandemic, LULU stock hit less than 50% of what it was at its height as the market experienced a crash. It quickly began to recover, outperforming the S&P 500. While LULU stock gained 50% in 2020, S&P 500 experienced a 16% gain.
Recent Zacks Rank for LULU Stock has seen it being recommended as a hold.
Meet Calvin McDonald
Calvin McDonald is the CEO of Lululemon and serves on the company’s Board of Directors. McDonald has a Bachelor of Science from the University of Western Ontario and an MBA from the University of Toronto.
It’s a natural partnership between Lululemon and McDonald, as he is an endurance athlete and has completed several marathons and ironman triathlons. Glenn Murphy, the Chairman of Lululemon, described McDonald’s appointment as CEO as “the ideal match for the Lululemon brand and culture”.
Lululemon describes him as a “growth-oriented leader who has a proven track record of helping large organizations scale by integrating how brands engage with customers where they shop”. His leadership has resulted in a shift in focus to how customers engage with the brands in-store and through social media and their e-commerce site.
McDonald is no stranger to overseeing the leadership of international brands. Before joining Lululemon as Chief Executive Officer in the summer of 2018, McDonald had several positions at a major brand. He was the CEO and President of Sephora America for five years, which is owned by the LVMH Group. During his time at Sephora, the cosmetic and lifestyle store saw double-digit growth.
Previous to his work at Sephora, McDonald was the CEO and President of Sears Canada. His longest tenure came during his 17-year career at Loblaw Companies Limited, the largest Canadian retailer.
McDonald also sits on the board of Calceus Topco Inc and Cole Haan Llc, two memberships that he’s maintained since 2016 and through his duration as Lululemon’s CEO.
When McDonald joined Lululemon in 2018, it was already gathering a legion of loyal fans, with a growing presence on social media. McDonald’s work has focused on developing the Lululemon brand, with a focus on improving customer experience across all the different customer-facing aspects of the business. His goal has been to cement Lululemon’s position as a premium athleisure brand that is at the top of its game, sitting at a mid-tier price tag.
After acquiring Mirror for $500 million, McDonald noted that with interactive fitness software they would “have more opportunities online with experiences” as “studio and trainer models for our ambassadors are changing”. With digital content dominating consumer behaviour and trends, McDonald has focused on capturing its potential as a way of future-proofing Lululemon as an industry leader.
Before the acquisition of Mirror, over 60% of the brand’s customers were using digital programs and videos for at-home workouts. McDonald’s decision to acquire Mirror shows his long-term strategy that focuses on elevating the experience of customers and keeping them embedded in the Lululemon brand throughout their fitness routines.
He has navigated Lululemon through the pandemic, enabling it to capitalise on the rising popularity of activewear as it becomes the new ‘working from home’ staple. McDonald describes “honesty and transparency” as the most important leadership characteristics of guiding a company through a crisis like the COVID-19 pandemic.
Under McDonald’s leadership, Lululemon has embarked on an IDEA project. It stands for ‘Inclusion, Diversity, Equality, and Action’. This corporate project focuses on bringing new perspectives to the table, with a focus not only on diversity and inclusion but also on equity. McDonald told Glassdoor that it “took self-reflection as an organisation on how we can do better to recruit with diversity at the forefront, how we can do better to become more inclusive”. This conversation is happening globally across Lululemon’s divisions and not just at their headquarters in North America.
McDonald’s estimated net worth sits at around $31.6 million in 2021. He owns at least 43,000 units of Lulu stock, estimated to be worth over $20 million.
Lululemon remains one of the dominating forces within the athleisure industry. It was one of the first brands to capture the popularity of the growing yoga community.
With their focus on global expansion, the future looks bright for Lululemon. Their recent acquisition of the start-up Mirror shows its focus on innovation and embracing the potential of digital communities to drive in-store and e-commerce sales. LULU stocks remain on a positive trajectory thanks to growing international sales and the brand’s expanding menswear range. With Calvin McDonald as the brand’s CEO, it’s clear the focus will remain on utilizing customer engagement tactics both in-store and through online communities.