Lululemon Business Strategy Essay

Lululemon was founded by Chip Wilson who took a commercial yoga class in Vancouver and was immediately drawn in to the concept. After spending many years in the surf, skate, and snowboarding business, he found yoga was performed using cotton clothing and this seemed inappropriate because it neither removed sweat adequately nor did it allow for maximum flexibility. Given his passion and expertise in technical athletic fabrics, he began a movement in yoga clothing where he relied on feedback from yoga instructors to optimize his apparel. Lululemon was founded in 1998 to meet these goals. It opened its first store in November 2000 in Kitsilano, a beach area of Vancouver BC. Beyond getting feedback from instructors on how to improve the performance of the apparel, the firm sought to act as a community hub where people can interact and share the physical and mental aspects of having a healthy lifestyle. 1. What are the key elements of the strategy that Lululemon is pursuing? What generic strategy best fits Lululemon’s strategy? The five key elements are: Grow the company store base in North America The strategic objective was to add new stores to strengthen the company’s presence and then tap into new geographical markets in the Canada and US Increase brand awareness Leveraging the publicity surrounding, the opening of new stores with grass roots marketing programs. This included organizing events and partnering with local fitness coaches. Introduce new product technologies Continue to focus on developing and offering products that incorporate technology enhanced fabrics, and performance features that differentiate Lululemon for its competitor and increase its customer base. Broaden the appeal of Lululemon products This is divided in 3 sections 1. Adding men apparel to the line 2. Expanding to product category to items such as athletic bags, undergarments, sandals, outerwear 3. Adding products suitable additional sports and athletic activities Expand beyond North America Expand their presence in Australia and Japan. Then eventually pursue the Asian and European markets that offer similar, attractive demographics. Distinctive shopping expericance Provide a distinctive in-store shopping experience, complemented by strong ties to fitness instructors, fitness establishments and community events The two biggest strategic adjustments since 2007 had been to drawback from the use of franchising and sell directly to the consumers through the company website. Lululemon fits itself in a differentiated niche strategy 2. Is Lululemon’s strategy effective? Let’s look at the following to determine if the strategy is effective for Lululemon The firm currently has three segments: Corporate-Owned Stores The corporate-owned stores segment includes all sales to customers through corporate-owned stores in North America and Australia. This segment is by far Lululemon’s largest revenue base and will continue to be successful as Lululemon looks to expand its base in 2012 by opening 30 stores in the United States and 2 Ivivva Athletica stores in Canada. Direct To Consumers The Direct to Consumers segment involves Lululemon’s e-commerce website. Which is 10.6 % of revenue (2011) comes from this segment. The idea behind is to shift from brick-and-mortar stores to online channels, Lululemon’s commitment to increasing its presence in e-commerce will help the company expand its customer base and improve brand awareness. Franchise While previously franchise sales were part of their strategy, the company  reported that it will no longer partake in the business and that it had reacquired its four remaining franchise stores during fiscal 2011. SWOT Analysis Strength Trademarked fabrics Community involvement – offered free yoga class on monthly basis Employee training Innovation Style/comfort Multiple green initiatives Quality – products designed to sustain 5 years of intended use while maintaining functional Brand identity Weakness High retail price Narrow product line Quality control/supply chain Marketing targeted to mostly yoga instructors/studios Loss of customer service with increased scale Weak brand recognition Lack of targeting to men Opportunity Expand product line Serve additional market segments Expand into additional geographic markets Increased demand in athletic apparel Fitness craze Threats Increased competition from current large players in the market Copy cats Economy New entrants Risk of banking on niche markets Lululemon only went public five years ago and have not entered any new industries (focusing mostly in the fitness apparel industry). They have done some corporate restructuring shortly after the company was formed, Lululemon  entered into franchise agreements and then a joint venture. The idea behind this 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 and focus more on e-commerce. We believe this strategy will work well for Lululemon as it preserves its brand image / competitive advantage and st aying competitive in the online market as well. 3. Top Key Issues facing the company needs to focus on are: The analysis shows us that the retail apparel industry is competitive with very low barriers to entry. Lululemon’s success will attract new competitors to the industry and attract interest from existing competitors. Ultimately, this is a competitive industry with limited barriers to entry. The athletic apparel industry is very competitive, with well capitalized rivals such as Nike and Gap, Inc. Lululemon has limited intellectual property in regards to its performance fabrics and manufacturing processes, therefore the quality and innovation components of strategy could easily be replicated. Lululemon’s self reinforcing activities, such as target customer base, tailored products and community based marketing approach make it very challenging for existing retailers to challenge Lululemon in its market from their own store bases. However, there are limited barriers to entry in this industry and Lululemon should expect new competition to try to copy its format This analysis brings us to issues the company is / could face: Increasing Competition Despite occupying a unique niche within the athletic apparel industry, Lululemon has recently gained competitors in recent years. I.e. Big  companies with large market capitals such as Nike, Adidas, and Under Armor have dominated the athletic apparel industry and keep gaining more ground. With the exception of a commitment to creating innovative products in apparel, these initiatives are in contrast to Lululemon. In order to market its products, Lululemon completely shuns away from print or media advertising and instead focuses on selecting ambassadors within carefully selected markets. As a result, it’s possible for Lululemon’s competitors to achieve and maintain brand awareness and market share more quickly Narrow focus Lululemon is targeted towards sophisticated and educated women who understand importance of active, healthy lifestyle. Under-Armor, Nike, and Adidas are targeted towards men and women of all ages. New Threats Apart from the big name athletic apparel manufacturers, competitors such as Gap’s Athleta brand, Lucy Activewear Inc. and Bebe Stores’ BEBE SPORT collection have emerged as competitors to Lululemon. Price Point and Manufacturing In light of the new and old competitors, Lululemon could be forced to sell their products at lower price thus reducing margins. Plus Lululemon does not own exclusive intellectual property rights to the technology for its products. This makes it easier for current and future competitors to manufacture and sell products with similar performance capabilities and styling. Cross-country differences in demographic, cultural and market conditions. Buyer tastes for a particular product or service sometimes differ substantially from country to country. Sometimes, product designs suitable in one country are inappropriate in another because of differing local standards. Lululemon is operating in an international marketplace and they have to wrestle with whether and how much to customize their products in each different country market to match the tastes and preferences of local buyers or whether to pursue a strategy of offering a mostly standardized product worldwide. For example, the clothing for women offered in the winter  season will be different from Canada to Australia and vise versa. Firstly, Australia gets hardly any snow and while Canada on the other hand, gets majorly hit every winter. Therefore, the running gear and the hoodies offered in both countries will vary because of the temperature and the climate. Making products that are closely matched to local tastes make them more appealing to local buyers, customizing Lululemon’s products country by country may have the effect of raising production and distribution costs due to the greater variety of designs and components, shorter production runs, and the complications of added inventory branding and distribution logistics. The second issue of transnational strategy incorporates elements of both a globalized and localized approach to strategy making. This type of middle ground strategy is called for when there are relatively high needs for local responsiveness as well as appreciable benefits to be realized from standardization. This strategy that Lululemon is trying to apply has its own disadvantages, such as; it is more complex and harder to implement, conflicting goals may be difficult to reconcile and require trade-offs and implementation more costly and time-consuming. All major global companies employ the franchising strategy. With the franchising strategy, the franchisee bears most of the costs and risks of establishing foreign locations; while Lululemon would have to expend only the resources to recruit, train, support, and monitor franchisees. The big problem that Lululemon is facing currently has to bear all costs of stores all around the world. With this, they would have to ensure that they are providing the products at discounted costs but also having to monitor to ensure that their standard for stores and customer service and experience is maintained. 4. Recommendations for management to improve performance / address key issues The recommendations we have for management is to improve performance and address the key issues, are employing a think global and act local strategy (Transnational). They need to ensure that each country does have the required customizations because the demographics, cultural differences and market conditions vary from country to country. They need to ensure that all their locations follow the same guidelines and customer satisfaction guidelines like they have for their primary locations. Price point and Manufacturing Lululemon does not own any intellectual property to the technology of what processes their products. In turn this makes it easy for competitors to imitate their style. Through analysis, a recommendation to solve this issue would be to patent their processing system. This would be beneficial to the company in such ways as; increasing price points, which in turn increases overall profits. It will also allow for a higher competitive advantage, making it difficult for competing company’s to imitate or copy their style. Sponsor Events and Shows Lululemon should sponsor some sort of events to gain publicity and increase brand awareness. Such can be done by organizing yoga events on a grand scale or some sort of sporting event. Not as high scale as done by its competitors (Nike sponsors the PGA Golf and Adidas sponsors FIFA) E.g. Lululemon could organize a yoga event at the Metro Convention Hall, Toronto Expand in Asia and Europe The company should plan to enhance its European and Asia market, recruiting new management talent and initiating an aggressive program to regionalize this business utilizing a consistent brand image throughout Europe and Asia. New Customers Lululemon should find new customers base other than its niche market. A potential target niche would be adding apparel for golf and tennis into its stores. Action Plan to address issues and improve performance The following action plan is the recommended steps we believe would be the appropriate approach to successfully completing these recommendations. Appendix 1 Value Chain Analysis Supply Chain Management 45 different manufacturers, no long-term contracts – can improve quality control and lower costs by decreasing # and agreeing to contracts Operations Tighten inspection and verification processes to ensure another recall does not occur (see-through pants issue) Distribution Facilities only in Vancouver-BC, Sumner, Washington, and Melbourne, Australia Limits Company’s reach Growth in online sales can offset Sales/Marketing Depend on word of mouth and community based marketing – can increase marketing via media (television, magazines, etc.) and other avenues