A Growth Strategy for Lululemon 2018

*Collaborated with Madison Kraft, Carson Berlin, Grant Doud, and Kevin Holloway

Executive Summary

Lululemon has been empowering people to reach their full potential through providing the right tools and resources since being founded in 1998. Since 1998, we have made great strides in the sports apparel world ranging from women’s yoga pants to men’s footwear. With the evolution of technology in everyday life, we are breaking into the fitness technology market. Our team has decided to develop and distribute a wireless fitness tracker, called the “Luup”. The Luup is designed to be worn around the foot and utilize Bluetooth technology to pair with all major smartphones to not only count steps and track calorie retention, but also monitor the heart rate of the consumer. The Luup differs from current products in the market through its durability and battery life. The value received from this product will be well worth the price, as it will include the Lululemon lifetime warranty. Our target market includes men and women between the ages of 16 and 45 who are physically active. With our proven track record of quality and greatness, we expect to carry out our growth strategy and promote fitness in everyday life.

Company Overview

Lululemon is a well-known athletic apparel company. Chip Wilson, the founder of Lululemon, originally started in the surf and snowboard clothing industry and seized the moment and moved into the yoga trend at just the right time. In 1998 in Vancouver, Canada Lululemon was developed and defined as a yoga-inspired, technical athletic apparel company for women as well as men. The first designs that brought the company name into the market were made for women to wear during yoga. November of 2000 the first standalone store opened which was just the beginning of the expansion Lululemon would take on. The headquarters and design and manufacturing facilities are located in Vancouver, British Columbia within Canada. Manufacturing facilities are also located elsewhere within Canada, the United States, China, India, Israel, Indonesia, as well as Taiwan. Distribution centers for Lululemon can be found in Vancouver (Canada), Sumner (Washington), Melbourne (Australia), and Columbus (Ohio). Having partners located around the globe make it possible to develop and create beautiful, different products.

Sales are made through Lululemon’s own network of company-owned retail stores as well as online and through pop-up shops. Products reach customers through three main channels including corporate-owned retail stores, direct to consumer sales, as well as wholesale, and smaller channels including franchise, and a few other ways. In early 2005 Lululemon had expanded to 15 stores within Canada as well as 3 within the United States. The company had also opened their first outpost in Australia and a store in Tokyo. With this expansion sales skyrocketed to 60 million USD in 2005 and had over 300 employees.

All the expansion Lululemon was taking on had lead them to sell 48 percent of the company in December of 2005 to two capital venture firms in order to help fund the expansion. By selling this portion of the company sales raised to nearly 108 million USD, giving Lululemon the ability to expand to more stores at an accelerated rate. Lululemon has since expanded its product width with the help of feedback from customers, ambassadors, and elite athletes. There are now designs for yoga, running, cycling, training, swim, to and from, as well as many other sweaty pursuits for men and women.

Differentiation

Lululemon attempts to differentiate themselves from competitors through the use and implementation of multiple different methods and strategies. The company’s strategic sales methods pairs with local entrepreneurs as well as athletes who have a passion for their communities and bettering both themselves and the surrounding communities. The goal is to focus on quality over quantity throughout all aspects of their business. Within the strategic sales section of the company there are three programs implemented, those being wholesale, yoga hard goods, and team programs. Lululemon’s team program is implemented to develop long lasting relationships with athletic teams, fitness facilities, and yoga studios that are improving their communities by being a stand out example for health and fitness. The company partners with teams who pride themselves on sweating day-in and day-out while choosing to use Lululemon products to train in as well as compete in. Eligibility is based off of passion to elevate your community from average to great, if the team can meet a minimum order of twelve pieces per style and color, as well as if the team requires athletic apparel for competitions and training. The program accepts only a limited number of applications in order to ensure that the company can fully support teams who share similar visions.

Another attempt at differentiating themselves is with the Sweat Collective. Sweat collective is a community built from the world’s sweatiest leaders. These members must be active “leaders of sweat” within their community, this includes group fitness studio instructors, run club leaders, personal trainers, and professional athletes or Olympic athletes. The company offers special perks to sweat collective members as a thank you for the leadership that they take on within their community and as a thank you for the members’ commitment to sweat. Lululemon frequently connects with members to gather highly valuable input in regards to products in order to help the company build its future. Members frequently put on events within their communities to gain insight and encourage a healthy lifestyle. These events include fitness classes anywhere from yoga and meditation to strength circuits and cross-fit. All Sweat Collective events are free of charge, Lululemon wants to get people sweating without money being a factor.

Lululemon prides itself on differentiating themselves with the use of different vendors. A policy has been created by Lululemon requiring that all vendors must be open, transparent, and cooperative by simply allowing full access to facilities, as well as provide full disclosure on all locations, resources related to production, and practices. Vendors are required to reduce waste, reuse, and recycle whenever the opportunity presents itself. Vendors are chosen based off of a system that the company uses where vendors are matched and reviewed if they uphold similar values in relation to the company.

Another program exists within Lululemon called Here to Be. Here to Be is a community based social impact program that allows the healing benefits that come along with yoga, as well as meditation accessible through non-profit organizations. Lululemon believes this should be accessible to all, regardless of what life throws your way and where people start from. Everyone has the right to be happy and joyful and experience the benefits that can come with living to our highest, truest selves. Meditation and yoga are universal tools that are available to everyone that allow us to tap into the potential that exists within. This program is designed to support, unite, and amplify the work of the yoga community. By partnering with the best nonprofit organizations all around the world in order to make the healing benefits that come along with yoga and meditation accessible to all. Every year grants are given to local organizations within the global network of stores, and invest in national and international programs that create this access. The focus is on creating a community of practice globally with the network of partners so they can share their trainings and resources.

Competitive Advantage

As well as differentiating themselves from competitors, Lululemon also has several competitive advantages compared to competitors. Those including product quality, customer loyalty, patented material, efficiency, innovation, and responsiveness to customers.

When it comes to patented materials Lululemon owns 45 patents on its athletic gear. These patents allow for Lululemon to own the right or title for a set period of time to exclude other competitors for making, using, or selling a product. Patents are generally granted for 20 years from the date the application is filed. A design patent is usually granted for 14 years from the date the design patent is granted to the company. Patents cannot be renewed once they are expired, at that point in time the design is available to all. Although Lululemon’s patents will not last forever the patents will last for a long time allowing the company to have a competitive edge over competitors. These patents will stop competitors for a long enough period of time to the point where competitors will not be able to design similar products and consumers will go to Lululemon. Once the patents are expired the chances of the design being out of style are high so it will not be of use to competitors when it becomes freely available.

They also own trademark registrations for the names of several of its products and fabrics. A trademark is “a symbol, word, or words legally registered and established by use as representing a company or product.” Trademarks allow a manufacturer or merchant to designate specific design features to distinguish them from competitors. Lululemon’s trademarks prevent other companies from counterfeiting goods. These trademarks include Luon, VitaSea, Silverescent, Luxtreme, Boolux, Nulux (Light as Air), Luxchange, Power Y, and Groove Pant. Luon is a primary fabric found in a majority of the company’s products from pants to headbands. Luon is 86 percent nylon and 14 percent lycra. VitaSea fabric is made from SeaCell. SeaCell is a yarn made from seaweed and blended with spandex and cotton. VitaSea allows for an ultra-soft fabric that holds its shape and stays soft after many washes. This can be found in the company’s t-shirts and light layers. Silverescent is a stink-stopping fabric technology. The X-Static technology woven into Silverescent fabric bonds 99.9% pure silver into the surface of each fibre. The use of this fabric means that there is stink-conquering technology woven into workout clothes that will never stop working or wash out. Luxtreme is a four-way stretch, sweat wicking fabric that fits like a second skin on the body. Boolux is part of Lululemon’s natural blends that is a blend of rayon derived from bamboo. This allows for fabrics to be lightweight, warm, soft, and breathable. Nulux (Light as Air) is a fabric that fits against your skin using light compression, the fabric dries super-fast so you do not feel as if sweat is weighing you down. Nulux fabric is silky and has a cool-to-the-touch feel against the skin. The fabric is knit using a unique technique that makes the products lightweight. The Luxchange trademark is used for apparel such as jackets, coats, parkas, and sweatshirts. Luxchange means that products within this category can switch out the hood with other items within this product line. Power Y is a style of tank tops created by Lululemon. The Groove Pant is a pant designed by Lululemon that allows for free movement and lightweight feel close to the body. Along with all of these trademarks Lululemon has many other trademarks from image trademarks to hashtag trademarks.

One of the main building blocks of Lululemon is the company’s efficiency. Although designs for Lululemon are still created in Canada, outsourcing has become a major part of Lululemon and contributes to their great success. Designs are sent to manufacturers so produce the products in a timely matter. From there products are sent to distribution centers to be shipped to stores and purchasers. Lululemon has found for this to be the most efficient way for the company to produce products and eliminate waste and costs. When purchasing products online free shipping is included directly from a factory. This allows for saving on shipping time, costs, and resources of retail stores. The high quality of Lululemon can be largely related back to their success.

Innovation is another large contribution to Lululemon’s success. There is a specific department within Lululemon that is continually committed to researching, advancing, and developing new and innovative materials to be used within Lululemon products. Lululemon has created specific product lines for many of their products. These including the luon family (Lululemon’s original, signature fabric for yoga), swift family (extreme lightweight material designed for running), luxtreme (Lululemon’s fastest wicking fabric for running), meshes and liners family, outerwear and insulation family, silverescent family (anti-stink, anti-bacterial fabric). The company is constantly adding more product lines to expand from and grow off of for the future. Lululemon always desires to be one step ahead of its competitors from a design stand point.

Along with all of these competitive advantages, Lululemon’s responsiveness to customers is what has helped the company be successful over the years. By being so quick to respond to customers Lululemon has gained customer loyalty. Certified yoga and fitness instructors are offered a discount on purchases upon sending in written feedback on the items purchased. By having consumers and athletes test out these products the company gets direct feedback from customers regarding the fit, fabric, quality, and design of the product. If an issue occurs with products the company is quick to act upon the problem and offer a solution. Whether it be a recall if a large amount of products have been effected or if it is simply replacing a product for a customer Lululemon wants to assist customers and keep them pleased.

Organizational Structure

The success of Lululemon can be related back to their organizational structure that they have implemented within the company. Lululemon has chosen to go with a functional organizational strategy. A functional organizational strategy is one of the most common organization strategies. This type of strategy allows for the organization to group employees based off of specialized, similar sets of roles or tasks. Lululemon breaks its organization down into six different specialized categories. These categories include strategy, community and brand, creative, human relations and culture, retail in Americas, and visual merchandising. Within those specialized categories there are also categories within them including tax and ecommerce. Applying specialized categories within Lululemon employees are given the opportunity to utilize their knowledge with technical expertise as well as work on multiple projects. Each one of these departments have managers that report to someone with higher authority within the department and then they are to report to the ones superior to them, the CEO, directors, and co-chairman’s. A board of directors is in place to maintain the profitability of the company. These directors were elected by shareholders to vote on major decisions for the company. Putting self-interest aside the directors, CEO, and co-chairmen are required to do what will create the greatest benefit for the company.

Lululemon utilizes their organizational structure to receive feedback from different departments at a faster pace. The company intends to have the structure be as flat as possible. By doing so it is believed that the company as a whole is benefiting, allowing crucial cross communication to innovate and differentiate the products offered by Lululemon. Management strives to have information flow from the design process to the shelves in retail stores in a short period of 45 days. Utilizing this structure allows for Lululemon to forecast more accurately and function at a higher efficiency rate, operating within budget and using strategic planning.

Since January of 2014 Lululemon has been operating under the leadership of Laurent Potdevin. Laurent Potdevin is the retailer’s third CEO since the company started. The first CEO and founder of Lululemon, Chip Wilson, stepped down from CEO in 2005 after selling 48% of shareholder stake in Lululemon. After causing negative publicity for the company and harming the reputation Chip Wilson had decided to resign completely in 2013. Following Chip Wilson came the second CEO Christine Day who had announced her resignation in 2013 because her vision did not match that of the founder Chip Wilson’s. Lululemon directors are confident in Laurent Potdevin’s abilities to help the company grow to its greatest potential.

Organizational Structure

Chief Executive Officer & Director

Laurent Potdevin

Co-Chairmen

David Marks Mussafer Glenn K. Murphy

Board of Directors

Jonathan McNeill Kathryn Henry

Michael Casey Robert Bensoussan

Tricia Patrick Emily White

Martha A.M. (Marti) Morfitt

Management

Stuart Haselden

Chief Operating Officer and Chief Financial Officer

Lee Holman

Executive Vice President, Creative Director

Celeste Burgoyne

Executive Vice President, Retail, Americas

Corporate Goals

When it comes to Lululemon they do not simply have a mission statement like other companies usually do, instead the company has what is referred to as the Lululemon manifesto. The company’s manifesto is a way to share their culture with the community around them. It is a forever evolving collection of bold thoughts and ideas to spark conversation and creative thinking. The vision for Lululemon was to create a place where it was more than just a store for people to go to to get athletic gear. The main idea the company is built around is to embody a sense of community when you walk in, a place where people can learn about different aspects of healthy living and discuss the physical aspects that come along with it, as well as the mindfulness and living a life full of possibilities.

Lululemon also prides itself on creating real relationships with guests and find it to be a very important component of the company. By doing so Lululemon finds what customers are passionate about, how they like to work out and sweat, and help customers celebrate these goals that they have set for themselves. This can be seen today in Lululemon stores all around the world.

One constant that has been there from the very start with the company is the desire to empower people in order to reach their greatest potential by providing the resources and the right tools, encouraging a culture of leadership, personal responsibility, and goal setting. Lululemon has seven main core values. These values being product, quality, balance, integrity, entrepreneurship, greatness, and fun which can all be found at the center and heart of the unique company culture. Lululemon states “We live a life we love. We set our goals to align with our vision, and it’s why, so often, our one-year goals become today’s reality.”

SWOT Analysis

Strengths

· Strong Presence

· Community Involvement

· Style

· Comfort

· High Quality

· Innovation

· Customer Loyalty

· Strong Financials

Weaknesses

· High Price

· Target Market

· Few Retail Stores

· Excess Inventory

Opportunities

· Product Expansion

· Geographic Expansion (Store Front)

· New Market Segments

Threats

· Competitive Market

· Market Size

Strengths

• Strong Presence
• One of Lululemon’s strengths would be the company’s strong presence. Quite often, walking into any area where people are doing some sort of physical activity you will notice someone wearing a product from Lululemon or using a Lululemon product. It is even possible to see people wearing or using Lululemon products not in a setting where you would typically be doing any sort of physical activity. All of this can be related back to Lululemon’s strong presence within not only a community but also all around the globe. Word of mouth assists with this strong presence as well as returning customers. Word of mouth allows for consumers to express their opinions on products freely to other possible consumers. Lululemon products have become very common as a brand people want to own and want to be a part of.
• Community Involvement
• Another one of Lululemon’s strengths is the community involvement the company strives for. Not only does Lululemon sell products but they also work closely with and within communities. More often than not the company will host free yoga classes and meditation whether it be in the studio/store or in an open public area. Lululemon wants to be more than just a store to consumers but a sense of community that consumers want to be a part of. The company wants to be a model for community-led sustainability by not only inspiring leaders but also engaging leaders to achieve the impossible along with the possible. Along with inspiring leaders and engaging leaders to achieve the impossible Lululemon wants to create leaders to achieve the impossible.
• Style
• The style of Lululemon’s products is a key component of what keeps customers coming back and what brings new customers in. The styles the company offers are innovative and different. The style of the products can range anywhere from simple to dynamic with reasons behind them. Some products have intricate designs with mesh and other materials strategically placed throughout to create a more breathable and comfortable workout to benefit the consumer. These different designs make the products perfect for any situation. Whether it is running around doing day to day errands, going to the gym for an intense workout, running a marathon, or living the daily life of a yogi. Lululemon makes sure there is a style and product fit for everything.
• Comfort
• Lululemon prides itself on the comfort of their products. The company wants all consumers to feel comfortable while wearing the products or using the company’s products. When it comes to comfort Lululemon uses the idea of freedom of movement. The designs of all of the products are created with the idea of no restriction. Lululemon wants consumers to be able to perform at their best and move freely while wearing Lululemon products so you are always feeling comfortable.
• High Quality
• One of Lululemon’s greatest strengths is the high quality of all of the products that are offered. The high quality of the products is a big selling point for many consumers. Lululemon designs products to last for many years so the high quality material is crucial to their products and design. Lululemon has patented 45 materials and has trademark registrations for several of its products, fabric names, and images. By doing so Lululemon is differentiating themselves and protecting themselves from competitors.
• Innovation
• Innovation is a key component of Lululemon’s success. Lululemon has a specific department within the company that is continually committed to developing new products and improving previous products. The company does so by innovating materials, designs, and products. Consumers know that each time they enter a Lululemon store or go onto the company’s website there will be something new that was not there before. The constant innovation and changing of products keeps customers coming back for something new.
• Customer Loyalty
• Lululemon’s customers have been found to be very loyal to the company. This is one of the many strengths that keeps the company going. Having this strong following allows the company to be sure that customers will continue coming back to purchase products. Customer loyalty can be directly related back to other strengths within the company including quality, style, and comfort. Without all of these strengths customer loyalty would not be as great and perhaps would not be a strength of the company. Lululemon does a very good job at retaining customers through current marketing techniques as well as attracting new customers throughout the years.
• Strong Financials
• When it comes to Lululemon’s financial statements these can be related back to the company as a strength. Balance sheets as well as cash flow statements show minimum debt and positive cash flows rather than negative cash flows. By having these positive impacts financially they are able as a whole to rebuy shares in upcoming quarters to help support the growth share in the market. The stable and growing financials within Lululemon have not gone unnoticed and have been discussed on Wall Street. Strong financials are a part of what allows for Lululemon’s stock price to continually increase as well as increasing shareholder confidence within the company.

Weaknesses

• High Price
• Lululemon does not have many weaknesses within the company but one weakness that consumers often point out is the high price of the products. When shopping at Lululemon you will often not find a pair of pants at a price lower than 80 USD or a pair of shorts priced lower than 50 USD. Tops range anywhere from 50 USD and beyond as well. Accessories are not much more inexpensive than tops or bottoms when shopping at Lululemon. These high prices may turn some customers away. However, Lululemon products are priced on the higher end because of their use of high quality materials. For better quality products consumers will have to spend the extra dollar, if that is what they wish for.
• Target Market
• The target market of Lululemon right now as is can also be found as a weakness. The target market can be defined as a rather small and specialized market, only reaching around 24% of the population. Lululemon’s target market right now can be defined as educated, middle to high income level health-conscious women from the ages of 18–35. Although the company does have a line of products for men it appears that the main focus is on women as that is what the original idea was when starting the company. People can be found shopping online and within the company’s stores who do not meet this criteria, however, the majority of consumers do fit within this criteria.
• Few Retail Stores
• Although Lululemon does have a moderately strong presence globally the company does have few retail stores. It is found today that many consumers buy their products online. However, many consumers would prefer to shop in store when it comes to companies such as Lululemon. The reasoning behind this is that consumers prefer to try on products which have a higher price tag before buying them so they do not have to go through the hassle of returning and repurchasing. Lululemon has a total of 351 retail stores located throughout the world. 351 is a large number but not nearly large enough for the growing company.
• Excess Stock
• Another weakness that can be pointed out relating to Lululemon is the excess stock the company typically has. It is noticeable that Lululemon makes more products than the company is able to sell to consumers. Located within Lululemon’s website is a section called “we made too much” implying that they have created too many products and are now forced to sell them at a discounted price. In every Lululemon store there is also a rack where discounted items are located that would be categorized as the “we made too much.” This can be related back to the company as a weakness because since the company has overstocked and cutting prices they are not making as much of a profit on these products. Lululemon could have also saved the amount spent on the costs to produce them had they decided against producing so many.

Opportunities

• Product Expansion
• An opportunity that Lululemon has the chance to grow on is product expansion. Although the company did just recently add a new product line of shoes there are many more opportunities out there for the company. Not only just within adding completely new products but expanding other products and enhancing them as well. Consumers nowadays are all about the new technology and new features and being up to date. This is a key component of what consumers are looking for when shopping. Customers want something new and innovative that will make them stand out from the rest. New benefits are a key component in attracting new customers and retaining previous customers.
• Geographic Expansion (Storefront)
• When it comes to Lululemon and the company’s global presence products can be purchased online all around the world. However, retail stores cannot always be found all around the world. For example, Lululemon only has one retail store in Germany, Switzerland, and Puerto Rico and less than four in Hong Kong, Singapore, South Korea, and China. The limited store fronts presents an opportunity for Lululemon to expand the number of retail stores that there are. Highly populated areas all around the world are perfect opportunities for Lululemon to expand geographically. Expanding geographically is also an opportunity for Lululemon to get the company’s name out there and reach more potential customers. By creating more of a presence within these areas Lululemon could increase sales and therefore increase profits.
• New Market Segment
• Although Lululemon does have lines for both men and women as well as a line for children under the name of Ivivva there is opportunity for them to expand into new market segments. For example a new market that they could try to reach is plus size. Lululemon does have sizes 2 to 12 but not every person is a size 12 or below. By only making products up to a size 12 they are limiting the market that they can reach with their products. A plus size line would not only attract more potential customers for the company but would also allow the company to build and grow off of the idea of body positivity and being comfortable in the skin you have.

Threats

• Competitive Market
• A major threat that Lululemon faces is the highly competitive market. There are many competitors within the athletic apparel industry including Nike, Under Armour, Adidas, Athletica, Fabletics, Zella, and many more. Overall, athletic apparel can be defined as a general product that people look at as having the same general features throughout all companies. This general idea of athletic apparel makes the industry very competitive and often hard to differentiate between without research into different products. Companies often try to stand out and by doing so other companies try to do the same resulting in similar products that consumers often cannot see very many differences between. The competition within the athletic apparel industry is constantly growing and changing meaning that competitors are always looking for the next best thing to do.
• Market Size
• Another threat that Lululemon faces is the small market size. Not many people fit the category as health-conscious, fitness inspired, middle to high class income consumers. Within the United States only a small percentage of consumers fit into the health-conscious, fitness inspired categories. Adding in the middle to high class income cuts down the market size even more cutting it down to approximately 24%. The small market size often makes it even more difficult to attract new customers so many athletic apparel companies put their main focus on customer retention.

Processes and Capabilities

Within all areas of business Lululemon is looking to make their visions into a reality. Supply chain and the environmental footprint that the company creates are areas that Lululemon focuses on greatly. Since Lululemon does not own their manufacturing facilities the company takes great care and cautious steps in selecting the vendors to work hand in hand with the company. This is done so through a screening process that helps to identify possible vendors who share similar values as the company and eliminates the ones who do not. Responsible supply chain all starts with the decisions made by the company. Lululemon has a Vendor Code of Ethics (VCoE) that all vendors must follow. The Vendor Code of Ethics outlines all the standards that Lululemon holds true in order to meet the best in-class industry standards. This policy outlines that all partners will uphold a consistent set of policies throughout their practice. The Vendor Code of Ethics is updated regularly to stay up to date with changing laws and practices. There are certain pre-conditions Lululemon has set before agreeing to engage in business partnership and has zero tolerance for:

• Lack of transparency, cooperation, and disclosure
• Child Labor
• Unapproved Subcontractors
• Forced Labor
• Corruption and Bribery
• Minimum Wage Violations

The Zero Tolerance Policy requires that all vendors must be open, transparent, and cooperative with all of the following conditions and must allow full access at any moment to facilities and provide full disclosure on locations, all practices, and all resources used within production.

Lululemon does a great amount of souring to get other communities and businesses involved in order to support the growing economy. The company sources fabrics and products from 22 different countries located all around the world. Of the 22 different countries there is a total of around 65 manufacturers. Out of these 65 manufacturers 5 manufacturers produced about 63% of the company’s total products. In relation to geographic location, China made up for only around 23% and South and Southeast Asia made up for nearly 67% of manufacturing facilities (Soni,). By sourcing these items the company is using its capabilities to not only benefit the company as a whole but to benefit others as well. Lululemon is constantly contributing to multiple countries’ economies in the hope to help them grow.

Customers

Demographics

The target market for Lululemon started out as high-income women between the ages of 18–35. It has since expanded its target market and is no longer gender specific since introducing its men line. It has also since expanded its age range as it has created a line for children. However, the majority of the company’s demographics are made up from the adult line and the idea that adults would be buying the children’s line clothing for their children. Lululemon’s demographic profile is mainly fueled by women between the ages of 16–35. The current target market for Lululemon is men and women in the upper middle class between the ages of 18 and 35 with a fitness mindset. Approximately 41% of the world population is between the ages of 18 and 35.

Although Lululemon is a worldwide company North America makes up for almost 95% of its sales. With this high percentage it is safe to say that America would be its main target market. According to the Center for Disease Control and Prevention, approximately 51% of people of the ages of 18 and older were found to meet the physical activity guidelines for aerobic physical activity as well as 21.7% meeting the physical activity guidelines for aerobic and muscular strengthening physical activity. The percentage of Americans who exercise for a minimum of 30 minutes three days a week is 49.6%, meaning that approximately 162,000,000 Americans out of around 327,000,000. The percentage of Americans who exercise one or two days a week is 18.5% (60,425,771), the percentage of Americans who have not exercised within the last week is approximately 31.3% (102,233,873) (Central Intelligence Agency World Factbook). Following this the percentage of Americans making more than 90,000 USD per year that exercise is 54.3%. The national average of Americans that exercise regularly is 49.6%, and the percent of obese Americans that do not exercise 30 minutes any given day is 40.4% (Statistic Brain Research Institute). The main statistic to make note of is the percent of Americans making more than 90,000 USD per year that exercise is 54.3%. This would be Lululemon’s main target market. With the percentage being greater than 50% Lululemon is reaching a fairly large number of people. 56% of Americans make 75,000 USD or more per year and are considered upper-middle class and upper class. Of this percentage 24% of Americans are between the ages of 18 and 35, meaning that Lululemon’s main target market reaching close to 80,000,000 people. (Engel,).

Although Lululemon was founded and started in Vancouver, Canada, and there are stores located nationwide, the main target is the United States and more specifically the East Coast. Many consumers are currently located near metropolitan cities. Secondary locations that Lululemon puts focus on is upscale suburban communities. These areas are usually where you will find the majority of upper-middle class hard working people between the ages of 18 and 35. A high number of people have been found living in urban areas where Lululemon retail stores are typically placed within urban shopping malls and districts.

When it comes to the target market’s occupation Lululemon has found that consumers ultimately do not typically share the same field of work. Rather, they have found their consumers occupations are all very different and come together to share the same love and passion for fitness in the form of yoga, running, cycling, cross-fit, etc. These common interests in performing at the highest level possible is where Lululemon products come into play. Family size also plays a key role in Lululemon’s target market demographics. It has been found that people with children are more likely to show a greater interest in quality, well-designed, branded apparel that will keep up with their lifestyles. Families often buy more athletic apparel the more kids that they have.

With the main target market being between the ages of 18 and 35 this would classify the generation as millennials. Millennials are often fluent in technology, this would explain Lululemon’s strong presence online and why a majority of sales come from the online website. Millennials are also a larger generation than baby boomers and generation x, this works in favor for Lululemon because the company is reaching a greater number of people within the target market. Another characteristic of millennials is that they have been found to be more materialistic when it comes to buying products. Targeting this range of people Lululemon is targeting people who are drawn to high quality products with a larger price tag from a brand name.

Psychographics

The consumers of Lululemon products live a rather healthy lifestyle and are drawn to fitness trends such as yoga, running, cycling, cross-fit, etc. Typically, consumers are looking for products that will better them in their practice and keep up with them. Lululemon targets people who are both busy in their work life and personal life who still strive to make time for fitness and a healthy living lifestyle. These people are usually concerned about their workout clothing and how they look in them before, during, and after a workout. Also, Lululemon targets people are further inspired by community and the sense it brings to them supported by the lifestyle Lululemon strives to create.

Geography

Ever since Lululemon first opened its doors in Vancouver, Canada, growth and expansion has always been a part of the vision for the company. With that the company has made sure to be cautious and conscious of other cultures and traditions that come along with expanding to other global areas. Lululemon never wants to offend people or make the company undesirable to anyone. Currently having 351 retail stores worldwide in 12 different countries Lululemon is able to provide evidence that the company can expand globally while acknowledging cultural differences and abiding by those. Although Lululemon is able to expand globally and not cause conflict the company wants consumers to be able to go into a store in another country and have the same experience. Customers should feel free of judgement and comfortable in the environment whether it be in a store located in Canada or a store located in New Zealand.

Changes in Customer Behavior

Lululemon has not noticed many drastic changes in customer behavior since the start of the company. Although there is a larger consumer base now for the company than there was when it started the customers still portray the same behavioral traits. Lululemon’s customers have always been known to be very loyal to the company. More often than not the company can expect for a customer to return and purchase more products in the future.

However, there was a hiccup in Lululemon’s products a couple years back that did result in a decline in sales from consumers. In 2013 there was an issue with some Lululemon bottoms being see-through. This dilemma hurt Lululemon sales and they were losing loyal customers. Because of this the company had to think fast to not lose too many customers. The resolution that the company had come up with was to offer customers with see through bottoms a new pair in exchange for their old pair, at no extra charge. Worn or unworn they wanted to replace all defective pants to keep their customers happy. The recall that Lululemon had decided upon most definitely worked in the company’s favor when it came to keeping their customer base. However, it did hit the company hard financially. The company had lost 17% of its inventory and lost 67 million USD in revenue that year.

Once the see-through pants dilemma had started to die down the previous CEO and founder of Lululemon, Chip Wilson, had made comments that brought the company down. Chip Wilson had made comments in regards to the see-through pants dilemma but did not take the blame for the problem. Instead he chose to put the blame back on the consumers. Chip Wilson made comments regarding that some women’s bodies just weren’t meant to fit into the size chart regarding Lululemon’s products. His remarks included that statement “Frankly, some women’s bodies just don’t actually work for it.” In relation to the pilling problem with some of Lululemon’s pants. (Peterson, 2013) The public took these remarks in a negative matter and related them back to the size of women’s bodies. The public came to the census that Chip Wilson’s main point was that some women’s bodies are too big to wear Lululemon products. Comments like these caused Lululemon’s reputation to fall and ultimately forced Chip Wilson to step down as CEO.

Since the dilemmas that Lululemon has faced and recruiting a new CEO there has not been any other major issues that have affected consumer behavior. Consumers are loyal to Lululemon and that is something the company can pride itself on. Lululemon does not expect to see a negative change in consumer behavior within their company at any point soon. As always, as a whole the company is hoping to increase the number of consumers they reach allowing for their customer base to grow. Customer loyalty is a large contribution to the success of the company.

What Products Does Lululemon Offer?

Lululemon has a wide array of products offered to consumers in the athletic apparel industry. Their products range anywhere from yoga mats and shoes to tops and bottoms for athletic and every day wear. The company has everything a consumer would need for a day at the gym, in the studio, or for a day spent running around. Lululemon is most widely known in the yoga world for its bottoms but other products are also top sellers for customers. Lululemon’s product length in regards to bottoms includes pants, 7/8 pants, cropped pants, shorts, and skirts. The company’s product length with tops includes sports bras, tank tops, short sleeves, long sleeves, and jackets. Accessories for the company also has an extensive product length including socks, shoes, bags, yoga mats and props, undergarments, scarves, headwear, and water bottles. The company also creates different lines of products depending on the season and what will be in demand from customers. In the summer there is a swim collection along with a line titled “vacation- ready gear line.” Lululemon’s vacation-ready gear line includes rash guards, hats, shorts, tops, and bottoms made for warmer weather along with swim suits. The winter months brings thick jackets, scarves, hats, and gloves along with other products. These products include a wide range within each category. Products are designed for use during yoga, running, cycling, cross-fitness, and to and from. Lululemon designs products with the idea of use for fitness and also in everyday life.

Why Are Consumers Purchasing These Products?

There are many reasons as to why consumers buy Lululemon products. The first reason being the high quality of all products. Products from the company are meant to last for a long time and not show wear and tear through the times. Another reason why consumers buy products from Lululemon is comfort. The design of all Lululemon products includes the key concept of comfort. The company wants all customers to feel comfortable while wearing or using their products. They want consumers to feel free to move however they wish and to not feel restricted at any moment. Lululemon products are also purchased by consumers because of the style and innovation of the products the company has to offer. Products within the company are looked at as stylish and up to date. Often at times they are even looked at as modern and the next best style by customers. Consumers also enjoy the products Lululemon has to offer because they are constantly changing while also keeping some fan favorites that can be referred to as the basics. The company has simple products as well as complex, sleek, modern clothing. A consumer can be expected to go into a store or go onto the website and see a couple consistent products all of the time that can referred to as “simple” products. A few of the order qualifiers that have to be met by a company’s products in order to be considered for purchase by consumers within the athletic apparel industry include comfort and performance. Performance referring to does it move with the consumer and perform how consumers want it to. Comfort referring to do consumers feel comfortable in the product or can consumers not wait to be done so they can take the clothing off. Order winners can be defined as criteria used by customers to differentiate between products and services from one company to those from another company (features that customers use to determine which product to ultimately purchase.) Order winners that are present in Lululemon allowing for the company to standout from its competitors include high quality, style, and innovation.

External Environment (Context)

Industry

Lululemon is in the athletic apparel industry. Some of our largest competitors include Nike, Athleta, Addidas, Zella, and Under Armour. According to Market Share Reporter in 2015, Athleta had 30% of the market, Lululemon had 24%, Nike had 14%, and 32% belonged to other companies. There has been a growing trend amongst the industry to create a greater online presence. Lululemon already had a strong online presence and many of the company’s sales are generated from online orders. Lululemon already having a strong online presence works in the company’s favor with competitors recently trying to focus on online sales and penetrate this market.

Economic

Since Lululemon was created in 1998 the company has faced great economic downfalls. It stood against not only the housing market crash that began in 2006, but also stood against the great recession from 2008 to 2012. The great recession was a period of general economic decline throughout the world. Although the time, extent, and scale of the recession varied from country to country it effected many. The great recession is related back to the financial crisis from 2007 to 2008 and the U.S. subprime mortgage crisis from 2007 to 2009. Withstanding the recession and not filing for bankruptcy it is safe to say that the company is reliable and an unshakable company. One could foresee that in the midst of a depression that their target market will still have disposable income to spend with.

Technological

People are always “on the move” and companies have to adapt, especially with the recent and continuously growing internet boom. Life and the internet are now intertwined more than ever before because of the smartphone, smart watches, and other technological advances. Lululemon took notice and pivoted by launching a Lululemon application for both Android and IOS. The application allows for customers to be able to view products and purchase products in a shorter amount of time. Time is valuable and every little bit to save time counts to consumers. The application was something that Lululemon was motivated to do because competitors such Nike have had an app for quite some time now and other competitors such as Under Armour and Athleta were releasing applications as well. If Lululemon wanted to be viewed as a top competitor the company had to think and move fast.

Societal

It seems as if ever since the release of the movie Super-Size Me there has been a resurgence of healthy living and physical activity. Lululemon sells specialty apparel for both men and women. Wearing Lululemon products or simply owning a Lululemon product is one way to demonstrate to others in a specific social group that customers care about their health and well-being. With owning Lululemon products consumers are also able to show to society their level of wealth. As a result, different social groups either love the company and support them or the company is simply not relevant to them. People love them for the high quality products produced and prestigious feel attached along with the price tag. On the other hand, the company may not be relevant to other because it is not within the consumer’s price range. However, this does not automatically mean that these social groups are not relevant to the company.

In the recent couple of years Lululemon has been gaining consumer following and it appears that many have forgotten of Lululemon’s previous CEO and founder, Chip Wilson, saying that women’s thighs were the issue in relation to the see-through pants epidemic. This is important because if people have forgotten about the company’s earlier public relations fiasco then Lululemon will continue to gain market share within the athletic apparel industry.

Legal

Lululemon has had a few issues in regards to the law. For example, the class action lawsuit filed against Lululemon in 2013. The lawsuit was filed in the U.S. District Court for the Southern District of New York and intended to recover investor’s damages from the 17% stock price decrease in relation to Lululemon’s release of the company’s 1st quarter results on June 10, 2013. This lawsuit had argued that Lululemon had allegedly made “false and misleading statements” to conceal the costs related with the see-through pants dilemma. The lawsuit stated that between March and June of 2013 executives at Lululemon failed to disclose information regarding “quality defects in the Luon yoga pants which resulted in part from Lululemon’s efforts to cut costs in order to raise profit margins to the detriment of product quality and brand reputation.” As a result, Sheree Waters stepped down from the position of chief product officer within the company. The fiasco resulted in a loss of between 12 million USD and 17 million USD for the company. From there the company had issues in relation with their CEO resulting from statements claiming that it was not the company’s problem and that instead it was the women’s inner thighs that were causing the problem.

In July of 2017 Lululemon filed a lawsuit against Under Armor for patent and trademark infringements on several of Lululemon’s sports bras. The lawsuit states that Lululemon takes issue with four of Under Armour’s sports bras. Lululemon also states “Under Armour’s unauthorized acts have caused and will continue to cause irreplaceable damage to Lululemon and its business.” (Bhatarrai, 2017) The lawsuit has the potential to be good news for Lululemon because if they win they will receive money for the loss of sales they have incurred. Under Armour could potentially face bad publicity upon losing the case which has the possibility to result in open shares in the athletic apparel market giving Lululemon the opportunity to capture these market shares. In addition, this lawsuit also sends a message to competitors that Lululemon will not tolerate other companies stealing Lululemon’s patented designs.

Another lawsuit Lululemon had filed was in 2012. Lululemon had filed a lawsuit against Calvin Klein in regards to the company allegedly copying the waistband of a pant from Lululemon. The pant that had been copied from Lululemon was the Astro Pant. Lululemon ended up pulling the lawsuit and the two companies ended up settling later on outside of court for an undisclosed sum.

Competitors

Principal competitors:

· Nike

· Adidas

· Under Armour

· Zella

· Athleta

Nike is one of, if not the, the most well-known and respected apparel brands on the market. While spending over 1.4 billion USD on TV advertising just in this past year (2016), Nike has become a household name all across the world. Lululemon has spent next to nothing on advertising compared to Nike which is why Lululemon may not be as well-known globally. Also, Nike has approximately 1000 more retail stores than Lululemon which accounts for the company’s extremely high market presence. While Nike is focused more on shoes and athletic wear, Lululemon focuses highly on the quality of the products they offer and the fitness culture in the United States. This is an area Lululemon, as a whole, can target better than Nike.

Another major competitor to Lululemon is Adidas. Adidas is well known for is classic/stylish looks within its apparel. The company is also well known for their loyalty to the sport of soccer, unlike Nike which is appealing to almost any sport. Adidas however, does remarkably well when it comes to targeting the worldwide market. Adidas outpaces both Nike and Under Armour in foreign regions such as Europe, Asia, and Africa. To catch up to and become a company like Adidas, Lululemon must try to expand to other regions around the world to gain a substantial share of the global market.

Under Armour, over the years, has been known for its high quality fabrics and its flexibility with their apparel. Under Armour is also one of the younger brands which is why they have 10 times less global sales than the powerful Nike has. Typically, when a consumer thinks of Under Armour they think of stretchy, elastic types of apparel which are usually worn as an undershirt or to workout in. This is where Under Armour is placed in terms of brand recognition. While Lululemon is operating under similar characteristics of Under Armour in terms of the fabrics and the quality of the clothing Lululemon has a stronger brand recognition.

Another close competitor to Lululemon is Zella. Zella is owned by Nordstrom’s and is known as their in-house yoga brand. In 2009 Nordstrom had recruited one of Lululemon’s top designers. This news captured the attention of many as designs were revealed. Zella offers similar products compared to Lululemon including yoga pants, workout tops, jackets, and sports bras. The difference is within the prices and quality. Zella strives for the same high quality as Lululemon although it does not reach the high quality level as Lululemon. Since Zella’s products are of a higher quality than other athletic apparel brands the prices reflect the quality. Zella’s prices are slightly lower than Lululemon just as how the quality is also slightly lower than that of Lululemon products. The company (Zella) has received good reviews on products and consumes the same elite client base as Lululemon. Zella, unlike Lululemon, also comes in plus sizes. Lululemon has a superior brand recognition in relation to Zella and has higher quality products putting the company ahead of its competitor.

Athleta is also a strong competitor against Lululemon. Athleta is owned by GAAP and has been rapidly expanding ever since its beginning. As Lululemon puts emphasis on community and in store events Athleta does the same. Although the idea originated from Lululemon they will not prevent consumers from going to both companies events. Athleta has the potential to be Lululemon’s greatest threat in the athletic/yoga apparel industry. The resources are available for Lululemon to expand quickly and catch up to Lululemon. Athleta, just as the other competitors do, offers similar clothing in comparison with Lululemon at a lower price. Consumers may even say that Athleta offers a wider variety of products as compared to Lululemon. Athleta also offers a sale section both online and instore which carries more products than the “we made too much” section of Lululemon. Lululemon still has the competitive edge over Athleta because Lululemon does have a larger presence within the United States and globally. Lululemon also has higher quality products as well as a more prestigious feel when wearing the products.

These competitors, including Lululemon, all fall under the category of monopolistic competition. Monopolistic competition can be defined as a type of imperfect competition where many businesses offer products or services that are similar but not perfect substitutes. There are more than 9 brands that occupy the athletic apparel market meaning that it would not be classified as an oligopoly. All of products can be differentiated within the market, no two products are the same from two different companies. Each company also chooses the price at which they feel is reasonable to price their products at. Barriers to entry and exist the market are low so competitors may come and go as the company’s please. Decisions made by one company do not have to affect the decisions of competitors, all decisions are independent of one another. All businesses within monopolistic competition have a relatively low degree of market power with there being many companies within the market. Demand is highly elastic when it comes to monopolistic competition, meaning that it is highly sensitive to price changes as well as changes in demand.

SWOT Analysis:

Nike

Strengths

· Strong brand image

· High quality apparel

· Innovation/ research and development

· Variety of apparel

· Customer satisfaction

· Greatest market share of the shoe industry

Weaknesses

· High price

· Rely heavily on shoe market

· Negative publicity of outsourcing their production

Opportunities

· Faster shipping

· Building upon its global brand

· Fashion/ higher quality design

· Diversification into accessories and other premium products

Threats

· Vulnerability to its global presence which includes currency fluctuations and geopolitical events.

· Overseas relations especially in a very social consumer environment

· Two main competitors in Adidas and Under Armour

Adidas

Strengths

· Longevity of their company

· Many product lines

· Heavy soccer presence

· Very effective distribution system

· Strong international presence

Weaknesses

· Outsourcing to other countries

· Costly apparel, especially in developing countries

· Struggle with maintaining customer loyalty

Opportunities

· Making their brand more stylish/trendy

· Keep sponsoring more athletes and teams

· Merging with other companies to compete with larger competitors

· Creation of sport academies globally

· Exposing their more innovative products to the market

Threats

· Fake imitations of their products

· Strong competition between Nike and PUMA

· Global economies, especially in Europe, could slow production

· Suppliers have very high bargaining power which raise costs

Under Armour

Strengths

· Known for their comfortability

· High quality fabrics

· Expanding into multiple sports

· Growing product portfolio

· Growing their marketing presence by including sponsored athletes

Weaknesses

· Not a great shoe or accessory presence

· Not as high market presence as other competitors

· Very weak global market presence

· Undergoing restructuring that is expected to cost the company upwards of 100 million USD

· Prefer rapid short term growth than steady long term growth

Opportunities

· High innovation could lead to new and improved product lines

· Expand into new global markets

· Starting to expand its distribution strategy into more retailers

· Penetration of the global market could spike sales

Threats

· Wide variety of products could lead to the dilution of their brand image

· Their competitive advantage over their competitors could start to wear off

· Competitors high share of the market, including Nike and Adidas, could force Under Armour to target new markets

Zella

Strengths

· Moderate to high quality of products

· Discount products can be found

· Have lines for both men and women

Weaknesses

· High price of products

· Similar products can be found elsewhere

· Rely heavily on women to buy products and produce profit

Opportunities

· Product growth

· Expansion into other countries

· Standalone store fronts just for Zella products

· Faster shipping

· Expand product lines into children’s clothing

Threats

· Highly competitive market

· Products can be easily duplicated and sold at a lower price

· Constant technological advancements putting Zella behind competitors

Athleta

Strengths

· Strong presence within the United States

· Large variety of products offered

· Offers plus size apparel

Weaknesses

· No international presence

· Lack of widespread brand recognition

· Low profit margins

Opportunities

· Expand worldwide

· Develop additional product lines

· Increase brand awareness and recognition

· Growing trends related to technological advances

Threats

· Highly competitive market with new competitors entering frequently

· Perceived Quality

· Growing market for counterfeit products

Competitive Advantage

Lululemon’s competitive advantage over its competitors consist of two major categories: product quality and customer loyalty/responsiveness. Lululemon was founded on their ability to produce an extremely high-quality product that doesn’t ware and is meant to last a lifetime Lululemon is so confident of the quality of their products that if you have any issue with your product, you can return it for a full refund or get your product back brand new. Lululemon is so dedicated to their product quality that they have a separate department called “fabrics and technologies”. Lululemon is constantly innovating and looking for the best and most high-quality materials to provide for their customers.

Lululemon’s second major competitive advantage is its customer loyalty/responsiveness. Customers who purchase Lululemon apparel and experience the quality of their product are bound to go back and purchase from them again. This creates high customer loyalty for Lululemon which is a great characteristic for a somewhat new company. When it comes to customer responsiveness, Lululemon is constantly listening to their customers to improve anything that customers see fit. Lululemon capitalizes on this by having their own yoga studios in their own stores so that customers can try out Lululemon’s products while they give direct feedback about the product.

Financial Ratio Analysis

2014

Lululemon

Nike

Adidas

Zella

Athleta

Current Ratio

8.14

2.72

1.68

2.06

1.81

Quick Ratio

6.51

1.94

0.92

1.33

0.81

Cash Ratio

6.01

1.02

1.72

0.47

0.62

Gross Margin

0.53

0.45

0.48

0.38

0.39

Operating Margin

0.25

0.13

0.06

0.11

0.13

Profit Margin

0.18

0.10

0.05

0.06

0.08

Asset Turnover

1.38

1.54

1.21

1.51

2.11

Inventory Turnover

4.40

4.16

2.95

5.35

5.35

2015

Lululemon

Nike

Adidas

Zella

Athleta

Current Ratio

5.95

2.46

1.40

1.87

1.93

Quick Ratio

4.65

1.78

0.71

1.12

0.80

Cash Ratio

4.16

0.94

2.35

0.30

0.68

Gross Margin

0.51

0.46

0.48

0.38

0.38

Operating Margin

0.21

0.14

0.06

0.09

0.12

Profit Margin

0.13

0.11

0.04

0.05

0.08

Asset Turnover

1.41

0.08

1.31

1.52

2.12

Inventory Turnover

4.48

1.70

3.10

5.15

5.32

2016

Lululemon

Nike

Adidas

Zella

Athleta

Current Ratio

4.07

2.80

1.31

1.04

1.57

Quick Ratio

2.81

1.90

0.66

0.27

0.65

Cash Ratio

2.22

1.02

2.34

0.20

0.54

Gross Margin

0.48

0.46

0.48

0.37

0.36

Operating Margin

0.18

0.14

0.08

0.08

0.09

Profit Margin

0.13

0.12

0.05

0.04

0.06

Asset Turnover

1.58

1.51

1.35

1.70

2.08

Inventory Turnover

4.32

3.79

2.88

4.99

5.36

Comparing Lululemon’s current ratio to Nike’s and Adidas’ from 2014–2016, Lululemon had the highest current ratio. This is a great sign for the company. This means that any project that Lululemon puts out, we know that they have the assets to back themselves up. This also means that they do a great job of controlling their liabilities and not being engulfed in debt.

Another financial ratio that is significant is the fact that in each of the three years, Lululemon had the highest profit margin compared to the two other competitors. This not only shows that Lululemon can make a profit, but it also shows that Lululemon is consistent in their high profitability year in and year out. This also shows that Lululemon is maintaining their costs betters than their competitors.

When comparing the quick ratio for all three companies over the course of three years, Lululemon also had the highest in all three years. This implies that Lululemon has less risk compared to the other firms due to the fact that they have many assets and inventory ready to be sold or to be liquidated in case of an emergency. This also implies that Lululemon has very little liability which is great especially for a company that has only been in business for a third of the time its competitors have.

Growth Strategy

When it comes to growth within Lululemon the company, being a product-based company and not a service-based company, decided that it would benefit most from the introduction of a new product to existing markets. Based off of the product/market expansion grid this would be referred to as product development strategy. A new product was developed based off of the recent trends in consumer behavior and the lack of products in a given area within the industry. By taking advantage of these recent growing trends in wearable technology and consumer health awareness Lululemon created a new product. The new product created by the company is a band to be worn around the foot that tracks heart rate, steps, distance traveled, and calories burned. The product will be imprinted with the Lululemon company logo to be still be recognizable to consumers as a product from the company.

In order for the company to reach its greatest potential with the introduction of the new product it was essential for Lululemon to segment and focus on the segment that would allow for the greatest response related to the new product. The company has position itself well as well as target the right customers and differentiate the company’s product from competitors.

Goals/Objectives

The company’s goals are simple; to make a profit, increase revenues, and maintain the brand image. In the business world every company’s main goal is to make money. Not only does the company wish to increase revenues but the company wishes to maintain the brand image. As is Lululemon is currently viewed as a prestige brand that has a community feel. With the introduction of the new product the company does not want to stray away from the current brand image. Another goal that the company has is to increase knowledge of the human body and the way it reacts.

The idea of knowing how a consumers body is reacting to physical activity and the wearable technology market is constantly growing with the increased publicity it has been given. Lululemon’s new product will allow for the company to reach a greater number of potential consumers. By attracting a large number of Lululemon and other athletic consumers to try the company’s new product and to continue to use the product on a regular basis.

In short-term the company believes that consumers who have previously purchased Lululemon products will try the new product, The Luup, love the way it works and will continue to use the product during physical activities and other day to day functions. After consumers use the new product and see for themselves the different information and knowledge it can give to users the company believes that customers will love the product and spread knowledge of it to friends and family. By customers spreading awareness of the product there will be a greater demand for The Luup. If Lululemon can receive a small percent of consumers to buy the product when it is first released the company believes it can continue to grow and become a product that many of our pre-existing consumers use.

Long-term goals in relation to the new product are to grow the brand beyond clothes and shoes. Also, to show consumers that Lululemon can help to assist them in their fitness dreams and desires and help consumers observe health progress while exercising. The Luup aims to attract new customers to buy Lululemon products not just for clothes and shoe, but also for the wearable technology that will allow for the easy and convenient knowledge consumers will benefit from. Over time the company hopes for consumers to buy The Luup and realize the efficiency and ease it can bring to customers lives. The new product will demonstrate to consumers that Lululemon is no just a clothing, accessory, and shoe brand but also an electronically up-to-date company as well.

Segmentation

When looking at the different variables used to segment the market, our product will segment the market into two of the three major segmentation variables. Those two segmentation variables are demographics and psychographics. When it comes to the demographic aspect of segmentation, Lululemon will divide the market up into male vs female, the age category of 18 to 35, and medium to high levels of income. Dividing the market, demographically, makes the targeting process for Lululemon much easier since the data for this variable is very quantitative rather than qualitative. Also, the company plans on segmenting the market towards medium to high levels of income due to the fact that Lululemon’s apparel is higher priced compared to its competitors based on the quality and effort they put into products. Customers with higher levels of income will be more willing to purchase The Luup since they want to maintain an image of high quality and status.

When talking about the psychographic variable of segmentation, the company plans to segment the market based on customer’s lifestyle choices and interests. The customer’s lifestyle is a key component in the upbringing of this product due to the fact that the company is introducing a fitness product that will only appeal to a certain lifestyle. The lifestyle characteristics can be divided into whether or not customers engage in a healthy lifestyle and, if they do, what they participate in to accomplish their lifestyle needs. When it comes to the interests of the company’s potential customers, it is important to know if they are interested in advancing technology or whether they prefer a more simple/basic type of product. The interests of the company’s potential customers could also reflect on whether they prefer more fitness related accessories or everyday/casual accessories.

Targeting

Now that the company’s segments are laid out in the previous section, it is possible to start narrowing in on specific segments that Lululemon wants to target in selling The Luup. Demographically, Lululemon wants to focus in on men and women. Even though Lululemon was founded upon creating products and apparel designed around women, the company feels as if our new product can have great benefits to both men and women. Looking at the age category, we plan on targeting the ages between 16 and 45. According to the United States Census Bureau, roughly 40% of the population lies within 16 to 45. That equates to about 128 million people in the United States alone. Of that 128 million the company feels as if successfully targeting and capturing 10% of that market, which equates to almost 13 million Americans, is an attainable goal. Not only is Lululemon targeting people aged 16 to 45, people with middle to high income in the United States are also being targeted. Specifically, this entails people who make an annual income between 80,000 USD and 250,000 USD. In the U.S. approximately 25% of the population make up this income bracket. That equates to approximately 80 million Americans who the company feels would be willing to purchase the new product.

When discussing psychographics, the company plans on targeting people who have a healthy lifestyle, who are interested in technologic products, and fitness products. Customers with more health centered lifestyles will me more inclined to purchase and use the product compared to people who are not health centered. The new product, The Luup, has the capability to impact health centered people’s lives on a daily basis which is a huge attraction for a majority of these types of people. According to the Center for Disease Control and Prevention, 51% of people ages 18 or older engage in aerobic physical activity. That is approximately 160 million Americans that could potentially benefit from our product. Especially since our product specializes in aerobic activities such as, counting steps and the heart rate monitor, this could impact most, if not all, of that specific segment.

When it comes to people who are interested in more technologically advanced products, this relates heavily to our target market of people between the ages of 16 and 45. Most of this age group consists of millennials and generation X. These generations, especially millennials, have been around technology for their entire lives. People within this age group are constantly looking for the latest and greatest product to be released onto the market and once they find that product, they are more than likely to try it out and purchase it. These generations are also more open to welcoming new ideas and innovation to the marketplace which help drive the American economy. Customers who are also interested in the idea of fitness accessories will benefit greatly from our product. In the market today, Fit-bit controls most of the fitness accessory market and Lululemon feels as if the company offers a better and more innovative product.

Positioning

As you can see from the chart above, this is how the company’s customers perceive Lululemon compared to our other major competitors. At Lululemon, the company offers an extremely high quality product for a high price that matches the value of the product. When looking at the major pricing strategies, Lululemon definitely engages in customer based value pricing. This means the company prices products based on the benefits and value it brings to customers. When it comes to the new product, Lululemon wants to be perceived the same way compared to other products that are offered within the company. Compared to competitors, Lululemon’s products want to be perceived as innovative and cutting edge in the athletic apparel industry.

Looking at the graph, it is visible where our competitors lie in comparison between price and quality of the company’s respective products. A company that really stands out compared to the others is Under Armour. Under Armour offers a medium to high quality product at a reasonably low price. Under Armour is known for innovative materials and fabrics that separate themselves from the rest of the competition. The company sets their prices so low to create a competitive advantage over other competitors in the industry. To compete with Under Armour, Lululemon ensures that the quality of products is even higher than that of Under Armour and that Lululemon offers innovative technology with the new product, The Luup. With the release of the new product, the company predicts consumers will perceive Lululemon the same way as consumers did before the release.

Differentiation

Lululemon’s new product will create great value in the eye of the consumer. It will be something new and innovative like nothing seen before. Consumers within the athletic apparel and gear industry value products that allow them to learn more about their body and the impact they have on it. By using what customers value Lululemon has come up with the perfect new accessory to help consumers better understand themselves. Taking into account all of the different features consumers desire The Luup has incorporated all of them and more to stand out from the rest of competitors.

Consumers want to know how they can benefit from a product and why they should buy a product. The new product from Lululemon will capture the attention of many. The Luup will allow consumers to be able to tell exactly how many steps they have taken as well as their heart rate while working out. The most accurate way to count the number of steps you are taking is not through a watch or an app but rather by your actual feet that are taking those steps. The Luup will allow for a more precise number of steps taken throughout a time period to give consumers greater confidence in that number. The product will also be different from competitors because other products from competitors that can be considered similar to this do not track heart rate. The Luup will be able to send all of this information to your smartphone or other electronic device on an application simply through Bluetooth. On the application consumers will be able to see not only the number of steps taken and heart rate but also the number of calories burned.

Strategy Execution

Product

Goals

The goal with the new product is to break into the wearable technology market. With the company mainly being athletic wear with no technology involved there are hopes to break into a new market to reach a greater number of people. Ultimately, the goal is to take advantage of the rather new and upcoming trend in wearable technology.

Lululemon’s goal is to take a successful and established brand and expand the product offerings that are currently available. Moving into a completely new product line of technology. The company is going to make the brand more than just athletic clothing and accessories and make it an all-around athletic go-to company. A place where you can find all your athletic needs.

The company’s goal is to make a profit within the first year of the product’s lifespan. Lululemon wants to move into this new market full force. Moving quickly through the introduction stage will allow for the company to create product awareness and will allow for movement into the growth stage at an earlier time. The growth stage will allow sales to climb quickly, costs to fall, and profits increase. This stage will help to maximize market growth and share.

Furthering into the future of this product Lululemon’s goals are to be continuously innovating and changing the product to adhere to consumer wants, needs and desires. The goal is for this product to not be a fad where it is only temporary and only driven by consumer enthusiasm. The company also does not want it to be a fashion where it is only popular in a given field and where sales grow, plateau, and then slowly decline. The goal is for this product to become a style. Where it never goes out of style and is always desired by consumers.

Product Description

Lululemon as a whole is invested to create a product with the level of quality that the company aims so highly for. A product that will continue to grow with the company and its current success to further the continuous growth and expansion. Lululemon is known for the high quality of their products and maintaining this image is a vital part of the company. With the introduction of the new product, The Luup, the company is expected to see a large amount of revenue generated alongside its other many successful products.

The new product was designed and created with the idea of knowledge in mind. The idea that consumers will want to purchase the product to have knowledge of their body. Consumers want to know how their bodies are working and reacting in relation to their physical activity. The actual product that consumers are receiving to give them the knowledge they desire about their body is The Luup, a black one size fits most rechargeable wearable technology band.

The new product, The Luup, is a high quality, wearable technology strap that goes around the consumers foot to enhance knowledge of the way their body is moving and reacting. The product is meant to be worn over a sock within the shoe. The Luup will be sweat resistant so if the consumer’s foot does sweat through the sock and onto the band it will not cause damage. Along with being sweat resistant the new product will also be waterproof. By constructing the product to be waterproof this allows for consumers to use the product to track activity while working out in ways that include being in water, such as swimming. The Luup has Bluetooth capability to sync to an application on customers electronic devices such as smartphones, tablets, or laptops so consumers can receive real time updates on their body. The Luup will be able to track the number of steps consumers take as well as distance traveled. The product will also be able to track the number of calories burned and heart rate. Consumer’s heart rate can be tracked on the top of the foot so having the band around the foot tightly will be able to calculate this number accurately. The band will come in the color black and will be available in a one size fits most category. The Luup will also be rechargeable from a small outlet on the top of the band so consumers do not have to be concerned about replacing a battery.

Production Process

The Luup will be produced in manufacturing facilities around the globe. The first part of the production process is for the technological side of the product to be constructed. The technology that tracks the steps, calories, and heart rate will be constructed and then the Bluetooth device will be added. Once the technological side is constructed and the Bluetooth device is inserted the lithium powered battery will be inserted. From there the poly carbonate silicone band will go around the electrical components leaving a space open to add in the charging port. The last part of the production process will be to add in the charging port over the band allowing for easy access for charging. Once the bands are completed they will be packaged within a box and sent off to our distribution centers via air freight. These distribution facilities are located in Vancouver (Canada), Sumner (Washington), Melbourne (Australia), and Columbus (Ohio). By following lean applications and the production process stated above as much waste as possible has been eliminated.

Outsourced Components

All raw materials used within The Luup are outsourced. Lululemon outsources their materials in order to be able to respond to the changing environment quicker. For the new product in particular outsourced components would include the materials necessary to complete the product. These materials include the poly carbonate for the silicone band, the lithium powered battery, the Bluetooth device, the charger that is included with the product, as well as the packaging.

Product Life Cycle Stage

Currently the product is within the introduction phase of the product life cycle where awareness is being created for the new product. By using the product development strategy Lululemon is introducing a brand new product to an already existing market. Since we are introducing a new product it is expected for consumers to conduct research on the product and be very cautious about purchasing the new product. By introducing a new product there will have to be effective promotion to grab customer’s attention and draw them in. Without effective promotion there will be little to no demand for the product. With the main target market including technologically advanced generations it is expected for there to be quick sales made. Within the introduction phase consumers reactions to the new product will be closely watched to ensure that the product has continuous growth and success. The goal is to move through this stage at an accelerated rate to get to the growth stage.

During the growth stage the company will be able to maximize market growth and market share as well as lower the manufacturing costs of the product and increase sales. By increasing sales as much as possible Lululemon will be able to take charge of the market and have a greater force compared to competitors. With continuous growth in sales consumers behavior in relation to the product will still be analyzed to generate new ideas and improvements to the product.

Once the product reaches the maturity stage Lululemon should have the best understanding of costs and changes that will be needed to be made. At this point the company should also have reached the largest profit. Within this stage Lululemon will be able to understand costs related to production, packaging, and shipping. By better understanding these costs the company will be able to alternate the price of the product to a point that will increase profits but will also still be appealing to consumers. Within the maturity stage there will be room to test new ideas and innovations related to the product. Whether it be modifying the market it appeals to, modifying the product, or even modifying the marketing mix.

In the decline stage companies are forced to face the decision of whether to maintain, harvest, or drop declining products. With The Luup Lululemon will have the option of adding and innovating the product to appeal to more customers desires. The company will also have a possible exit strategy with using similar production processes to create a watch that will have similar features that can be featured within Lululemon’s “to go” category. During this stage of the product life cycle the company will need to continue to grow and innovate within the product to ensure Lululemon has a competitive edge over other competitors.

Best case scenario with the introduction of The Luup Lululemon will generate a larger profit and increase revenues by 7%. This would allow for the company to have a successful product to continue to grow on and innovate. Worst case scenario, the product financially would not generate a large revenue but would still increase revenues at an expected rate of 2%. The company would not have to drop the product line but would instead the company would want to innovate the product and improve it to attract more consumer attention.

Services/Warranties

All Lululemon products come with a free lifetime warranty. This warranty includes their quality promise which states “If our product does not perform for you we will take it back” meaning that if you are not satisfied with your product you can exchange it or return it no questions asked. Lululemon also has their lifetime guarantee which means that if at any time your product malfunctions or breaks then they will fix it by either replacing the product or repairing it. All of the warranties that the company currently offers will be offered with the purchase of The Luup. Along with the warranties that the company offers customers will also receive a complimentary reusable bag with the purchase of The Luup. Lululemon will also offer an additional service free of charge to consumers to adjust the fit of The Luup if it does not fit how they wish. This meaning that the company will be able to make them larger or smaller based off of what the customer desires.

Place (Distribution)

The company has set many goals in relation to place and distribution. The first goal being to distribute to all 296 company operated stores located within the United States and Canada. Another goal is for the company to be able to deliver enough product for the targeted 30,000 sales per week. From there Lululemon has the long-term goal of expanding The Luup to all 406 company operated stores globally.

Channel objectives are a key component in determining the success of The Luup. Lululemon has set the objective of having low costs for production and distribution to allow for a greater profit. Keeping inventory costs down is another key objective set for the company. Often the company is left with excess inventory on products. With the new product, The Luup, inventory is to be kept to a minimum and to only produce what is necessary in an effort to eliminate waste.

Marketing channels are important because they can lead to a competitive advantage. In this case Lululemon enhances their products by partnering with certain vendors. Lululemon channel members are only chosen if the values align with one another’s. Lululemon has a Vendor Code of Ethics which outlines the standards that the company expects from their vendors. The Vendor Code of Ethics outlines the company’s commitment to best-in-class industry standards. Where the company’s Vendor Code of Ethics conflicts with local laws, partners follow a stricter set of regulations to assure that the company is safe. The company believes that aligning and creating core values from the get go allow for the creation of a foundation for successful long-lasting relationships to achieve mutual goals set between Lululemon and partners. Lululemon’s Vendor Code of Ethics is updated regularly to stay on top of constantly changing regulations as well as emerging regulations. The Vendor Code of Ethics is based on industry recognized standards and principles. These including the International Labor Organization’s conventions, the Universal Declaration of Human Rights, the United National Global Impact Principles, and the California Transparency in Supply Chains Act.

The company will use channel intermediaries to produce the product in an effort to keep production costs down. Lululemon will be the distributor and a manufacturing facility located within China, that is an affiliate of a manufacturing facility that the company already uses, will produce the product. Once the products are produced they will be shipped to Lululemon owned distribution centers. The Luup will be distributed from four distribution centers located in Vancouver (Canada), Sumner (Washington), Melbourne (Australia), and Columbus (Ohio). Inventory will be kept low by only using the manufacturing facility to produce what is necessary. Inventory within distribution centers will be kept low to allow for no excess inventory.

Each week it is necessary for the company to have sales of around 30,000 products to ensure that Lululemon is achieving the base case of 5% of revenue being generated from The Luup. Production rates will reach a maximum of 45,000 products per week if deemed necessary. Production would only need to increase to this amount if demand increases for the product. In a day the manufacturing facility can produce approximately 12 products a minute resulting in 750 products being produced in an hour. Once the manufacturer has completed the products they will be shipped via air freight. By utilizing air freight products should be delivered to distribution centers within 6 to 8 days. Shipments and deliveries are scheduled to be made once every week from distribution centers to company owned stores located within North America. As well as being in company owned stored within North America The Luup will be available for sale on the company’s website to be shipped globally. From there the products will be made available to customers to be sold at a projected rate of 30,000 units per week.

After The Luup gains recognition among customers and competitors the company plans to expand. This expansion can only be properly executed once the product has had an alterations made to it to ensure its success elsewhere. To reach this level it is projected to take 5 or more years. Once the company has deemed itself capable of expansion The Luup will be available all around the globe in more than 400 company owned stores. This expansion would lead to increased sales for the product.

Lululemon is classified as a retailer because the company sells directly to the consumer for non-business use. Lululemon is a self-service retailer because consumers do not need extra services or education on how to use a certain product. More specifically the company is a specialty store because when a customer walks into one of the stores, everything will be a Lululemon product and all of the items will be on the higher end of the spectrum. Furthermore, Lululemon has to be a specialty retailer because the company sells specialty products and consumers could view the company’s products as unique and consumers may often go to lengths to acquire these products.

Based off the Vendor Code of Ethics it is apparent that Lululemon engages in a vertical marketing system. A vertical marketing system can be defined as producers, wholesalers, etc. acting as a unified system; one channel member owns the others. More specifically Lululemon could be categorized as a contractual vertical marketing system. A contractual vertical marketing system is “independent firms at different levels of production/distribution contract together to obtain more economies of scale than each could alone.”

Promotion

Goals

Lululemon is an exclusive and prestigious brand. The company’s goal is to keep it that way. So the promotion mix is must be one of excellence. The brand of Lululemon has a subtle hint of flair and simplicity. As an exclusive brand the company does not want to attract too much attention as they want to differentiate from competitors as being a prestigious community based feel. Lululemon is not company that would want to produce a commercial with the intention for it to go viral. Rather the company creates short clips including snippets of fitness based activities to promote health and the benefit the company’s products can provide.

Evaluation of Promotional Mix

Advertising is a key component of many companies promotion mix including Lululemon’s. Advertising allows for the company to reach a mass number of potential customers and build customer relationships by communicating customer value. Utilizing advertising as a promotional tool for the company will allow for Lululemon to have The Luup perceived in a way that the company wishes for it to be viewed. The use of social media reaches the targeted market in the most efficient and inexpensive ways. With The Luup in mind Lululemon will use informative advertising to introduce the new product and build brand image. Informative advertising will explain the new product, how it works, and the benefits customers will receive from having the product.

Sales promotion allow for incentives to encourage purchasing. Forms of sales promotion include discounts, rebates, coupons, contests, displays, and demonstrations. Lululemon currently utilizes some but not many of these forms of sales promotion. The company does not use rebates or coupons because of the prestige image and value that is held close to the heart of the company. Rebates and coupons could damage the prestige image the company has created for itself, allowing for consumers to view the products at a lower level. Lululemon does have a select number of discounted items when the product stock level is too high. The company frequently posts short video clips showing how products perform and how consumers will best benefit from them. With the introduction of The Luup demonstrations will allow for the company to best promote the product. New consumers will be intrigued by the product and want to know exactly how it works along with the benefits from buying the product. Demonstrations will allow for the company to be able to grab the attention of a greater number of potential customers.

Public relations is another component of the promotion mix that Lululemon will utilize with the introduction of the new product. Public relations includes building good relations, building a good image, handling rumors, and many more. The company can build good relations and a good image through the use of press releases, sponsorships, and special events. Lululemon currently utilizes public relations within the company’s promotion mix. Introducing the new product will gain more attention from customers with a press release. A press release will allow for the company to gain more attention on The Luup.

The next component of the promotion mix is personal selling. Personal selling is personal presentation by the sales force to build customer relationships. This can be done so through sales presentations and trade shows. Lululemon currently does not use personal selling as a major component within the company’s promotion mix. The company does not rely on this component of the promotion mix because the prestige image Lululemon has created itself could be weakened by the use of trade shows and presentations. With the introduction of The Luup the company does not believe that it would benefit the company in a large enough way to cover the costs Lululemon would endure.

Direct marketing can be defined as direct connections with individual consumers. Many forms of direct marketing exist in the world, however, all forms are less public, customized, and interactive. Forms of direct marketing may include catalogues and direct mail. Lululemon utilizes direct marketing on a day to day basis. The company frequently sends out emails to potential consumers. The emails are a general way for Lululemon to grab the attention of potential buyers. Direct marketing is part of the promotion mix that the company will continue to use with the introduction of the new product. Emails are a simply and efficient way for the company to make potential buyers aware of The Luup.

Internet/digital marketing is the key component of the company’s promotion mix. Internet/digital marketing if the use of interactive and digital media to have two way conversations with consumers, the general public, etc. Internet/digital marketing includes social media, mobile marketing, internet marketing, SEO, viral marketing, and many more. Lululemon utilizes digital/internet marketing on a daily basis. The company is constantly using Twitter, Instagram, Pinterest, and Facebook to post real time updates to reach a larger number of potential customers. Continuing off of the promotion strategies the company currently uses in relation to internet/digital marketing The Luup will be promoted in similar ways. The use of social media will allow for the company to be able to connect with consumers and receive feedback in a shorter period of time.

When it comes to the promotion mix strategy there are two different strategies, those being push or pull. Push is when the product is being pushed through marketing channels to the final consumers, this form utilizes personal selling. Pull is when customers are being pulled towards the final product via incentives, this form focuses on the use of advertising. Lululemon focuses on the pull promotion mix strategy. The introduction of The Luup will continue to utilize the pull strategy to draw customers towards the final product rather than the company putting the product on the consumer. Through the use of advertising, internet/digital marketing, and direct marketing it will be possible to capture consumer attention in relation to the new product.

Price

Goals

With the rechargeable battery and lifetime warranty, the company’s goal is to provide a competitive option in the fitness technology market. Lululemon’s definition of the market is any company that sells wireless fitness tracking technology utilizing Bluetooth and smartphone technology. The two leading competitors in the market, Nike and FitBit, have polar prices for their product based on the quality and the features each possesses. The Nike+ Sensor retails for 11.99 USD. While FitBit prices start at 59.95 USD for the most basic model and 299.95 USD for the FitBit Ionic Watch, which has a built in GPS and heart rate monitor. Due to FitBit strictly selling technology products, Lululemon believes this leaves a large share of the market open for another high-end design from a more established company. Lululemon has developed a heavy customer following since it was founded in 1998, through the sales and development of the company’s product lines, and this allows the company to believe this customer base will support the new product with early adapters buying this product as soon as it hits the shelves. Lululemon believes the company’s brand image holds a higher prestige than Nike, allowing for the price the new product to be higher while still obtaining a large share of the market. Due to outsourcing resources and manufacturing costing only 25 USD per product, the company believes 75 USD is a prudent price to obtain Lululemon’s sales goals and estimates.

Value Proposition

The new product provides clear benefits to the individuals in our target market of young, educated, and active men and women. The Luup’s lightweight, slender, and durable design allows these consumers to not only utilize the product while participating in intense physical activity but also comfortably in the daily activities in their lives. The Luup is sweat and waterproof, which allows it to be worn during sweat inducing activities or a daily swim. The Luup is designed to be worn around the foot, inside the shoe, allowing the product to remain unnoticed by colleagues in the workplace and not interfere with the standards of professional attire. These features differentiate The Luup from other products in the market that are worn around the wrist, and exposed to the surrounding environment. The Luup is also manufactured in the most efficient manner possible to ensure a slender and comfortable design, to remain unnoticed by the user while wearing it. On top of these features, the central function of this product is to monitor and track the user’s heart rate and the rechargeable battery provides the benefits consumers are seeking at a reasonable price. All of these features are insured with the company’s promise of a lifetime guarantee to provide the highest value possible and unique functions not available from competitors.

The pricing of the product is relatively elastic due to competitors selling similar products. Even though Lululemon has a loyal customer base, if potential consumers do not view the value of The Luup as greater than the cost customers will not purchase the product. In 2008, merely 21% of Americans ages 18 and up met the CDC Physical Activity Guidelines. This rate grew to 51.7% in 2016 due to new trends of physical activity that continue to develop to this day. With this increase, individuals place a high value on technology that aids them in their fitness journeys, providing the demand suitable to allow The Luup to be profitable.

Pricing Strategy

Lululemon’s team will utilize a customer value based pricing strategy, more specifically, value added pricing. The price of The Luup reflects the high quality and value that the buyers will receive with the purchase of the product. This strategy utilizes the psychographic consumer behavior by instilling the perception that this new product has high value based on the higher price. The company is positioning the product to fit the standard of the other product lines Lululemon offers with a price of 75 USD correlating with the high quality of the product, also allowing for maximization on short-term profit. The new product pricing correlates with the price of The Luup, this can be referred to as market skimming. Lululemon is viewed as a prestigious brand and the prices of products reflect the position. Due to the company’s 55 USD profit margin, Lululemon will generate high revenue per sale and the high barriers to entry in this technologically advanced market allow for the company to utilize the market skimming strategy. Lastly Lululemon will provide product bundle pricing as a buying option for The Luup. The company designed The Luup to be compatible with all shoe brands in order to avoid captive product pricing, generating higher chance of sales for the product. However, to encourage consumers to purchase the Lululemon brand shoes, the company will offer a discounted price on The Luup when purchased with the same brand shoes.

Breakeven Analysis

The breakeven point of a project is the production level where total revenues equal’s total expenses (XX). The new product costs 34.73 USD to produce. To minimize the company’s fixed costs Lululemon will be completely outsourcing the manufacturing of The Luup. Lululemon currently utilizes a manufacturing in plant in China that produces 23% of the company’s current products; Lululemon’s team plans to be using the technology affiliate of this plant to produce The Luup. The fixed costs were determined by adding the SG&A, property and equipment, accumulated depreciation, research and development costs from Lululemon’s 2016 annual report. After this number was calculated it was multiplied by the percent of revenue The Luup will create, .04, to give the company the predicted fixed costs of The Luup.

Fixed Costs:

Amount:

SG&A

$628,000.00

Property and Equipment

553,400,000

Depreciation

203,800,000

Research and Development

628100000

Total Fixed Cost:

$1,385,928,000.00

Luup fixed Cost:

$55,437,120.00

The company’s variable costs include all of the materials that will be used to manufacture The Luup. Lululemon will be utilizing bulk purchasing from a technology wholesale outlet in Guangdong, China in order to reduce the price per unit of the materials. The polycarbonate silicone bands will be purchased in bundles of 5000 at a discounted price of 0.80 USD per band. The rechargeable 3.7V lithium polymer battery will also be purchased in bundles of 1000 at a unit price of 4.50 USD. The Luup’s main computer function, with 5500A heart rate monitor and Bluetooth compatibility, will be purchased in bundles of 1000 at a unit price of 8.00 USD. The purchase of The Luup will include the 27 cm Micro-USB charging cable that will cost 0.32 USD at a bundle price of 100,000 USD. The packaging cost of The Luup is comparable to that of the FitBit and will cost 5.00 USD per unit produced. Shipping and handling costs will be minimized by using the current logistic processes of Lululemon’s China plant but will incur an addition 2.96 USD of cost.

Variable Costs:

Amount per unit:

Amount per period:

Poly Carbonate/ Silicone Band

$0.80

$1,221,162.40

Lithium Polymer Battery

$4.50

$6,869,038.50

Main Computer Function with Bluetooth Compatibility

$8.00

$12,211,624.00

Charger

$0.32

$488,464.96

Packaging

$5.00

$7,632,265.00

Shipping and Handling

$2.96

$4,518,300.88

Total Variable Cost:

$21.58

$32,940,855.74

In order to find the break-even point, the company first found the contribution margin. The contribution margin for the new product is the selling price less the variable cost per unit (75.00 USD — 21.58 USD), equating to 53.42 USD. Next Lululemon was able to calculate the break-even point, in units, through dividing total fixed costs by the contribution margin (55,437,120.00 USD / 53.42 USD), equating to 1,037,759.64 units. In order to know our break-even point in dollars the company must multiply break-even point in units by the sale price (1,037,759.64u X 75.00 USD), equating to 77,831,973 US. These break-even points identify the amount of units the company must sell or amount of revenue Lululemon must generate in order to start collecting a profit on the project.

Capital Budgeting Analysis

Before Lululemon can decide to move forward with this new project, the company has to decide if the product will make money and be sustainable. This information can be found through calculating the Weighted Average Cost of Capital (WACC), Net Present Value (NPV), and Internal Rate of Return (IRR). The WACC is defined as a calculation of a firm’s cost of capital in which each category of capital is proportionately weighted. (Investopedia, 2017). To calculate WACC, the company must multiply the cost of each capital component by its proportional weight and take the sum of the results. In Lululemon’s analysis it was found that the WACC was to be 10.00%. This was considered when calculating the NPV of 121,943,303.44 USD. The IRR of our best-case model is . With this information the company concluded the new project will be a financial success.

Implementation and Control

Timing and Implementation

A rechargeable lithium polymer battery, the battery commonly used in mobile smartphones, will power The Luup. The lithium polymer design is sleeker, lighter, smaller, and safer than other battery types, receiving the reputation as the most advanced battery on the market. (XXX) The reason the company chose lithium polymer is because it does not suffer from the “memory effect”, which is when a battery loses capacity if it is not completely discharged when used. This battery, accompanied by proper care and maintenance, allows The Luup to have a 48-hour battery life and last a lifetime. Lululemon plans to implement this fitness product on December 1st, 2018. This will give the company time to complete the last few steps of the new product development manufacture inventory. The timing of December 1st is based off of several factors, first being the Christmas season. Launching this new product in early December creates the opportunity of a seasonal gift that will be sure to please any fitness enthusiast, making them the envy of their friends and fellow gym members. The second reason for the specific timing is on account of the infamous “New Years resolutioners” who will soon be swarming gyms and fitness classes. Two-thirds of adults in the United States set fitness goals as their New Year’s resolution (XX) and serve as a prime market segment to be targeted. The last factor that contributes to the implication timing is the approach of beach season. Depending on geological location, in just a few short months following December, people will be substituting the sweaters and jackets for shorts and bathing suits as spring break comes into sight. It calls for a brutal wakeup call and an urge to do whatever it takes to get back in shape. This leads consumers to be health conscience and in need of fitness tracking technology to assist them in their health endeavors. December 1st provides the optimal timing to implement The Luup and will lead to a strong start of sales revenue for Lululemon.

Sales Estimates (forecast)

Based on the company’s projections, it is expected for the new product, The Luup, to create a revenue of 114,484,000.00 USD within the first year. Lululemon calculated this number because it is expected for 4% of the company’s revenue for the first year to come from the new product, The Luup. The company is projected to have an estimated revenue of 2,862,100,000.00 USD for the 2018 fiscal year based on the growth rate over the past few years and years to come. Selling the new product at 75.00 USD per unit, Lululemon expects to sell 1,526,453 units in the first year. The company anticipates that revenue in relation to the product will continue rising with the average growth rate of Lululemon sales at 11.87% over the next 5 years, putting The Luup revenue by year 5 at over 640,000,000.00 USD.

Scenario Analysis

Base Case

The company’s base (expected) case is to sell the new product, The Luup, to generate for around 4% of the yearly revenue. The Luup will cost Lululemon 34.73 USD to make, including both materials and manufacturing costs along with the Bluetooth app associated with it. By selling the product at 75.00 USD per unit, the company will generate over 83,000,000.00 USD in gross profit in the first year for the new product, The Luup. If Lululemon can continue to generate this profit, The Luup will gain a profit of 415,000,000.00 USD in 5 years, anticipating it will continue to increase with the revenue growth rate.

Best Case

The best-case scenario would be for the company to generate 5–7% of total revenue from The Luup yearly. Selling the new product at 75.00 USD, with 7% of the yearly revenue coming from The Luup, Lululemon would have 200,347,000.00 USD out of 2,862,100,000.00 USD revenue from the new product, The Luup, in the first year. In this best-case scenario of 7% revenue from The Luup, after deducting costs of manufacturing, the company would have a gross profit of 146,921,133.00 USD in the first year, and 734,605,666.00 USD accumulated over the course of the next 5 years.

Worst Case

In the worst-case scenario, the company estimates to only earn 2% of total yearly revenue from the new product, The Luup. If only 2% of the company’s revenue comes from The Luup, it may be hard to globalize the product into a suitable athletic band that consumers use on a daily or weekly basis. Making 2% of revenue will only generate 57,242,000.00 USD in revenue, which accumulates to 41,977,466.00 USD in profit after deducting the manufacturing costs of the product. Over the course of 5 years the product will still earn over an expected 209,800,000.00 USD in profit but may not be as globally recognized as the company would prefer for it to be.

Sensitivity Analysis

All of these sales are based on the company’s yearly projected growth rate at Lululemon as a whole. The projected volume of units sold a year of 1,526,453 units is an estimate of which Lululemon believes can be obtained. The company will offer discount rates for those consumers who buy Lululemon shoes along with The Luup, making it more appealable. With a cost per unit of 34.73 USD, and selling the product at 75.00 USD, the company believes it can make a profit off of the new product with the popularity of the brand growing and being seen as a prestige brand. With growing yearly demand for Lululemon products the company finds it inevitable that the new product, The Luup, will grow in demand as well. While revenue may not grow from this new product, the gross profit will increase yearly with margins of 40.27 USD per unit.

Comprehensive Financial Analysis

Considering the company’s high profit margins as opposed to manufacturing costs, The Luup is a financially beneficial product to the Lululemon brand. In the company’s best case Lululemon will produce a gross profit of 83,000,000.00 USD. This will be possible through the help of marketers obtaining a large market share and the company’s managers overseeing production and supply chain activities. With Lululemon’s NPV of 121,943,303.44 and IRR of , the company has concluded the new project will be financially beneficial and have decided to accept it.

Conclusion

In conclusion, the company has decided to move forward with The Luup. Lululemon has a high prestige associated with its brand name and has proven to be very successful with the company’s innovative products in past years. Introducing The Luup into the company’s product mix will enter the company into a whole new market. The company’s marketing strategies will allow for Lululemon to obtain a substantial percent of the market share. The company will be outsourcing the product and using existing supply chain routes already being used to distribute other products offered by the company. Considering the company’s NPV of 121,943,303.44 and WACC of 10.00%, The Luup will be a financial success and will be beneficial to Lululemon. Thus, the company believes The Luup will be a positive addition to the Lululemon product mix and the company is confident in moving forward with the production of Lululemon’s new product, The Luup.

References

· http://www.businessinsider.com/outrageous-remarks-by-lululemon-founder-chip-wilson-2013-12

o November 13, 2017

· http://www.bpmlegal.com/patqa.html

o November 14, 2017

· https://www.facebook.com/lululemonRedDeer/posts/748211785346388:0

o November 14, 2017

· https://tools.lllapps.com/register/sweat-collective

o November 14, 2017

· https://ny.racked.com/2013/6/17/7664523/peek-inside-lululemons-new-smith-street-outpost

o November 14, 2017

· http://business.financialpost.com/news/retail-marketing/lululemon-athletica-results-plunges-60-as-yogawear-retailer-cuts-outlook

o November 14, 2017

· http://www.dictionary.com/browse/trademark

o November 14, 2017

· http://www.businessinsider.com/what-is-luon-2013-3

o November 14, 2017

· https://trademarks.justia.com/855/50/luxchange-85550767.html

o November 13, 2017

· https://thesweatedit.com/2012/10/new-luxchange-items.html

o November 13, 2017

· https://trademarks.justia.com/owners/lululemon-athletica-canada-inc-2457354/

o November 14, 2017

· http://www.latimes.com/business/la-fi-lululemon-founder-20150202-story.html

o November 13, 2017

· http://fortune.com/2014/12/03/lululemon-ceo/

o November 14, 2017

· http://investor.lululemon.com/management.cfm

o November 13, 2017

· http://quotes.wsj.com/LULU/company-people

o November 13, 2017

· http://quicktake.morningstar.com/advisor/stock/insiders/board-of-directors?country=USA&t=LULU

o November 13, 2017

· https://www.thebalance.com/the-great-recession-of-2008-explanation-with-dates-4056832

o November 14, 2017

· https://www.washingtonpost.com/news/business/wp/2017/07/17/the-battle-over-a-52-sports-bra-goes-to-court/?utm_term=.0a39c2245c90

o November 13, 2017

· http://money.cnn.com/2013/07/03/news/companies/lululemon-yoga-lawsuit/index.html

o November 13, 2017

· http://www.businessinsider.com/lululemon-vs-calvin-klein-lawsuit-2012-11

o November 13, 2017

· http://www.businessinsider.com/hot-brands-that-could-be-next-lululemon-2013-11?op=1/#hleta-1

o November 14, 2017

· https://www.investopedia.com/terms/m/monopolisticmarket.asp

o November 14, 2017

· http://forestshipping.com/how-long-ship-china-to-us/

o November 15, 2017