According to Reich et al.’s study, Lululemon’s current revenue is USD 619.02 million as at October 2018 financial year, which is a drop from USD 928.80 million of January 2018. Earnings per share for the two amounts are 0.435 and 1.319 units respectively. The implication is the financial revenue is directly proportional to the earnings per share. The company sales were approximately 27 million as at January 2018 and the projected sale in the same month 2019 would be 13 million, with earnings per share being 30 and 16 units respectively. The company’s P/E ratio was 49.95, slightly above that of the entire industry which stood at 44.60. Compared to the last half a decade, there has been an increase in valuation ratio. Lululemon’s financial strength indicated the highest Total Debt to Equity (7.57), and zero LT Debt to Equity. The next two ratios of Quick Ratio (2.04) and Current Ratio (2.91) had close range to each other. The company’s profitability ratios in gross margin outweighed the industry by slightly over 10 units. Lululemon’s growth rate was above the industry at large, and the sector registered 11.11 units as growth rate in 2017 (Reich and colleagues, 2018).
Lululemon current strategy is differentiation that the company uses to distinguish itself from rivals. Lululemon differentiation strategy includes strategic sales approaches that go hand in hand with local entrepreneurs and athletes with passion for communities and themselves. The company’s sales section offers three different programs, namely; wholesale, as well as yoga hard goods and that of team. Its team program establishes long-term relationships with athletic groups, yoga studios alongside fitness facilities that are enhancing their communities by an outstanding example for wellbeing and fitness. They advocate for such athletic teams to order at least 12 pieces/ style & color to fully support them. Lululemon also differentiates itself with Sweat Collective, a community brought about by the world’s richest leaders. These leaders are instructors of group fitness studio, leaders of run club, individual trainers and Olympic athletes. Lululemon issues unique perks to sweat members in general as an appreciation for their leadership in their community and also to appreciate members who are committed to sweat. The company also differentiates itself using diverse vendors. The vendors are open and cooperative by enabling full facility accessibility, and offer disclosure on all venues. These vendors minimize waste, reuse and even recycle Lululemon’s products if need be (Bass, 2010).
Bass (2010) argues that Lululemon sustainable competitive advantage that it is trying to achieve is developing high-quality, superior products and ensure strong branding. The company’s quality materials such as Luon or Silverescent have a WetDry feature that extracts sweat from one’s skin, and at the same time spreading the sweat all over the fabric to ensure the clothing dries in time. Lululemon’s product quality is simply unmatched with an inbuilt cost into the firm’s business model, showing an awe-inspiring pricing power for the company products. The company also has a strong lifestyle brand, of which multitudinous loyal customers attest to be more than any common product. Thus, Lululemon continues to make impressive sales development and part of the cost the company uses in promotion of their brands. Further, the company is neither compelled to apply costly endorsement deals to make product sales. Rather, the company sponsors free yoga classes wherever its store is and uses that opportunity to recruit fitness instructors from locally found gyms to serve as community ambassadors for its brand.
Lululemon has always increased demand by limiting supply but the situation is proving futile at the moment (Bass, 2010). Even the company initially limited supply of some pants and hoodies, its Vancouver-centered chain is on a hand-to-hand struggle to satisfy the high demand but still is unable to keep adequate product in stock, to the point that investors are now being scared off. As a result, an issue of slow sales growth has crept into the company. Insofar as Lululemon had a strong fourth-quarter finding by 2018 March and further succeeded to win over analysts’ forecast, the company investors still have a swift as well as painful reaction in view of the firm’s out-of-stock snags. These investors witnessed the company’s share decline 4.4% on the Toronto Stock Exchange, while they had doubled their shares a year ago (Strings, 2018).
The company is now forced to use extra cost to fly their products instead of shipping by sea to achieve the demand, which is another problematic issue. Nonetheless, its low stock means that the issue will not even be met in the coming month. The root of this problem is insufficient product forecasting and in a way hard-to-find overseas suppliers for Lululemon’s merchandise, according to CEO Christine Day. Moreover, the company has an inventory issue as well. Lululemon has intentionally scaled back its inventory for the quickly advancing e-commerce site in readiness for a main overhaul of the company operations by mid-April 2018, and eventually shafting the investory system from a management system of third party to in-house inventory. In addition, Lululemon faces other pressures following the squeeze of increased costs of raw materials, such as cotton and nylon. With the inflation expenses on the rise, the company will barely manage to grow its operating profit margins (Strings, 2018).
Borrowing a leaf from Vorlová (2011) work, the PEST analysis of Lululemon has drivers and one is politics that causes the company to run efficiently. For example, Canada politics and those abroad can influence tax laws, standards of governance. The company also relies on decisions made by local politicians to affect their business activities overseas. There are countries whose political corruption has cost Lululemon offering the company fewer opportunities. Lululemon economics in foreign countries may enact unfavorable tariffs, trade limitations so that the company model it relies on for expansion strategy is threatened with obscurity. To some point, the company stores in such worsening economic circumstances may shut down business if the situation becomes too risky. On social grounds, Lululemon relies on a third-party for manufacturing aid and supply necessities for the company’s athletic clothing. If these companies get involves in unethical business activities to interfere with quality guidelines, there would poor indications on the company brand. The issues of foreign labor or production resources can become more complex in places that such companies violate policies of corporate social responsibility, especially when they undergo backlash from customers. Also, Lululemon’s technology of e-commerce sites makes the products available but it has to fight prevalent cyber-attack threat. if an attack succeeds then the company’s online platform may be taken offline temporarily or even lead to permanent destruction of the company data assets. Beyond restoring data breaches, the company must go an extra step to conduct detailed analysis on ways to avoid future attacks. While it may achieve this through hiring extra staff to control technological risks, it causes additional expenses to the company.
Applying Dobbs (2014) article, Lululemon’s Porter’s framework relates to its suppliers, customers, existing rivals, new competitors and substitutes. The company has low bargaining power of suppliers whose operation is monopolistic. Its suppliers have quality concerns and have since switched from local manufacturing to Asian manufacturing. But the company finds it costly to change suppliers. These suppliers have no substitutes and so the company depends largely on one Taiwanese supplier. The company also has low bargaining power of customers. The customers already know that the company’s price relates to its quality. Customers also attest that Lululemon brand transcends generations. The customers largely rely on distributors and some of them need special customization for its limited stores. The product is so significant to the customer to the extent he or she feels negligible price sensitivity.
Some of the company existing rivalries include big sports brands making entry into the market. But since its brand is aspirational, the company will do all it takes to satisfy the ever-changing increased community presence through patented primary input. It has to keep up as a fast industry in growth rate and maintain the low exist barriers, by ensuring a sustainable copycat brands proliferation. In terms of new competitors’ threat, Lululemon requires a strong distribution network to sustain its strong brand name. While patents constrain new competition, the company has to advance its technologies, especially to retain the loyal customers to its existing brands, as entry barriers are extremely high. Lastly on substitutes, Lululemon faces threat of popular sports brands that are trying to replace its famous yoga brands. The company is limited in terms of the capacity to increase its prices even in the face of brand loyalty which is high from consumers. There is no aspirational element for Lululemon’s copycat brands. The low-performing substitute indicates low quality as there is inferiority of substitute product (Dobbs, 2014).
Brydges & Pugh (2017) note that Lululemon key success factors include product innovation, digital strategy and making the business fully a North American thing. In product innovation, the company’s vision is shorted by design when these innovative ways are put in place. For example, Lululemon took opportunity of its restless series to introduce new outfits and textures, an enlargement on females’ seamless assortments. The company has also brought in a fabulous innovation in the bra classifications. Lululemon has also used digital strategy to enliven design vision via a mixture of interactive narrations, personalization as well as product assortment, while concurrently having scalable, easy or frictionless commerce experience. To improve guest loyalty and encounter, Lululemon still leverages the CRM engine to operate online marketing campaign, and those of domestic store events with enriched segmentation and know-how of guests. A most recent digital strategy is introducing a mobile app and website to check Lululemon store inventory and also ship from stores. About North American Business, the company is optimizing and developing its store portfolio via an integration of standard store, locals and co-located stores that are linked to its market as well as community. So far, Lululemon has launched three locals that are within 2,000 square feet to grant the retailer a chance to intimately engage communities, generate special and curate encounters, and develop the Lululemon brand (Stokes, 2008).
According to Sousa (2016), Lululemon’s competitors chosen are the Gap Inc. and Nike Inc. the Gap Inc. is offering Lululemon a stiff competition through provision of lower costs and an improved selection. Because of the Gap, the company in question now masks its weak sales from existing stores and the problem seems to plague even Lululemon’s international expansion. While it uses scarcity model to create a high-demand among customers, Athleta, which is operated by the Gap, is already filling in the void. The Gap Athleta presents just 4 percent of the parent company whole revenue but is growing fast. Compared to Lululemon, Athleta has some costly items but with a wide variety to choose from which appeals to a larger audience. For example, while Lululemon sells yoga pants at USD 90 on average, Gap Athleta sells similar items at USD 64. The price difference is so significant that it is hard to tell if Lululemon will be able to sustain its high costs and frustrating scarcity model.
Another neck and neck competition that Lululemon has is with Nike Inc. Nike and Lululemon Athletica (Sousa, 2016). Together these competitors have healthy lifestyle massive trend and are both are strong brands. While Nike’s growth is consistent over the years, Lululemon has slowed in growth due to its current problems that on the surface seem fixed. Nike has a high competitive advantage due to its recognizable brands and the company’s size has enabled it to finance a huge marketing as well as innovation machine. Due to its massive earnings on a yearly basis, Nike can sign best athletes worldwide, including Michael Jordan, to endorse contracts. Such endorsements assist produce demand for Nike’s products, putting it ahead in negotiation deals with retailers or suppliers. In valuation, Nike offers its investors a 1 percent dividend yield but Lululemon gives none, reflecting the growth opportunities of these businesses. But the only threat to Nike is a saturated market whereas Lululemon has lot of opportunities to grow in America and globally.