1.

Case study analysis is investigating a specific business and its underlying problems and proposing alternative solutions
relevant to the case. It is important for us students so that we are able to analyze and understand problems that actual
organizations face. Through this, we are being subjected or we put ourselves in the shoes of the managers. So, we
somehow experience how it is to deal with problems that we may face in the business.

One aspect/step of case study analysis is the SWOT analysis, which we have performed in the case of Lululemon.

2. SWOT analysis is the comparison of a company’s strengths, weaknesses, opportunities, threats. The purpose is to
identify strategies to exploit external strengths, counter threats, enhance company strengths, and eliminate
weaknesses.

At Time Inc., managers saw the move of readership to the Web as both an opportunity that they must exploit and a
threat to Time’s established print magazines. Managers recognized that Time’s well-known brands and strong reporting
capabilities were strengths that would serve it well online, but that an editorial culture that marginalized online
publishing was a weakness that had to be fixed. The strategies that managers at Time Inc. came up with included
merging the print and online newsrooms to remove distinctions between them; investing significant financial resources
in online sites; and entering into a partnership with CNN, which already had a strong online presence.

3. Steps in case study analysis:

A. History, development, and growth of company. Lululemon was founded by Chip Wilson in Vancouver, Canada in 1998
when he first designed yoga-inspired athletic apparel which was appropriate for yoga exercises instead of wearing the
uncomfortable standard cotton clothing.
B. Company’s internal strengths and weaknesses. Lululemon’s strengths include high quality products like athletic
clothes wear and fitness equipment such as yoga blocks and yoga mat; high turnover of inventories (through strategically
releasing limited edition products for a limited time at full price which in turn induces impulsive buying on the
purchaser’s end); staffs and employees who are well-trained and customer-oriented and have strong background related
to fitness (which reflect a positive impact on customer satisfaction as well as the company sales); having more than 300
store branches around the world (which allow them to reach more markets and larger customer base and generate more
sales); using multiple channels to market and sell their products (like through their website and social media or through
influencers and brand ambassadors that help them promote their products fast and grow their reputation at the same
time); diverse social media content (their social media is curated to the best of its function. Their Pinterest serves as a
catalog for their products; YouTube is for tutorial videos like yoga and the likes; and their Facebook and Twitter are for
updates and health tips. This is a strength as customers gain brand awareness since almost all people are on social
media now and is also a great way to promote the brand and to connect with customers). Their weaknesses include:
mistreatment of customers (as in the case of the sheer black yoga pants where some employees demanded that
customers put the pants on and bend over to determine whether it was see-through enough to warrant customers a
refund. This is a weakness because bad customer service can damage the brand’s reputation and may result in the
decline of customer loyalty and satisfaction because customers would prefer other brands that offer better customer
service); having harmful environmental impacts such as not being cruelty-free (Although Lululemon claims being a
sustainable brand, it has negative environmental impacts because they only use a small proportion of eco-friendly
materials. It uses leather, wool, and exotic hair in the manufacturing of its products. Some apparel items that contain
animal products are goose down jackets. Although some people may not care about a brand’s reputation like being
cruelty-free or not, there is a fraction of consumers who prefer products that are environment-friendly. It becomes a
weakness since some people opt for vegan-friendly products, and brands like Lululemon does not cater to all kinds of
customers like vegans).
C. Nature of external environment surrounding the company. The opportunities surrounding Lululemon are: the growth
of demand for fitness-wear and sports-associated products (since people nowadays are becoming more into fitness, yoga
and exercising. Brands in this industry could take advantage of this opportunity so they can increase their sales and
profits). The external threats are: high competition (which is in relation to the growing demand in the fitness industry.
Since there is high demand for fitness products, the fitness industry is rapidly growing at the same time to cater to the
demands of the consumers. This becomes a threat to Lululemon as it may result in loss of customers because customers
may prefer other brands that have the same quality as Lululemon’s but are offered at lower prices).
D. SWOT analysis.
E. Corporate-level strategy.
F. Business-level strategy. Lululemon's business strategy is based on targeting a potential segment of people who are
into fitness and sports-associated activities. Many of the people who are into fitness have the purchasing power to buy
specialized clothing thus, Lululemon targeted the needs of this segment by creating a comfortable high-quality line of
clothing. Another equally important part of the strategy was to stock a limited supply of an item in order to keep the
product offerings feeling fresh. This strategy is to keep the quality and comfort high and provide unique and fresh
designs. Premium pricing for these clothing is kept in accordance with the brand's image which results in high revenue
and return on capital.
G. Company’s structure and control systems and how they match its strategy.
H. Recommendations. In order for the company to maintain its competitive advantage, first, it must continue their
efficient use of technological advances such as allowing consumers to purchase through online stores that offer free
shipping directly from the factory. Secondly, the company must maintain the high quality of their athletic clothing that is
made of waterproof fabric that is one of the most in-demand especially for those people who are passionate about
exercising and living a healthy lifestyle. Third, is hiring employees who are not only interested in yoga, but also maintain
good customer service which is treating customers with empathy, adaptability and showing work ethics. Through this
they will be able to meet and surpass the expectations of its customers and maintain good relationships with them.
Lastly, it would be innovation in which the company will continually stay committed to developing new products. There
is consistency in quality and better performance in giving both the comfort and good looks. It should also keep on
improving its products so that customers will not easily get bored and will always look forward to their products.
Therefore, by achieving all of these it becomes a driving factor to the company to be distinguished from its competitors
and gain more customers and improve brand loyalty. 

4. Recommendations:

In response to the threat surrounding Lululemon and to exploit on the opportunities, the company should expand
operations to be able to keep up with their competitors like Nike and Under Armour which are globally-known brands
that have branches across the globe, rather than only operating in the United States, North America, Europe and few
countries in Asia like Japan and China. For instance, in the Philippines.  Lululemon could be a popular brand in the
country considering the large number of people who are into sports and fitness. And fitness and sports enthusiasts have
high purchasing power for high quality fitness wear, which Lululemon is known for. But since Lululemon does not
operate or does not have retail stores here in the Philippines, most people prefer other brands which are available in the
Philippines like Nike etc. for the same or lower price as that of Lululemon. And although products could be purchased
from their website, not all prefer online shopping especially when it comes to clothing mostly because of the cost of
shipping especially when it is internationally-based. And there could also be problems with the sizing and such that’s
why a lot people opt for in-store shopping so they can examine the product and try it on as well. The expansion of
operations will help the company to counter the threat of market competition by being in the same level as or being one
step ahead of their competitors.

5. Industry is a group of companies offering products or services that are close substitutes for each other—that is,
products or services that satisfy the same basic customer needs.

6. Industry analysis leads managers to think systematically about strategic choices. It is important to recognize that one
competitive force often affects others, and all forces need to be considered when performing industry analysis.

7. Porter’s Five Forces Model is a model used in analyzing the competitive forces within the industry in order to identify
opportunities and threats. A strong competitive force can be regarded as a threat because it has negative impacts on the
profits. A weak negative force can be viewed as an opportunity because it allows a company to earn greater profits. The
five forces are: risk of entry, bargaining power of buyers, threat of substitutes, and bargaining power of suppliers and
industry rivalry.
a. Risk of entry by potential competitors. As more companies enter, it becomes more difficult for established
companies to protect their share of the market and generate profits. A high risk of entry by potential competitors
represents a threat to the profitability of established companies.
b. Rivalry among established companies. Intense rivalry implies lower prices or more spending on non-price-
competitive strategies, or both. Because intense rivalry lowers prices and raises costs, it squeezes profits out of an
industry. Thus, intense rivalry among established companies constitutes a strong threat to profitability. Alternatively, if
rivalry is less intense, companies may have the opportunity to raise prices or reduce spending on non-price-competitive
strategies, leading to a higher level of industry profits.
c. Bargaining power of buyers. The bargaining power of buyers refers to the ability of buyers to bargain down
prices charged by companies in the industry, or to raise the costs of companies in the industry by demanding better
product quality and service. By lowering prices and raising costs, powerful buyers can squeeze profits out of an industry.
Powerful buyers, therefore, should be viewed as a threat. Alternatively, when buyers are in a weak bargaining position,
companies in an industry can raise prices and perhaps reduce their costs by lowering product quality and service, thus
increasing the level of industry profits.
d. Bargaining power of suppliers. The bargaining power of suppliers refers to the ability of suppliers to raise
input prices, or to raise the costs of the industry in other ways—for example, by providing poor-quality inputs or poor
service. Powerful suppliers squeeze profits out of an industry by raising the costs of companies in the industry. Thus,
powerful suppliers are a threat. Conversely, if suppliers are weak, companies in the industry have the opportunity to
force down input prices and demand higher-quality inputs (such as more productive labor).
e. Substitute products. These are products of different businesses or industries that can satisfy similar customer
needs. The existence of close substitutes is a strong competitive threat because this limits the price that companies in
one industry can charge for their product, which also limits industry profitability. If the price of coffee rises too much
relative to that of tea or soft drinks, coffee drinkers may switch to those substitutes. If an industry’s products have few
close substitutes (making substitutes a weak competitive force), then companies in the industry have the opportunity to
raise prices and earn additional profits.

8. Industry Life Cycle Analysis. A useful tool for analyzing the effects that industry evolution has on competitive forces is
the industry life-cycle model. This model identifies five sequential stages in the evolution of an industry that lead to five
distinct kinds of industry environment: embryonic, growth, shakeout, mature, and decline. The task managers face is to
anticipate how the strength of competitive forces will change as the industry environment evolves, and to formulate
strategies that take advantage of opportunities as they arise and that counter emerging threats.
A. Embryonic. An industry that’s just beginning to develop. Growth at this stage is slow because of factors such
as buyers’ unfamiliarity with the industry’s product, high prices due to the inability of companies to reap any significant
scale economies, and
poorly developed distribution channels.
B. Growth industries. Once demand for the industry’s product begins to increase, the industry develops the
characteristics of a growth industry. In a growth industry, first-time demand is expanding rapidly as many new
customers enter the market. Typically, an industry grows when customers become familiar with the product, prices fall
because scale economies have been attained, and distribution channels develop.
C. Industry shakeout. Explosive growth cannot be maintained indefinitely. Sooner or later, the rate of growth
slows, and the industry enters the shakeout stage. In the shakeout stage, demand approaches saturation levels: more
and more of the demand is limited to replacement because fewer potential first-time buyers remain. As an industry
enters the shakeout stage, rivalry between companies can become intense. Typically, companies that have become
accustomed to rapid growth continue to add capacity at rates consistent with past growth. However, demand is no
longer growing at historic rates, and the consequence is the emergence of excess productive capacity.
D. Mature industries. The shakeout stage ends when the industry enters its mature stage: the market is totally
saturated, demand is limited to replacement demand, and growth is low or zero. Typically, the growth that remains
comes from population expansion, bringing new customers into the market, or increasing replacement demand. As an
industry enters maturity, barriers to entry increase, and the threat of entry from potential competitors decreases. As
growth slows during the shakeout, companies can no longer maintain historic growth rates merely by holding on to their
market share. Competition for market share develops, driving down prices and often producing a price war, as has
happened in the airline and PC industries. To survive the shakeout, companies begin to focus on minimizing costs and
building brand loyalty.
E. Declining industries. Eventually, most industries enter a stage of decline: growth becomes negative for a
variety of reasons, including technological substitution (for example, air travel instead of rail travel), social changes
(greater health consciousness impacting tobacco sales), demographics (the declining birthrate damaging the market for
baby and child products), and international competition (low-cost foreign competition helped pushed the U.S. steel
industry into decline). Within a declining industry, the degree of rivalry among established companies usually increases .
9. External analysis is analyzing the external environment of a business. Its purpose is to identify strategic opportunities
and threats within the organization’s operating environment that will affect how it pursues its mission.

10. PESTEL is an analysis of the external environment of a business in terms of political, economic, technological,
environment, and legal factors. By analyzing these 6 categories, the data provided will offer an overview of the external
environment and will serve as a support for the strategic planning process. It offers and overview of the current external
environment; Analyzes what external forces can influence the company; Provides a useful input for SWOT analysis.
PORTER’S FIVE FORCES MODEL
a. Risk of entry by potential competitors

The threat of new competitors entering the market is very high  because the fitness market is increasing and many fitness
wear companies are portraying different products to target the potential customers such as Nike, Adidas, Under Armor,
and many more. These competitors also have a higher amount of resources and have a long history in the industry with a
strong brand image and financial capabilities which could possibly affect Lululemon's sales. The risk of entry by potential
competitors is a strong competitive force against Lululemon 

Considering that the fitness industry is rapidly expanding, there could be a number of new entrants in the fitness market
who would like to take advantage of the growing market as well as the growing demand for athletic apparel. Nowadays,
the common potential competitors of Lululemon are the online sellers and thrift stores who put pressure on Lululemon
through lower pricing strategy, reducing costs, and providing new value propositions to the customers.

Given the ease with which new players can enter the industry, the threat of new entrants is high for the sector. But the
possibility of innovative being well received by customers despite the presence of strong competitors in the industry
makes it attractive

b. Rivalry among established companies

The rivalry among established companies is increasing because segment sales are growing and profits can still be earned
by companies with strong capabilities and good products and as more competitors enter the market, rivalry will
undoubtedly increase. Lululemon is already predicting lower sales growth (by half) for 2013, and the company saw its
traditionally-low inventory levels go up by 85% in 2012. These could be signs that the competitive environment is
beginning to intensify and to affect the company’s outcomes. Also, existing competitors can take advantage of pricing
strategies to drive the price down, gain market share, and decrease overall profitability. The competitive athleisure
market becomes a real threat for Lululemon operating in the high-end market segment. The economic downturn will
drive customers away to go for more affordable brands. (NYF, add/edit pa mary)

c. Bargaining power of buyers

The bargaining power of buyers maintains a moderate to high level of power because switching costs are not a factor, and
buyers have many product options available across the pricing spectrum. However, Lululemon’s brand image and
artificial scarcity tactics provide some protection against buyer bargaining power, creating demand and enabling the
company to charge premium prices for its products.(NYF, add/edit pa mary)

d. Bargaining power of suppliers

The bargaining power of suppliers is low because the number of suppliers in the industry in which Lululemon operates is
a lot compared to the buyers. This means that the suppliers have less control over prices and this makes the bargaining
power of suppliers a weak force. (NYF,add/edit pa mary)

e. Substitute products

The threat of substitute products is high despite the fact that the materials and the high quality of the Lululemon
products are difficult to replicate. A large number of companies are catering to the needs of the customer. However, the
low quality of the competitor products and poor materials gives Lululemon a competitive advantage, as the customers
are less likely to switch to suppliers with poor quality.(NYF, add/edit pa mary)
MODERATE AVAILABILITY because there are a lot of substitutes in the clothing or textile and apparel industry but limited or
specific ra na kinds ang appropriate for sports or fitness. For example there is a large production of sweatpants or leggings or biker
shorts in the industry, but those are the specific kinds of substitute for Lululemon products. In other words, although dako an
production, dili wide ang range sa pag choose ug different kind na athletic apparel

CC:

Next in the Porter’s model is the bargaining power of buyers. Its determining factors are: 1) relatively low
switching costs. Companies that offer products that are very easy to replicate at comparable prices by
competitors typically have low switching costs. In the athletic apparel industry, companies have low switching
costs among consumers, who can find clothing deals easily and can quickly compare prices by walking from
one store to another. Since the switching costs for buyers are low, buyers can choose the products of another
brand and make a switch faster. The low switching costs make it easy for customers to buy fitness wear other
than those from Lululemon. 2) availability of substitutes. Since there are many product options available in the
industry, buyers tend to buy other products instead of always buying from Lululemon. Lastly, 3) customers’
high willingness to pay. The target market of Lululemon are the buyers who are willing to pay for the premium
price for their products. In this case, the buyers are willing and able to pay for these products, thus making their
power over Lululemon weak. Therefore, the bargaining power of buyers is a strong force against Lululemon
because although buyers of Lululemon are willing to pay for LULU’s premium price in exchange for the quality
of their products, there are a lot of substitutes available in the market with low switching costs. In this case, the
company has to always ensure that their products are of high quality and affordable and has to develop long-
term customer relationships.

Next is the bargaining power of suppliers. It remains a weak competitive force against Lululemon because of
two factors. 1) large population of suppliers. The number of suppliers in the industry in which Lululemon
operates is a lot compared to their buyers. This means that the suppliers have less control over prices. And 2)
absence of contract. Lululemon does not have any long-term contract with the majority of their suppliers or
manufacturing sources for the production and supply of their fabrics and garments, even though 85% of its
merchandise comes from 10 suppliers and some fabrics are currently supplied by one company. In this case,
Lululemon is still confident of being able to get its merchandise from other suppliers in case of any disruption
from current ones. 

Lastly, the threat of substitute products. It is a strong force against the company because they are 1) cheaper
substitute products. Since substitutes to Lululemon’s products are generally cheaper and priced more
reasonably like regular leggings, jogging pants or sweatpants, then there may be more risk of buyers preferring
those substitutes. 2) low switching costs. Again, since the switching costs for buyers are low, buyers can easily
choose substitute products instead of LULU products. Also, the availability of substitutes is high since a
considerable number of substitutes to Lululemon’s products in the industry that make it a moderate force
against Lululemon. For example, LULU’s core product line of yoga pants could be substituted by regular fitness
pants, running pants, leggings or other products that serve the same need. There are many similar product
ranges and many offers good quality at lower retail price. However, these substitutes are of inferior quality. In
terms of the quality of the substitute products such as those mentioned, customers cannot derive the same utility
(in terms of quality and performance) from substitute products as they derive from LULU’s products. In a
nutshell, although substitute products are of inferior quality compared to Lululemon’s products, the number of
substitutes available in the market as well as their cheaper price and the low cost of switching make the threat of
substitute products a strong force against Lululemon.

Next will be the SWOT analysis which will be discussed by Cha and Caryl.

STRUCTURE AND CONTROL SYSTEM

To continue, by having a functional structure, Lululemon’s control systems apply output control in which
managers monitor the performance of their employees if they are following the principle of the minimum
chain of command and whether or not they need several levels of middle managers. By setting the overall goals
of the organization, and developing an operating budget, managers at lower levels can properly allocate their
resources to ensure achievement of their divisional goals, and in turn ensuring the achievement of the larger
organizational goals. In addition, employees are provided with many in-house workshops such as self-
development and goal setting that will allow them to lead towards their long-term objectives. Lululemon
believes their employees are satisfied with the compensation they receive for their employment and has offered
them many means to keep their relationship excellent with the employees in which they offer them an option
to purchase a limited amount of stocks in the company at a 25% discount from fair market value. 

Next are the recommendations, to be discussed by Cha and Caryl.