Case Study

How Lululemon
Built Athleisure’s
Leading Brand
By Sarah Kent

As much of the fashion industry scrambled to survive the Covid-19 crisis, the activewear
label’s share price rose to an all-time high. How did Lululemon come to dominate the age of
athleisure, prosper through the early days of the pandemic and solidify its position as one
of the world’s most powerful apparel brands?

businessoffashion.com July 2020

Executive Summary
As most of the fashion world scrambled
to survive an apocalyptic downturn
brought on by the coronavirus pandemic,
activewear label Lululemon’s share price
rose to an all-time high last month.
The originator of pricey yoga leggings,
and other activewear that often doubles as
daywear, has been an early winner of what
is expected to be a years-long financial
crisis. Consumers stuck at home are
still in the market for flattering comfort
clothes, like the brand’s velvety-soft
“Align” leggings, which some customers
collect by the dozens.
The current state of the world solidified
Lululemon’s position at the top of the
athleisure totem, a trend the company
all but created, and which fuelled its
growth over the last two decades. It has
underscored the company’s achievement
of a rare and elusive prize: enduring brand
value.
But Lululemon’s rise to the top of the
burgeoning activewear sector — with
the sports apparel market projected to
top $200 billion this year, according to
Euromonitor International — has not
been without its challenges. Growth
has been marred by successive scandals
over quality, culture and leadership that
broke just as competitors muscled in
on the company’s home turf with look-
alike products at cheaper prices. Its yoga
leggings became a part of an ubiquitous
uniform that also included Uggs and
a Starbucks cup, derided by some as a
means to signal fitness without actually
exercising and teetering on the brink of
fashion irrelevance. (The look earned the
derogatory term “basic bitch,” adopted by
critics and satirists across the internet.)
But love for Lululemon remained strong
among core customers — who proudly
wore their leggings in the studio and out
— who swear by the comfort, performance
and style they offer. The maverick
leadership of Founder Dennis J. “Chip”
Wilson had helped Lululemon establish
Have you been forwarded this Case Study? Read more deep-dive analysis by exploring a BoF Professional membership at
businessoffashion.com/memberships or contact professional@businessoffashion.com
businessoffashion.com
a sticky sense of community that still
endures. It’s been a highly effective tool
to sustain and grow the brand’s strength
in spite of turmoil at the top. At the same
time, the company has always eschewed
wholesale and discounts, protecting
it from some of the retail disruptions
of the last decade, while its focus on
technical design helped it retain some
differentiation as competitors piled into
the burgeoning market for athleisure.
Early adopters’ habit of wearing their
Lululemon leggings to brunch turned out
to reflect a deeper, longer-lasting lifestyle
trend, not just a fleeting fashion trend.
Indeed, now it’s just the way people dress,
particularly in a work-from-home era
where comfort is king.
Today, as the coronavirus continues to
upend life, work and the economy, the
company now looks among the best-
placed apparel retailers in the world.
While the fashion industry as a whole
is facing a bleak outlook, demand for
activewear has remained comparatively
robust. The brand ranked among The
Financial Times’ top 100 companies
prospering in the pandemic. It has
added roughly $10 billion to its market
capitalisation this year.
Lululemon is not immune to the current
market uncertainty, of course. Sales fell 17
percent in its fiscal first quarter. Though
most of its stores affected by pandemic-
induced lockdowns have now reopened,
the prospect of having to close again in
certain locations remains very real. Its
share price is off the all-time high reached
last month and, like the rest of the fashion
world, it must find a way to navigate the
fresh focus on structural racism and a lack
of inclusivity within the industry — an
area where the brand has had its share of
missteps in the past.
BoF’s latest case study examines how
Lululemon built the world’s leading brand
in a new category, and where the company
goes from here.
2
History
The Age of Athleisure
Source: Lululemon
In 1998, Canadian entrepreneur Chip
Wilson had just sold out of his Vancouver-
based surf and snowboarding venture,
Westbeach. He was ready for something
new.
Looking at the late ‘90s consumer
landscape, he thought he spotted an
untapped market for women’s activewear.
His target demographic was health
conscious, independent and had
disposable income to spend on clothes.
At the same time, Wilson made a savvy
bet on a growing fitness trend. Though
yoga as a practice is thousands of years
old, its commercialisation as a fashionable
fitness trend is a relatively new
phenomenon. For women who wanted to
look nice in class, there weren’t a lot of
options. The workout clothes that were
available tended to be unflattering and
synthetic. Dance leggings often became
transparent when stretched, a particular
problem for yoga practitioners.
Wilson zoned in on the product. Ahead
of launch, he spent more than six months
developing a new fabric. Eventually
trademarked as Luon, the company’s
cotton-soft blend of nylon and lycra
became its calling card. Wilson also
invested $80,000 upfront to buy two
Japanese flat lock sewing machines,
according to his 2018 memoir, “Little
Black Stretchy Pants.” The machines
businessoffashion.com
allowed the company to sew the seams of
the leggings flat, a new innovation at the
time with the significant performance
benefit of removing chafing.
Instead of spending money on expensive
marketing, Wilson connected with the
people at the forefront of the yoga wave.
From early on, he sought to embed
Lululemon with local studios and
teachers, underpinning a guerrilla
marketing strategy with a focus on
technical performance and quality.
“Lululemon didn’t build a brand based
around sneakers, marketing or high-
profile endorsers, unlike Nike, Under
Armour and others,” said Simeon Siegel,
a managing director at BMO Capital
Markets. “Lululemon’s growth has been
organic and grassroots, planting their
message in a healthy way across yoga
studios across the world and creating a
sense of authenticity.”
As western interest in yoga shifted into
a commercialised, cultural wellness
phenomenon, Lululemon was along
for the ride. The brand became about
more than the product; it embodied the
lifestyle it was selling. Wilson imbued
his company with an intense culture of
constant self-development. Employees
were pushed to attend Landmark Forum,
a series of controversial self-improvement
seminars that some refer to not as cultish,
but as an actual cult. The company’s
manifesto, printed on the company’s
bags, comprised motivational and
sometimes offbeat sayings. Consumers
and employees who bought in, really
bought in.
By 2010, Lululemon had expanded beyond
Canada, with more than 100 stores in
North America. That year, the company’s
revenue grew nearly 60 percent to hit
$712 million. after just over a decade in
operation, its growth boosted by market
trends and fueled by an infusion of cash
from private equity and a 2007 initial
public offering. (The share price rose 56
percent in its first day of trading.)
The yoga market was booming too.
According to a study by Yoga Journal,
the number of people practising yoga in
America rose 80 percent between 2012
and 2016 to more than 36 million. The
market for people buying into concepts
associated with yoga-like mindfulness
and wellness was far greater. Throughout
the 2010s that culture was co-opted by
high-end fitness studios and workout
classes like Barry’s Bootcamp and
SoulCycle, which exploded in popularity
and drew in a powerful cohort of high-
net-worth and fashion-conscious
consumers who wanted to look good while
in the gym and on Instagram.
3
History

Lululemon was in pole position to

dominate a sector that was about to really
Exhibit 1: Athleisure Bump
take off. The global sportswear market
was worth around $200 billion last year,
The market for sportswear has surged in recent years.
according to Euromonitor International.
It has grown nearly 65 percent since 2010,
Global Market Growth Sports Apparel significantly outpacing growth in the
(Percentage Change) Global Apparel broader apparel market.
9 Athleisure — a term coined to describe
clothes inspired by performance gear,
8 but worn casually — has been one of the
defining trends of the decade. Women
7
not only wear athletic apparel to run
6 errands and eat at casual restaurants, but
occasionally at the office, too. In 2014,
5 financial services firm Piper Sandler
found leggings were the top fashion trend
4 among teenage girls. By 2017, US imports
of women’s elastic knit pants surpassed
3 those of jeans for the first time ever,
2
according to data from the US Census
Bureau reported by Quartz.
1 Though fashion trends change constantly,
it’s rare for a whole new category to gain
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 such traction. Even Levi Strauss & Co. has
forecast had to adapt its rugged denim offering to
Source: Euromonitor International incorporate stretch.
“It’s a new way of dressing; it’s like when
women switched from dresses to jeans
in the ‘70s,” said David Swartz, an equity
analyst in the consumer sector research
group for Morningstar. “It became
everyday fashion, which is astounding
considering it started out as yoga pants.”
But just as the market it had helped
to create started to soar, Lululemon
stumbled. In 2011, the brutal murder of
an employee by a co-worker in a Maryland
store cast a spotlight on the company’s
internal culture, described by some as
cultish. Leadership struggles and bungled
efforts to contain a product recall over
quality issues in 2013 hurt the company
just as new competitors were moving
onto the scene. Controversy continued
to hang over the business. Wilson, who
had presided over the brand’s culture,
resigned as non-executive chairman, and
the company cycled through three chief
executives in five years.
Though the company was still expanding,
comparable sales growth stalled and
remained in single digits until two years
ago.
Meanwhile, the market Lululemon
helped create was becoming increasingly
crowded. VC-backed labels like Outdoor
Voices started to build their own loyal
following. Gap, one of the world’s biggest
apparel retailers, entered the market in
2008 with its $150 million acquisition of
Athleta. Sportswear giants including Nike
and Adidas also started to encroach on
the burgeoning market and Amazon filled
up with lookalike products.

businessoffashion.com 4
 History
Source: Lululemon
“The company’s And yet Lululemon endured. Women —
and increasingly men — continue to pay
brand value rose above market prices for the company’s
gear, which is rarely discounted. For the
nearly 80 percent last two years, comparable sales have
grown by nearly 20 percent. Revenue hit
last year, a pace of $4 billion in 2019. Though Lululemon
increase second-only is no longer the only game in town, it
is a prime and growing player in a fast
to Instagram.” expanding market.
The company’s brand value rose nearly
80 percent last year, a pace of increase
second-only to Instagram, according
to WPP and Kantar’s annual BrandZ
ranking of the 100 most valuable global
brands. It was ranked the world’s fifth
most valuable non-luxury apparel brand
after industry giants Nike, Zara, Adidas
and Uniqlo.
It didn’t hurt that some of the brands
that looked like they could prove tough
competition to Lululemon turned out to
be paper tigers. Start-up darling Outdoor
Voices imploded. A financing round at the
start of this year valued the company at
just $40 million, down from $110 million
two years ago, according to The New York
Times, though efforts to reinvigorate the
brand are ongoing.
Under Armour, which was founded just
two years before Lululemon, soared
to become one of the world’s largest
businessoffashion.com
sportswear brands, but largely missed
the trend for athleisure. It has also seen
its wholesale-focused business model
falter and suffered its own setbacks.
Though the company remains larger than
Lululemon, its pace of growth is sluggish
and it’s struggling to execute a years-long
turnaround.
Though Wilson — no longer a board
member, but still Lululemon’s largest
individual shareholder — has persistently
and vocally complained that the company
has under-performed its potential, it
was named a Super Winner in BoF and
McKinsey & Company’s The State of
Fashion 2020 report, ranking it among
the industry’s most profitable players.
By the time the coronavirus crisis hit,
Lululemon was in its best shape in years
and comparatively well positioned to
navigate the pandemic. Though the
bottom has dropped out of the overall
apparel market, sportswear has remained
relatively strong. According to NPD,
activewear sales in the US dropped 2
percent in the year to the end of April,
while sales of non-active apparel fell 10
percent. Sales of activewear now make
up 27 percent of the overall US apparel
market, up 3 percentage points from a
year earlier, according to NPD.
5
History

Though the company’s performance

hasn’t quite lived up to optimistic
Exhibit 2: The Power of Yoga
expectations — shares dropped after it
reported a sales decline of 17 percent in its
Lululemon’s share price outperformed other sportswear brands this year.
first quarter — it is still out-performing
most of the industry. For the fashion
sector as a whole, BoF and McKinsey &
Stock price, market open Lululemon Adidas
Company’s Coronavirus Update to The
Rebased to 100 (USD) Nike Under Armour State of Fashion 2020 projects sales will
contract by between 27 and 30 percent
140 this year. And even among brands focused
on the more resilient activewear market,
120 Lululemon is looking good — rivals
Adidas, Under Armour and Nike saw
sales decline 19 percent, 23 percent and
100
38 percent respectively in their latest
quarterly results.
80
Lululemon has “been in its own universe
for some time,” said Morningstar’s
60 Swartz. “They’ve reported these
incredible numbers while other retailers
40
were struggling to survive.”

20

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20

Source: Yahoo Finance

Source: Lululemon

businessoffashion.com 6
The Challenge

Competition and Controversy

Lululemon’s success over the past decade
Exhibit 3: Recovery Position
has come about as a result of — but also
in spite of — the actions of the company’s
Lululemon’s comparable sales have returned to double-digit growth after slowing
senior leadership. The power of its brand
significantly early in the decade.
has proven teflon-like in its ability to
endure through successive executive
Comparable sales
squabbles and scandals.
(Percentage change)
The company’s most notoriously
37 damaging stumble was the “sheergate”
debacle. In March 2013, Lululemon had
to recall its popular black Luon leggings
— roughly 17 percent of its inventory
of women’s bottoms — because of
22 complaints that they were see-through. It
was an embarrassing and costly incident,
which tarnished the brand’s reputation
18
17 for quality. The company took a $17.5
16 million hit for the recall and announced
Chief Executive Christine Day was
leaving within months. Then, Wilson
— who remained very much the brand’s
spiritual leader — went on Bloomberg
TV and made comments that seemed to
7 7
6 blame women’s bodies for the issues.
5
Wilson says the comments were taken out
of context and misinterpreted, but they
1 caused a firestorm of criticism. By the end
of the year, Wilson had resigned as non-
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 executive chairman, later stepping down
Note: Adjusted comparable sales. From 2013 onwards, comparable sales also include e-commerce. from the board entirely.
Source: Lululemon
In 2014, the company’s comparable sales
growth all but ground to a halt, the nadir
in a deceleration that had been ongoing
for several years. Meanwhile, new
players were muscling in on Lululemon’s
territory, poaching market share with
their own versions of the stretchy pants
that had made Lululemon so successful.
“We allowed the competitors in,” said
Wilson, who has been fiercely critical of
the brand’s performance since 2013. His
2018 memoir served as an unauthorised
history, outlining his view of what went
wrong. “Lululemon self-imploded. The
company went from owning 95 percent of
the women’s technical apparel market in
2011 to 10 percent in 2018,” Wilson wrote.
Though the company remained profitable
and continued to expand, it was certainly
true that it was facing increased
competition as the athleisure trend
embedded itself in popular culture.
Throughout the 2010s, new players and
established labels tried to pile in on the
action.

businessoffashion.com 7
 The Challenge

Exhibit 4: Executive Churn

In the last 10 years, Lululemon has gone through three CEOs.

Years served as Lululemon CEO

Chip Wilson Robert Meers Christine Day Laurent Potdevin Calvin McDonald
1998-2005 2005-2008 2008-2013 2014-2018 2018-present

Image source: Getty Images

“How do we go In 2013, Nike set a target to grow sales Despite it all, customers remained loyal
from its women’s business to $7 billion, to the brand they had grown to love in
from playing muscling in on Lululemon’s target the good times, and more were drawn
defense to offense?” market. Adidas also amped up efforts
to target the women’s market. It even
in as things began to stabilise in recent
years. The company that helped drive
brought in Day, Lululemon’s former CEO, one of the biggest market trends of the
— Laurent Potdevin
as a consultant. century looks to be back on track. Though
the coronavirus pandemic raises fresh
Though Outdoor Voices has stumbled,
challenges, it is better placed than most
when it launched in 2014 it gained swift
competitors to not only survive, but take
traction and buy-in from seasoned
advantage of the downturn to strengthen
fashion executives that made it seem like
its brand.
it could become a real challenger. APC
founder Jean Touitou invested in the “There was a lot of controversy… There’s
company in 2016. Former J. Crew Chief been a flood of competitors and that
Executive Millard “Mickey” Drexler was did affect them in past years,” said
named chairman of the board in 2017, Morningstar’s Swartz. “But for whatever
after putting money in as well. Drexler reason, the Lululemon brand has
resigned as chairman of the board mid- remained extremely strong… People have
last year. this view that Lululemon are the best
out there and they are willing to pay high
Traditional retailers have piled in, too.
prices for it.”
Gap’s acquisition of Athleta in 2008 was
just an early entrant. Now, it’s rare for
a big brand not to offer tracksuits and
leggings alongside standard ready-to-
wear items.
By the time Laurent Potdevin took over
as chief executive of Lululemon in early
2014, the company was facing increasing
competition.
“How do we go from playing defense
to offense?” Potdevin told BoF in 2016.
“From looking over your shoulder to see
what worked yesterday, to inventing the
future.”
Potdevin focused on design and
innovation, ensuring quality issues did
not come back to haunt him, and set a
course for expansion into new growth
areas. But by early 2018, Potdevin himself
was gone. He exited under a cloud of
scandal, amid allegations that he had a
relationship with a subordinate, among
other issues of misconduct, according to
reports at the time.

businessoffashion.com 8
The Strategy
Brand Over Matter
Even as Lululemon struggled with quality
issues and internal turmoil, the company
was structurally well-positioned to
navigate the broader retail disruptions
that hurt many established brands over
the last decade.
“The love of the Lululemon
brand has outshone many
tribulations.”
— Simeon Siegel
Despite the sheer pants disaster, its
products were good quality, and its loyal
customer base — entrenched early on by
the company’s first-mover position — kept
coming back to buy them at full price.
The company had also cut out third-party
retailers from the beginning largely
because of Wilson’s experience with
Westbeach, where he struggled to turn a
profit because the cost of his wholesale
business eroded all the money made at his
own stores.
The vertical retail model meant VC-
backed e-commerce players found it
harder to come in and undercut its market
position, as they did with many other
retailers. The company’s entrenched
culture meant the brand continued to
resonate and feel authentic despite the
internal tumult, and fundamentally, for
all its missteps, the product remained
desirable.
“Lululemon’s customers have given it
much greater leeway than many other
consumer companies could have hoped
for,” said BMO’s Siegel. “The love of the
Lululemon brand has outshone many
tribulations.”
businessoffashion.com
That meant the company was well-primed
to recover when former Sephora Americas
boss Calvin McDonald came in as chief
executive in 2018. He doubled down on
the things that worked, and focused on
diversifying the company’s offering into
adjacent markets to drive growth.
The company that helped build the
athleisure boom was now looking to
dominate the multi-trillion dollar
wellness market.
McDonald set out a three-pronged
strategy for the five years to 2023. The
company would continue to focus on
creating innovative technical products. It
would expand its retail offering with new
store formats and consumer experiences,
while developing a more sophisticated
digital offering. Finally it would focus on
market expansion, targeting growth in
Asia and Europe and doubling down on
new verticals like menswear.
By the end of 2023, the company plans
to quadruple its international business
and double its revenue from digital and
men’s. It’s also branching out into new
categories, launching a line of self-care
products last year. In June, Lululemon
made its first acquisition, shelling out
$500 million to acquire home fitness
startup Mirror, which sells a $1,495 tech-
enabled mirror for streaming workout
classes.
“We are in the early innings of our
growth,” McDonald told The Wall Street
Journal last year. “We’re not playing
the trend of athleisure… Our business is
playing into a much bigger trend.”
9
The Strategy
01 — Product Excellence
Source: Lululemon
Shannon, a Lululemon fan blogger, has
more than 500 items of Lululemon
clothing, including 70 pairs of Luon pants,
30 Racerbacks, 50 skirts and 20 pieces
each of two different types of headband,
at a guess. She’s been a collector since
2010 and writes detailed product reviews
on her blog, Lululemon Expert, which she
said gets thousands of monthly visitors.
Though Shannon said the brand’s
aspirational, positive ethos called to her,
she initially felt like it was just marketing
and resisted going into the store. It was
the product that won her over and kept
her coming back again and again.
“In my mind, Lululemon has no
competition,” Shannon said, pointing to
design details like the card pockets on the
waistband of most Lululemon bottoms,
the ponytail hole in some hoodies and the
reflective stripes on many pants. “As far
as quality goes, there are companies who
use similar quality fabrics, and I buy their
stuff from time to time too — but I always
go back to Lululemon,” she said.
Despite losing its way very publicly with
the quality control issues that caused
such problems in 2013, Lululemon still
has a reputation for making really good
products. As competitors poured into the
athleisure market over the last decade,
the company continued to develop new
fabric and product innovations, helping
it to maintain its position and justify its
high prices.
At Whitespace, the company’s in-house
innovation lab, Lululemon researches
and tests new products and materials,
focusing on blending design, function and
feel. Fabric innovations have included
Luxtreme, a sweat-wicking, stretch fabric
that Lululemon claims fits “like a second
skin;” Everlux, designed to dry super fast
and keep its wearer cool in the sweatiest
businessoffashion.com
workout classes; and Nulux, a lightweight
fabric meant to make you “feel like you’re
wearing nothing” but still stand up to
high-sweat training.
The company combines the work at
its lab with consumer research, to try
and ensure it’s matching its efforts to
consumer needs and providing newness
around established products. For
instance, it developed lightweight Nulu
after observing that consumers were at
times sizing up to achieve a more relaxed
feel in their leggings or sizing down
to feel more compressed. The fabric is
designed to make the wearer “feel like she
was wearing everything she needed and
nothing at all, all at the same time,” Chief
Product Officer Sun Choe told analysts at
the company’s investor day last April.
Though long-standing sports brands like
Nike and Adidas were also built on this
kind of research and development, for
many years they ignored the opportunity
presented by the affluent female market
Lululemon made its core demographic.
By the time the sportswear giants wised
up, Lululemon’s brand was already
entrenched. That made it harder to unseat
as the market for fashionable activewear
ballooned.
Even as Lululemon has expanded its
product offering into new categories,
including casualwear, outerwear and
menswear, it has kept its focus on
technical design and quality.
“The products are very innovative and
very functional and they’re extremely
well designed, so what you’re offered as a
consumer is a garment that really does a
good job,” said Neil Saunders, Managing
Director at GlobalData Retail. “I think
that is the heart of what Lululemon is
about.”
10
 The Strategy

02 — Cult of Community

The true secret sauce that has built and

Exhibit 5: Sales Workout bolstered Lululemon’s brand is the cult-
like loyalty it inspires in consumers, many
Website traffic saw an unseasonal bump in the US as consumers turned to clothes suited of whom are as devoted to their Lulus as
to comfort and wellness during lockdown. they are to juice cleanses and daily sun
salutations.
lululemon.com total US unique visitors While product design and quality
(Millions) underpin Lululemon’s appeal, there’s a
deep-rooted and powerful force to the
4 brand.
“At the end of the day, the difference
between an incredibly successful
corporation and startups that failed is less
3
a playbook, and more a series of decisions
— some luck, some not — and the ability to
pull consumers over,” said BMO’s Siegel.
“There are plenty of athleisure brands
2 that are just as technical as Lululemon,
none of which are able to pull so many
over.”
At least part of the brand’s power is the
1
fact that it got in early to a market
segment few predicted in the late ‘90s
would turn into a trend, let alone change
the way we dress or become part of a
Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20
lifestyle phenomenon. When Lululemon
was founded, big sportswear companies
Source: Comscore
weren’t targeting the yoga market, or
women. It was wide open.
“If you look at sports and other athletic
activities, Nike owns a lot of that space…
but it’s never owned yoga,” said
“If you look at sports and other athletic GlobalData’s Saunders. “They don’t own
that space, Lululemon does, because of its
activities, Nike owns a lot of that space… very early focus.”
but it’s never owned yoga... Lululemon The company capitalised on its early-
mover advantage with an influencer
does, because of its very early focus.” marketing strategy before influencing
was a thing. It focused on grass-roots
— Neil Saunders
growth, tapping local fitness instructors
as “ambassadors” to wear its clothes in
the locations around its stores. In doing
so, it hit a cultural vein ripe to respond
to the sense of the community it was
selling, and willing to pay a high price for
elite workout classes and the appropriate
accompanying fashion accoutrements.
As the company’s Executive Vice
President for the Americas and Global
Guest Innovation, Celeste Burgoyne,
put it during the company’s analyst day
last year, “our community model made
us experiential before experiential was a
thing.”
The strategy proved highly effective
at customer acquisition and was much
more cost effective than the traditional
marketing and endorsement strategies
pursued by competitors. Its success lay
in part in the fact that it was strongly
underpinned by the company’s internal

businessoffashion.com 11
The Strategy
culture, which Wilson imbued from the
start with an intense and driven mantra
of perpetual self development.
The company has distanced itself from
controversial self-improvement
organisation Landmark Forum in
recent years — once central to career
progression — but working at Lululemon
continues to mean buying into the brand’s
values, which resonate with a growing
core of consumers. The company’s focus
on personal development, fitness and
wellness reflects prevailing market
trends, and its network has grown and
become more powerful.
Lululemon now has more than 2,000
ambassadors globally and another 15,000
alumni of the programme. It holds more
than 4,000 events a year from runs to
festivals to store-level sweat sessions,
and hosts the annual SeaWheeze half
marathon in Vancouver, which sells out
within hours.
The success of its community focus is
reflected in the fact that the company’s
consumer base is enviably sticky — at its
investor day last year, Lululemon said it
had a 92 percent retention rate for the
top-spending 20 percent of its customers.
“We rate it as a narrow-moat company
based on the strength of its brand and its
brand only,” said Morningstar’s Swartz,
referring to the financial services firm’s
system of rating companies’ vulnerability
to competition. “What that means is we
believe Lululemon customers are willing
to pay premium prices for Lululemon,
Source: Lululemon
businessoffashion.com
even though there are plenty of other
options out there.”
The company sees room to evolve this
further, leaning into digital opportunities
to boost global reach and experimenting
with a membership programme that
allows customers to pay an annual fee in
order to gain access to exclusive products,
ambassador-led classes and member-only
events.
During the coronavirus lockdown, it
has shown that this model resonates
online too. In China its “sweat sessions,”
including yoga, meditation, pilates
and dance classes, have helped it gain
thousands of new followers on WeChat.
Nearly 170,000 people tuned in to join
live classes on Instagram in the first week
after stores started closing in Europe and
North America.
Lululemon’s June acquisition of fitness
startup Mirror is the latest step in the
company’s efforts to reach customers at
home and online. The workout platform
will continue to operate as a stand-alone
company, but there are clear synergies.
Mirror founder Brynn Putnam was
herself a Lululemon ambassador and the
platform already features classes like
meditation taught by trainers linked to
the brand.
“The opportunity of Covid is that it’s
brought the future closer to the present,”
McDonald told analysts in June. “We
were able to see the power of in-home
sweat.”
12
The Strategy

03 — Selling the ‘Sweatlife’

From the beginning, Lululemon has kept

Exhibit 6: In-store Efficiency
careful control of its distribution, helping
to cement the brand’s cult-like status
Pre-pandemic, Lululemon’s physical stores had grown into highly productive sales
and building on the company’s sense of
generators.
exclusivity.
Lululemon average sales per sq ft It has very limited wholesale partners,
(USD) 1,657 which means to procure a coveted pair
of Lululemon leggings, shoppers must
visit one of the brand’s own stores or go
directly to the company’s website. And
Lululemon rarely goes on sale.
Because the company eschewed
wholesale from the beginning, it is able
to keep tighter control over pricing,
product assortment and marketing than
1,579 competitors who sell through third-
party distributors, giving up control and
sharing margin.
1,554
The company has stuck doggedly to this
1,541
strategy even as competitors flooded
the market with cheaper alternatives,
1,521 ratcheting up the pressure to lower prices
or loosen the reins over sales channels to
expand distribution. Many newcomers
to the market ultimately didn’t have the
2015 2016 2017 2018 2019 infrastructure to compete.
Source: Lululemon Meanwhile, though physical stores have
proved a costly drag for many retailers in
the last decade, as footfall fell and rents
went up, Lululemon’s shops are powerful
tools to amplify the brand’s image and
increase sales.
Lululemon brought in more revenue
per square foot than any other US
apparel retailer in 2017, according to
CNBC, citing data from commercial
real estate analytics firm CoStar. Last
year, the company generated $1,657 for
every square foot of retail space it owns.
By contrast, retailers like Kohl’s, Gap
or Macy’s typically bring in between
$200 and $300 per square foot, said
Morningstar’s Swartz.
Lululemon rival Under Armour has had
its own share of internal challenges, but
the company also stumbled because of its
reliance on wholesale partners. A string
of bankruptcies in 2016 at major US sport
retail chains including Sports Authority
represented a painful setback for the
company.
Lululemon’s stores themselves are
valuable tools for the company to
communicate with its community. Sales
representatives — self-consciously
termed “educators” — are tasked with
having “authentic conversations” about
the product with consumers, or “guests.”
Many stores also host regular run clubs or
yoga sessions, now common practice for
activewear retailers.

businessoffashion.com 13
The Strategy

Source: Lululemon

At the same time, the company has housed fitness studios, meditation spaces
“The Sweatlife is… a been upping its digital game, steadily
increasing online sales and aiming to
and a “fuel bar.” By 2023, the company
anticipates about 10 percent of its stores
$3 trillion global amplify its community outreach through will fit this model.
digital tools. Last year, e-commerce sales
marketplace.” grew 35 percent to make up nearly 29
The move marks a broader vision for
the brand, which has set its sights on
percent of the company’s total revenue.
moving beyond apparel retail. Its aim is
— Calvin McDonald That left it comparatively well positioned
to market everything associated with the
to capitalise on the shift to online-only
“Sweatlife,” a term intended to encompass
when Covid-19 shut down stores earlier
the substantial global wellness market.
this year. The company’s e-commerce
“The Sweatlife is… a $3 trillion global
revenue jumped 68 percent in its first
marketplace,” McDonald told analysts
quarter, which ended May 3, including a
last April.
bump of 125 percent in April.
It remains to be seen how physical retail
will recover, but the company has pointed
to promising data from its reopenings so
far. Comparable store sales in China were
up around 20 percent in the weeks ahead
of Lululemon’s first quarter earnings, and
the company said in June that the early
response to reopenings in North America
was exceeding its expectations.
That bodes well for the company’s plans
to evolve its store model. Last year, it
opened two new mega-stores in Chicago
and Minneapolis that not only had space
to sell the company’s products, but also

businessoffashion.com 14
The Strategy

04 – Diversify with Discipline

Expanding beyond its core market is The international opportunity is “Lululemon’s brand
key to retaining the brand’s power and significant; most of Lululemon’s 489
driving future growth. By the end of 2023, stores are located in North America. extends beyond cultures
the company plans to double its men’s Its third-biggest retail market is China,
and digital revenues from 2018 levels, and where it has just 41 stores, compared to and geographies and
quadruple international sales. 301 in the US. Last year, its international
business grew 32 percent, compared to
adapts to local interests.”
For a brand with such a strong culture,
20 percent growth in North America. The — Bill Chandler
expansion into new categories is delicate,
company opened four new stores in Asia
but consumers’ embrace of activewear
in its first quarter, despite the coronavirus
for more everyday use, as well as growth
disruptions, and is leaning into online
in the broader wellness market, has
opportunities.
helped pry open new opportunities for
Lululemon. As it eyes new products for the future,
Lululemon is taking a test-and-learn
Perhaps that’s best reflected in the rapid
approach. It initially experimented with
growth of the brand’s men’s business
selling self-care products in a handful
over the last three years. The company’s
of stores across three locations to get
successful pivot from its female-centric
an understanding of the market before
yoga base into the men’s market has
rolling the products out more widely last
surprised many. The key has been to lean
year.
into areas where Lululemon already has
credibility.
“We’ve no roadmap to play in baseball.
We’ve no roadmap to play in football,
hockey, soccer,” McDonald told analysts
at the launch of the company’s five-year
strategy last April.
The appeal of its menswear lies in the
combination of comfort and style. It’s
bestselling ABC (anti-ball crushing)
pants are designed with a special gusset
to disperse tension away from the crotch.
They’re smart enough to wear to work,
but feel like sweatpants. Exhibit 7: Let’s Hear it For the Boys
In 2019, Lululemon’s men’s assortment
Lululemon’s men’s business is growing fast.
accounted for nearly a quarter of the
USD (millions)
company’s sales. Revenue from the Women’s Men’s Other

segment grew 34 percent to hit nearly $1

billion last year. CAGR
2,791 2017-19
International expansion is also moving
forward, with a particular focus on the
Chinese market where the company sees
opportunity in a growing interest in 2,353
health and fitness. Development in new
and growing regions is underpinned by
the company’s established grassroots
21.4%
community model, which helps swiftly 1,893
build brand awareness among core local
consumers. A few months before a new
store opens, the company will typically
host local events with nearby studios
and ambassadors, a move that both
helps establish the brand and deepens
understanding of the market.
934
“Lululemon’s brand extends beyond
cultures and geographies and adapts to 695
33.2%
local interests,” said Lululemon Vice 527
President of Global Communications Bill
Chandler. The company’s ambassadors
255
“connect to a community that otherwise 230 241 5.2%
wouldn’t necessarily know much about
2017 2018 2019
us.”
Source: Lululemon

businessoffashion.com 15
Results
The Scorecard
34%
increase in Lululemon’s share
price between 2 January and
30 June 2020
68%
growth in Lululemon’s
e-commerce sales in its Q1 2020
33%
CAGR in Lululemon men’s revenue
between 2017 and 2019
$4bn
generated in net revenue by
Lululemon in 2019
Source: Yahoo Finance, Lululemon
businessoffashion.com
What’s Working?
Despite its stumbles, over the last decade
Lululemon has been one of fashion’s
biggest success stories. Its rise is
inextricably linked to a massive cultural
shift in the way people dress that only
seems likely to embed itself further as a
result of the coronavirus pandemic.
“The Lululemon brand has grown in a way
that has very few parallels in modern-day
retail,” said BMO’s Siegel. “It’s very hard
to build large brands, and Lululemon is
one of the few that has done it.”
Though early in the decade the company
looked like it could lose its position as
athleisure’s market leader, it has re-
established its dominance and positioned
itself to take on the much bigger wellness
market. As the financial fallout from
the pandemic roils the apparel market,
Lululemon looks well-positioned to
emerge a winner.
At the end of its 2019 financial year,
one year into its five-year strategy,
the company’s net sales were up more
than 20 percent for the second year in
a row. They’d increased 17 percent on
a comparable basis, while profits were
up more than 30 percent. Sales from
e-commerce and menswear, two key
focus areas, both grew by more than 30
percent last year. E-commerce growth
has accelerated substantially in the wake
of pandemic-induced store closures.
“Every quarter when they report
consistently good results, and not just
fairly good, it’s like, wow, over 20 percent
growth. How did you do that?” said
GlobalData’s Saunders. “You think, ‘oh,
they’ll run out of momentum,’ and they
never seem to.”
What Problems Remain?
The company’s success comes at an
exceptionally challenging time for retail.
The coronavirus pandemic has caused
financial havoc for the fashion industry
and its long-term implications remain
unpredictable.
Though Lululemon is comparatively
well-positioned, thanks to its e-commerce
competency and focus on lounge and
athletic wear, it remains to be seen
whether consumers will retain their
appetite for $98 leggings now that the
US has officially entered a recession.
It must also figure out how to retain a
reputation for authenticity and integrity
in an increasingly charged political and
cultural environment. The company has
previously made commitments to causes
including environmental sustainability
and gender pay equity; 60 percent of
its senior leadership team is female. It
has also pledged to take more action on
diversity and inclusion following the rise
of the Black Lives Matter movement.
Turnover at the top remains choppy. In
December, the company’s Chief Operating
Officer Stuart Haselden left to run
embattled travel brand Away after five
years with Lululemon. Its Chief Financial
Officer Patrick Guido left in April to join
auto retailer Asbury Automotive Group
after just two years in the role. Lululemon
said that several members of its senior
leadership team have been with the
company for eight or more years.
Then there’s the question of where
Lululemon goes from here. Can it really
parlay its dominance of the world of yoga
leggings into becoming the world’s next
fitness giant? Should it?
“Investors want to figure out what
Lululemon becomes when it grows up,”
said BMO’s Siegel. “Is it the new Nike, or
just one of the most productive retailers
around?”
16
Looking Ahead
01 – Is Lululemon Inflated by a
Pandemic Bounce?
When the world shut down, shopping
habits changed. First, consumers stuck
at home because of efforts to contain
the coronavirus pandemic stopped
shopping. When they did start to return
to e-commerce sites, evening dresses
and workwear were out, loungewear
and sweats were in. That’s been good
for Lululemon, but once the initial wave
of pandemic purchases has passed, will
the market for high-priced yoga pants
continue to grow?
02 – Is Lululemon Recession-Proof?
There’s no denying Lululemon is
expensive, particularly when compared
to other brands that sell similar
products. “One aspect of this pandemic,
unfortunately, is financial. And
Lululemon is a luxury,” BMO’s Siegel
said. “I think that the reality is, looking
beyond the pandemic, the price point
is too high.” Not everyone agrees. The
financial fallout from the pandemic has
disproportionately hit lower-income
households and those who cannot work
from home. Those are not the typical
Lululemon customer.
businessoffashion.com
03 – Is There a Future for Experiential
Retail?
Lululemon had big plans to develop its
brand through flashy stores that provided
more than a shopping experience, but it’s
unclear post-pandemic how consumers
will shop and if there will be much
interest in sweating alongside a group
of strangers in an enclosed space. On
the other hand, the company is well-
positioned to pivot to digital experiences.
“It’s an opportunity for Lululemon to
become for yoga what Peloton has become
for biking,” said GlobalData’s Saunders.
04 – How Does Lululemon Maintain
Authenticity in an Increasingly
Polarised World?
Lululemon built its brand around
a sense of community, but its price
point and target demographic skew
towards an aspirational elitism that
sits uncomfortably with prevailing
cultural trends among young consumers.
The company’s posts on social media
promising to take more action to fight
systemic racism have been met with
critical responses in some quarters. The
company responded by acknowledging
that it needs to address internal
behaviours, laying out a series of steps it
will take to drive positive change. Like
many other brands, it must now figure
out how to navigate speaking about these
issues with credibility and integrity.
17
Further Reading
• BrandZ, Top 100 Most Valuable Global Brands 2019
• Chip Wilson, Little Black Stretchy Pants
• Financial Times, Prospering in the Pandemic: The Top 100 Companies
• Piper Sandler, Piper Jaffray 27th Semi-Annual Taking Stock With Teens Survey, Spring 2014
• Quartz, The US is Now Buying More Stretchy Pants Than Blue Jeans
• Racked, The Self-Help Movement Behind Lululemon’s Eerie Dogma
• Salon, Yoga, Spinning and a Murder: My Strange Months at Lululemon
• The Business of Fashion, Lululemon Opens Workout Studio Where Visitors Can Borrow Clothes
• The Business of Fashion, Lululemon to Branch into Shoes and Self-Care
• The Business of Fashion, Lululemon Split With CEO Said to Involve Employee Relationship
• The Business of Fashion, Lululemon to Unveil Growth Plans at First Analyst Day Since 2014
• The Business of Fashion, Outdoor Voices CEO Tyler Haney Steps Down As Losses Mount
• The Business of Fashion, The Rise, Stumble and Future of Lululemon
• The Wall Street Journal, Inside Under Armour’s Sales Scramble: ‘Pulling Forward Every Quarter’
• The Wall Street Journal, Lululemon Chief: ‘No Need’ to Discount $100 Yoga Pants
• The Wall Street Journal, Lululemon IPO Runs Up 56%
• Yoga Journal, 2016 Yoga in America Study

businessoffashion.com 18
Copyright © 2020, The Business of Fashion Ltd. All rights reserved

All information contained herein is the sole property of The Business of Fashion Limited. The Business of Fashion Limited reserves
all rights regarding the use of this information. Any unauthorised use, such as distributing, copying, modifying, or reprinting, is
not permitted. Please contact professional@businessoffashion.com for more copies.

Design by Lucinda Scholey

Edited by Lauren Sherman and Hannah Crump

Front cover image: Getty Images

Discover our complete online courses and learning resources at: businessoffashion.com/education

Moray House, 23-31 Great Titchfield Street, London W1W 7PA, United Kingdom
info@businessofashion.com

businessoffashion.com 19