Lululemon Athletica Case 2
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Transcript of Lululemon Athletica Case 2
Steven Bayley
Emily Beale
Yana Dubinsky
Elizabeth Peedin
lululemon athletica, Inc.
MGMT 6722Dr. Karriker
Short Overview
Designer and retailer of high end yoga and athletic apparel founded by Chip Wilson in Canada.
Targeting upper and upper middle classes, mostly women with health and yoga lifestyle awareness
Promoting community hub feeling in its stores and designed to develop high brand loyalty
Operates in North America, Australia and New Zealand
Main competitors: Nike, Adidas, Under Armor, Athleta and New Balance
Operations HQ in British Columbia, Canada with main design team Preliminary manufacturing in North America with mass
production in low cost countries - China and Taiwan Reaches out to potential clients via yoga studios and
instructors
Key Success FactorsCommunity Based Marketing
Superior Customer InteractionTechnological InnovationGrowing market of Fitness and Yoga
apparel consumers
Gamble, J., Peteraf, M., Strickland, A., Thompson, A. (2014). Crafting and executing strategy. McGraw-Hill Education.Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/about/
Value Chain Analysis
Supply Chain
Management
45 different
manufacturers,
no long-term
contracts – can
improve quality
control and lower
costs by
decreasing # and
agreeing to
contracts
Operations
Tighten
inspection and
verification
processes to
ensure another
recall does not
occur (see-
through pants
issue)
Distribution
Facilities only in
Vancouver-BC,
Sumner,
Washington, and
Melbourne,
Australia limits
company’s reach
Growth in online
sales can offset
Sales/
Marketing
Depend on word
of mouth and
community based
marketing - can
increase
marketing via
media (television,
magazines, etc.)
and other
avenues
Current Stock Price
http://finance.yahoo.com/echarts?s=LULU+Interactive#symbol=lulu;range=5y;compare=addyy+nke+ua;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
Financial Performance vs Competitors
http://finance.yahoo.com/* Data retrieved on November 12, 2013
Column1 LULU ADDYY NKE UA IndustryMarket Cap: 10.00B 24.42B 68.64B 8.47B 451.58MEmployees: 6383 40168 48000 1900 3.09KQtrly Rev Growth (yoy): 0.22 -0.07 0.08 0.26 0.16Revenue (ttm): 1.49B 18.62B 25.81B 2.16B 1.05BGross Margin (ttm): 0.55 0.49 0.44 0.48 0.35EBITDA (ttm): 442.86M 1.77B 4.03B 295.60M 55.00MOperating Margin (ttm): 0.27 0.08 0.14 0.12 0.05Net Income (ttm): 270.43M 678.42M 2.66B 147.91M N/AEPS (ttm): 1.85 1.62 2.96 1.38 0.08P/E (ttm): 37.28 36 26.04 58.22 13.85PEG (5 yr expected): 1.91 -4.38 1.99 2.54 1.18P/S (ttm): 6.71 1.31 2.66 3.87 0.5
ChallengesQuality control issues impacting brand image
Narrow focus in both consumer segment and product line
Limited brand recognition and limited geographic market
References:Gamble, J., Peteraf, M., Strickland, A., Thompson, A. (2014). Crafting and executing strategy. McGraw-Hill Education.Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/about/
Challenge - Quality Control Issues
March 18th – Lululemon recalled yoga pants that were stretching too thin and becoming see-through lululemon CEO of 5.5 years stepped down 3 months later
Estimate cost of recall - $67M in Revenue
November 11th – A second quality issue surfaced with yoga pants Chip Wilson blames wearer’s “thick thighs” for stretching the
limits of Lulu pantsBhasin, Kim. "Christine Day Steps Down As Lululemon CEO." The Huffington Post. TheHuffingtonPost.com, 10 June 2013. Web. 20 Nov. 2013. <http://www.huffingtonpost.com/2013/06/10/christine-day-steps-down-lululemon-ceo_n_3417495.html>.
By Jeff Macke Retrieved November 11th, 2013http://finance.yahoo.com/blogs/breakout/lululemon-latest-flap-exposes-ceo-sozzi-130053275.html
Peterson, Hayley. "The Sheer Yoga Pants That Lululemon Recalled Are Back In Stores And Selling For $92." Yahoo Finance. Business Insider, 12 Nov. 2013. Web. 01 Dec. 2013. <http://finance.yahoo.com/news/sheer-yoga-pants-
lululemon-recalled-211224149.html>.
Recommendation - Image Damage Control Producing most of its items in low cost countries like
China and Taiwan requires certain attention to quality if the company wants to continue benefiting from high operating profit due to low costs of good sold. That’s associated with certain risks.
Having company’s employed quality inspectors on payroll that clearly understands and comply with company’s standard is one way to address it.
Costs – average salary for US quality inspector: $31,000 x 45 facilities = $1.39M Insulting potentials customers should not be company’s
motto when they seek growth.
Asking Chip Wilson not to go on the record.
Costs - $0.
Recommendation - Image Damage Control
• The Proforma estimate was based of 42% average growth of Net Revenue• 35% on average growth of Costs of Good Sold• 35% on average growth of Selling, general and administrative expenses
Gamble, J., Peteraf, M., Strickland, A., Thompson, A. Crafting and executing strategy (2014). McGraw-Hill Education.
Selected Income Statement Data
Proforma quality
Proforma w recall
Proforma
Year 2013 2013 2013 2012 2011 2010 2009Net Revenues 1421 1354 1421 1001 712 453 354Cost of Goods Sold 584 583 583 432 317 230 174Gross Profit 837 771 838 569 395 223 179Selling, general and administrative expences 381 381 381 282 213 136 118Operating profit 456 390 457 287 182 87 61
Historical Data From LULU income statament
Challenge – Narrow Focus
SWOT Identified limited consumer base and narrow product
line as weaknesses
Missing opportunity for potential revenue growth by meeting broader range of consumers and broader range of customer needs
Five competitive forces analysis Strong competition from rivals so taking advantage of
any and all opportunities to meet or surpass them is imperative
Recommendation – Narrow Focus Expand more into the men and children consumer
segments & into fitness activities other than yoga and running In 30 days:
Using current business processes gather information from ambassadors, r&d team members and market intelligence sources to identify fitness activities other than yoga and running for women, men or children Stick to focused product strategy and
premium positioning Take advantage of patented fabrics and
product technologies
Complete cost-benefit analysis for the top three fitness activities identified
Cost is negligible since processes and people are already in place
Recommendation – Narrow Focus Expand more into the men and children consumer
segments & into fitness activities other than yoga and running In 31-150 days:
Introduce new products to market Cost: Minimum (design occurs within; developed using
existing fabrics; can use existing manufacturers and distribution system)
Projected Revenue: at least 5% of total sales within two years
Successfully executed for men’s clothing and ivivva (children’s clothing) Men’s 15% of sales (8% less than 2 yrs ago) Ivivva (children’s brand) opened at MOA in October
certified yoga & fitness instructors: team research and development. (n.d) retrieved Dec 01 2013, from lululemon athletica Web Site: http://www.lululemon.com/community/rd_teamNgo, N (2013, Oct, 21). Lululemon sibling ivivva opens at Mall of America. retrieved Dec 01 2013, from Saint Paul pioneer press Web Site: http://www.twincities.com/shopping/ci_24355967/lululemon-sibling-ivivva-opens-at-mall-americaWarnica, R (2013, Apr, 8). Lulu for Him?. retrieved Dec 01 2013, from Canadian Business Web Site: http://www.canadianbusiness.com/companies-and-industries/lulu-for-him/
Challenge – Brand Recognition and Limited Geographic Market
Missing out on major markets (Europe/Asia/South America) Lack of brand awareness/mass marketing Although Lululemon has a solid grasp of their consumer in
the North American market, in order to facilitate further growth, international expansion is a must
Because the value of the brand itself is built on a cultural connection with its North American consumer base, it will be difficult to translate these brand values to other cultures in Asia, Europe, and Latin America without altering the brand’s meaning
Recommendation - Brand Recognition and Limited Geographic Market Markets chosen for expansion should be
carefully selected to ensure the brand maintains its air of exclusivity and aspirational price point.
The social climate of potential markets should also be investigated to ensure the values of the upscale market segment are aligned with the company’s vision.
South Korea, Brazil, and Russia may be a better cultural fit than Western Europe
Because the value of the brand itself is built on a cultural connection with its North American consumer base, it will be difficult to translate these brand values to other cultures in Asia, Europe, and Latin America without altering the brand’s meaning.
Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/financials.cfm
Recommendation - Brand Recognition and Limited Geographic Market - RUSSIA
• Continuing growth in Russian Apparel Market• Open Markets continue to lose share, in line with governmental strategy, increased activities among developers, and rising living standards and disposable income in Russia• Growing childrens-wear market, that has become more differentiated and
segmented, much like apparel for adults (Recommend expanding ivivva)• Russians are increasingly interested in sporting activities• Sports apparel purchased for everyday wear due to influence of fashion
trends• Sportswear in Russia increased by 20% in 2012 to reach RUB 228 Billion. • Sportwear apparel category in Russia outperformed Western Europe in both
2012, and across the 2008-2012 period.
"Sportswear in Russia." Weblog post. 7756414. Euromonitor International, 28 Aug. 2013. Web. 01 Dec. 2013.
Recommendation - Brand Recognition and Limited Geographic Market – SOUTH KOREA
• International Specialty Retailers of Private Label Apparel (SPA)
continue to record rapid growth in terms of both retail value and outlet numbers• SPA’s setting trends, forcing domestic manufacturers to
change brand concept to keep up• Private label brands from CJO Shopping (SL RIAHHA,
Fidelia) winning market share with high functionality items like heat generating underwear & licensing agreements with designer labels to enhance image.• Despite a mature market, internet retailing continues to grow rapidly• Advanced Mobile Commerce shopper capabilities present
dynamic opportunities• $2.5 Billion Sportswear market "Apparel in South Korea." Apparel in South Korea. Euromonitor International, July 2013. Web. 01 Dec. 2013.
Recommendation - Brand Recognition and Limited Geographic Market - BRAZIL
• Growing sales of sophisticated Value-added products• Super Premium and Luxury apparel players entering market targeting upper middle class and wealthier consumers• Unique opportunities for long term market exposure and solidifying positioning in the athletic apparel market provided by 2014 World Cup and 2016 Olympics• $35 Billion dollar sportswear market that is growing with Brazils rapidly expanding middle and upper classes
"Apparel in Brazil." Apparel in Brazil. Euromonitor International, July 2013. Web. 29 Nov. 2013.
Summary
Lululemon should stick with its current strategy of community based initiatives as it expands to new markets.
Because only the portions of the brand manifesto that relate to the local culture will be highlighted in each market, and marketing instituted at the store level, opportunities for misunderstandings will be minimized.
References* Apparel in Brazil." Apparel in Brazil. Euromonitor International, July 2013. Web. 29 Nov. 2013.
* Certified yoga & fitness instructors: team research and development. (n.d) retrieved Dec 01 2013, from lululemon athletica Web Site: http://www.lululemon.com/community/rd_team
* Gamble, J., Peteraf, M., Strickland, A., Thompson, A. Crafting and executing strategy (2014). McGraw-Hill Education.
* "Salary Search." Job Search. N.p., n.d. Web. 30 Nov. 2013. <http://www.indeed.com/salary>.
* Ngo, N (2013, Oct, 21). Lululemon sibling ivivva opens at Mall of America. retrieved Dec 01 2013, from Saint Paul pioneer press Web Site: http://www.twincities.com/shopping/ci_24355967/lululemon-sibling-ivivva-opens-at-mall-america
* Warnica, R (2013, Apr, 8). Lulu for Him?. retrieved Dec 01 2013, from Canadian Business Web Site: http://www.canadianbusiness.com/companies-and-industries/lulu-for-him/
* Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/about/
* "Yahoo Finance - Business Finance, Stock Market, Quotes, News." Yahoo Finance. N.p., n.d. Web. 12 Nov. 2013.
* Peterson, Hayley. "The Sheer Yoga Pants That Lululemon Recalled Are Back In Stores And Selling For $92." Yahoo Finance. Business Insider, 12 Nov. 2013. Web. 01 Dec. 2013. <http://finance.yahoo.com/news/sheer-yoga-pants-lululemon-recalled-211224149.html>.