Hold That Position: Can Lululemon Extend Without Breaking?

The yoga craze is getting everyone’s attention in today’s health & wellness-oriented culture – spawning yoga brands, if you can believe it.    Devotees to the yoga lifestyle know familiar names like Gaiam, Lucy, Prana, Shakti and Lotuswear, but the most recognizable phenomenon in yoga has to be Lululemon Athletica.  We’re not just talking about yoga pants and leotards.  Lululemon accessories are ubiquitous around Chicago.  On the local El train you’re more likely see  their purses among female commuters than brands you’d expect, like Coach or Kate Spade. 

After going public in 2007, Lululemon has rolled into the enviable position of media darling, with a market valuation above $10 Billion to the fascination of the Wall Street crowd…and it’s kinda popular with its customers as well.  The attention is great, but can it stand the scrutiny?

While some leading firms started with deep roots in yoga’s core philosophies and culture (Gaiam, for example, was founded in 1988 with a focus on teaching media and materials before evolving into a full-blown lifestyle company), Lululemon is one a number of industry leaders created by yoga newbies and converts.  Snowboard and surfing entrepreneur Dennis “Chip” Wilson founded the company in 1998 after his very first yoga class.  Ironically, the level of buzz and brand loyalty Lululemon has generated seems to be something that perhaps only could have been achieved by a “cool” outsider.  For all of its well-earned credibility as one of the first recognizable yoga brands, Gaiam’s image is often mired in the “new age” haze, and it’s easy to see why the company can’t connect with consumers as readily as Lululemon when you endure Gaiam’s prominently placed 3 minute informational video.  After watching it, I asked myself whether there is a word that means the opposite of “buzz”?  Gaiam’s website tries to educate you, while Lululemon gets right to the point with a website that pushes its exclusive wares the instant you arrive.

According to a recent Wall Street Journal feature, exclusivity is one of the key drivers that Lululemon has used to effectively reach sales figures that help it outpace established firms like JCPenney, as well as high-end juggernauts like Nieman Marcus in key metrics such as valuation and sales margins.  Lululemon accomplishes all this in part by going against modern conventions, including a very intentional orientation away from technical analytics and data mining of its customer activity, according to its Chief Executive, Christine Day.  Beyond its focus on offering quality products, the company does not just rely upon the illusion of exclusivity, it actually creates it by stocking limited quantities of popular items.

While a large part of Lulu’s strategy is getting the product right, an equally important part is keeping it scarce. The goal is to sell gear at full price and to condition customers to buy when they see an item rather than wait. “Our guest knows that there’s a limited supply, and it creates these fanatical shoppers,” says Ms. Day.  New colors and seasonal items get three, six or 12-week life cycles so stores feel fresher. Sheree Waterson, Lulu’s chief product officer, says a hot-pink color named “Paris Pink” that launched in December was supposed to have a two-month life cycle but sold out its first week.

This whole discussion sends my mind back to one of my favorite economics jokes, surprisingly enough courtesy of Jim Henson’s famed Muppets.  In the opening scenes Muppet Christmas Carol, Gonzo (in the role of the earnest Bob Cratchet) chides Rizzo the Rat for eating the wares for sale in his apple cart.  Rizzo’s classic response, “I’m creating scarcity…Drives the price up.”  (If you’re too impatient, just skip to the 3:30 mark.)  I guess what was true in this Victorian-era flashback remains true today.

Who’s to say whether yoga devotees will start feeling sore after being manipulated in that way?  Analysts and investors won’t be the only ones asking whether Lululemon’s “cultivated scarcity” can last now that it’s competitors and its customers are waking up to the secrets at Lululemon’s core.

Lululemon – WSJ Analyst Discussion

Related articles
Follow

Get every new post delivered to your Inbox.

Join 53 other followers

%d bloggers like this: