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LULULEMON
1 Lululemon
Lululemon operates in the athleisure segment.
1.1 How it has created its brand
1.1.1 Comfort
Lululemon has used new fabric technology to produce comfortable clothes.
However, this fabric is not patented. Many companies can produce such fabrics.
Lululemon has combined this technology with branding and lifestyle.
1.1.2 Style
People want to wear comfortable clothes but do not want to walk around in
pajamas. Lululemon has been able to make its products stylish.
1.1.3 Enable people to show off their bodies in an acceptable way
People exercise to be healthy and look physically desirable. People have become
more health-conscious, and a glamorous body has become a sign of higher social
class. Moreover, as the higher income adults marry later or have children later, they
have more time to exercise and want to show off their efforts.
Clothes across the board have become tighter (e.g., jeans, shirts, and
suits) because such clothes allow slim people to differentiate
themselves. Lululemon goes further along with this trend by making it
hip to show off toned bodies in clothes that would have been
considered too tight and inappropriate in the 20 th century.
1.1.4 Create an upscale lifestyle brand
Many companies can and do produce comfortable athletic wear. However,
Lululemon has been superb in its marketing and has created an athleisure brand
different from other sports brands. It started marketing its clothes to women doing
Yoga and has no expanded the scope of its products. While Lululemon is not a
luxury brand, it is certainly an upscale brand.
1.2 Size
Company benefits from economies of scale in supply chain and retail. It is now
expanding its scope by offering related products.
© Rachana and Dan Gode (dangode.com). All rights reserved. 1
June 30, 2021. e-Learning from Almaris.com
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1.3 Growth
As described above, Lululemon has been able to ride several trends to increase its
sales. Recently, it has been expanding overseas as well to offset the slowing US
market.
1.4 Margins
It is a successful brand and can charge higher prices. This pricing power drives its
margins. It has also exploited economies of scale as it gets bigger.
1.5 Net operating asset intensity
1.5.1 Leased stores
They sell via company-owned stores to control the customer experience. Since their
stores are in malls, they cannot own the stores. Most stores are leased via operating
leases. The operating lease ROU assets are operating assets. However, the
treatment of operating lease liabilities is ambiguous. If we treat them as operating
liabilities, they are netted against the leased assets, and the leased stores do not
increase the net operating assets much. However, if they are treated as financial
liabilities, then the leased assets boost net operating assets.
1.5.2 Inventory and furnishings
The inventory and furnishings of the company-owned stores increase net operating
asset intensity.
1.5.3 Online sales decrease net operating asset intensity
Online sales do not require a store footprint.
1.6 Business risk
Risks are competition from other sports brands such as Nike or athletic equipment
companies like Peloton. If markets move away from malls, their leases could
become onerous.
1.7 Financial risk
Their financial leverage is higher if we classify operating lease liabilities as financial
liabilities. Otherwise, it is not high.
© Rachana and Dan Gode (dangode.com). All rights reserved. 2
June 30, 2021. e-Learning from Almaris.com
