Niche brands in markets Research Paper 11 pages


Supply Analysis of Lululemon

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Porter’s Five Forces Analysis of Lululemon

Rival Companies

PESTLE Analysis of Lululemo

Core Competencies

Analysis of Marketing Strategy of Lululemon

Analysis of Company Management

Risk Factors

Financial Analysis

Company History

Lululemon Athletica Inc. which was founded in 1998 in the city of Vancouver by Chip Wilson is a specialist in the design and production of high-end technical clothing for athletes and yoga clothing.

While operating primarily in the continents of North America and Australia, the company initially targeted the educated woman who strives to live an active and a healthy life as their primary customers. The first store of the company was opened up in November of 2000 and it was aimed by the company to also function as a social and community hub allowing people to come together and learn and discuss issues related to physical aspects as well as the mental aspects for leading a healthy life. However, the company started to train their staff once they realized it was difficult to manage the stores as retail outlets and community hubs as it got too crowded.

One of the goals of the company is to train people such that they would positively influence the families, customers and the community at large. The vision of the company is to “elevate the world from mediocrity to greatness.” Three types of strategic sale programs were created by the company as the company partnered with the right people so that the concept and prevalence of Yoga is spread and the community health level is increased. The company lays emphasis on quality over quantity. The strategy of the company is to strike strong relationships with their partners apart from producing yoga and athletic clothing that are of high quality (

Supply Analysis of Lululemon

Lululemon is hailed as one of the fastest growing brands of Canada. The company has more than 220 stores across the world along with its online store (Kowitt & Leahey, 2013). The enterprise value of the company according to the Forbes magazine on May 2015 was $9.2 Billion and the company had a total of 6,383employees. The company’s growth is stupendous as can be gauged from the growth in its brand or enterprise value which was just around $3.245-billion in 2012.

The revenues and the stock price of the company have grown significantly in the last few years. In early 2009 the stock price of the company was around $3 a share which reached $56.88 a share at NASDAQ on February 10, 2016. Hence the stock price has grown nearly 20 times within a period of just 6 to 7 years. The annual sale of the company touched $1.8 billion in fiscal 2015 as a combined sale value of online channels and 354 stores spread globally. The five-year average sales growth of the company till 2015 is 31.6% while the number for the Operating Income Growth if 32.8%. These figures show the strength of the company in the short time that it has been in operation.

There have been some hick ups for the company though in the recent years most noticeably in 2013 when the company had to recall 17% of its products of stretchy black yoga pants which had repeated complaints of sheerness at unacceptable levels.

In 2016, the company plans the launch of its stand-alone stores for men with global expansion plans as the global economy seemingly gets out of the 2008 recession.

Technical fibers that are used in the company products, the in-store shopping experience and its strong brand image are the advantages of the retailer over rivals. These characteristics of eh company are the driving factors for attracting and retaining shoppers. apart from the very strong presence in the North American market which accounts for most of the revenues of the company, Lululemon is eyeing the Asian market where there is a rising demand for trendy athletic fabrics and garments.

External Analysis

Porter’s Five Forces Analysis of Lululemon:

Bargaining Power of Suppliers: Lululemon enjoys power over suppliers as there are a number of suppliers who compete to get associated with the company. Materials like rubber and cotton are used in the company products and these raw materials are readily available. Hence Lululemon generally has a lot of choice in terms of choosing who they want to buy from. Therefore, the suppliers tend to have a low bargaining power compared to the company.

Bargaining Power of Buyers: the buyers or the customers of Lululemon have a big bargaining power as the costs of switching are low and the customers can easily switch to a rival brand if the company of its products fails to satisfy them.

Threat of New Entrants: there is a moderate threat from new entrants. The economies of scale have their obvious advantages. On the other hand, companies also have the option of outsourcing of some of the business processes overseas which would entail lesser up-front costs for capital. Access to distribution channels could also be a difficult proposition. But with the proliferation of the internet and the expansion of online retail trade, companies always have the option of reaching out to the global customers and increasing their market reach online. While new entrants can find it difficult to create and establish and completely new brand, new entrants also have the advantage of low switching costs for customers.

Competition from rivals: in order to attract a larger band of customers and getting a greater market share, there is severe completion in the market of sports apparel. Poaching customers is relatively easy in this industry as the switching cost for customers to move from one brand to another is quite low.

Threat of Substitutes: the threat from substitute products is low as there are not yet many quality substitutes for sports apparel.

Rival Companies:

In the yoga and sports apparel industry there are number of players and companies. The direct competitors of Lululemon include large corporate and companies like Nike, Adidas, Under Armour, and Gap and smaller companies and startups like Lole, Lucy Activewear and Prana.

PESTLE Analysis of Lululemon

Political: for Canadian companies such as Lululemon, it has become easier to open up more branches in North America by the NAFTA.

Economic: the company can be negatively impacted by economic conditions in some parts of Europe and the general stagnancy in global economy triggered by low oil prices and China slowdown. These can impact the global expansion plans of the company. Economic slowdown makes consumers more price conscious and it becomes imperative that retailers provide product differentiation to a greater degree to maintain price levels.

Sociocultural: the rising craving in society to stay active and life healthy right across the globe has given rise to demands for the company products and there is further potential for the company to grow. Ethical production of the products purchased is another growing social realization driving purchase decisions (

Technological: growing prolific popularity of online trading aided by technological advancements of internet and smartphones has helped the company to gro. The further growth of internet in developing economies like India and Brazil has potential for growth for Lululemon. The popularity of the social media opens up a media for the company to place advertising and marketing campaigns which can even act as a source of competitive advantage for Lululemon (

Legal: the company owns a number of patents for its products that gives it a clear advantage legally over its rivals and competitors.

Environment: ethically sourced products with efforts of reducing the carbon footprint of the company have put the company at the fore front of sports apparel companies catering to a healthy environment.

Internal Analysis

Core Competencies

Core Competency




Exploitation of Competency

Strong relationship with customers

Loyal customers means more market power for the company that gives a competitive edge over rivals

The strength of Lululemon’s relationship with its customers has taken years to build and is not easily replicable

The social complexities of the company’s relationship with its customers is difficult to imitate

The strong relationships is effectively translated into high levels of sales

Quality of Product and Design

Brand recognition of Lululemon among customers is due to the quality of its products, reliability and design.

To ensure that the products of the company are one of a kind, it has intellectual property rights agreements with suppliers.

Customer feedback is used to design and better products which are not possible to imitate as rivals do not enjoy similar loyalty.

The unique design and the high quality of the products attracts the customers

Effective corporate culture

Employees and customers get attached to the company by getting motivated by healthy lifestyle.

Unique that is shared commonly by company, employees as well as customers is present in very few companies.

Customers who come into the stores gets a unique experience which is difficult to replicate.

Employees are motivated and engaged due to the strong company culture.

Analysis of Marketing Strategy of Lululemon

The mantra for the marketing strategy of Lululemon is focused product differentiation and complete concentration on the consumer segment that is related to health and fitness. The company manifesto which advocates a particular type of life style that is supported by the company products is the basis of this strategy. The slogan for the company marketing strategy is “the pursuit of happiness through the enjoyment of life, emphasizing friendship, goal-setting and being active” (

The business and marketing strategy of the company is to create a brand that supports a particular type of living, offering free yoga classes for the customers as well as for the employees and the creation of an ambassador program. This outlook program aimed for the community has established the company as a community-based company (Lululemon Athletica, 2013).

This has been established through the marketing strategy where the company is portrayed as one which is community minded and eco-friendly and is not only engaged in selling apparel and fitness garments. This has created a unique niche for the company in the market.

The company also follows a multi-point competition strategy through the sale of diversified complementary products for fitness and yoga equipment. This is helpful for the company to get a competitive edge. The company follows separate strategies for separate regions depending on the demands, the culture and the nature of market.

The marketing strategy also involves partnering with yoga and fitness centers and facilities in various places instead of a franchisee style business operation. This marketing strategy clearly further establishes the community based approach of the company and this helps the company to get in to personal contact with the customers and develop long-term relationships. Valuable marketing opportunity is also got by partnering with athletic teams especially in foreign markets.

Analysis of Company Management

Risk Factors

Lululemon relies heavily on the value and the reputation of the brand and any change in the brand value — for example due to faulty products as happened in 2013, could affect business. This is the reason that the company continuously maintains, promotes and positions the brand and this largely decides the success of the marketing and merchandising strategies and efforts.

Another risk factor is the quality of products that are provided by the suppliers as the company itself does not manufacture the fabrics. Hence the supply chain is critical and a major risk factor for the company. It would be a risk if any part of the supply chain gets disrupted and the company would be in a problem to find replacement raw materials.

Since the company produces quality products and serves a niche market segment — people striving of live healthy and active, the products do not come cheap. Hence an economic downturn or slowdown or uncertainty in the key markets that the company operates in could prove to be detrimental in terms of the sale of the company.

There can also be loss of market share and reduction in net revenue and profitability due to the size and resources of the competitors which can be used more effectively by the competitors than Lululemon. Similarly increasing costs of products and decreasing selling prices are risk factors. Other risk factors include inability to innovate, inaccurate forecasting of demand, security lapses in the information system of the company, very speedy growth resulting in mismanagement and limited brand recognition I the international markets.

Financial Analysis

In fiscal 2015, Lululemon Athletica generated sale revenues of $1.8 billion through its stores and online channel globally.

The online segment of the company has increased by 21% and the company expects the sales to go up in the next few years with the opening up of its men’s apparel section in 2016.

The net sales of the company rose by 14%, after addition of 18 new stores (Lululemon Athletica, 2013a).

The Profitability Ratios

The gross margin for the company is 50.87 and the operating margin is 20.57 both of which are very good. The pretax margin is 21.32 and net margin is 13.30 which is well above 10.0 — the general average for the industry. The return on assets is also good at 18.78 and ROE at 21.87 all indicate that the company has a good management and has been able to keep its operational costs in control. Return on capital also has the same figure as the ROE.

The after tax ROE has however fallen over the years from 31% four years ago to 22% in 2015.

The EBT Margin for the company from 2006 to 2015 has steadily increased from just 4,43 to 27.83.

Liquidity Ratios

The current ratio of the company is very good at 5.95 and quick ratio of 4.65 and cash ratio of 4 indicate that the company is in a very good position in terms of liquidity. The company has more or less maintained a steady current ratio in the last four years. The cash ratio has also been steady over the last four years (Lululemon Athletica, 2013a).

Efficiency Ratios

The revenue generated per employee and the income per employee is significantly healthy at 208,300.00 and 27,704.00 dollars respectively. The total asset turnover ratio is 1.41 which is more than 1 indicates that the company has used its assets judiciously. The ROE has increased from 4.97 in 2006 to reach a highest of 39.09 in 2011 but has reduced to 21.87 in 2015 as the company still recovers from the product recall two years ago. However, the asset turnover ratio is a matter of concern as it has fallen from 2.01 in 2006 to 1.41 in 2015. However, this can be accorded to the increase in assets over the years as the company has expanded (

Valuation Ratios

The current profit to equity ratio has an average of 34.27 with the P/E ratio without extraordinary items greater at 39.90.

The Price to Sales Ratio and the Price to Book Ratio are also impressive at 5.32 and 8.63 respectively. The enterprise value to EBITDA at 18.12 is impressive and this has been the trend in the last few years. The Enterprise Value to total Sales is 3.9 which indicate that the company has maintained its brand value (


From the above analysis it is recommended that investors should invest in the company in the long-term with a forecast for the next four years. the primary reasons for them are:

The high good liquidity situation of the company

The high ROE and ROI

The economic development of the world

Plans o the company to open up men’s wing

Worldwide expansion plans.

Hence it is recommended that the investors should continue investing in the company for the next few years.


Blais, Steven. Business Analysis. Hoboken, N.J.: Wiley, 2012. Print.

Cadle, James et al. Business Analysis. Swindon: BCS Learning & Development Limited, 2014. Print.,. “Manufacturing.” N.p., 2016. Web. 11 Feb. 2016.,. “Lululemon Athletica, Inc. – Annual Report.” N.p., 2016. Web. 11 Feb. 2016.,. “Gift Of Yoga — Lululemon Athletica.” N.p., 2016. Web. 10 Feb. 2016.,. “Gift Of Yoga — Lululemon Athletica.” N.p., 2016. Web. 10 Feb. 2016.,. “Lululemon Athletica Inc. (LULU) Earnings Forecast.” N.p., 2016. Web. 11 Feb. 2016.

Park, You Shin. “Fashion Design Study By Whole Cut Way.” Fashion business 19.5 (2015): 199-212. Web.,. “Yoga Clothes & Running Gear For Sweaty Workouts — Lululemon Athletica.” N.p., 2016. Web. 10 Feb. 2016.,. “Why Lululemon’s Yoga Pants Cost $30 More Than Athleta’s.” N.p., 2016. Web. 11 Feb. 2016.,. “Design Patents And Lululemon: A Way Forward In Fashion?.” N.p., 2016. Web. 10 Feb. 2016.

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