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Cambrian Group CAMBRIAN GROUP Lululemon strategic report CAMBRIAN GROUP CAMBRIAN GROUP TEAM MEMBERS Charles Sander, Lead Richard Creedon Matthew Jevsevar CAMBRIAN GROUP COPYRIGHT NOTICE © 2011 Cambrian Consulting, LLC. All rights reserved. This material may not be reproduced, displayed, modified or distributed without the express prior written permission of the copyright holder and the Client. CONSULTANTS DISCLAIMER Cambrian Consulting, LLC (Cambrian) has prepared this report (report) at the request of the Client and for the sole use of the Client. This report may not be relied upon by any other party without the express written agreement of Cambrian. The use of this report by unauthorized third parties without written authorization from Cambrian shall be at their own risk, and Cambrian accepts no duty of care to any such third party. Cambrian has exercised due and customary care in conducting this report but has not, except as specifically stated, independently verified information provided by others, including the Client. Cambrian makes no representations or warranty as to the accuracy, completeness or correctness of the information and statistical data contained herein. No other warranty, express or implied is made in relation to the conduct of this report of the contents of this report. Therefore, Cambrian assumes no liability for any loss resulting from errors, omissions, or misrepresentations made by others. Any recommendations, opinions, or findings reflect the judgment of Cambrian at the date of publication and are subject to change at any time without notice. Any recommendations, opinions, or findings stated in this report are based on circumstances and facts as they existed at the time Cambrian performed the work. Any changes in such circumstances and facts upon which this report is based may adversely affect any recommendations, opinions, or findings contained in this report. CAMBRIAN GROUP TABLE OF CONTENTS EXECUTIVE SUMMARY ............................... .. .1 PART I: INTRODUCTION COMPANY OVERVIEW . .. .. ..5 PART II: ANALYSIS COMPETITIVE ANALYSIS . .9 Internal Rivalry .. .. .10 Entry Threat................. 12 Supplier Power. 13 Buyer Power. ..... 15 Substitute and Complement ProduCts..... 15 FINANCIAL ANALYSIS ..17 Revenue................................ 17 Profitability........................... ... .. ..18 SWOT ANALYSIS.. .. ...21 StrenGths .. .. ..21 Weaknesses . .......................22 Opportunities .. .. ... .23 Threats . ........................23 PART III: RECOMMENDATIONS STRATEGIC RECOMMENDATIONS . .26 ChallenGes.............................. .. .. ..26 Near-Term ReCommendations.................. .26 LonG-Term ReCommendations.................. .... .29 REFERENCES....... .............................. ...32 CAMBRIAN GROUP EXECUTIVE SUMMARY In early 2011, lululemon athleticas management team retained Cambrian Consulting to provide strategic advise on their current growth strategy. lululemon is a yoga-inspired clothing brand that specializes in delivering a high-quality, technically-innovative, and stylish product. By originally appealing to young and health conscious women, lululemon has built a strong brand name that has become synonymous with leading a healthy, balanced, and fit lifestyle. lululemons distinctive retail experience is driven by corporate-owned retail locations that are strategically positioned in community centers. lululemon management believes that their community- centered approach to retail and marketing is a key comparative advantage. lululemon has experienced tremendous revenue growth in the past four years, averaging 61% yearly growth. The company is currently revamping their e-commerce offerings and must take special care to embody their distinctive retail strategy within their online store. lululemon must also expand key product lines to capitalize on their already-loyal customer base. Increased product offerings and a greater online presence will increase lululemon brand awareness and help ensure the success of an eventual expansion overseas. This strategic report will identify and analyze the key issues currently affecting lululemon and provide near-term and long-term strategic recommendations. The report consists of five main sections: Company Background, Competitive Analysis, Financial analysis, SWOT Analysis, and Strategic Recommendations. Cambrian Consulting recommends that lululemon focuses on the following initiatives: Expand direct to consumer distribution o A top-tier online store will allow lululemon to reach a much broader customer base and attract affluent customers who may not live near a city center. CAMBRIAN GROUP o An online presence is also a necessary prerequisite for lululemons eventual expansion into overseas markets. o However, lululemon must be careful to emulate the distinct retail experience inside a brick and mortar store in their e- commerce site. Expand product offerings and existing lines o lululemons already-existing mens line is an obvious candidate for extension. o Outerwear gives lululemon an incredible opportunity to penetrate another aspect of their customers lives. o Although lululemon currently markets a number of products known to be good apparel choices for pregnant women, a dedicated maternity line may attract females that may not have been as yoga-minded or health-conscious before becoming pregnant. o Apparel for young children is a logical extension from maternity and babywear. Introduce customer loyalty programs o Customer loyalty programs can be very effective measures to facilitate repeat buying, especially for goods with relatively high price points. o Customer loyal can also be fostered through the creation of an online community. Pursue strategic partnerships o To effectively compete within the athletic apparel market, lululemon must eventually pursue strategic partnerships comparable to those of Nike and adidas. Expand into overseas markets CAMBRIAN GROUP o When expanding, it is important that lululemon utilizes the distribution channels that joint ventures can offer. CAMBRIAN GROUP PART I INTRODUCTION CAMBRIAN GROUP COMPANY OVERVIEW Founded in 1998, lululemon athletica (commonly referred to as lululemon or lulu) is a yoga-inspired athletic apparel company that specializes in designing and producing a trendy high-end athletic clothing line. Although originally founded to address the needs of athletically minded women, lululemon has expanded its offerings to include products for men and young women who appreciate lululemons ability to produce at the intersection of function and style. Further, the relatively recent success of lululemon has lead its brand name beyond the athletic realm to be associated with those who seek to live a healthy and balanced life. After completing the first commercial yoga class offered in Vancouver BC, lululemon founder, Dennis Chip Wilson, decided to use his experience from previous forays into the surf, skate, and snow business to begin lululemon athletica in a small Vancouver studio. A design studio by day, the space was converted into a yoga studio each night to accommodate yoga classes taught to supplement the rent. Wilson believed that yoga provided the best method to preserve good health with age and molded lululemon to take advantage of the increasing number of females adopting the sport.i The first real lululemon store was opened in the Vancouver BC beach neighborhood of Kitsilano in November of 2000. Including a design and yoga studio, the store was meant to serve as a community hub where people could come and be educated about the positive impacts of maintaining a healthy and balanced lifestylean integral part of the yoga mentality. Unfortunately, the success of the first store brought an overwhelming number of people and eventually lululemon employees were able to do little besides help customers with their purchases. Although he had originally planned to open only one store, Chip Wilson realized that it was time for lululemon to expand beyond its Vancouver roots.1 lululemons innovative ability to mix performance and design in its core clothing lines has allowed maintain a high rate of growth since its founding in 1998. As of January 31, 2010, lululemon branded products were principally sold from 124 different stores spanning primarily the US and CAMBRIAN GROUP Canada. lululemon is also sold out of various health clubs and yoga studios that lululemon deems to be centers of the regional fitness community. Despite its expansion, lululemon has remained committed to a distinctive community-centric retail experience. lululemon employees continue to be trained as educators with the ability to fully disclose the innovative aspects of each product.ii In 2005, a US private equity firm called Advent International (partnered with Highland Capital Partners) acquired a 48% minority stake in lululemon athletica through the purchase of approximately CAD $225 million worth of Lulu stock. The capital infusion also brought a change in upper management and Robert Meers, formerly of Reebok, was installed as lululemon CEO. After the new capital, it was reported that founder Chip Wilson still retained a 42% interest in the company with the other 10% of lululemon shares belonging to retail staff. lululemon also formed a partnership with Descente of Japan to help distribute their products throughout Japan but the partnership fell through in mid-2008 when lululemon closed its Japanese operations in order to focus on the American market. As of late-2010, leadership responsibilities at
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