CASE 22 lululemon athletica Inc. Jenna Beyer, Leon Faifman, Eric Ho, Miso Kezunovic, and Lance Olian Texas A&M University Lovei online range between $78 and $128 with its most popular pair priced recently at $98 – two to three times rivals’ Rachael Fowler ran cross-country and played tennis in prices.3 However, lululemon’s products sell and they high school. In college, she successfully completed two sell fast. Demand for lululemon clothing is so high that full marathons. After college, she remained active and stores have trouble keeping new lines in stock. Sheree health conscious. Now a 37-year-old mother of two boys, Waterson, Lulu’s chief product officer conveyed this Rachael maintains her physical fitness through gym example, saying, “A hot-pink color named ‘Paris Pink’ sessions with a personal trainer and by attending yoga that launched in December (of 2011) was supposed to classes twice a week. At the end of one yoga session, a have a two-month lifecycle but sold out its first week.”4 friend of hers suggested she purchase some yoga apparel The question then arises as to why customers, or “guests” from lululemon. Overhearing the two women talk, the as lululemon refers to them, are willing to pay high prices class instructor added that she was a lululemon ambas- for high fashion items that are destined to be soaked in sador and began to rave about the quality and style of sweat! lululemon’s products. It seems the answer to this question resides in lulule- “This is how 80 percent of our guests come to mon’s ability to connect with its guests on a deeper level know lululemon, through word-of-mouth. Guests are than just the typical sales associate–customer relation- so pleased with the clothes we offer that they can’t help ship. After all, other companies such as Nike, Adidas, but tell all their friends about it,” explains Laci Levisay, and Under Armour not only produce high-tech cloth- 1 a lululemon associate from a store in Austin, Texas. ing with the same soft cotton feel, four-way stretch, and Levisay continues, “For the other 20 percent who walk moisture-wicking technology that lululemon touts, but into lululemon stores with no previous knowledge, store do so much less expensively for their end consumers. employees look to find out as much as possible about the Ultimately, what competitors cannot duplicate is lulule- guests’ lifestyle and then educate them on what products mon’s culture. It is lululemon’s deep understanding of its would best suit their needs.” target market, close relationships with its communities, and an inimitable culture that transforms customers/ Choose a Positive Thought guests into diehard loyalists. Based in Vancouver, Canada, lululemon athletica pro- This is not to say that lululemon does not uphold the vides premium quality athletic apparel at a premium highest quality standards in its products. Levisay states, price. One of lululemon’s signature items is its yoga “People will save up if they need to in order to afford pants, typically sold by competitors for between $25 our clothing because of the benefits they provide.” She and $50.2 Yoga pants available in lululemon stores and goes on to explain, “It’s silly to spend that much on yoga © Vividfour / Shutterstock.com Vividfour © i. The majority of headers used in this case are quotes from the lululemon athletica manifesto. 283 CHE-HITT11E-13-0403-CaseStudy22.indd 283 10/22/13 3:10 PM 284 Part 4: Cases pants if they’re not going to live up to their promise.”5 body support, material that protects against harmful UV Jennifer Black, president of an investment research firm rays, and special woven silver that makes the material confirms this sentiment saying, “lululemon won’t put antibacterial.12 stuff in its store just to sell it. They don’t compromise Another employee, Samantha Baldwin, clarifies the on quality.”6 link between employee and guest. “If your employees are Friends Are More Important than Money happy and feel supported in their goals, your genuine nature comes across and this allows consumers to buy lululemon athletica’s in-depth knowledge of its target the experience, buy the product.” This “caring-and-shar- audience is an important, firm-specific asset. “Rooted ing” culture bolsters the high-quality products. Baldwin in yoga but expanded into any sweaty pursuit you may continues, “It wasn’t just about selling stretchy pants. It have, lululemon creates technical fabrics that work with was about connecting with people on an authentic level you instead of against you. Plus, they look cute!” explains and finding out their story.”13 Levisay. The stores’ “…guests comprise anyone living a physically active life that strives to achieve balance,”7 although the majority of shoppers are female, have dis- This Is Not Your Practice Life 8 posable income, and are in the 15- to 65-year-old range. lululemon athletica was founded in 1998 by Dennis Fitness blogs confirm that lululemon “…recognizes this “Chip” Wilson in response to increased female partici- niche market and combines high performance material pation in sports and in accordance with his belief in yoga with attractive product design to create a committed 9 as the optimal way to maintain athletic excellence into an brand following.” advanced age. Wilson, an avid surfer and snowboarder, One of the strongest examples of lululemon’s focus had previously parlayed his passions for these sports into on culture is the company manifesto, which appears on building a successful company – Westbeach – that sold multiple lululemon products, from bags to water bottles. snowboarding and skateboarding apparel. After taking Explaining the company’s perpetuation of its manifesto, a yoga class, Chip fell in love with the practice. Once Whitney, a store employee and lululemon blogger writes, again melding his athletic passions with his acumen for We are sharing a piece of our culture and inspiration as a producing high-end performance apparel, Chip saw the 14 company. We have traditionally printed our [bags] with the opportunity to produce higher-quality yoga attire. lululemon manifesto, which is a series of statements that Wilson noticed that the cotton materials used in yoga embodies our company’s vision, culture and beliefs… [as] apparel were inefficient for the demands placed upon a constant reminder of our vision to create components for them. He applied his knowledge of materials to design people to live longer, healthier and more fun lives.10 highly technical fabrics that would move and breathe better. Chip opened a design studio and retail store Observe a Plant Before and After Watering that doubled as a yoga studio at night to pay the rent. Each and every store employee at lululemon is considered Yoga instructors at the studio became product ­testers, ­ a steward of the company’s culture. From the beginning wearing Chip’s designs while teaching, and providing 15 of the hiring process, throughout training, and continu- feedback about the product. ing throughout employment, each employee is expected The first official lululemon store was opened in to reflect the company’s mission and vision. lululemon 2000 in Kitsilano, a beach neighborhood in Vancouver. athletica’s “…success is reflected in everything within The first store served as a community hub for multiple the store experience. The people who work there believe aspects of healthy living including nutrition, running, strongly in the lifestyle and what it represents.”11 A focus biking, and of course yoga. Realizing the potential for on employee development is a crucial component of the female-centric, high-quality athletic apparel, lululemon company’s strategy. In general, a lot of money and effort began to grow; expanding across Canada for the next is put into training store employees. Levisay comments, couple of years and entering the U.S. market in 2003. lululemon athletica continued to expand both in Employees don’t exist just to fold clothes or set up displays. North America and overseas and announced its ini- They share their knowledge of the clothing and culture tial public offering in May 2007. In 2009, lululemon with every guest that walks through the door. They have expanded its offerings by launching an e-commerce the ability to explain functions of the clothing you would channel and ivivva, a subsidiary specializing in athletic not necessarily recognize; items such as hidden pockets, gear for girls 4 to 14 years old.16 CHE-HITT11E-13-0403-CaseStudy22.indd 284 10/22/13 3:10 PM Case 22: lululemon athletica Inc. 285 Dennis “Chip” Wilson changes in its strategies. See Exhibit 1 for background The success of lululemon is attributable to the vision of information on additional leaders and board members. Dennis “Chip” Wilson. After taking the company public in 2007 and serving as Chief Innovation and Branding Don’t Trust that an Old Age Officer, Chip officially turned over the reins in January Pension Will Be Sufficient 2012.17 During his time with lululemon, he helped the company grow to 147 stores, transformed the brand In terms of financial strength, lululemon athletica into a cult following, and provided company focus by (“LULU”) is positioned to weather declines in the eco- developing the lululemon manifesto.18 He remains chair- nomic environment. The company has a significant man of the board and continues to represent lululemon amount of cash, over 50 percent of assets and, although at investor meetings. His successor, Christine Day, has the company has a line of credit should it face an immedi- renewed the company’s goals and assembled an exem- ate liquidity need, lululemon holds no debt. Companies plary “management team with a complementary mix such as Adidas, Nike, and Under Armor all carry some of retail, design, operations, product sourcing, market- debt and it is certainly noteworthy to see lululemon ing and information technology experience from lead- operate with none.