Meeting Supply Demands
Despite the implementation of the PLM and ERP system, Lululemon continues to experience inefficiencies in their supply chain. With the rapidity of their expansion, difficulties persist with regards to aligning supply needs with growing demand. In the third quarter of 2008 when the most clothing retailers were falling victim to the economic downturn, Lululemon also suffered a loss in revenue, but not due to the prevailing market conditions – Lululemon had simply run out of their most popular stock and were unable to generate sales until more could be produced and shipped to retail locations (The National Post, 2009). As the demand for products continues to increase beyond the rate of lululemon’s expansion, lululemon has been forced into a reactionary position rather than a proactive one. Upon running short on inventory, lululemon has relied on expensive, air freight shipping from offshore manufacturing plants in an attempt to replenish supply – an expense that could have been spared through accurate forecasting and sourcing to accommodate less pricey on-sea shipping and which has ultimately equated to an increase in COGS and a decrease in gross profit margins (Brennan, 2008).
In the second quarter of 2009, the same quarter lululemon was forced to air transport over 800,000 merchandise units to meet demand and back-orders; they reported a 17% drop in its second Q profit to 9.2M (13 cents per share) versus $11.1 M (16 cent/share) in the same period a year ago. That said sales actually managed to jump 14% to $17.7M, even as same store sales fell 2% (Lululemon Athletica inc. Q2 2009 Earnings Call Transcript, 2010). Day attributed the comparable or same store, sales decline to an uptick in traffic amid leaner inventories; representing a problem most retailers would kill to have (Lululemon Athletica inc. Q2 2009 Earnings Call Transcript, 2010). However, to maximize profits and ensure successful expansion, it was an inventory problem that Day and her Lululemon team needed to solve.
Forecasting Regional Demand and Adequately Managing Supply
In addition, Day continues to experience a sharp learning curve when it comes to predicting varying style and size demands across distinct US regions. Profitable expansion translates into accommodating regional demand with appropriate supply. Lululemon has yet to adequately tailor their styles for warmer American weather, relative to Canada’s average climate, and be able to predict appropriate regional demands. For example, Lululemon stores in coastal areas of the US continue to run short of small sizes, such as 4, 6 and 8s and those in the Midwest sell out of larger sizes faster (McConnon, Aili. 2008. “Lululemon’s Next Workout”).
Further, due to Lululemon’s community minded marketing approach, it must be better prepared to meet demands that are spurred from city marathons, running groups and yoga events. Both New York and Chicago locations have continuously run out of running apparel as the dates of city marathons approached (Strauss, Marina. 2007. “Lululemon stretched by demand”).
Effective Retail Channels to Accommodate Demand
In 2009, Lululemon also launched a newly configured E-commerce site whereby online shopping was available. The website initially represented a departure from Lululemon’s strict adherence to the creation of stores as community hubs and the providers of individualized retail and cultural experiences. However, the E-commerce site was seen as an avenue of retail expansion in the absence of physical store expansion amidst a time of economic downturn. Despite the best of intentions, the E-commerce site often was the source of customer frustrations due to the lack of available product and size ranges (Bouw,Brenda. 2008. “Lululemon revenue up in summer quarter”). Under Days leadership, Lululemon has continued investment into their E-commerce website with the hopes of fostering an online community akin to that of their physical community. Given the recent implementation of the site, specific return on investment is difficult to determine. However, there is some evidence that sufficient supply of product, even over their e-commerce site, has not been fully gaged or satisfied by Lululemon to date.