Lululemon Athletica (“Lululemon”) was founded in 1998 by Chip Wilson with the first store officially opening in the Vancouver neighbourhood of Kitsilano in 2000. In 2005, Chip Wilson sold 48% ownership of Lululemon to Advent International, an American Private Equity Firm and on July 27, 2007, the company made their initial public offering which both accommodated and fuelled their desired expansion. In 2008, Day publically announced the company’s aggressive store opening strategy of having more than 250 stores open worldwide by 2012 (The Edmonton Journal, 2008, “Lululemon Eyes Expansion in the U.S”).
Lululemon started its rise towards success by carving out a niche for itself in the Canadian athletic apparel market: the industry of athletic gear for women was in its early stages of development and Wilson identified and realized an opportunity in women’s yoga apparel. Rather than compete head-to-head with the likes of Nike, Adidas and PUMA, Wilson opted for a differentiation strategy that not only included a niche product but also sold and emphasized a way of life (Lazarus, 2008, “The Tao of Lululemon”)..While Lululemon continues to diversify its product line to incorporate athletic endeavours such as running, tennis and dance, a large part of Lululemon’s success can still be attributed to Wilson’s founding principles that Lululemon does not just specialize in the sale of high quality garments manufactured from technical fabrics and functional designs, but also in the fact that accompanying your purchase will be a dash of healthy living, positive lifestyle and yoga culture, albeit not free of charge (Lazarus, 2008). These “lifestyle extras” are embedded in some of the highest athletic apparel price points in the industry. However, unlike most companies in these trying economic times which are struggling with lack of demand, Lululemon is in the rare enviable position of having demand exceed supply (Wikinvest, 2010). As such, Lululemon's high product prices result in high margins for the company (16.0% operating margin in 2008) (Kumarle Perera, 2009, “Lululemon Athletica”).
Providing additional evidence of success, since the IPO Lululemon has realized an average of 25% same store sales growth annually leading to positive annual returns (Reuters, 2009). Further, the company's net revenues increased from $40.7 million in fiscal 2004 to $353.5 million in fiscal 2008, representing a 71.6% compound annual growth rate (Sedar, 2009, Lululemon Annul 10-K). Even while rapidly expanding their store base, Lululemon's high prices have allowed the retailer to maintain a gross margin annually above 50% since 2003 (Wikinvest, 2010). Additionally, Lululemon also has one of the highest sales per square foot figures in the retail industry, averaging $1,450 of sales per square foot in its corporate-owned stores (compared to $400 at Nike and $398) (Wikinvest, 2010). Lululemon is currently forecasting a continuation of this growth, at a 30% average growth rate, expecting the year revenue of $1.31 billion in 2014 (Perera, 2009).
Source: Perera. (2009)
To date, Lululemon has accomplished its impressive expansion and strong revenues with almost no advertising, a unique strategy for a company eyeing expansion and a significant departure from its competitors' strategies. Immediately following the IPO, Lululemon reported spending of only $6,034 on measured/commercial media for the first three quarters of 2007 (Reuters, 2009). Lululemon prides itself on its grassroots and word of mouth marketing platform, thereby primarily relying on the quality of the products and retail experience to speak for themselves. While investment in traditional avenues of mass media advertising and marketing had not been necessary to drive customer demand for their products, it was critical that Lululemon continue to leverage its reputation by ensuring customer satisfaction and positive word of mouth. That said, Lululemon also had to make certain it did not expand beyond its ability to service demand and provide each customer with a positive and healthy Lululemon experience.