Lululemon Athletica Case 2

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East Carolina University MBA program presentation. Strategic Recommendations for Lululemon moving forward, Expansion Strategy, Image Management, Financials, Quality Control, Marketing, Positioning, Value Chain Analysis and SWOT.

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Lululemon Athletica Case 2

  1. 1. Steven Bayley Emily Beale Yana Dubinsky Elizabeth Peedin MGMT 6722 Dr. Karriker
  2. 2.      Designer and retailer of high end yoga and athletic apparel founded by Chip Wilson in Canada. Targeting upper and upper middle classes, mostly women with health and yoga lifestyle awareness Promoting community hub feeling in its stores and designed to develop high brand loyalty Operates in North America, Australia and New Zealand Main competitors: Nike, Adidas, Under Armor, Athleta and New Balance
  3. 3.   HQ in British Columbia, Canada with main design team  Reaches out to potential clients via yoga studios and instructors Preliminary manufacturing in North America with mass production in low cost countries - China and Taiwan
  4. 4.  Community Based Marketing  Superior Customer Interaction  Technological Innovation  Growing market of Fitness and Yoga apparel consumers Gamble, J., Peteraf, M., Strickland, A., Thompson, A. (2014). Crafting and executing strategy. McGraw-Hill Education. Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/about/
  5. 5. Supply Chain Operations Distribution Sales/Marketing Tighten inspection Facilities only in Depend on word of 45 different and verification Vancouver- mouth and manufacturers, no processes to ensure BC, Sumner, Washin community based long-term contracts another recall does gton, and marketing - can – can improve not occur (see- Melbourne, Australi increase marketing quality control and through pants issue) a limits company’s via media reach (television, magazin Growth in online es, etc.) and other sales can offset avenues Management lower costs by decreasing # and agreeing to contracts
  6. 6. http://finance.yahoo.com/echarts?s=LULU+Interactive#symbol=lulu;range=5y;compare=addyy+nke+ua; indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
  7. 7. http://finance.yahoo.com/ * Data retrieved on November 12, 2013
  8. 8.  Quality control issues impacting brand image  Narrow focus in both consumer segment and product line  Limited brand recognition and limited geographic market References: Gamble, J., Peteraf, M., Strickland, A., Thompson, A. (2014). Crafting and executing strategy. McGraw-Hill Education. Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/about/
  9. 9.  March 18th – Lululemon recalled yoga pants that were stretching too thin and becoming see-through    lululemon CEO of 5.5 years stepped down 3 months later Estimate cost of recall - $67M in Revenue November 11th – A second quality issue surfaced with yoga pants  Chip Wilson blames wearer’s “thick thighs” for stretching the limits of Lulu pants Bhasin, Kim. "Christine Day Steps Down As Lululemon CEO." The Huffington Post. TheHuffingtonPost.com, 10 June 2013. Web. 20 Nov. 2013. <http://www.huffingtonpost.com/2013/06/10/christine-day-steps-down-lululemon-ceo_n_3417495.html>. By Jeff Macke Retrieved November 11th, 2013http://finance.yahoo.com/blogs/breakout/lululemon-latest-flap-exposes-ceo-sozzi130053275.html Peterson, Hayley. "The Sheer Yoga Pants That Lululemon Recalled Are Back In Stores And Selling For $92." Yahoo Finance. Business Insider, 12 Nov. 2013. Web. 01 Dec. 2013. <http://finance.yahoo.com/news/sheer-yoga-pants-lululemon-recalled-211224149.html>.
  10. 10.  Producing most of its items in low cost countries like China and Taiwan requires certain attention to quality if the company wants to continue benefiting from high operating profit due to low costs of good sold. That’s associated with certain risks. Having company’s employed quality inspectors on payroll that clearly understands and comply with company’s standard is one way to address it. Costs – average salary for US quality inspector: $31,000 x 45 facilities = $1.39M  Insulting potentials customers should not be company’s motto when they seek growth. Asking Chip Wilson not to go on the record. Costs - $0.
  11. 11. Selected Income Statement Proforma Proforma w Proforma Data quality recall Year 2013 2013 2013 Net Revenues 1421 1354 1421 Cost of Goods Sold 584 583 583 Gross Profit 837 771 838 Selling, general and administrative expences 381 381 381 Operating profit 456 390 457 • • • Historical Data From LULU income statament 2012 2011 2010 2009 1001 712 453 354 432 317 230 174 569 395 223 179 282 287 213 182 136 87 The Proforma estimate was based of 42% average growth of Net Revenue 35% on average growth of Costs of Good Sold 35% on average growth of Selling, general and administrative expenses Gamble, J., Peteraf, M., Strickland, A., Thompson, A. Crafting and executing strategy (2014). McGraw-Hill Education. 118 61
  12. 12.  SWOT    Identified limited consumer base and narrow product line as weaknesses Missing opportunity for potential revenue growth by meeting broader range of consumers and broader range of customer needs Five competitive forces analysis  Strong competition from rivals so taking advantage of any and all opportunities to meet or surpass them is imperative
  13. 13.  Expand more into the men and children consumer segments & into fitness activities other than yoga and running  In 30 days:  Using current business processes gather information from ambassadors, r&d team members and market intelligence sources to identify fitness activities other than yoga and running for women, men or children     Stick to focused product strategy and premium positioning Take advantage of patented fabrics and product technologies Complete cost-benefit analysis for the top three fitness activities identified Cost is negligible since processes and people are already in place
  14. 14.  Expand more into the men and children consumer segments & into fitness activities other than yoga and running  In 31-150 days:  Introduce new products to market    Cost: Minimum (design occurs within; developed using existing fabrics; can use existing manufacturers and distribution system) Projected Revenue: at least 5% of total sales within two years Successfully executed for men’s clothing and ivivva (children’s clothing)   Men’s 15% of sales (8% less than 2 yrs ago) Ivivva (children’s brand) opened at MOA in October certified yoga & fitness instructors: team research and development. (n.d) retrieved Dec 01 2013, from lululemon athletica Web Site: http://www.lululemon.com/community/rd_team Ngo, N (2013, Oct, 21). Lululemon sibling ivivva opens at Mall of America. retrieved Dec 01 2013, from Saint Paul pioneer press Web Site: http://www.twincities.com/shopping/ci_24355967/lululemon-sibling-ivivva-opens-at-mall-america Warnica, R (2013, Apr, 8). Lulu for Him?. retrieved Dec 01 2013, from Canadian Business Web Site: http://www.canadianbusiness.com/companiesand-industries/lulu-for-him/
  15. 15.    Missing out on major markets (Europe/Asia/South America)  Because the value of the brand itself is built on a cultural connection with its North American consumer base, it will be difficult to translate these brand values to other cultures in Asia, Europe, and Latin America without altering the brand’s meaning Lack of brand awareness/mass marketing Although Lululemon has a solid grasp of their consumer in the North American market, in order to facilitate further growth, international expansion is a must
  16. 16.     Markets chosen for expansion should be carefully selected to ensure the brand maintains its air of exclusivity and aspirational price point. The social climate of potential markets should also be investigated to ensure the values of the upscale market segment are aligned with the company’s vision. South Korea, Brazil, and Russia may be a better cultural fit than Western Europe Because the value of the brand itself is built on a cultural connection with its North American consumer base, it will be difficult to translate these brand values to other cultures in Asia, Europe, and Latin America without altering the brand’s meaning. Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/financials.cfm
  17. 17. • Continuing growth in Russian Apparel Market • Open Markets continue to lose share, in line with governmental strategy, increased activities among developers, and rising living standards and disposable income in Russia • Growing childrens-wear market, that has become more differentiated and segmented, much like apparel for adults (Recommend expanding ivivva) • Russians are increasingly interested in sporting activities • Sports apparel purchased for everyday wear due to influence of fashion trends • Sportswear in Russia increased by 20% in 2012 to reach RUB 228 Billion. • Sportwear apparel category in Russia outperformed Western Europe in both 2012, and across the 2008-2012 period. "Sportswear in Russia." Weblog post. 7756414. Euromonitor International, 28 Aug. 2013. Web. 01 Dec. 2013.
  18. 18. • International Specialty Retailers of Private Label Apparel (SPA) continue to record rapid growth in terms of both retail value and outlet numbers • SPA’s setting trends, forcing domestic manufacturers to change brand concept to keep up • Private label brands from CJO Shopping (SL RIAHHA, Fidelia) winning market share with high functionality items like heat generating underwear & licensing agreements with designer labels to enhance image. • Despite a mature market, internet retailing continues to grow rapidly • Advanced Mobile Commerce shopper capabilities present dynamic opportunities • $2.5 Billion Sportswear market "Apparel in South Korea." Apparel in South Korea. Euromonitor International, July 2013. Web. 01 Dec. 2013.
  19. 19. • Growing sales of sophisticated Value-added products • Super Premium and Luxury apparel players entering market targeting upper middle class and wealthier consumers • Unique opportunities for long term market exposure and solidifying positioning in the athletic apparel market provided by 2014 World Cup and 2016 Olympics • $35 Billion dollar sportswear market that is growing with Brazils rapidly expanding middle and upper classes "Apparel in Brazil." Apparel in Brazil. Euromonitor International, July 2013. Web. 29 Nov. 2013.
  20. 20.  Lululemon should stick with its current strategy of community based initiatives as it expands to new markets.  Because only the portions of the brand manifesto that relate to the local culture will be highlighted in each market, and marketing instituted at the store level, opportunities for misunderstandings will be minimized.
  21. 21. * Apparel in Brazil." Apparel in Brazil. Euromonitor International, July 2013. Web. 29 Nov. 2013. * Certified yoga & fitness instructors: team research and development. (n.d) retrieved Dec 01 2013, from lululemon athletica Web Site: http://www.lululemon.com/community/rd_team * Gamble, J., Peteraf, M., Strickland, A., Thompson, A. Crafting and executing strategy (2014). McGraw-Hill Education. * "Salary Search." Job Search. N.p., n.d. Web. 30 Nov. 2013. <http://www.indeed.com/salary>. * Ngo, N (2013, Oct, 21). Lululemon sibling ivivva opens at Mall of America. retrieved Dec 01 2013, from Saint Paul pioneer press Web Site: http://www.twincities.com/shopping/ci_24355967/lululemon-sibling-ivivva-opensat-mall-america * Warnica, R (2013, Apr, 8). Lulu for Him?. retrieved Dec 01 2013, from Canadian Business Web Site: http://www.canadianbusiness.com/companies-and-industries/lulu-for-him/ * Who is lululemon athletica? (2013). Retrieved October 1, 2013 from http://www.lululemon.com/about/ * "Yahoo Finance - Business Finance, Stock Market, Quotes, News." Yahoo Finance. N.p., n.d. Web. 12 Nov. 2013. * Peterson, Hayley. "The Sheer Yoga Pants That Lululemon Recalled Are Back In Stores And Selling For $92." Yahoo Finance. Business Insider, 12 Nov. 2013. Web. 01 Dec. 2013. <http://finance.yahoo.com/news/sheer-yoga-pants-lululemonrecalled-211224149.html>.

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