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Company Report

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Joshua Rivera

This document provides a summary of Lululemon Athletica Company's history and background. It discusses how the company was founded in 1998 in Vancouver by Chip Wilson to create high-quality yoga clothing. It details Lululemon's expansion from a small yoga apparel design studio to a large international brand. The summary also mentions several controversies surrounding comments made by Chip Wilson about women's bodies and international labor that caused public backlash.

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Industry Report Textile Apparel Industry Lululemon Athletica Company Eileen Baca Joshua Rivera Adam Davis Winston Platt Emmanuel Calton
Table of Contents i Table of Contents INDUSTRY REPORT................................................................................................................................................1 INDUSTRY HISTORY....................................................................................................................................................1 COMPETITOR ANALYSIS ............................................................................................................................................2 CUSTOMER ANALYSIS ................................................................................................................................................3 FINANCIAL ANALYSIS.................................................................................................................................................4 INDUSTRY FUTURE.....................................................................................................................................................5 COMPANY SELECTION................................................................................................................................................6 COMPANY REPORT.................................................................................................................................................1 COMPANY HISTORY....................................................................................................................................................1 PRODUCT/SERVICE ANALYSIS .................................................................................................................................4 FINANCIAL ANALYSIS.................................................................................................................................................1 PRODUCTION AND OPERATIONS ANALYSIS ...........................................................................................................8 ENVIRONMENTAL ANALYSIS .................................................................................................................................11 FIRM EVENTS ANALYSIS.........................................................................................................................................15 STRATEGIC DIRECTION...........................................................................................................................................19 HUMAN RESOURCES ANALYSIS.............................................................................................................................22 SOCIAL RESPONSIBILITY ANALYSIS......................................................................................................................25 SWOT ANALYSIS.....................................................................................................................................................31 INVESTMENT RECOMMENDATION........................................................................................................................35 REFERENCES............................................................................................................................................................37
Industry Report 1 Industry Report Industry History
Industry Report 2 Competitor Analysis
Industry Report 3 Customer Analysis
Industry Report 4 Financial Analysis
Industry Report 5 Industry Future
Industry Report 6 Company Selection
Company Report Textile Apparel Industry Lululemon Athletica Company Eileen Baca Joshua Rivera Adam Davis Winston Platt Emmanuel Calton
Company Report 1 Company Report Company History Chip Wilson founded the company lululemon in 1998 in Vancouver, British Columbia (lululemon athletica, n.d.). Wilson always had a passion for athletics and was originally in the surfer, skater, and snowboarder business (lululemon athletica, n.d.). When Wilson first tried yoga he immediately developed a passion for it, and it’s apparel (lululemon athletica, n.d.). He realized that the cotton material that people were using for yoga was not adequate, because people needed the stretchy, breathable material to perform yoga in (lululemon athletica, n.d.). As a result of his desire for better yoga clothes, Wilson opened a yoga apparel design studio that worked as a yoga studio at night (lululemon athletica, n.d.). Wilson used feedback from the yoga instructors and the people participating to better his product (lululemon athletica, n.d.). The first real lululemon store opened in 2000 on the beach area of Canada called Kitsilano (lululemon athletica, n.d.). At first the goal of the store was to, “ . . . have the store be a community hub where people could learn and discuss the physical aspects of healthy living from yoga and diet to running and cycling as well as the mental aspects of living a powerful life of possibilities” (lululemon athletica, n.d.). He wanted it to be a resource for people to live longer, healthier, more fun lives (lululemon athletica, n.d.). The store soon became too busy and Wilson had to make the decision to make the store’s goal to sell the product (lululemon athletica, n.d.). Initially Wilson wanted to have one store, but due to the popularity of the store he thought it was best to open more (lululemon athletica, n.d.). There are two conflicting stories told about how lululemon got its name. Chip Wilson told Canada’s National Post Business Magazine in 2009 that he chose the name lululemon for his store because, “It’s funny watching them (Japanese) try to say it” (Edwards, 2013). In 2009 he wrote in a blog post published on lululemon’s website defending his statement by arguing that he thought if he named the company with a lot of L’s then the Japanese would associate it with a western store, and be more likely to buy it; however, this post was later taken down (Edwards, 2013). On the company website,however, they state that the company name was chosen by taking a survey of a hundred people (lululemon, n.d.). Lululemon still continues to have yoga instructors wear their clothes, and give their feedback on their products (lululemon athletica, n.d.). Lululemon calls these people
Company Report 2 ambassadors, and they define them as “local athletes, instructors and role models in our lululemon store communities who embody the lululemon lifestyle” (lululemon athletica, n.d.). Lululemon athletica has been subject to great controversy with their ambassadors’ reports and claims that their employees listening into customers’ conversations (Edwards, 2012). Some people argue that it is cult-like, and that they are spying on you (Edwards, 2012). Throughout lululemon’s history founder Chip Wilson has a made several comments that caused controversy. Wilson wrote on a blog post published on lululemon’s website that was titled “How Lululemon Came Into Being” that the niche in the market that lululemon was created for was caused by: women becoming more educated, rates of breast cancer rising, yoga/ athletics, and females desires to dress more feminine (Wilson, 2009). He came to this conclusion by arguing that the birth control pill made women feel more in control of their lives, which led to in men not relating to them, and that resulted in divorce (Wilson, 2009). He goes on to say that because these relationships were not working and a high number of divorces were taking place that women soon became increasingly involved in the workplace (Wilson, 2009). The daughters of this generation of businesswomen value education, because they believe that it is necessary in case of divorce (Wilson, 2009). He argues that they understand the importance of exercise (Wilson, 2009). They rebelled against their mother’s fashion, which was made to make women manlier, by dressing more feminine (Wilson, 2009). These women whom Wilson calls “Super Girls” created the market that allowed for the success of lululemon in Wilson’s opinion (Wilson, 2009). In 2013 Lululemon came under fire for selling yoga pants that were so sheer that when the person was in certain positions the pants were see through (Coffey, 2013). The company immediately recalled the pants, but their stocks still fell (Coffey, 2013). The pants made up about 17% of their total pants products (Coffey, 2013). The company had this to say about it, “"Quality is of utmost importance to us and we want to offer our guests Luon product(s) that they love. If any guest is experiencing an issue with their product that they believe to be related to quality, we encourage them to visit their local store or call our Guest Education Center so we can make it right" (Coffey, 2013). Chip Wilson, however, was quoted in an interview saying that the problem lies with the customers themselves (Coffey, 2013). He argued that some women’s body types were not made for yoga pants (Coffey, 2013). He claimed that when certain women’s thighs
Company Report 3 rub together the pressure on the fabric causes them to run down (Coffey, 2013). His comment offended a large majority of people, and resulted in him stepping down as chairman of the board (Berfield, 2013). Lululemon’s history has been plagued by Founder’s Chip Wilson’s contentious comments. In 2005 Wilson gave a speech arguing that child labor and outsourcing to Asia was a positive thing, because it is giving much needed money to people affected by poverty (Deveau, 2005). Again in 2005 Wilson argued that the company would not make plus sized clothing, because it costs more and plus sized women are too “sensitive” and would be offended by the rise in price (Subramanian, 2013). He ordered tote bags to have a quote on them from the controversial book Atlas Shrugged that argues for the pursuit of self-interest, which is not a teaching of yoga (Subramanian, 2013). Wilson argued in a blog post that “Sickness attracts sickness” which some people took as Wilson blaming the sick person for being sick (Wilson, 2009) (Edwards, 2013). He also stated in a blog post that if your life is not great, it is your fault (Wilson, 2009). Lululemon has undergone changes in management. The Company as of 2013 has had CEO Christine Day step down, and president of Tom’s Shoes, Laurent Potdevin take her place (O’Connor, 2013). Starbucks executive Michael Casey replaced Chip Wilson as chairman of the board in the same year (O’Connor, 2013). Lululemon’s history proves how strong the company is. A company with this many controversies must have a strong product in order to survive. Lululemon, as of February 2014, has 254 stores in Canada, United States, Australia, and New Zealand (Bloomberg BusinessWeek, 2014).
Company Report 4 Product/Service Analysis Lululemon athletica uses several materials for its pants. One, known as “Pilayo,” is 88% nylon and 12% Lycra which is a patented technology (Bhasin, 2013). The material is described as “stretchy, breathable, and moisture-wicking” (Peterson, 2014).” An average pair of yoga pants from Lululemon athletica retails at about $98 over Nike, Athleta, and Reebok (Peterson, 2014).” The combinations of materials led to a stronger product which unique benefits, including moisture-wicking, smell-reducing, and strength- enhancing features. Lululemon athletica’s main pant, called “The Groove,” has been popular for years despite its recent crisis of allegedly being “see-through” ” (Peterson, 2013). Lululemon athletica’s pants have endured several challenges. The most recent being controversy over the products’ transparency. “The Groove” several years ago underwent much criticism for it being “transparent (Peterson, 2013).” This gross product malfunction posed a serious public relations issue for lululemon athletica. However, it managed to bounce back from its dip in popularity to remain a cultural phenomenon for yoga practitioners in the United States (Reuters, 2014). Lululemon athletica’s fitness gear is wide-ranging and diverse. For flexible athletes— runners, marathoners, cyclists, and even joggers, lululemon athletica offers a high value proposition with its high quality gear with several useful benefits. Pants, headgear, and gloves consist of the largest portion of lululemon athletica’s marketing mix. These items have sold well and remain popular amongst fitness gear enthusiasts across the country (lululemon athletica, 2014). However lululemon athletica’s 10k does admit that it is an economically sensitive corporation, which products do rely heavily on consumer discretionary spending to remain profitable (page 32, lululemon 10k). Lululemon athletica’s accessories are also a large part of the company’s marketing mix. Bags, scarfs, headwear, yoga mats, and water bottles (lululemon athletica, 2014). The yoga mats are high-quality and thick styrofoam for maximum comfort when performing yoga routines (lululemon athletica, 2014). The mats retail at around $90.00 but are larger and more comfortable for consumers than average mats available on the market. In addition, the yoga mats absorb and wick away sweat. According to customer reviews on Lululemon.com customers rave over the customer experience (lululemon athletica, 2014).
Company Report 5 Accessories: Mats Bottles Bags Scarves Headgear Gloves Other Mat Pure Focus Gym-to- win duffel Vinyasa Cool Running Toque Happy Yogi No-show socks Pure Mat 3mm Purist Cycling Cruiser Heart Opener Play the Field cap Blissed out The small towel The (Big) Mat Drishti Pranayama Men’s All sport hat The Hot (Towel) Mat Urban Sanctuary Run with me Toque Band Buster Headband Fly Away Tamer Swiftly Headband Vite Vite Run Flow into Crow Headband Overall, the lululemon athletica yoga mats offer a width and size that is superior to competitor products on the market. For women and men that are tall it is the best mat on the market. For women who are not tall, the mat still caters to them because of its width and length. Overall, the mats allow a consumer to “stake their claim” in the gym and build a “barrier zone” in the gym for personal comfort (lululemon athletica, 2014). Lastly, customer reviews note that the mats allow them, due to their size, to avoid the gym floors and risk of uncleanliness (lululemon athletica, 2014). For health-conscious yoga participants, health is key and staying healthy at the gym, as an athlete, is a benefit, which cannot be overstated.
Company Report 6 Lululemon athletica also produces handbags. Most of the bags are made of polyurethane (lululemon athletica, 2014). The bags are stylish and modeled to look like a fanciful purse or handbag, perhaps to fit the yoga practitioners overall lululemon athletica outfit. The price ranged between $120 to $148 and stands as the most luxurious bags on the market. Bags are fitted with two strong straps across the bottom of the bag and can serve as a useful feature to carry a yoga mat underneath your bag (lululemon athletica, 2014). The last bag offered is a “yoga tote” which is a full body-length bag which allows one to carry ones gear to a workout and from it in a mobile, free way. The bag enables one to move easily, freely, safely, and in an unencumbered way on subways, trains, and planes without disturbing other passengers with bulky luggage. Lululemon athletica also offers a unique and extensive “Reflective” products line. These products allow athletes the flexibility to adapt their schedules and exercise in safe ways regardless of where or when they run (lululemon athletica, 2014). Business people who travel the world often must work for days or weeks in different time zones and prefer the ability to exercise at night. For this reason, lululemon athletica offers products, which grant consumers the freedom to purchase products, which fit their lifestyle. However, in cities such as Istanbul, jogging at night must usually be accompanied by some kind of reflective gear to avoid run-ins with criminals and avoid automobiles and motorists on busy highways. The product line includes sweat-resistant tops fitted with reflective bands as well as pants that contain reflective patterns at the base of the legs. lululemon athletica’s running pants retail between $96 and over $100 (lululemon athletica, 2014). In addition several athletic pants feature reflective lines along zipper lines. These jackets are far more affordable in the lululemon athletica line and retail between $14.0 and $148.0 US Dollars. The products are form fitting and stylish and seek to combine high fashion appearance with the practicality demanded of products used during workouts. Reflective Gear:
Company Report 7 Lululemon athletica also offers an entire tank-top line that seeks to build and extend its brand known for high-fashion athletic wear that appeals to “lifestyle yoga practitioners (Walker, 2009).” It’s tank tops range from long-sleeve, multi-colored items that can be used for stylish layering or a strip to the grocery store all the way to the other end of the spectrum which includes stylish “wraps” or high-fashion clothes designed to keep customers warm in cold conditions. The price range in this line is between $68 for long sleeves and $148 for a high-fashion cardigan (lululemon athletica, 2014). The tank-top line accounts for much of lululemon athletica’s sales whose market is made up of 67% of Revenue derived from sales made in The United States and 26% of Revenue made from sales in Canada (lululemon athletica, 2014). Lululemon athletica’s products for men include a wide range of products. One of theirs is called “The Pace Breaker” short and is textured, short, stylish, and meant for rugged outdoor activity, jogging, or in-gym exercise (lululemon athletica, 2014). The shorts are “woven for strength,” tightened at the waist, breathable, and of course, sweat-wicking. Each short comes with a boxer-brief liner inside the short to improve comfort and increase value for active athletes. The shorts appear to be made of course-sack cloth, but in fact, they stretch! Shorts on average are about 75$ (lululemon athletica, 2014). Upper body Lower Body Bright Bomber Jacket Run: Speed Short Rebel Runner Vest Speed Tight II Home Stretch Crew Light It Up Skirt In-A-Flash Long Sleeve Run: Inspire Crop II Fleet Street Hoodie Surge Short Fly Away Tamer Run with Me Toque Reflect Jacket
Company Report 8 Pants: YOGA TO & FROM Wunder Pant Everyday Pant Astro Pant Atman Pant Groove Pant Shine Tight Pant Straight up Pant Studio Pant II (Roll Down) Skinny will Pant Studio Pant II Unlined Ebb to Street Pant Studio Pant II Tall Base Runner Pant Studio Pant II Regular Run: Turn Around Tight Pant Studio Pant II Regular Lululemon athletica’s pants for men are known for their fit and finish. They are constructed with “ABC” or “anti-ball crushing” engineering designed for maximum comfort. In addition, the pants come in a variety of colors, six pockets, and sweat- wicking technology. Holistically, they seek to be the perfect dress pants for men and stylistically, bridge the gap between the daily trendy and casual wearer to the almost- dressed-up gentleman looking to go for long hikes without sacrificing fashion. Lululemon athletica’s coats for men imbue ritzy warmth that only high-dollar, high- fashion products can instill. Intended for hiking, running, or even commuting, they match lululemon athletica’s value proposition perfectly: irreplaceable ingenuity married to flawless style. The lululemon athletica’s “Revolution” jacket seeks to actively warm and dry you after a workout with its “Polartec Power Stretch fabric” layer inside the jacket. Instead of walking from gym-to-shower shivering, this jacket will actively dry you. This type of break-through product reflects the innovative minds at lululemon athletica searching to offer solutions to physically conscious individuals in search of quality products. On other coats for men, secret features such as “hidden thumbholes” add value
Company Report 9 without sacrificing fashion. Stitching is carefully selected to support fabric joints and even add style. Linear colors and uses in stitched fabrics create a sense of elegance about the patterns and massively increase visual appeal. Additionally, all coats are designed to include breathability and circulation as one of the top goals. Most of the collars include perforations to be conducive to breathability. Overall, lululemon athletica ensures quality. First, in stitching. The double stitching is apparent throughout most of the products of lululemon athletica. This prevents easy tearing in areas around the armpits and jacket corners. The company takes great efforts to also make sure each pragmatic decision is reinforced or built on by stylistic options as well. Stitching adds a distinctiveness and quality to the clothing that otherwise would not exist. Secondly, lululemon athletica ensure quality in the choice of its materials. Quality polymers and fleeces are hand picked and imported. On top of this, lululemon athletica often layers its clothing to accommodate for sweat-wicking, active warming, and very low temperatures. Also, lululemon athletica products are mostly handcrafted, hand- seamed, and hand made, ensuring top-of-the-line quality craftsmanship. Most of the products can be returned at “any time” which is a significant step for a multinational company like lululemon athletica to take. Lululemon athletica also offers retreats and seminars to boost appeal of its product and to train consumers on how to perform yoga in ways that benefit the company. From Colorado to the Galapagos, seminars are offered for around $150 per person and retreats can be one-day or even three day-long seminars (Lululemon Athletica, 2014). As both a financial and cultural option, the retreats are a significant option that companies in its industry usually do not offer. However, because the culture for lululemon athletica is so intensely cult-ish, lululemon athletica seminars are popular and offer consumers a community—a truly value-adding product in of itself that encourages buying and support of lululemon athletica. Lululemon athletica’s products have appeal across a variety of markets (Kell, 2014). New trends and products are geared towards taking advantage of men’s athletic markets (Kell, 2014). Male “cyclists, CrossFit enthusiasts and other athletes,” are becoming the new target for lululemon athletica’s target marketing (Kell, 2014). In fact, evidence for this new trend is clear: lululemon athletica intends to open a new all-male store in Soho, New
Company Report 10 York City (Nicks, 2014). Clearly its forward-looking business plan is optimistic and gutsy—a corporate culture trademark the company does not take lightly.
Company Report 1 Financial Analysis Fiscal Advantages Lululemon athletica has also benefited from the strengthening of the dollar in Canada (lululemon athletica, 2014). A stronger Canadian dollar makes the purchase of raw materials comparatively cheaper on the margin, making any and all business transactions more fluid, easier, and better for profits. In addition, interest earnings from bank accounts, savings, and investments offer the company more “real purchasing power” for lululemon athletica—particularly cross-border economic activity and international purchases. Marketing Advantages Lululemon athletica also notes that its competitive advantage versus other top competitors in its field is weak, considering its “grassroots approach” which garners intense customer loyalty in small swathes but does not engender massive appeal— which is not precisely what lululemon athletica endeavors to accomplish at this point in time (lululemon athletica, 2014). Despite that, and to the corporation’s credit, lululemon athletica has performed well across a variety of financial indicators. Seasonal Boosts Lululemon athletica benefits from seasonal sales and admits it freely in the company’s most-recent annual, 10k report (lululemon athletica, 2014). lululemon athletica, it states, is aware that “a significant portion of our income from operations” derived from “increased sales during the holiday selling season (lululemon athletica, 2014). Net Profit Margin Lululemon Athletica’s Net Profit Margin sits at 26% in 2013, which is its peak profit margin performance so far in the company’s history (lululemon athletica, 2014). The company has about $185,442,000 in gross profit and about 7 hundred million in net revenue; seen at lululemon athletica’s Annual Income Statement: (Yahoo Finance, Inc. 2014). Thus, from dividing net sales by net profits we can derive an idea of how much the company is making in a dollar amount from each dollar of revenue it has. The profit
Company Report 2 margin is helpful in determining the profitability of different companies in the same industry. For example, with a 26% profit margin for 2013, lululemon athletica purportedly reported a $0.26 amount of income for each dollar of sales reported (lululemon athletica, 2014). This money is then used to pay employees, cover costs, and keep the business running. However, this number is a ratio, first and last. A ratio compares and contrasts two items. As a result, what this statistic does not always show is the macro picture of lululemon athletica’s financial health. However, as a ratio or financial indicator, lululemon athletica performs well on this test of “Net Profit Margin” and offers an almost 30% return of income on each dollar earned in revenue. ROE Lululemon also possesses a firm Return on Equity, ROE, or “Return on Net Profit.” Using the formula: Return on Equity = Net income / Average Equity; it is possible to calculate the return on equity from lululemon athletica’s 10k report. The meaning of the calculation is that lululemon athletica is efficient at generating profits. In addition, a positive ROE can indicate good management on the part of the management team charged with releasing company capital into investments within the company. In the simplest terms, ROE can be described as a way to measure a company’s ability to generate profits from its investors’ capital. In this case, lululemon athletica has done a fair job of that. lululemon athletica possesses about $153,000,000 in shareholder equity. In addition, the company boasts of receiving about $67,000,000 in Net Income. As a result, we can derive the “ROE” or “Return on Equity.” lululemon athletica’s return on equity is approximately equal to an impressive 44%. So, for about every $1 made in shareholders’ equity in 2013, lululemon athletica stock had a return on equity of $0.40 or about 40%. lululemon athletica also proposes ever-rising shareholders equity; seen at the company’s Annual Statement of Shareholder’s Equity: (Yahoo Finance, Inc. 2014). This remains another positive for lululemon athletica as it again trumps financial indicators, despite its small market. Debt Ratio The debt ratio varies in terms of its meaning to different companies in different industries. For companies that possess strong cash flow a larger debt ratio is more acceptable. Conversely, companies that regularly possess a weaker cash flow require a
Company Report 3 lower debt ratio in order to maintain a state of financial health. Overall the debt ratio is a way to measure risk, in terms of weighing on a mathematical scale—debt-to-assets. A debt ratio greater than 1 typically means the company has more debt than assets on its records. However, in most cases this is typical. In fact, in most cases it would be atypical if a company were to have more assets than debt. Such a situation would be favorable for employees and investors, in terms of feeling comfortable with the company’s financial health. But overall, the company would suffer from investments not being made and capital not being shared or grown in the economy. Lululemon athletica’s debt ratio is equal to about 12%. Using the equation: Debt Ratio = T liabilities/ T assets, we can determine lululemon athletica’s health in terms of assets and liabilities. The company has about $153,000,000 in Total Liabilities. In addition, it has about $1,250,688,000 in Total Assets in its possession. By using both figures, it is possible to delineate the company’s debt ratio. Using division, we see that lululemon athletica’s debt ratio is about 12%. For an athletic gear company, that is a fairly manageable responsibility. Current Ratio Lululemon athletica’s current ratio incorporates about 950,000,000 US Dollars in Current Assets, a sizable portion of assets which are easily converted into cash, to be sure (lululemon athletica, Inc. 2014). Approximately 75% of lululemon athletica’s current assets are made up of cash and cash equivalents (lululemon athletica, Inc. 2014). Slightly less than 10% of lululemon athletica’s current assets are made up of Inventories, or products, which were manufactured and remain to be sold (lululemon athletica, Inc. 2014). Prepaid expenses or other current assets make up almost 15% lululemon athletica’s current assets (lululemon athletica, Inc. 2014). lululemon athletica’s accounts receivable amount to almost 9,000,000 US Dollars in total; seen at lululemon athletica’s balance sheet: (Yahoo Finance, Inc. 2014). These are a measurement of payments owed to lululemon athletica that have yet to be distributed by consumers. Accounts receivable can arise when consumer purchases made online maintain financial transactions which have yet to be cashed, and thus are “in limbo.” Overall, lululemon athletica’s current asset total is formidable and large among other industries.
Company Report 4 Lululemon athletica’s current ratio also incorporates a second key component: current liabilities. Current liabilities incorporate what lululemon athletica will owe creditors over the next fiscal year. Accounts payable are debts that a company must pay over the next year to avoid default (Investopedia LLC, 2014). Accrued liabilities are debts that are owed than have not yet been paid. (Investopedia LLC, 2014). Employee pension accounts and even payroll taxes often are included in this figure (Investopedia LLC, 2014). Income taxes payable are income taxes lululemon athletica has yet to pay—or are pending. Lululemon athletica’s current liabilities are far outweighed by their current assets. About 50% of lululemon athletica’s current liabilities are accrued liabilities (lululemon athletica, 2014). The next largest component of lululemon athletica’s current liabilities are its unredeemed gift card liabilities (lululemon athletica, 2014). This parcel of lululemon athletica’s current liabilities is just what is sounds like: the amount of money lululemon athletica owes consumers for purchases made for gift cards in their physical locations around the country or ordered online (lululemon athletica, 2014). lululemon athletica unredeemed gift card liability account for approximately 25% of lululemon athletica’s current liabilities (lululemon athletica, Inc. 2014). In summary, lululemon athletica’s current ratio takes the corporations current assets and divides them by the company’s current liabilities. In a simple equation, then, we will divide the approximate value of lululemon athletica’s current assets, in this case about 900,000,000 US Dollars in the year 2014, and divide by the approximate value of lululemon athletica’s current liabilities, or in this case about 114,000,000 US Dollars in the year 2014 (lululemon athletica, 2014). The result from this equation amounts to 7.8. This is considered a very stable current ratio in financial analysis (lululemon athletica, 2014). Generally, anything above “1.0” indicates a corporation’s financial ability to pay its nearing obligation on time. With a current ratio about 6.8 points above the average, lululemon athletica possesses a strong current ratio (lululemon athletica, 2014). However, this is merely a preliminary look at lululemon athletica’s financial indicator of its quick ratio. Indeed, a quick ratio does not relate lululemon athletica’s total assets to total liabilities (lululemon athletica, 2014). Indeed, the current ratio excludes several asset categories, including but not limited to: property and equipment, or net capital, goodwill
Company Report 5 and intangible net assets, deferred income tax assets, and other non-current assets (Investopedia LLC, 2014). Overall, lululemon athletica is predicted to pay its short-term liabilities—or short-term debts, and thus, in terms of financial stability. Thus, this shows positive signs in terms of the corporation’s current ratio. The company is, for just another reason, considered financially sound. Quick Ratio Another key indicator in evaluating lululemon athletica’s financial status is to examine the corporation’s quick ratio (Investopedia, 2014). A quick ratio is generally considered a way to reasonably and reliably evaluate a corporation’s perchance to meet creditor demand in the short-term, using only assets that are considered liquid. In a sense, in financial analysis, it is a measurement used to calculate a company’s financial “power” or “ability.” In microeconomics, it is essentially, akin to measuring a consumer’s “purchasing power.” Why? It all has to do with math. In the standard “quick-ratio equation” the quotient gives the calculator, and in a more applied sense, investors, stockholders, stakeholders—both internal and external, as well as the press, a number which represents the dollar-to-dollar ratio of liquid assets-to-current liabilities (Investopedia, 2014). Liquid assets represent assets which lululemon athletica’s that are easily converted into cash. Generally, this includes all corporate assets with an exception for inventory (Investopedia, 2014). Inventory, by nature, is rather difficult to convert into cash because it must first be sold. Therefore, inventory is not considered a liquid asset. Examples of liquid assets are assets that may be sold, or resold quickly. These asset categories include, among other categorizations: cash and equivalents, prepaid expenses as well as preferred and non-preferred stocks (Investopedia, 2014). To calculate the quick ratio, generally, one take the current assets, subtracts off the non- liquid assets, in this case, inventory, and then divide by current liabilities. As mentioned previously, lululemon athletica’s current assets are approximately $900,000,000.0 US Dollars in 2014 (lululemon athletica, 2014). lululemon athletica’s current liabilities are approximately $ 114,000,000.0 US Dollars (lululemon athletica, Inc. 2014). Subtracting illiquid assets from liquid ones, or in this case, taking inventory off current assets, we are
Company Report 6 left with a figure of approximately $550,000,000.0 US Dollars (lululemon athletica, Inc. 2014). As a result of these figures, it is possible to determine lululemon athletica’s quick ratio. Lululemon athletica’s current assets are approximately $900,000,000.0 US Dollars in 2014 (lululemon athletica, Inc. 2014). This figure will serve as the minuend in the quick ratio equation (lululemon athletica, Inc. 2014). Lululemon athletica’s inventories, according to its latest 10-K report, released in February 2014, details lululemon athletica’s inventories as approximating: $176,000,000 US Dollars (lululemon athletica, Inc. 2014). Thus, lululemon athletica’s liquid assets are estimated to be: $724,000,000.0 US Dollars (lululemon athletica, Inc. 2014). Now, lululemon athletica’s quick ratio can be established. We will take lululemon athletica’s current assets figure, adjusted for liquidity, and say: $724,000,000.0 US Dollars divided by lululemon athletica’s current liabilities, or approximately $114,000,000.0 US Dollars, is equal to approximately 6.4. But, how do we interpret this figure? For example, “6.4” signifies the number of US Dollars, in liquid assets, that lululemon athletica has available cover each 1.0 US Dollar worth of current liabilities (Investopedia, 2014). In this case, lululemon athletica possess slightly more than $6.0 US Dollars for each $1.0 US Dollar of its current liabilities (Investopedia LLC, 2014). This is a healthy, even robust, quick ratio and suggests a stable financial ability for lululemon athletica to pay its short-term liabilities. Cash Ratio A cash ratio also offers a key barometer in measuring the financial health of a corporation. The standard equation essentially offers a summation of a company’s ability to pay its part of its liabilities using only cash. More specifically, a cash ratio measures a company’s ability to pay its current liabilities “using only its cash and cash equivalents” (Accounting Explained, 2014). It involves the comparing the levels of a corporation, or in this case, lululemon athletica’s cash and cash equivalent levels to lululemon athletica’s current liabilities (Accounting Explained LLC, 2014). Much akin to a quick ratio, if a figure reaches above 1.0, the company is considered to possess a healthy cash ratio and fully able to pay its short-term liabilities, if needed in a certain situation (Investopedia LLC,
Company Report 7 2014). Lululemon athletica’s cash ratio begins with calculating the dividend. The Dividend includes the corporation, or in this case, lululemon athletica’s cash total, cash equivalents total, and invested funds—all to be divided by the corporation, or in this case, lululemon athletica’s current liabilities (Investopedia, 2014). First, let us calculate the dividend. According to lululemon athletica’s annual 10k report, its cash and cash equivalents total estimate is approximately $93,000,000.0 US Dollars; seen here at lululemon athletica’s Annual Statement of Cash Flows: (Yahoo Finance, Inc. 2014). According to lululemon athletica’s annual 10k report, the corporation’s investments account for approximately $121,311,000.0 US Dollars (Yahoo Finance, Inc. 2014). As mentioned earlier, lululemon athletica’s current liabilities reach about $114,000,000.0 US Dollars which led to a rather substantially high quick-ratio in the previous section of this report. In this case, the lululemon athletica cash ratio is modest. By calculating we get: $214,000,000.0 US Dollars / 114,000,000.0 US Dollars = $1,800,000 US Dollars (lululemon athletica, Inc. 2014). This figure merits interpretation. It seems, lululemon athletica possesses a robust cash ratio that can be interpreted as high and indeed indicates further proof of the company’s strong financial health.
Company Report 8 Production and Operations Analysis Lululemon does not manufacture their own goods, but assure the people of society that they are particulate about there products. “Our partners around the globe make it possible for us to develop and create beautiful product. As we do not own our manufacturing facilities, we take great care in the selection of our vendors, and our process helps screen out any that don’t share our values.”(Lululemon.2014) Lululemon has labor and suppliers from all over the world, but the base of their works reside in the North America continent. “ Our vendors specialize in innovative technologies while meeting our quality, sustainability and capacity needs. While we work with partners around the world, we continue to maintain a manufacturing base in North America, including our first partner here in Vancouver.” (Lululemon.2014) (Here is the sign for the first Lululemon store to open in Europe.) The locations of the firm are all across the globe, but have a great reasoning to each location. The top three countries that perform yoga are: The United States of America, Canada, and India.
Company Report 9 Ironically enough the three main locations for Lululemon are The United States of America, Canada, Australia, and New Zealand respectively. There are a grand total of two hundred and fifty-four Lululemon stores ranging all across the Earth. (Map of all the Lululemon stores in America.) Lululemon has an infamous mark on their back for being avid believers in cheap manufacturer labors. Even though cheap manufacturing has the transparent perks of cheap labor and rapidity, the recent Luon yoga pants recall show cases just how badly a rigid flaw in the supply chain can set a company back in terms of publicity damage and reach treacherous levels of shame, it is logical to why fast can seem good though, a recent article analyzed “As demand grows in markets where consumers are price driven, manufacturers are compelled to be equally as cost driven to alleviate the pressure on their margins. However, speedy manufacturing far from home can lead to unavoidable errors without careful inspection.” The article continued on how if society demands it so heavily, the demand will be met by the corporations by any means necessary the article stated “If customers are saying ‘we want more, we want more,’ no one is going to say
Company Report 10 ‘no we can’t do it,’” said Marshall Meyer, a professor and China expert at the University of Pennsylvania’s Wharton School. “If we’re all governed by price, and if performance standards are of overwhelming significance, these problems occur whether its toys or workout pants." (Booton.2013)
Company Report 11 Environmental Analysis Lululemon athletica charges approximately $100 for a pair of basic yoga pants that is roughly twenty dollars cheaper than Gap Inc.'s Athleta simply because the firm understands the fact women will pay for the brand. Lululemon's simplistic pair of pants looks almost exactly like Athlete's $79 pants. Even the materials, a tandem of Lycra and nylon, are also the exact same. Lululemon took a huge hit this past March when the firm had to recall almost a quarter of its pants for being too sheer. Since then, its market value has diminished from $10 billion to $6 billion. More downfalls for the firm, customer reviews for Lululemon's basic yoga pant the "Groove" has excelled to extreme levels of biter. On Lululemon's website, the yoga pants have only three stars out of five based on hundreds of customer reviews. Athlete's pants, to compare to, have a customer rating of 4.3 stars out of five. Though the times were hard with their fatal flaws, lululemon athletica still prevailed in earnings. “Errantly see-through yoga pants was the prod for one of the pullbacks, but most of the plunges we’ve seen from shares since late 2011 were simply the result of earnings warnings. A funny thing happened on the way on the road to disaster, though — when it came time to post earnings, lululemon athletica not only topped estimates in each of its past 14 quarters, but it cranked up year-over-year earnings in 12 of them. By an average of 53%.” (Brumley, 2013, para.2). Lululemon's are located everywhere, and this is why that they are only behind the titan of a firm Nike. The main group of people that lululemon athletica target are the generation-X people, the people born from the mid seventies to the mid nineties. “Contrary to popular belief, there are more than a few so-called millennials — and a few younger Gen-Xers — that aren’t broke and/or swimming in debt. They’re not all necessarily flush with cash, and they’re not spending on things the baby boomers and older Gen-Yers could easily justify buying. But enough of them have enough access to enough money (or credit) to keep the cash registers ringing, and that mentality might never change.”(Brumley.2013). The people who the firm reaches out to is one that is very selective and concise. This mainly applies to women. It isn’t men the majority consumers are trying to impress with their high-end workout garb, Business Insider says, “It's other women. A poll of British women conducted last summer supports this claim. Two-thirds of over 2,000 participants between the ages of 18 and 30 claimed they care far less about impressing the men in
Company Report 12 their lives with their sartorial decisions. Instead, they dress up -- or down -- for the ladies. (Popular fashion blog The Man Repeller, by New Yorker Leandra Medine, is built around this very premise.)” (Gray.2012). On lululemon’s website they discuss how their primary target customer is a sophisticated and educated woman who understands the importance of an active, healthy lifestyle. The customer is increasingly tasked with the dual responsibilities of career and family and is constantly challenged to balance her work, life and health. Lululemon athletica also believes she pursues exercise to achieve physical fitness and inner peace. As women have continued to embrace a variety of fitness and athletic activities, including yoga, the firm believes other athletic apparel companies are not effectively addressing their unique style, fit and performance needs. This firm also believes they have been able to help address this void in the marketplace by incorporating style along with comfort and functionality into their products. Although, they were founded to address the unique needs of women, they are also successfully designing products for men who also appreciate the technical rigor and premium quality of our products. Lululemon athletica, the longer-term growth in athletic participation will be reinforced as the aging Baby Boomer generation focuses more on longevity. In addition, the firm believes consumer purchase decisions are driven by both an actual need for functional products and a desire to create a particular lifestyle perception. As such, they believe the credibility and authenticity of our brand expands our potential market beyond just athletes to those who desire to lead an active, healthy, and balanced life. (Lululemon athletica, n.d.) Lululemon athletica is not the first firm to aggressively target youthful, single, self-made women. In 2012 both Citibank and Honda launched major ad campaigns that sharply pointed to the demographic's financial winnings and decreasing dependency. In the ad for Citibank, a young woman says: "My boyfriend and I were going on vacation. We talked about getting a diamond, but with all the ThankYou Points I've been earning, I flew us to the rock I really had in mind." The rock she was referring to was actually a giant rock formation in the state of Utah. As Huffington Post's Katie Bindley wrote: "The new commercials sell women the cars and financial products they can now afford by presenting those big ticket items as tools for celebrating their independence rather than attracting a husband" (Huffington Post, 2012). Marketers are finding out that the way to women's cash, is the pointing out of their strengths instead of the exploiting their
Company Report 13 weaknesses, and by focusing on this demographic, Lululemon, either on purpose or accident, is appealing in part to their awareness of their own power, earning that power. An interview with the manager of the lululemon athletica in the Irving mall helped clarify their focus on environmental impact. He explained to me how their retail stores are sited to be accessible by public transit, so employees and customers have several transportation options. Showers are located at most lululemon stores so staff can start their day on the grouse grind or choose to cycle or walk to work. Alternative transportation is promoted through “go green commuting” choices, such as providing biking route maps, cooperative car sharing, and public transit discounts. The best parking spots are reserved for staff who carpool, or choose drive a smart car or hybrid or any other Earth-friendly means of transportation. He continued on about their valiant efforts to manage waste. He talked about how small bins replaced larger garbage cans to reinforce the matter of the reduce, reuse, recycle method. Each staff member is responsible to empty their own bin so they are mindful of the waste they create. Each floor a has a recycling and garbage station. Refundable containers are collected, with funds donated to the Salvation Army programming. Toner cartridges are recycled, with funds donated to the Food Bank. New retail locations are designed with built-in recycling stations for staff and customer use. The distribution center switched to reusable shipping containers a few years back, so now each retail store recycles excess packaging or shipping materials. A fifty-cent environment discount was given to over ninety-nine thousand thoughtful customers a few years ago, because they chose not to take a bag with their purchase. As a substitution for throwaway bags, reusable bags were brought almost ten years ago for customers. Systems to track total waste and recycling amounts are being established. These systems will be used to set targets and better trash reduction performance. Potdevin is now the current CEO of lululemon athletica, and she has been shooting for an approach that is fitting for both the workers and society. “Fifty percent of Lululemon's board was made up of women. "[I wanted] people to see women in power. They were regularly reporting into that board and saw that [gender equality] mattered there," says Day. She also set a goal that 50% of the executive team would be made of women, although simply by coincidence, the team ended up being 80% women. "I hired the best people and it just happened this way,"” (Evans, 2014, para.5). The arrangement of a
Company Report 14 woman-based management will benefit the firm, as the main customers are indeed women.
Company Report 15 Firm Events Analysis Lululemon athletica charges approximately $100 for a pair of basic yoga pants that is roughly twenty dollars cheaper than Gap Inc.'s Athleta simply because the firm understands the fact women will pay for the brand. Lululemon's simplistic pair of pants looks almost exactly like Athlete's $79 pants. Even the materials, a tandem of Lycra and nylon, are also the exact same. Lululemon took a huge hit this past March when the firm had to recall almost a quarter of its pants for being too sheer. Since then, its market value has diminished from $10 billion to $6 billion. More downfalls for the firm, customer reviews for Lululemon's basic yoga pant the "Groove" has excelled to extreme levels of biter. On Lululemon's website, the yoga pants have only three stars out of five based on hundreds of customer reviews. Athlete's pants, to compare to, have a customer rating of 4.3 stars out of five. Though the times were hard with their fatal flaws, lululemon athletica still prevailed in earnings. “Errantly see-through yoga pants was the prod for one of the pullbacks, but most of the plunges we’ve seen from shares since late 2011 were simply the result of earnings warnings. A funny thing happened on the way on the road to disaster, though — when it came time to post earnings, lululemon athletica not only topped estimates in each of its past 14 quarters, but it cranked up year-over-year earnings in 12 of them. By an average of 53%.” (Brumley, 2013, para.2). Lululemon's are located everywhere, and this is why that they are only behind the titan of a firm Nike. The main group of people that lululemon athletica target are the generation-X people, the people born from the mid seventies to the mid nineties. “Contrary to popular belief, there are more than a few so-called millennials — and a few younger Gen-Xers — that aren’t broke and/or swimming in debt. They’re not all necessarily flush with cash, and they’re not spending on things the baby boomers and older Gen-Yers could easily justify buying. But enough of them have enough access to enough money (or credit) to keep the cash registers ringing, and that mentality might never change.”(Brumley.2013). The people who the firm reaches out to is one that is very selective and concise. This mainly applies to women. It isn’t men the majority consumers are trying to impress with their high-end workout garb, Business Insider says, “It's other women. A poll of British women conducted last summer supports this claim. Two-thirds of over 2,000 participants between the ages of 18 and 30 claimed they care far less about impressing the men in
Company Report 16 their lives with their sartorial decisions. Instead, they dress up -- or down -- for the ladies. (Popular fashion blog The Man Repeller, by New Yorker Leandra Medine, is built around this very premise.)” (Gray.2012). On lululemon’s website they discuss how their primary target customer is a sophisticated and educated woman who understands the importance of an active, healthy lifestyle. The customer is increasingly tasked with the dual responsibilities of career and family and is constantly challenged to balance her work, life and health. Lululemon athletica also believes she pursues exercise to achieve physical fitness and inner peace. As women have continued to embrace a variety of fitness and athletic activities, including yoga, the firm believes other athletic apparel companies are not effectively addressing their unique style, fit and performance needs. This firm also believes they have been able to help address this void in the marketplace by incorporating style along with comfort and functionality into their products. Although, they were founded to address the unique needs of women, they are also successfully designing products for men who also appreciate the technical rigor and premium quality of our products. Lululemon athletica, the longer-term growth in athletic participation will be reinforced as the aging Baby Boomer generation focuses more on longevity. In addition, the firm believes consumer purchase decisions are driven by both an actual need for functional products and a desire to create a particular lifestyle perception. As such, they believe the credibility and authenticity of our brand expands our potential market beyond just athletes to those who desire to lead an active, healthy, and balanced life. (Lululemon athletica, n.d.) Lululemon athletica is not the first firm to aggressively target youthful, single, self-made women. In 2012 both Citibank and Honda launched major ad campaigns that sharply pointed to the demographic's financial winnings and decreasing dependency. In the ad for Citibank, a young woman says: "My boyfriend and I were going on vacation. We talked about getting a diamond, but with all the ThankYou Points I've been earning, I flew us to the rock I really had in mind." The rock she was referring to was actually a giant rock formation in the state of Utah. As Huffington Post's Katie Bindley wrote: "The new commercials sell women the cars and financial products they can now afford by presenting those big ticket items as tools for celebrating their independence rather than attracting a husband" (Huffington Post, 2012). Marketers are finding out that the way to women's cash, is the pointing out of their strengths instead of the exploiting their
Company Report 17 weaknesses, and by focusing on this demographic, Lululemon, either on purpose or accident, is appealing in part to their awareness of their own power, earning that power. An interview with the manager of the lululemon athletica in the Irving mall helped clarify their focus on environmental impact. He explained to me how their retail stores are sited to be accessible by public transit, so employees and customers have several transportation options. Showers are located at most lululemon stores so staff can start their day on the grouse grind or choose to cycle or walk to work. Alternative transportation is promoted through “go green commuting” choices, such as providing biking route maps, cooperative car sharing, and public transit discounts. The best parking spots are reserved for staff who carpool, or choose drive a smart car or hybrid or any other Earth-friendly means of transportation. He continued on about their valiant efforts to manage waste. He talked about how small bins replaced larger garbage cans to reinforce the matter of the reduce, reuse, recycle method. Each staff member is responsible to empty their own bin so they are mindful of the waste they create. Each floor a has a recycling and garbage station. Refundable containers are collected, with funds donated to the Salvation Army programming. Toner cartridges are recycled, with funds donated to the Food Bank. New retail locations are designed with built-in recycling stations for staff and customer use. The distribution center switched to reusable shipping containers a few years back, so now each retail store recycles excess packaging or shipping materials. A fifty-cent environment discount was given to over ninety-nine thousand thoughtful customers a few years ago, because they chose not to take a bag with their purchase. As a substitution for throwaway bags, reusable bags were brought almost ten years ago for customers. Systems to track total waste and recycling amounts are being established. These systems will be used to set targets and better trash reduction performance. Potdevin is now the current CEO of lululemon athletica, and she has been shooting for an approach that is fitting for both the workers and society. “Fifty percent of Lululemon's board was made up of women. "[I wanted] people to see women in power. They were regularly reporting into that board and saw that [gender equality] mattered there," says Day. She also set a goal that 50% of the executive team would be made of women, although simply by coincidence, the team ended up being 80% women. "I hired the best people and it just happened this way,"” (Evans, 2014, para.5). The arrangement of a
Company Report 18 woman-based management will benefit the firm, as the main customers are indeed women.
Company Report 19 Strategic Direction The mission statement of lululemon is a short, grammatically incorrect sentence. It states that their goal is to “Create components for people to live longer, healthier, fun lives” (Lululemon athletica, n.d.). The lack of grammar fits in with the general cultural aesthetic of the company, one that puts emphasis on free thinking and independent action. This mission statement stems from their “original intent”, which is to elevate the world from mediocrity to greatness (Lululemon athletica, n.d.). Such lofty statements from a mere clothes retailer are a large part of their tactics in achieving success, as is noted by the New York Times (Walker, 2009). But what is their idea of mediocrity and greatness in relation to their original intent? According to founder Chip Wilson, mediocrity can be defined in quite a few ways. He has said “to paint you a picture, mediocrity is doing an “okay job”, having a relationship that “works,” being just "a little" overweight, or having a job that "pays the bills” (Marati, 2012). Though it is likely that Chip Wilson believes strongly in rising above such a life, the hard part is first, actually raising the world above it, and second and creating a successful profitable business on this philosophy. He continues, stating “mediocrity is putting up with things they way they are with no firm plan to change the situation by a particular date. Mediocrity is following a predetermined and unfulfilling path. Most people live in a state of mediocrity” (Marati, 2012). Who wouldn’t want to join an organization which will make them feel like they are moving from that to greatness? That is, greatness as “demanding the best out of one’s self” (Marati, 2012). He ends his description of greatness with that, but the rest of it is all concerned with demanding greatness from other things: friends, spouses, your job, the company you work for, the pay that company gives you, etc (Marati, 2012). Assumably Wilson considers his own company one that “makes the best products” and is “uncompromising in its promise to its customers” (Marati, 2012). And no doubt he’d like readers to be persuaded by his speech to assume it is. As Huffington post notes, a lot of this sounds like Ayn Rand’s statement that man’s “pursuit of his own rational self-interest and of his own happiness is the highest moral purpose of his life” (Marati, 2012). Does that gel with the average yogi? “Needless to say, the messages are a far cry from the liberal ideals that many in yoga community embrace” (Marati, 2012). But whether or not analysts (and financial earnings) think that is detrimental to their business is yet to be seen.
Company Report 20 The mediocrity to greatness vision is encapsulated in Lululemon’s “manifesto”. This manifesto begins with a few introductory words, but mainly consists in a large red and white poster that they encourage one to read so as to “learn a little more about what lights our fire” (Lululemon athletica, n.d.). But first the introduction states that sweating every day, breathing deeply, drinking water, and getting outside “top the list of things we can’t live without” (Lululemon athletica, n.d.). The poster manifesto itself consists of numerous inspirational, motivational, and health related tips. They range from “this is not your practice life. this is all there is” to “sweat once a day to regenerate your skin” to “friends are more important than money” (Lululemon athletica, n.d.). In regards to the last of those, someone following Chip Wilson’s idea of greatness should apparently not demand too adamantly higher pay from their companies.
Company Report 21 A poster of the Lululemon manifesto, courtesy of lululemon.com
Company Report 22 Human Resources Analysis Lululemon doesn’t always call things by the same name that competitors do, and just as cotton/spandex was to them “seaweed” at one point (Story, 2007), so HR is a more upbeat “people potential” (Lululemon athletica, n.d.). The department is a team that “helps our great people achieve their dreams and live a life they love” (Lululemon athletica, n.d.). Their “people potential” mission statement is upbeat and different too, and outlines the three key parts of their HR department (Lululemon athletica, n.d.). First, their recruiters live the “law of attraction”, a concept explained by Chip Wilson on the company's blog (Wilson, 2009). He states the law of attraction “is the fundamental law that Lululemon was built on” and that it “simply says that you attract aspects, qualities, and people in your life that reflect the type of person you are” (Wilson, 2009). So an important part of hiring new talent at Lululemon is finding people similar to those who already work there. He continues “all our training and culture is predicated on developing great people so we can attract great people. This is not marketing lip service” (Wilson, 2009). This will be seen below in the further discussion of the hiring process at Lululemon. The “people potential” mission statement then says, “our leadership and development team makes the most of our greatest asset—our people” (lululemon athletica, n.d.). This shows a focus on the employee, and such an approach to HR can be crucial to development, a key goal of any HR department. As we will see, the ways in which this team develops its employees is novel to say the least. The last of the three sections of this HR department returns to Lululemon’s tradition of untraditional titling. It is the “health and wealth team” which “ensures our compensation and benefits embody our core values” (Lululemon athletica, n.d.). After attracting and developing employees, every HR department also has the job of retaining them. This last Lululemon “people potential” team is tasked with just that. The law of attraction that is the center of Lululemon’s hiring process can be seen in how they first recruited in the early days of the company. According to a Fastcompany article, they started by truly hiring people just like them (Sacks, 2009). Wilson stated, “when we first started, we hired nothing but yogis” (Sacks, 2009). But, Wilson always being one with a low tolerance for perceived mediocrity soon found that wasn’t cutting it. The yogi
Company Report 23 part was still essential, just not sufficient (Sacks, 2009). He states “but it didn’t work because they were too slow. So we started hiring runners who like yoga. They’re more on the ball, more type A” (Sacks, 2009). Lululemon states on their jobs page a number of beliefs about employment and their workforce in a small statement (Lululemon athletica, n.d.). This serves as a statement to anyone interested in working there about what kind of people they are and thus, because of the law of attraction, the kind of people they want. This gives a clear picture of the hiring process at Lululemon. It begins “We believe in a lot of things…” and goes on to detail these (Lululemon athletica, n.d.). Flossing makes the list, so possibly those with poor dental hygiene may be unlikely to find employment at Lululemon (Lululemon athletica, n.d.). The statement says, “Sweat once a day”, which echoes Wilson’s original desire not just for yogis, but also for those yogis breaking a sweat during their run (Lululemon athletica, n.d.). The statement continues, “above all, we believe in self- empowerment, positive inner development and taking responsibility for our own lives” (Lululemon athletica, n.d.). The focus on self-empowerment is consistent with the HR Mission Statement’s opinion that their employees are their greatest asset (Lululemon athletica, n.d.). And the company certainly doesn’t neglect the development of the talent it recruits. After one year at the company, “all staff are invited to take a course at Landmark Worldwide” (Butter, 2014). Landmark, which is not tied to Lululemon, is “an international personal and professional growth, training and development company—a global educational enterprise committed to the fundamental principle that people have the possibility of success, fulfillment and greatness” (Landmark Worldwide, n.d.). In the case of Lululemon, what is offered is three days of free training and development (Butter, 2014). These three days consist of people being “encouraged to experiment with fresh behavior and ideas” (Butter, 2014). But there is controversy over these seminars. While Landmark says their programs are “ontological in design and phenomenological in methodology” some reporters who have been through the program report the usage of everything from Zen Buddhism to existential philosophy to Freud (Butter, 2014). After a year of training and the $600 Lululemon spends on sending each employee to the Landmark seminars, they naturally want to keep the employee turnover rate as low
Company Report 24 as possible (Butter, 2014). This ensures that resources aren’t wasted and that the culture of the company can thrive upon those who stay in for the long haul. Part of their retaining efforts are simply in what they sell the company to employees as. They sell it as much more than just a job, but really a new way of life, as was seen in the way they approach hiring and development (Wilson, 2009). But as clever a business move all that may be, it is no replacement for old-fashioned employee benefits. In the Stockholders Equity section of the most recent 10-K annual report from Lululemon, employee stock based compensation plans are detailed (Lululemon Athletica, Inc, n.d.). It states, “The company’s employees participate in various stock based compensation plans which are provided by the Company directly” (Lululemon Athletica, Inc, n.d.). This shows the Human Resources department of Lululemon has a strong focus on retaining employees.
Company Report 25 Social Responsibility Analysis A discussion of Lululemon’s social responsibility, and particularly public relations, must begin with the founder Chip Wilson. In January of 2012 he stepped aside as CEO and Christine Day took over for a time (Edwards, 2012). Some analysts felt that this was a result of a long stream of odd statements that had kept Wilson in the news for quite some time. According to BusinessWeek, his “stepping aside” was as a result of his odd statements, and it is easy to see why (Edwards, 2012). The first publicity gaffe from Wilson involves the choosing of the name “lululemon”. In 2005 he stated at the Business Alliance of Local Living Economies conference in Vancouver that he had named the company “lululemon” because Japanese people have difficulty pronouncing L’s (Deveau, 2005). And though he was quoted as saying “it’s funny to watch them try and say it”, he actually chose the name because somehow it would serve as an extra marketing tool (Deveau, 2005). In 2009 he clarified this by explaining that Japanese consumers would recognize the name as distinctly North American since they can’t pronounce it (Deveau, 2005). Tellingly, the link to this statement (referenced by Deveau in his 2005 article) is no longer available at lululemon.com, suggesting that the company has tried to clean up its publicity in the last few years. One of the issues that prompted this clean up were his comments about child labor and outsourcing, which to many showed a lack of care for social responsibility, or at least a very odd take on it (Edwards, 2012). Up until 2004 lululemon produced all it’s garments in Vancouver, Canada, where the company is based (Deveau, 2005). This was meant to sell the company as ethical and locally sourced, but this got more difficult as the brand expanded (Deveau, 2005). Quickly, a policy that promoted good public relations through social responsibility policies was changing. Wilson explained to the BALLE BC conference that when the store was only operating in North America, it made financial sense to keep production local, because once overseas shipping costs and currency conversion fees were accounted for it was no less expensive to outsource hiring to China (Deveau, 2005). That alone is perfectly normal for any company, but it is Wilson’s language that raised concern. He stated bluntly “we have two choices, which are to manufacture everything in the Orient offshore, or to not be in business. You do it or die”
Company Report 26 (Deveau, 2005). While this has no doubt been the thought in numerous companies minds, almost none go out and state it so bluntly. Where Wilson saw outsourcing a necessity, he saw child labor as a positive good. He explained to the delegates of the BALLE BC conference that allowing 12- and 13-year- old children to work in factories would allow them to have much needed wages (Deveau, 2005). He likened this to the WTO, saying he saw the issue as they did, that the best way for wealth to be spread around the world is for countries to “pull themselves out of poverty” (Deveau, 2005). Members of the conference were put off by these comments, which reportedly went over “like a lead balloon” (Deveau, 2005). BALLE BC executive Penny Scott said he was straying into grey area, and didn’t address the questions of where such children would be going to school, what they would be paid, and where they would be living (Deveau, 2005). The company was proactive in ensuring their brand was seen as ethical, and that they would not turn out to be a vilified corporation. In May 2004, shortly after outsourcing to China had begun, the company ran an ad in Yoga Journal magazine depicting a pretend newspaper article with people dressed in diapers, with bonnets on their heads and pacifiers in their mouths (Deveau, 2005). Attached to this was a post-it-note from Chip Wilson stating, “How did this get out?” (Deveau, 2005). No doubt, many readers were left scratching their head at this odd ad. As usual, Wilson had to follow up with an explanation, and it didn’t make any more sense than anything else he has said. According to him, the ad was meant “to elicit reactions on the global travesty of child labor in an ironic, humorous way” (Deveau, 2005). While this confusing at best, he did make some statements about their factory that put lululemon in a positive light. Their factory is owned by the same person who owned the one in Vancouver, and they were tasked with making conditions similar for employees (Deveau, 2005). Wilson had inspected the facility himself to ensure it was far from a sweatshop (Deveau, 2005). Sending the CEO over to overseas factories is a good public relations strategy that other companies have used, as it shows that the issue is of high importance. Rather than apologizing for the outsourcing of production, Wilson defended it, claiming that 95% percent of the factories he had seen in “the Orient” were better than ones in North America (Deveau, 2005).
Company Report 27 Experts on the Chinese garment industry aren’t convinced by Wilson’s statements (Edwards, 2012). Denise Taschereau is a manager of social responsibility at Mountain Equipment Co-op and attended the BALLE BC conference where Wilson made his statements about outsourced factory work (Deveau, 2005). She brought up the question of whether lululemon had any third party, or even in house, auditing system (Deveau, 2005). An auditing system is key to ensuring decent conditions within a factory. She called to light that even if the factories look modern and are managed by the same person as the one’s in Vancouver were, they may still have issues with sanitary working conditions, child labor, and overtime pay (Deveau, 2005). She stated, “as you grow up as a brand in Canada, your commitment to and your systems around being responsible and ethical retailer have to grow up with you” (Deveau, 2005). Denise Taschereau was hardly the only one to raise such concerns. Miriam Palacios of Oxfam Canada added that the workers might not be given health care or any educational benefits (Deveau, 2005). Wilson’s belief that child labor would be a good for developing countries may have stemmed from his reading of Ayn Rand’s novel called Atlas Shrugged, which espouses the philosophy of Objectivism (Edwards, 2012). Objectivism holds that society is best off when everyone follows their own pure self-interest, with no thought of altruism (Austen, 2011). This alone wouldn’t be a public relations nightmare, if he had kept his enthusiasm to himself like other Ayn Rand fans who hold an important office, such as the former head of the Federal Reserve, Alan Greenspan (Austen, 2011). But in November 2011 the company began printing a new slogan on their bag, “Who is John Galt?” (Austen, 2011). The quote comes from the opening lines of the novel Atlas Shrugged and is used by fans to state their belief in Objectivism (Austen, 2011). Niraj Dawar, who is a professor of marketing at Richard Ivey School of Business, suggests that lululemon may have see the move as an act of corporate social responsibility (Austen, 2011). Whether the move succeeded is very doubtful, as he states “Chip Wilson’s philosophy may not be shared by customers, and there’s little room for these customers to engage in debate, so some of them will express their opinions by walking away” (Dawar, 2011). Indeed, comments on lululemon’s blog did not mince their words, one saying “I was so shocked by being handed this bag today at your Portland, Ore., store that I literally walked back to return this horrific bag” (Austen, 2011). Just like the companies statement about why Chip chose the name lululemon, the link to these comments has been removed, and are
Company Report 28 only available through quotes from news articles at the time. On their error page is another interesting message to consumers: a picture of lululemon wearing people smiling and holding up purple signs stating “You’re the sh*t!” (lululemon athletica, n.d.). While Ayn Rand supplied the philosophy behind lululemon and Japanese phonetics inspired the name, it was a social phenomenon that Chip Wilson views as allowing it all to come into existence. In an article, surprisingly still extant, called “how lululemon came into being” Wilson relates how the birth control pill introduced in the 1970’s ultimately led to his yoga company (Wilson, 2009). He believes that womanhood was fundamentally changed by the introduction of “the pill” (Wilson, 2009). Women no longer needed to make a relationship work, as they could ensure no children were produced that would have in the past necessitated a marriage stay together (Wilson, 2009). And, they were empowered and self-motivated by not having to rely on male providers. This caused an “era of divorce” (Wilson, 2009). The 70’s and 80’s led to what Chip Wilson terms “Power Women”, who tried to keep up with men by putting in long workdays, while simultaneously taking care of children as single parents (Wilson, 2009). While they “went to 3 martini lunches and smoked because this is what their “successful” father did” they also gave up their social life, exercise, and sleep (Wilson, 2009). Wilson’s oddball story of the female sex in the latter half of the twentieth century goes on to describe Super Girls, or the daughters of Power Women ((Wilson, 2009). And what influenced them? Saturday morning cartoons, of course. These 90’s girls saw the new female superheroes in such shows donning tight tops and feminine colors and followed en masse (Wilson, 2009). But there was no functional athletic clothing for women. And they certainly needed it, as they realized that endorphins from exercise were the remedy to the stress from 12-hour workdays and the challenge of rearing families on their own (Wilson, 2009). Then, Wilson manages to tie yet another controversy into one little blog post: breast cancer. He suggests that its rise in the 90’s was due to woman smoking while on the pill, to combat the stress of their new lifestyle (Wilson, 2009). Because of all this, yoga arose, as an accessible relief for all the ills besetting the modern Power Girl. As Wilson sums it up “ultimately, lululemon was formed because female education levels, breast cancer, yoga/athletics and the desire to dress feminine came together all at one time” (Wilson, 2009). On the blog post, Chip Wilson is titled merely a “contributor”, not calling attention to the fact that their own founder has such odd beliefs (Wilson, 2009).
Company Report 29 But the business wasn’t just founded to fill the need for quality yoga pants. No, it was to spread “The Secret”, as Wilson accounts in another off kilter blog post (Wilson, 2009). This secret is the “Law of Attraction” which states that people attract to themselves others that are just like them (Wilson, 2009). So alcoholics attract alcoholics and athletes attract athletes. Wilson encourages us to look around at the people we surround ourselves with to get a better sense of our own character (Wilson, 2009). But most people, in his opinion, are just mediocre because they don’t love themselves enough and thus decide to act like someone they are not. And since nature only cares that we produce, we’re left on our own as far as achieving happiness and contentment (Wilson, 2009). He is specific with his advice, suggesting that people go to five people, including their boss, to get feedback on certain questions. One of the questions is “12 people have been shipwrecked on a deserted island. There is one boat that will hold 6 people and if the 6 people work perfectly as team they have a 10% chance of survival. The people left behind will perish. Would you take me and if yes why and if not why not?” (Wilson, 2009). Readers must have wondered what kind of feedback Chip Wilson would get if he asked his peers such a question. Alone this would just be an odd blog post on lululemon’s site, but Chip Wilson brings it back to his company at the end. The training at lululemon is meant to provide great service so that they will attract great people (lululemon athletica, n.d.). And their ultimate vision is “to elevate the world from mediocrity to greatness” (lululemon athletica, n.d.). Many of the comments on the post called into question how exactly expensive apparel could elevate the world away from mediocrity (Wilson, 2009). While the actions of the founder of lululemon are important as far as social responsibility and public relations, it is important to look at a history of the company as a whole. In 2007 lululemon ran a line of clothing having a VitaSea fabric, which claimed to be 24% seaweed fiber (Story, 2007). And according to tags the product “releases marine amino acids, minerals and vitamins into the skin upon contact with moisture” (Story, 2007). In addition to detoxifying, hydrating, and reducing stress (CBC News, 2007). But then the New York Times commissioned multiple laboratory tests, and all found that there was no sign of seaweed whatsoever (Story, 2007). They stated, “the tests raise obvious questions about lululemon’s marketing” (Story, 2007). It is also clear that they were trying to appear socially and environmentally responsible, but failing to follow through (CBC News, 2007). Chip Wilson claimed that lululemon had not had enough money to
Company Report 30 run their own tests on the fabric, a questionable claim at best as the VitaSea line was introduced in 2006, when lululemon was already quickly gaining popularity (Story, 2007).
Company Report 31 SWOT Analysis As a serious investment, lululemon athletica offers a variety of strengths. Purchase of common stocks, preferred stocks, or other ownership in the company, despite struggles with containing public relations issues in the past, present a solid investment proposal. Lululemon athletica presents a strong case for investment because of its dedicated customer base, and its unique technology. In addition, lululemon athletica offers a history of strong customer dedication. While recent press and attention may argue that the company has reached its peak or is leveling off, the company is repositioning itself for success in the coming years. Lululemon athletica mainly appeals to women interested in Yoga. However, recent economic evidence indicates that men will and are becoming a more interested consumer in Yoga and lululemon athletica products overall (Kell, 2014). The brand is growing in appeal with cyclists, cross-training athletes, and men overall (Kell, 2014). Unlike competitors Under Armour and Nike, lululemon athletica is aggressively targeting male athletes and as a result, stands to gain tremendously from their daring marketing goals and campaigns. Lululemon athletica possesses unique anti-stink technology that differentiates the company from competitors and offers a viable incentive for investors going forward. Silver-infused material, a blend of spandex, nylon, and actual silver threads kills bacteria accumulated from perspiration and adds a unique value for competitors interested in working out, potentially in the same clothing, over several days without disgusting teammates, trainers, coaches, and increasing the their own personal health environment (Newcomb, 2014). Lululemon, like all companies, has weaknesses. Lululemon athletica is a relatively new company. It does not have the advantages that older companies have such as a long history of experience and strong brand recognition. The current head of lululemon athletica, Laurent Potdevin, has had two decades worth of experience in the athletic apparel industry; however, he does lack experience in the company lululemon athletica itself (Lululemon Annual Report, 2013). This lack of experience and brand recognition could make it harder as lululemon athletica is trying to expand.
Company Report 32 It is important for lululemon athletica to make sure their products are up to date with recent trends. They should make sure their products are of the highest quality possible. Lululemon’s stores are known for their highly attentive employees and positive atmosphere; if either of these qualities were to change the company would be hurt. Lululemon uses mostly social media and word of mouth as their marketing strategy. If negative things were being said about the store their profits could be affected. In our technology driven society, it has become more and more importance to keep lululemon athletica’s computer system’s safe and updated. If the system became outdated or hackers broke into their records there could be a break in trust with customers and sales could be hurt. If their systems are hacked into personal and financial information could be stolen. Products may have to cost more as a result of the need for lululemon athletica to consult with computer experts to make their systems the best they can be. Another weakness that lululemon athletica possesses is the threats that arise from rapid growth. In recent years lululemon athletica has been extremely successful. Keeping up with the growing popularity, and growing demand of the company is a growing concern. If lululemon athletica cannot provide enough of their product the consumers could grow frustrated, and stop trying to purchase their items. Lululemon’s has a weakness in their company concerning patents. “ . . . We currently own no patents or exclusive intellectual property rights in the technology, fabrics or processes underlying our products” (Lululemon Annual Report, 2013). If a competitor of lululemon athletica were to use their intellectual property rights in technology, fabrics, or process underlying their products lululemon athletica would not be able to fight them legally, and their business could suffer. The high reward opportunity plan of expanding business more internationally has begun for lululemon athletica. The original foundation for lululemon athletica is located in the country of Canada, and then eventually moved to the United States of America. The question seemed to be, why stop at only North America? The firm began to reach out and build their business first in the country of Australia and then the country of Japan (Adventurenational.com.) This is an extremely beneficial opportunity because yoga has expanded into a worldwide trend over the past decade, and if lululemon can expand their product before their competitors such as Adidas, Gap, or Reebok can, this will give them
Company Report 33 a generous advantage. A second opportunity for lululemon athletica is the apparel expansion to the male gender. Men are indeed participating in yoga as well in this day and age, but also men have been reported of wearing lululemon athletica clothing as casual wear. This could be great for the firm if they could capitalize on this chance, as the only other competitor that has equal support for both genders is the titan company Nike. Lastly, the golden opportunity is that yoga is gaining more and more popularity seemingly by the day. Friends are telling friends and the yoga surge is rushing awfully fast. Hundreds and hundreds of people are trying out yoga daily and want the top quality products for it, and lululemon athletica is almost always the first name that pops up. It is so simple: the more people interested in yoga, the more chance there is for lululemon athletica to expand, and also conduct new relationships Lululemon faces several threats to their current operations. Some of the things they face are an intense competitive market, possible economic downturn, and fluctuating cost of raw materials. “An economic downturn or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our products” (Lululemon Annual Report, 2013). Lululemon faces massive risk in regards to financial markets due to the current economic climate. Since the recession, financial markets have been very volatile and this has led to more unemployment and more consumer fear. This volatility greatly threatens lululemon’s business and can hamper their current operations. Lululemon athletica’s sales can be hurt if the Asian markets change. The majority of lululemon’s products and materials are manufactured in Asia. The health of these companies are important, because a large part of lululemon athletica’s production process depends on the efficiency, reliability, quality, and the low cost that these outsourcing companies provide. If efficiency, reliability, quality, or low cost production were to change in any of the companies lululemon athletica outsources to lululemon athletica itself would be affected. Lululemon also faces massive risk in terms of the fluctuating costs of goods and services. “The fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer”(Lululemon Annual Report, 2013). Many of lululemon’s suppliers could be affected by external environmental conditions that would cause the input price to increase. This would greatly
Company Report 34 affect their current margins and hamper their overall business. This increase in inputs could also cause their products to increase in price. “Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices”(Lululemon Annual Report, 2013). Their sales and profitability would be hampered due to the rising input, which would then cause their products to sell for less while costing more. Lululemon also is faced with tough competition such as firms such as NIKE and Adidas. The problem with these firms is their market shares and large amount of cash. “We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in a loss of our market share and a decrease in our net revenue and profitability”(Lululemon Annual Report, 2013). The large amount of cash allows these firms more flexibility and can allow them to operate in ways lululemon can’t.
Company Report 35 Investment Recommendation Based on our findings in both the Industry and Company report, and especially our SWOT analysis, we advise that lululemon is overall a solid investment. However, that is not without some reservations. Lululemon has a number of internal strengths, which mean it is a good long-term investment. The company has always relied heavily on the loyalty of it it’s customers, and though some analysts believe this was hurt irreversibly in 2013 from a yoga pants recall, this may not be true as stock just this November surged 16% higher (Motley Fool, 2014). This customer loyalty couldn’t be more critical for a brand like lululemon, which sells its products as much on their own merits as on the feeling customers have that they are buying into a culture of personal growth and enlightenment (Sacks, 2009). Competitors such as Nike, Under Armour, and Adidas offer similar products, and late this November it was revealed that Nike is even setting up yoga stores to directly compete with lululemon (Peterson, 2014). So for lululemon to keep their brand loyalty is critical, and the recent Motley Fool report suggests they are (Motley Fool, 2014). In the relationship era of business, wherein companies thrive and decline based upon the loyalty that they foster year after year, a company like lululemon is set for continued growth and success (Garfield, 2002). Lululemon’s future is also looking bright because of their particular focus on menswear (Kell, 2014). Their innovations in sportswear material, such as the silver infused fabric, will also draw consumers to lululemon (Newcomb, 2014). Lululemon also has serious opportunities to expand both in North America and in other nations. As yoga interest grows, lululemon will have more and more opportunity to expand. It will be an especial draw to people newly interested in yoga because it offers a more complete experience than just apparel. Its stores include free training and the staff are knowledgeable about yoga and can advise new enthusiasts more than competitors (lululemon, n.d.). Thus, lululemon has an opportunity to expand along with the expansion of interest in yoga. Despite it’s strengths lululemon does have some weaknesses beyond what has already been mentioned. Compared to its competitors in the market, it is a relatively new company. It does not have the same experience or financial resources as companies
Company Report 36 that have been in the sports apparel business for much longer. Also, to the general public, it does not have the same brand recognition as Nike, Adidas, etc. This means it must rely on word of mouth, whereas competitors are established names that everyone knows and generally trust to provide quality sports apparel. Also, lululemon must be careful to avoid any public gaffes and poor publicity. In the past, they have had a number of serious public relations fiascos, and so they must avoid this to continue their success (. A serious external threat to their future business success is the possibility of economic downturn. Because they sell luxury items rather than necessities, their financial success would be particularly sensitive to any downturn in the economy or even just consumer confidence in the economy. Like other companies in the business, they could also be affected heavily by changes in a change in the cost of the raw materials used in the production of their apparel. This is also true for any change in the cost of labor, which could rise as Asian nations used for outsourcing begin to demand higher wages. Despite the risks that lululemon faces in it’s immediate future, Y.I.G Investments recommends investing in this company based on its strong customer loyalty and other strengths.
References 37 References Accounting Explained. (2014) Retrieved from: http://accountingexplained.com/financial/ratios/return-on-equity Austen, I. (2011, November 27). Lululemon Athletica Combines Ayn Rand and Yoga. Retrieved from http://www.nytimes.com/2011/11/28/business/media/combines- ayn-rand-and-yoga.html Berfield, S. (2013, June 23). Chip Wilson Is Causing Problems for Lululemon's New CEO. Retrieved from http://www.businessweek.com/articles/2014-06-23/chip- wilson-is-causing-problems-for-lululemons-new-ceo Bhasin, K. (2013, Mar 19). Here's What's So Special About Lululemon's 'Luon' Fabric. Retrieved from: http://www.businessinsider.com/what-is-luon- 2013- 3#ixzz3K3Zo1NWP Bloomberg BusinessWeek. (2014, November 12). LULULEMON ATHLETICA INC (LULU: NASDAQ GS): Stock Quote & Company Profile - BusinessWeek. Retrieved from http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker =LULU Business Insider. (September 24, 2014). Retrieved October 20, 2014, from http://www.businessinsider.com/why-lululemons-pants-are-so-expensive-2014-9 Butter, S. (2014, April 2). Spiritual capitalism? Global fitness brand lululemon comes to London. Retrieved from http://www.standard.co.uk/lifestyle/london-life/spiritual- capitalism-global-fitness-brand-lululemon-comes-to-london-9232686.html CBC News. (2007, November 16). Lululemon to remove claims from seaweed clothing line. Retrieved from http://www.cbc.ca/news/business/lululemon-to-remove- claims-from-seaweed-clothing-line-1.655660 Coffey, L. (2013, November 6). Lululemon co-founder on too-sheer yoga pants: Not for 'some women's bodies'. Retrieved from http://www.today.com/style/lululemon-co- founder-too-sheer-yoga-pants-not-some-womens-8C11547236 Dawar, N. (2011, November 27). Just Marketing: Mixing business and beliefs. Retrieved from http://nothingbutmarketing.blogspot.com/2011/11/mixing-business-and- beliefs.html Deveau, S. (2005, February 17). Yoga Mogul Has Critics in a Knot. Retrieved from http://thetyee.ca/News/2005/02/17/LuluCritics/ Edwards, J. (2012, April 24). 12 Utterly Bizarre Facts About The Rise Of Lululemon - Business Insider. Retrieved from http://www.businessinsider.com/12-utterly- bizarre-facts-about-the-rise-of-lululemon-2012-4?op=1
References 38 Edwards, J. (2013, March 19). The History Of Lululemon - Business Insider. Retrieved from http://www.businessinsider.com/the-history-of-lululemon-2013-3?op=1 Investopedia (2014). Retrieved from: http://www.investopedia.com Kell, John. Fortume Magazine. (2014, Nov 13). Lululemon for men — not just for yogis. Retrieved from: http://fortune.com/tag/lululemon/ Landmark Worldwide. (n.d.). Landmark corporation profile. Retrieved from http://www.landmarkworldwide.com/who-we-are/company-overview Lululemon. (2014). Retrieved October 20, 2014, from http://shop.lululemon.com/home.jsp Lululemon 10 k. (n.d.). Retrieved October 20, 2014, from http://investor.lululemon.com/financials.cfm Lululemon Athletica, Inc. (n.d.). Annual Report. Retrieved from http://investor.lululemon.com/secfiling.cfm?filingID=1397187-14- 21&CIK=1397187 Lululemon athletica. (n.d.). our history | lululemon athletica. Retrieved from http://www.lululemon.com/about/history Lululemon athletica. (n.d.). about us. Retrieved from http://www.lululemon.com/about/ Lululemon athletica. (n.d.). lululemon manifesto poster. Retrieved from http://static.lululemon.com/files/poster_EN_tabloid_2012.pdf Marati, J. (2012, September 28). Behind the Label: The Ideologies Behind The Lululemon Manifesto. Retrieved from http://www.huffingtonpost.com/jessica- marati/behind-the-label-the-ideo_b_1922768.html Newcomb, Tim. (2014, Nov 5). Lululemon stops the stink using silver-infused yarn http://www.si.com/edge/2014/10/24/lululemon-stops-stink-using-silver- infused-yarn Nicks, Denver. TIME Magazine. (2014, Nov 14th). Retrieved from: http://time.com/3584541/lululemons-men-store-soho/ O'Connor, C. (2013, December 10). Lululemon Hires CEO From Toms Shoes As Billionaire Founder Chip Wilson Resigns. Retrieved from http://www.forbes.com/sites/clareoconnor/2013/12/10/lululemon-hires-ceo-from- toms-shoes-as-billionaire-founder-chip-wilson-resigns/ Peterson, Hayley. (2014, Sep 24). Lululemon's Pants Aren't Worth That Much More Than The Competition Retrieved from: http://www.businessinsider.com/why- lululemons-pants-are-so-expensive-2014-9#ixzz3K3amzbrF Peterson, Hayley. (2013, Nov 12). The Sheer Yoga Pants That Lululemon Recalled Are Back In Stores And Selling For $92 Retrieved from:
References 39 http://www.businessinsider.com/lululemon-sells-recalled-sheer-pants-2013- 11#ixzz3K3c8T6Zo Reuters. (2014, Sep 11). Lululemon bounces back after too-sheer-pants debacle Retrieved from: http://nypost.com/2014/09/11/lululemon-bounces-back-after-too- sheer-pants-debacle/ Story, L. (2007, November 14). ‘Seaweed’ Clothing Has None, Tests Show. Retrieved from http://www.nytimes.com/2007/11/14/business/14seaweed.html?pagewanted=all& _r=0 Subramanian, C. (2013, December 10). Lululemon Founder Chip Wilson's Most Memorable Gaffes. Retrieved from http://business.time.com/2013/12/10/here- are-lululemons-ex-chairmans-most-offensive-statements/ Walker, R. (2009, July 21). Lululemon Athletica Promotes Yoga as a Lifestyle Brand. Retrieved from http://www.nytimes.com/2009/07/26/magazine/26FOB- consumed-t.html Walker, Rob. (2009, July 21st ). Marketing Pose. Retrieved from: http://www.nytimes.com/2009/07/26/magazine/26FOB-consumed-t.html?_r=0 Wilson, C. (2009, March 30). How lululemon came into being. Retrieved from http://blog.lululemon.com/how-lululemon-came-into-being-a-gross-generalization/ Wilson, C. (2009, March 30). The lululemon vision. Retrieved from http://blog.lululemon.com/the-lululemon-vision/ Wilson, C. (2009, March 30). The secret: Not a big secret. Retrieved from http://blog.lululemon.com/the-secret-not-a-big-secret/ Yahoo Finance. (2014). Retrieved from: http://finance.yahoo.com

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Company Report

  • 1. Industry Report Textile Apparel Industry Lululemon Athletica Company Eileen Baca Joshua Rivera Adam Davis Winston Platt Emmanuel Calton
  • 2. Table of Contents i Table of Contents INDUSTRY REPORT................................................................................................................................................1 INDUSTRY HISTORY....................................................................................................................................................1 COMPETITOR ANALYSIS ............................................................................................................................................2 CUSTOMER ANALYSIS ................................................................................................................................................3 FINANCIAL ANALYSIS.................................................................................................................................................4 INDUSTRY FUTURE.....................................................................................................................................................5 COMPANY SELECTION................................................................................................................................................6 COMPANY REPORT.................................................................................................................................................1 COMPANY HISTORY....................................................................................................................................................1 PRODUCT/SERVICE ANALYSIS .................................................................................................................................4 FINANCIAL ANALYSIS.................................................................................................................................................1 PRODUCTION AND OPERATIONS ANALYSIS ...........................................................................................................8 ENVIRONMENTAL ANALYSIS .................................................................................................................................11 FIRM EVENTS ANALYSIS.........................................................................................................................................15 STRATEGIC DIRECTION...........................................................................................................................................19 HUMAN RESOURCES ANALYSIS.............................................................................................................................22 SOCIAL RESPONSIBILITY ANALYSIS......................................................................................................................25 SWOT ANALYSIS.....................................................................................................................................................31 INVESTMENT RECOMMENDATION........................................................................................................................35 REFERENCES............................................................................................................................................................37
  • 9. Company Report Textile Apparel Industry Lululemon Athletica Company Eileen Baca Joshua Rivera Adam Davis Winston Platt Emmanuel Calton
  • 10. Company Report 1 Company Report Company History Chip Wilson founded the company lululemon in 1998 in Vancouver, British Columbia (lululemon athletica, n.d.). Wilson always had a passion for athletics and was originally in the surfer, skater, and snowboarder business (lululemon athletica, n.d.). When Wilson first tried yoga he immediately developed a passion for it, and it’s apparel (lululemon athletica, n.d.). He realized that the cotton material that people were using for yoga was not adequate, because people needed the stretchy, breathable material to perform yoga in (lululemon athletica, n.d.). As a result of his desire for better yoga clothes, Wilson opened a yoga apparel design studio that worked as a yoga studio at night (lululemon athletica, n.d.). Wilson used feedback from the yoga instructors and the people participating to better his product (lululemon athletica, n.d.). The first real lululemon store opened in 2000 on the beach area of Canada called Kitsilano (lululemon athletica, n.d.). At first the goal of the store was to, “ . . . have the store be a community hub where people could learn and discuss the physical aspects of healthy living from yoga and diet to running and cycling as well as the mental aspects of living a powerful life of possibilities” (lululemon athletica, n.d.). He wanted it to be a resource for people to live longer, healthier, more fun lives (lululemon athletica, n.d.). The store soon became too busy and Wilson had to make the decision to make the store’s goal to sell the product (lululemon athletica, n.d.). Initially Wilson wanted to have one store, but due to the popularity of the store he thought it was best to open more (lululemon athletica, n.d.). There are two conflicting stories told about how lululemon got its name. Chip Wilson told Canada’s National Post Business Magazine in 2009 that he chose the name lululemon for his store because, “It’s funny watching them (Japanese) try to say it” (Edwards, 2013). In 2009 he wrote in a blog post published on lululemon’s website defending his statement by arguing that he thought if he named the company with a lot of L’s then the Japanese would associate it with a western store, and be more likely to buy it; however, this post was later taken down (Edwards, 2013). On the company website,however, they state that the company name was chosen by taking a survey of a hundred people (lululemon, n.d.). Lululemon still continues to have yoga instructors wear their clothes, and give their feedback on their products (lululemon athletica, n.d.). Lululemon calls these people
  • 11. Company Report 2 ambassadors, and they define them as “local athletes, instructors and role models in our lululemon store communities who embody the lululemon lifestyle” (lululemon athletica, n.d.). Lululemon athletica has been subject to great controversy with their ambassadors’ reports and claims that their employees listening into customers’ conversations (Edwards, 2012). Some people argue that it is cult-like, and that they are spying on you (Edwards, 2012). Throughout lululemon’s history founder Chip Wilson has a made several comments that caused controversy. Wilson wrote on a blog post published on lululemon’s website that was titled “How Lululemon Came Into Being” that the niche in the market that lululemon was created for was caused by: women becoming more educated, rates of breast cancer rising, yoga/ athletics, and females desires to dress more feminine (Wilson, 2009). He came to this conclusion by arguing that the birth control pill made women feel more in control of their lives, which led to in men not relating to them, and that resulted in divorce (Wilson, 2009). He goes on to say that because these relationships were not working and a high number of divorces were taking place that women soon became increasingly involved in the workplace (Wilson, 2009). The daughters of this generation of businesswomen value education, because they believe that it is necessary in case of divorce (Wilson, 2009). He argues that they understand the importance of exercise (Wilson, 2009). They rebelled against their mother’s fashion, which was made to make women manlier, by dressing more feminine (Wilson, 2009). These women whom Wilson calls “Super Girls” created the market that allowed for the success of lululemon in Wilson’s opinion (Wilson, 2009). In 2013 Lululemon came under fire for selling yoga pants that were so sheer that when the person was in certain positions the pants were see through (Coffey, 2013). The company immediately recalled the pants, but their stocks still fell (Coffey, 2013). The pants made up about 17% of their total pants products (Coffey, 2013). The company had this to say about it, “"Quality is of utmost importance to us and we want to offer our guests Luon product(s) that they love. If any guest is experiencing an issue with their product that they believe to be related to quality, we encourage them to visit their local store or call our Guest Education Center so we can make it right" (Coffey, 2013). Chip Wilson, however, was quoted in an interview saying that the problem lies with the customers themselves (Coffey, 2013). He argued that some women’s body types were not made for yoga pants (Coffey, 2013). He claimed that when certain women’s thighs
  • 12. Company Report 3 rub together the pressure on the fabric causes them to run down (Coffey, 2013). His comment offended a large majority of people, and resulted in him stepping down as chairman of the board (Berfield, 2013). Lululemon’s history has been plagued by Founder’s Chip Wilson’s contentious comments. In 2005 Wilson gave a speech arguing that child labor and outsourcing to Asia was a positive thing, because it is giving much needed money to people affected by poverty (Deveau, 2005). Again in 2005 Wilson argued that the company would not make plus sized clothing, because it costs more and plus sized women are too “sensitive” and would be offended by the rise in price (Subramanian, 2013). He ordered tote bags to have a quote on them from the controversial book Atlas Shrugged that argues for the pursuit of self-interest, which is not a teaching of yoga (Subramanian, 2013). Wilson argued in a blog post that “Sickness attracts sickness” which some people took as Wilson blaming the sick person for being sick (Wilson, 2009) (Edwards, 2013). He also stated in a blog post that if your life is not great, it is your fault (Wilson, 2009). Lululemon has undergone changes in management. The Company as of 2013 has had CEO Christine Day step down, and president of Tom’s Shoes, Laurent Potdevin take her place (O’Connor, 2013). Starbucks executive Michael Casey replaced Chip Wilson as chairman of the board in the same year (O’Connor, 2013). Lululemon’s history proves how strong the company is. A company with this many controversies must have a strong product in order to survive. Lululemon, as of February 2014, has 254 stores in Canada, United States, Australia, and New Zealand (Bloomberg BusinessWeek, 2014).
  • 13. Company Report 4 Product/Service Analysis Lululemon athletica uses several materials for its pants. One, known as “Pilayo,” is 88% nylon and 12% Lycra which is a patented technology (Bhasin, 2013). The material is described as “stretchy, breathable, and moisture-wicking” (Peterson, 2014).” An average pair of yoga pants from Lululemon athletica retails at about $98 over Nike, Athleta, and Reebok (Peterson, 2014).” The combinations of materials led to a stronger product which unique benefits, including moisture-wicking, smell-reducing, and strength- enhancing features. Lululemon athletica’s main pant, called “The Groove,” has been popular for years despite its recent crisis of allegedly being “see-through” ” (Peterson, 2013). Lululemon athletica’s pants have endured several challenges. The most recent being controversy over the products’ transparency. “The Groove” several years ago underwent much criticism for it being “transparent (Peterson, 2013).” This gross product malfunction posed a serious public relations issue for lululemon athletica. However, it managed to bounce back from its dip in popularity to remain a cultural phenomenon for yoga practitioners in the United States (Reuters, 2014). Lululemon athletica’s fitness gear is wide-ranging and diverse. For flexible athletes— runners, marathoners, cyclists, and even joggers, lululemon athletica offers a high value proposition with its high quality gear with several useful benefits. Pants, headgear, and gloves consist of the largest portion of lululemon athletica’s marketing mix. These items have sold well and remain popular amongst fitness gear enthusiasts across the country (lululemon athletica, 2014). However lululemon athletica’s 10k does admit that it is an economically sensitive corporation, which products do rely heavily on consumer discretionary spending to remain profitable (page 32, lululemon 10k). Lululemon athletica’s accessories are also a large part of the company’s marketing mix. Bags, scarfs, headwear, yoga mats, and water bottles (lululemon athletica, 2014). The yoga mats are high-quality and thick styrofoam for maximum comfort when performing yoga routines (lululemon athletica, 2014). The mats retail at around $90.00 but are larger and more comfortable for consumers than average mats available on the market. In addition, the yoga mats absorb and wick away sweat. According to customer reviews on Lululemon.com customers rave over the customer experience (lululemon athletica, 2014).
  • 14. Company Report 5 Accessories: Mats Bottles Bags Scarves Headgear Gloves Other Mat Pure Focus Gym-to- win duffel Vinyasa Cool Running Toque Happy Yogi No-show socks Pure Mat 3mm Purist Cycling Cruiser Heart Opener Play the Field cap Blissed out The small towel The (Big) Mat Drishti Pranayama Men’s All sport hat The Hot (Towel) Mat Urban Sanctuary Run with me Toque Band Buster Headband Fly Away Tamer Swiftly Headband Vite Vite Run Flow into Crow Headband Overall, the lululemon athletica yoga mats offer a width and size that is superior to competitor products on the market. For women and men that are tall it is the best mat on the market. For women who are not tall, the mat still caters to them because of its width and length. Overall, the mats allow a consumer to “stake their claim” in the gym and build a “barrier zone” in the gym for personal comfort (lululemon athletica, 2014). Lastly, customer reviews note that the mats allow them, due to their size, to avoid the gym floors and risk of uncleanliness (lululemon athletica, 2014). For health-conscious yoga participants, health is key and staying healthy at the gym, as an athlete, is a benefit, which cannot be overstated.
  • 15. Company Report 6 Lululemon athletica also produces handbags. Most of the bags are made of polyurethane (lululemon athletica, 2014). The bags are stylish and modeled to look like a fanciful purse or handbag, perhaps to fit the yoga practitioners overall lululemon athletica outfit. The price ranged between $120 to $148 and stands as the most luxurious bags on the market. Bags are fitted with two strong straps across the bottom of the bag and can serve as a useful feature to carry a yoga mat underneath your bag (lululemon athletica, 2014). The last bag offered is a “yoga tote” which is a full body-length bag which allows one to carry ones gear to a workout and from it in a mobile, free way. The bag enables one to move easily, freely, safely, and in an unencumbered way on subways, trains, and planes without disturbing other passengers with bulky luggage. Lululemon athletica also offers a unique and extensive “Reflective” products line. These products allow athletes the flexibility to adapt their schedules and exercise in safe ways regardless of where or when they run (lululemon athletica, 2014). Business people who travel the world often must work for days or weeks in different time zones and prefer the ability to exercise at night. For this reason, lululemon athletica offers products, which grant consumers the freedom to purchase products, which fit their lifestyle. However, in cities such as Istanbul, jogging at night must usually be accompanied by some kind of reflective gear to avoid run-ins with criminals and avoid automobiles and motorists on busy highways. The product line includes sweat-resistant tops fitted with reflective bands as well as pants that contain reflective patterns at the base of the legs. lululemon athletica’s running pants retail between $96 and over $100 (lululemon athletica, 2014). In addition several athletic pants feature reflective lines along zipper lines. These jackets are far more affordable in the lululemon athletica line and retail between $14.0 and $148.0 US Dollars. The products are form fitting and stylish and seek to combine high fashion appearance with the practicality demanded of products used during workouts. Reflective Gear:
  • 16. Company Report 7 Lululemon athletica also offers an entire tank-top line that seeks to build and extend its brand known for high-fashion athletic wear that appeals to “lifestyle yoga practitioners (Walker, 2009).” It’s tank tops range from long-sleeve, multi-colored items that can be used for stylish layering or a strip to the grocery store all the way to the other end of the spectrum which includes stylish “wraps” or high-fashion clothes designed to keep customers warm in cold conditions. The price range in this line is between $68 for long sleeves and $148 for a high-fashion cardigan (lululemon athletica, 2014). The tank-top line accounts for much of lululemon athletica’s sales whose market is made up of 67% of Revenue derived from sales made in The United States and 26% of Revenue made from sales in Canada (lululemon athletica, 2014). Lululemon athletica’s products for men include a wide range of products. One of theirs is called “The Pace Breaker” short and is textured, short, stylish, and meant for rugged outdoor activity, jogging, or in-gym exercise (lululemon athletica, 2014). The shorts are “woven for strength,” tightened at the waist, breathable, and of course, sweat-wicking. Each short comes with a boxer-brief liner inside the short to improve comfort and increase value for active athletes. The shorts appear to be made of course-sack cloth, but in fact, they stretch! Shorts on average are about 75$ (lululemon athletica, 2014). Upper body Lower Body Bright Bomber Jacket Run: Speed Short Rebel Runner Vest Speed Tight II Home Stretch Crew Light It Up Skirt In-A-Flash Long Sleeve Run: Inspire Crop II Fleet Street Hoodie Surge Short Fly Away Tamer Run with Me Toque Reflect Jacket
  • 17. Company Report 8 Pants: YOGA TO & FROM Wunder Pant Everyday Pant Astro Pant Atman Pant Groove Pant Shine Tight Pant Straight up Pant Studio Pant II (Roll Down) Skinny will Pant Studio Pant II Unlined Ebb to Street Pant Studio Pant II Tall Base Runner Pant Studio Pant II Regular Run: Turn Around Tight Pant Studio Pant II Regular Lululemon athletica’s pants for men are known for their fit and finish. They are constructed with “ABC” or “anti-ball crushing” engineering designed for maximum comfort. In addition, the pants come in a variety of colors, six pockets, and sweat- wicking technology. Holistically, they seek to be the perfect dress pants for men and stylistically, bridge the gap between the daily trendy and casual wearer to the almost- dressed-up gentleman looking to go for long hikes without sacrificing fashion. Lululemon athletica’s coats for men imbue ritzy warmth that only high-dollar, high- fashion products can instill. Intended for hiking, running, or even commuting, they match lululemon athletica’s value proposition perfectly: irreplaceable ingenuity married to flawless style. The lululemon athletica’s “Revolution” jacket seeks to actively warm and dry you after a workout with its “Polartec Power Stretch fabric” layer inside the jacket. Instead of walking from gym-to-shower shivering, this jacket will actively dry you. This type of break-through product reflects the innovative minds at lululemon athletica searching to offer solutions to physically conscious individuals in search of quality products. On other coats for men, secret features such as “hidden thumbholes” add value
  • 18. Company Report 9 without sacrificing fashion. Stitching is carefully selected to support fabric joints and even add style. Linear colors and uses in stitched fabrics create a sense of elegance about the patterns and massively increase visual appeal. Additionally, all coats are designed to include breathability and circulation as one of the top goals. Most of the collars include perforations to be conducive to breathability. Overall, lululemon athletica ensures quality. First, in stitching. The double stitching is apparent throughout most of the products of lululemon athletica. This prevents easy tearing in areas around the armpits and jacket corners. The company takes great efforts to also make sure each pragmatic decision is reinforced or built on by stylistic options as well. Stitching adds a distinctiveness and quality to the clothing that otherwise would not exist. Secondly, lululemon athletica ensure quality in the choice of its materials. Quality polymers and fleeces are hand picked and imported. On top of this, lululemon athletica often layers its clothing to accommodate for sweat-wicking, active warming, and very low temperatures. Also, lululemon athletica products are mostly handcrafted, hand- seamed, and hand made, ensuring top-of-the-line quality craftsmanship. Most of the products can be returned at “any time” which is a significant step for a multinational company like lululemon athletica to take. Lululemon athletica also offers retreats and seminars to boost appeal of its product and to train consumers on how to perform yoga in ways that benefit the company. From Colorado to the Galapagos, seminars are offered for around $150 per person and retreats can be one-day or even three day-long seminars (Lululemon Athletica, 2014). As both a financial and cultural option, the retreats are a significant option that companies in its industry usually do not offer. However, because the culture for lululemon athletica is so intensely cult-ish, lululemon athletica seminars are popular and offer consumers a community—a truly value-adding product in of itself that encourages buying and support of lululemon athletica. Lululemon athletica’s products have appeal across a variety of markets (Kell, 2014). New trends and products are geared towards taking advantage of men’s athletic markets (Kell, 2014). Male “cyclists, CrossFit enthusiasts and other athletes,” are becoming the new target for lululemon athletica’s target marketing (Kell, 2014). In fact, evidence for this new trend is clear: lululemon athletica intends to open a new all-male store in Soho, New
  • 19. Company Report 10 York City (Nicks, 2014). Clearly its forward-looking business plan is optimistic and gutsy—a corporate culture trademark the company does not take lightly.
  • 20. Company Report 1 Financial Analysis Fiscal Advantages Lululemon athletica has also benefited from the strengthening of the dollar in Canada (lululemon athletica, 2014). A stronger Canadian dollar makes the purchase of raw materials comparatively cheaper on the margin, making any and all business transactions more fluid, easier, and better for profits. In addition, interest earnings from bank accounts, savings, and investments offer the company more “real purchasing power” for lululemon athletica—particularly cross-border economic activity and international purchases. Marketing Advantages Lululemon athletica also notes that its competitive advantage versus other top competitors in its field is weak, considering its “grassroots approach” which garners intense customer loyalty in small swathes but does not engender massive appeal— which is not precisely what lululemon athletica endeavors to accomplish at this point in time (lululemon athletica, 2014). Despite that, and to the corporation’s credit, lululemon athletica has performed well across a variety of financial indicators. Seasonal Boosts Lululemon athletica benefits from seasonal sales and admits it freely in the company’s most-recent annual, 10k report (lululemon athletica, 2014). lululemon athletica, it states, is aware that “a significant portion of our income from operations” derived from “increased sales during the holiday selling season (lululemon athletica, 2014). Net Profit Margin Lululemon Athletica’s Net Profit Margin sits at 26% in 2013, which is its peak profit margin performance so far in the company’s history (lululemon athletica, 2014). The company has about $185,442,000 in gross profit and about 7 hundred million in net revenue; seen at lululemon athletica’s Annual Income Statement: (Yahoo Finance, Inc. 2014). Thus, from dividing net sales by net profits we can derive an idea of how much the company is making in a dollar amount from each dollar of revenue it has. The profit
  • 21. Company Report 2 margin is helpful in determining the profitability of different companies in the same industry. For example, with a 26% profit margin for 2013, lululemon athletica purportedly reported a $0.26 amount of income for each dollar of sales reported (lululemon athletica, 2014). This money is then used to pay employees, cover costs, and keep the business running. However, this number is a ratio, first and last. A ratio compares and contrasts two items. As a result, what this statistic does not always show is the macro picture of lululemon athletica’s financial health. However, as a ratio or financial indicator, lululemon athletica performs well on this test of “Net Profit Margin” and offers an almost 30% return of income on each dollar earned in revenue. ROE Lululemon also possesses a firm Return on Equity, ROE, or “Return on Net Profit.” Using the formula: Return on Equity = Net income / Average Equity; it is possible to calculate the return on equity from lululemon athletica’s 10k report. The meaning of the calculation is that lululemon athletica is efficient at generating profits. In addition, a positive ROE can indicate good management on the part of the management team charged with releasing company capital into investments within the company. In the simplest terms, ROE can be described as a way to measure a company’s ability to generate profits from its investors’ capital. In this case, lululemon athletica has done a fair job of that. lululemon athletica possesses about $153,000,000 in shareholder equity. In addition, the company boasts of receiving about $67,000,000 in Net Income. As a result, we can derive the “ROE” or “Return on Equity.” lululemon athletica’s return on equity is approximately equal to an impressive 44%. So, for about every $1 made in shareholders’ equity in 2013, lululemon athletica stock had a return on equity of $0.40 or about 40%. lululemon athletica also proposes ever-rising shareholders equity; seen at the company’s Annual Statement of Shareholder’s Equity: (Yahoo Finance, Inc. 2014). This remains another positive for lululemon athletica as it again trumps financial indicators, despite its small market. Debt Ratio The debt ratio varies in terms of its meaning to different companies in different industries. For companies that possess strong cash flow a larger debt ratio is more acceptable. Conversely, companies that regularly possess a weaker cash flow require a
  • 22. Company Report 3 lower debt ratio in order to maintain a state of financial health. Overall the debt ratio is a way to measure risk, in terms of weighing on a mathematical scale—debt-to-assets. A debt ratio greater than 1 typically means the company has more debt than assets on its records. However, in most cases this is typical. In fact, in most cases it would be atypical if a company were to have more assets than debt. Such a situation would be favorable for employees and investors, in terms of feeling comfortable with the company’s financial health. But overall, the company would suffer from investments not being made and capital not being shared or grown in the economy. Lululemon athletica’s debt ratio is equal to about 12%. Using the equation: Debt Ratio = T liabilities/ T assets, we can determine lululemon athletica’s health in terms of assets and liabilities. The company has about $153,000,000 in Total Liabilities. In addition, it has about $1,250,688,000 in Total Assets in its possession. By using both figures, it is possible to delineate the company’s debt ratio. Using division, we see that lululemon athletica’s debt ratio is about 12%. For an athletic gear company, that is a fairly manageable responsibility. Current Ratio Lululemon athletica’s current ratio incorporates about 950,000,000 US Dollars in Current Assets, a sizable portion of assets which are easily converted into cash, to be sure (lululemon athletica, Inc. 2014). Approximately 75% of lululemon athletica’s current assets are made up of cash and cash equivalents (lululemon athletica, Inc. 2014). Slightly less than 10% of lululemon athletica’s current assets are made up of Inventories, or products, which were manufactured and remain to be sold (lululemon athletica, Inc. 2014). Prepaid expenses or other current assets make up almost 15% lululemon athletica’s current assets (lululemon athletica, Inc. 2014). lululemon athletica’s accounts receivable amount to almost 9,000,000 US Dollars in total; seen at lululemon athletica’s balance sheet: (Yahoo Finance, Inc. 2014). These are a measurement of payments owed to lululemon athletica that have yet to be distributed by consumers. Accounts receivable can arise when consumer purchases made online maintain financial transactions which have yet to be cashed, and thus are “in limbo.” Overall, lululemon athletica’s current asset total is formidable and large among other industries.
  • 23. Company Report 4 Lululemon athletica’s current ratio also incorporates a second key component: current liabilities. Current liabilities incorporate what lululemon athletica will owe creditors over the next fiscal year. Accounts payable are debts that a company must pay over the next year to avoid default (Investopedia LLC, 2014). Accrued liabilities are debts that are owed than have not yet been paid. (Investopedia LLC, 2014). Employee pension accounts and even payroll taxes often are included in this figure (Investopedia LLC, 2014). Income taxes payable are income taxes lululemon athletica has yet to pay—or are pending. Lululemon athletica’s current liabilities are far outweighed by their current assets. About 50% of lululemon athletica’s current liabilities are accrued liabilities (lululemon athletica, 2014). The next largest component of lululemon athletica’s current liabilities are its unredeemed gift card liabilities (lululemon athletica, 2014). This parcel of lululemon athletica’s current liabilities is just what is sounds like: the amount of money lululemon athletica owes consumers for purchases made for gift cards in their physical locations around the country or ordered online (lululemon athletica, 2014). lululemon athletica unredeemed gift card liability account for approximately 25% of lululemon athletica’s current liabilities (lululemon athletica, Inc. 2014). In summary, lululemon athletica’s current ratio takes the corporations current assets and divides them by the company’s current liabilities. In a simple equation, then, we will divide the approximate value of lululemon athletica’s current assets, in this case about 900,000,000 US Dollars in the year 2014, and divide by the approximate value of lululemon athletica’s current liabilities, or in this case about 114,000,000 US Dollars in the year 2014 (lululemon athletica, 2014). The result from this equation amounts to 7.8. This is considered a very stable current ratio in financial analysis (lululemon athletica, 2014). Generally, anything above “1.0” indicates a corporation’s financial ability to pay its nearing obligation on time. With a current ratio about 6.8 points above the average, lululemon athletica possesses a strong current ratio (lululemon athletica, 2014). However, this is merely a preliminary look at lululemon athletica’s financial indicator of its quick ratio. Indeed, a quick ratio does not relate lululemon athletica’s total assets to total liabilities (lululemon athletica, 2014). Indeed, the current ratio excludes several asset categories, including but not limited to: property and equipment, or net capital, goodwill
  • 24. Company Report 5 and intangible net assets, deferred income tax assets, and other non-current assets (Investopedia LLC, 2014). Overall, lululemon athletica is predicted to pay its short-term liabilities—or short-term debts, and thus, in terms of financial stability. Thus, this shows positive signs in terms of the corporation’s current ratio. The company is, for just another reason, considered financially sound. Quick Ratio Another key indicator in evaluating lululemon athletica’s financial status is to examine the corporation’s quick ratio (Investopedia, 2014). A quick ratio is generally considered a way to reasonably and reliably evaluate a corporation’s perchance to meet creditor demand in the short-term, using only assets that are considered liquid. In a sense, in financial analysis, it is a measurement used to calculate a company’s financial “power” or “ability.” In microeconomics, it is essentially, akin to measuring a consumer’s “purchasing power.” Why? It all has to do with math. In the standard “quick-ratio equation” the quotient gives the calculator, and in a more applied sense, investors, stockholders, stakeholders—both internal and external, as well as the press, a number which represents the dollar-to-dollar ratio of liquid assets-to-current liabilities (Investopedia, 2014). Liquid assets represent assets which lululemon athletica’s that are easily converted into cash. Generally, this includes all corporate assets with an exception for inventory (Investopedia, 2014). Inventory, by nature, is rather difficult to convert into cash because it must first be sold. Therefore, inventory is not considered a liquid asset. Examples of liquid assets are assets that may be sold, or resold quickly. These asset categories include, among other categorizations: cash and equivalents, prepaid expenses as well as preferred and non-preferred stocks (Investopedia, 2014). To calculate the quick ratio, generally, one take the current assets, subtracts off the non- liquid assets, in this case, inventory, and then divide by current liabilities. As mentioned previously, lululemon athletica’s current assets are approximately $900,000,000.0 US Dollars in 2014 (lululemon athletica, 2014). lululemon athletica’s current liabilities are approximately $ 114,000,000.0 US Dollars (lululemon athletica, Inc. 2014). Subtracting illiquid assets from liquid ones, or in this case, taking inventory off current assets, we are
  • 25. Company Report 6 left with a figure of approximately $550,000,000.0 US Dollars (lululemon athletica, Inc. 2014). As a result of these figures, it is possible to determine lululemon athletica’s quick ratio. Lululemon athletica’s current assets are approximately $900,000,000.0 US Dollars in 2014 (lululemon athletica, Inc. 2014). This figure will serve as the minuend in the quick ratio equation (lululemon athletica, Inc. 2014). Lululemon athletica’s inventories, according to its latest 10-K report, released in February 2014, details lululemon athletica’s inventories as approximating: $176,000,000 US Dollars (lululemon athletica, Inc. 2014). Thus, lululemon athletica’s liquid assets are estimated to be: $724,000,000.0 US Dollars (lululemon athletica, Inc. 2014). Now, lululemon athletica’s quick ratio can be established. We will take lululemon athletica’s current assets figure, adjusted for liquidity, and say: $724,000,000.0 US Dollars divided by lululemon athletica’s current liabilities, or approximately $114,000,000.0 US Dollars, is equal to approximately 6.4. But, how do we interpret this figure? For example, “6.4” signifies the number of US Dollars, in liquid assets, that lululemon athletica has available cover each 1.0 US Dollar worth of current liabilities (Investopedia, 2014). In this case, lululemon athletica possess slightly more than $6.0 US Dollars for each $1.0 US Dollar of its current liabilities (Investopedia LLC, 2014). This is a healthy, even robust, quick ratio and suggests a stable financial ability for lululemon athletica to pay its short-term liabilities. Cash Ratio A cash ratio also offers a key barometer in measuring the financial health of a corporation. The standard equation essentially offers a summation of a company’s ability to pay its part of its liabilities using only cash. More specifically, a cash ratio measures a company’s ability to pay its current liabilities “using only its cash and cash equivalents” (Accounting Explained, 2014). It involves the comparing the levels of a corporation, or in this case, lululemon athletica’s cash and cash equivalent levels to lululemon athletica’s current liabilities (Accounting Explained LLC, 2014). Much akin to a quick ratio, if a figure reaches above 1.0, the company is considered to possess a healthy cash ratio and fully able to pay its short-term liabilities, if needed in a certain situation (Investopedia LLC,
  • 26. Company Report 7 2014). Lululemon athletica’s cash ratio begins with calculating the dividend. The Dividend includes the corporation, or in this case, lululemon athletica’s cash total, cash equivalents total, and invested funds—all to be divided by the corporation, or in this case, lululemon athletica’s current liabilities (Investopedia, 2014). First, let us calculate the dividend. According to lululemon athletica’s annual 10k report, its cash and cash equivalents total estimate is approximately $93,000,000.0 US Dollars; seen here at lululemon athletica’s Annual Statement of Cash Flows: (Yahoo Finance, Inc. 2014). According to lululemon athletica’s annual 10k report, the corporation’s investments account for approximately $121,311,000.0 US Dollars (Yahoo Finance, Inc. 2014). As mentioned earlier, lululemon athletica’s current liabilities reach about $114,000,000.0 US Dollars which led to a rather substantially high quick-ratio in the previous section of this report. In this case, the lululemon athletica cash ratio is modest. By calculating we get: $214,000,000.0 US Dollars / 114,000,000.0 US Dollars = $1,800,000 US Dollars (lululemon athletica, Inc. 2014). This figure merits interpretation. It seems, lululemon athletica possesses a robust cash ratio that can be interpreted as high and indeed indicates further proof of the company’s strong financial health.
  • 27. Company Report 8 Production and Operations Analysis Lululemon does not manufacture their own goods, but assure the people of society that they are particulate about there products. “Our partners around the globe make it possible for us to develop and create beautiful product. As we do not own our manufacturing facilities, we take great care in the selection of our vendors, and our process helps screen out any that don’t share our values.”(Lululemon.2014) Lululemon has labor and suppliers from all over the world, but the base of their works reside in the North America continent. “ Our vendors specialize in innovative technologies while meeting our quality, sustainability and capacity needs. While we work with partners around the world, we continue to maintain a manufacturing base in North America, including our first partner here in Vancouver.” (Lululemon.2014) (Here is the sign for the first Lululemon store to open in Europe.) The locations of the firm are all across the globe, but have a great reasoning to each location. The top three countries that perform yoga are: The United States of America, Canada, and India.
  • 28. Company Report 9 Ironically enough the three main locations for Lululemon are The United States of America, Canada, Australia, and New Zealand respectively. There are a grand total of two hundred and fifty-four Lululemon stores ranging all across the Earth. (Map of all the Lululemon stores in America.) Lululemon has an infamous mark on their back for being avid believers in cheap manufacturer labors. Even though cheap manufacturing has the transparent perks of cheap labor and rapidity, the recent Luon yoga pants recall show cases just how badly a rigid flaw in the supply chain can set a company back in terms of publicity damage and reach treacherous levels of shame, it is logical to why fast can seem good though, a recent article analyzed “As demand grows in markets where consumers are price driven, manufacturers are compelled to be equally as cost driven to alleviate the pressure on their margins. However, speedy manufacturing far from home can lead to unavoidable errors without careful inspection.” The article continued on how if society demands it so heavily, the demand will be met by the corporations by any means necessary the article stated “If customers are saying ‘we want more, we want more,’ no one is going to say
  • 29. Company Report 10 ‘no we can’t do it,’” said Marshall Meyer, a professor and China expert at the University of Pennsylvania’s Wharton School. “If we’re all governed by price, and if performance standards are of overwhelming significance, these problems occur whether its toys or workout pants." (Booton.2013)
  • 30. Company Report 11 Environmental Analysis Lululemon athletica charges approximately $100 for a pair of basic yoga pants that is roughly twenty dollars cheaper than Gap Inc.'s Athleta simply because the firm understands the fact women will pay for the brand. Lululemon's simplistic pair of pants looks almost exactly like Athlete's $79 pants. Even the materials, a tandem of Lycra and nylon, are also the exact same. Lululemon took a huge hit this past March when the firm had to recall almost a quarter of its pants for being too sheer. Since then, its market value has diminished from $10 billion to $6 billion. More downfalls for the firm, customer reviews for Lululemon's basic yoga pant the "Groove" has excelled to extreme levels of biter. On Lululemon's website, the yoga pants have only three stars out of five based on hundreds of customer reviews. Athlete's pants, to compare to, have a customer rating of 4.3 stars out of five. Though the times were hard with their fatal flaws, lululemon athletica still prevailed in earnings. “Errantly see-through yoga pants was the prod for one of the pullbacks, but most of the plunges we’ve seen from shares since late 2011 were simply the result of earnings warnings. A funny thing happened on the way on the road to disaster, though — when it came time to post earnings, lululemon athletica not only topped estimates in each of its past 14 quarters, but it cranked up year-over-year earnings in 12 of them. By an average of 53%.” (Brumley, 2013, para.2). Lululemon's are located everywhere, and this is why that they are only behind the titan of a firm Nike. The main group of people that lululemon athletica target are the generation-X people, the people born from the mid seventies to the mid nineties. “Contrary to popular belief, there are more than a few so-called millennials — and a few younger Gen-Xers — that aren’t broke and/or swimming in debt. They’re not all necessarily flush with cash, and they’re not spending on things the baby boomers and older Gen-Yers could easily justify buying. But enough of them have enough access to enough money (or credit) to keep the cash registers ringing, and that mentality might never change.”(Brumley.2013). The people who the firm reaches out to is one that is very selective and concise. This mainly applies to women. It isn’t men the majority consumers are trying to impress with their high-end workout garb, Business Insider says, “It's other women. A poll of British women conducted last summer supports this claim. Two-thirds of over 2,000 participants between the ages of 18 and 30 claimed they care far less about impressing the men in
  • 31. Company Report 12 their lives with their sartorial decisions. Instead, they dress up -- or down -- for the ladies. (Popular fashion blog The Man Repeller, by New Yorker Leandra Medine, is built around this very premise.)” (Gray.2012). On lululemon’s website they discuss how their primary target customer is a sophisticated and educated woman who understands the importance of an active, healthy lifestyle. The customer is increasingly tasked with the dual responsibilities of career and family and is constantly challenged to balance her work, life and health. Lululemon athletica also believes she pursues exercise to achieve physical fitness and inner peace. As women have continued to embrace a variety of fitness and athletic activities, including yoga, the firm believes other athletic apparel companies are not effectively addressing their unique style, fit and performance needs. This firm also believes they have been able to help address this void in the marketplace by incorporating style along with comfort and functionality into their products. Although, they were founded to address the unique needs of women, they are also successfully designing products for men who also appreciate the technical rigor and premium quality of our products. Lululemon athletica, the longer-term growth in athletic participation will be reinforced as the aging Baby Boomer generation focuses more on longevity. In addition, the firm believes consumer purchase decisions are driven by both an actual need for functional products and a desire to create a particular lifestyle perception. As such, they believe the credibility and authenticity of our brand expands our potential market beyond just athletes to those who desire to lead an active, healthy, and balanced life. (Lululemon athletica, n.d.) Lululemon athletica is not the first firm to aggressively target youthful, single, self-made women. In 2012 both Citibank and Honda launched major ad campaigns that sharply pointed to the demographic's financial winnings and decreasing dependency. In the ad for Citibank, a young woman says: "My boyfriend and I were going on vacation. We talked about getting a diamond, but with all the ThankYou Points I've been earning, I flew us to the rock I really had in mind." The rock she was referring to was actually a giant rock formation in the state of Utah. As Huffington Post's Katie Bindley wrote: "The new commercials sell women the cars and financial products they can now afford by presenting those big ticket items as tools for celebrating their independence rather than attracting a husband" (Huffington Post, 2012). Marketers are finding out that the way to women's cash, is the pointing out of their strengths instead of the exploiting their
  • 32. Company Report 13 weaknesses, and by focusing on this demographic, Lululemon, either on purpose or accident, is appealing in part to their awareness of their own power, earning that power. An interview with the manager of the lululemon athletica in the Irving mall helped clarify their focus on environmental impact. He explained to me how their retail stores are sited to be accessible by public transit, so employees and customers have several transportation options. Showers are located at most lululemon stores so staff can start their day on the grouse grind or choose to cycle or walk to work. Alternative transportation is promoted through “go green commuting” choices, such as providing biking route maps, cooperative car sharing, and public transit discounts. The best parking spots are reserved for staff who carpool, or choose drive a smart car or hybrid or any other Earth-friendly means of transportation. He continued on about their valiant efforts to manage waste. He talked about how small bins replaced larger garbage cans to reinforce the matter of the reduce, reuse, recycle method. Each staff member is responsible to empty their own bin so they are mindful of the waste they create. Each floor a has a recycling and garbage station. Refundable containers are collected, with funds donated to the Salvation Army programming. Toner cartridges are recycled, with funds donated to the Food Bank. New retail locations are designed with built-in recycling stations for staff and customer use. The distribution center switched to reusable shipping containers a few years back, so now each retail store recycles excess packaging or shipping materials. A fifty-cent environment discount was given to over ninety-nine thousand thoughtful customers a few years ago, because they chose not to take a bag with their purchase. As a substitution for throwaway bags, reusable bags were brought almost ten years ago for customers. Systems to track total waste and recycling amounts are being established. These systems will be used to set targets and better trash reduction performance. Potdevin is now the current CEO of lululemon athletica, and she has been shooting for an approach that is fitting for both the workers and society. “Fifty percent of Lululemon's board was made up of women. "[I wanted] people to see women in power. They were regularly reporting into that board and saw that [gender equality] mattered there," says Day. She also set a goal that 50% of the executive team would be made of women, although simply by coincidence, the team ended up being 80% women. "I hired the best people and it just happened this way,"” (Evans, 2014, para.5). The arrangement of a
  • 33. Company Report 14 woman-based management will benefit the firm, as the main customers are indeed women.
  • 34. Company Report 15 Firm Events Analysis Lululemon athletica charges approximately $100 for a pair of basic yoga pants that is roughly twenty dollars cheaper than Gap Inc.'s Athleta simply because the firm understands the fact women will pay for the brand. Lululemon's simplistic pair of pants looks almost exactly like Athlete's $79 pants. Even the materials, a tandem of Lycra and nylon, are also the exact same. Lululemon took a huge hit this past March when the firm had to recall almost a quarter of its pants for being too sheer. Since then, its market value has diminished from $10 billion to $6 billion. More downfalls for the firm, customer reviews for Lululemon's basic yoga pant the "Groove" has excelled to extreme levels of biter. On Lululemon's website, the yoga pants have only three stars out of five based on hundreds of customer reviews. Athlete's pants, to compare to, have a customer rating of 4.3 stars out of five. Though the times were hard with their fatal flaws, lululemon athletica still prevailed in earnings. “Errantly see-through yoga pants was the prod for one of the pullbacks, but most of the plunges we’ve seen from shares since late 2011 were simply the result of earnings warnings. A funny thing happened on the way on the road to disaster, though — when it came time to post earnings, lululemon athletica not only topped estimates in each of its past 14 quarters, but it cranked up year-over-year earnings in 12 of them. By an average of 53%.” (Brumley, 2013, para.2). Lululemon's are located everywhere, and this is why that they are only behind the titan of a firm Nike. The main group of people that lululemon athletica target are the generation-X people, the people born from the mid seventies to the mid nineties. “Contrary to popular belief, there are more than a few so-called millennials — and a few younger Gen-Xers — that aren’t broke and/or swimming in debt. They’re not all necessarily flush with cash, and they’re not spending on things the baby boomers and older Gen-Yers could easily justify buying. But enough of them have enough access to enough money (or credit) to keep the cash registers ringing, and that mentality might never change.”(Brumley.2013). The people who the firm reaches out to is one that is very selective and concise. This mainly applies to women. It isn’t men the majority consumers are trying to impress with their high-end workout garb, Business Insider says, “It's other women. A poll of British women conducted last summer supports this claim. Two-thirds of over 2,000 participants between the ages of 18 and 30 claimed they care far less about impressing the men in
  • 35. Company Report 16 their lives with their sartorial decisions. Instead, they dress up -- or down -- for the ladies. (Popular fashion blog The Man Repeller, by New Yorker Leandra Medine, is built around this very premise.)” (Gray.2012). On lululemon’s website they discuss how their primary target customer is a sophisticated and educated woman who understands the importance of an active, healthy lifestyle. The customer is increasingly tasked with the dual responsibilities of career and family and is constantly challenged to balance her work, life and health. Lululemon athletica also believes she pursues exercise to achieve physical fitness and inner peace. As women have continued to embrace a variety of fitness and athletic activities, including yoga, the firm believes other athletic apparel companies are not effectively addressing their unique style, fit and performance needs. This firm also believes they have been able to help address this void in the marketplace by incorporating style along with comfort and functionality into their products. Although, they were founded to address the unique needs of women, they are also successfully designing products for men who also appreciate the technical rigor and premium quality of our products. Lululemon athletica, the longer-term growth in athletic participation will be reinforced as the aging Baby Boomer generation focuses more on longevity. In addition, the firm believes consumer purchase decisions are driven by both an actual need for functional products and a desire to create a particular lifestyle perception. As such, they believe the credibility and authenticity of our brand expands our potential market beyond just athletes to those who desire to lead an active, healthy, and balanced life. (Lululemon athletica, n.d.) Lululemon athletica is not the first firm to aggressively target youthful, single, self-made women. In 2012 both Citibank and Honda launched major ad campaigns that sharply pointed to the demographic's financial winnings and decreasing dependency. In the ad for Citibank, a young woman says: "My boyfriend and I were going on vacation. We talked about getting a diamond, but with all the ThankYou Points I've been earning, I flew us to the rock I really had in mind." The rock she was referring to was actually a giant rock formation in the state of Utah. As Huffington Post's Katie Bindley wrote: "The new commercials sell women the cars and financial products they can now afford by presenting those big ticket items as tools for celebrating their independence rather than attracting a husband" (Huffington Post, 2012). Marketers are finding out that the way to women's cash, is the pointing out of their strengths instead of the exploiting their
  • 36. Company Report 17 weaknesses, and by focusing on this demographic, Lululemon, either on purpose or accident, is appealing in part to their awareness of their own power, earning that power. An interview with the manager of the lululemon athletica in the Irving mall helped clarify their focus on environmental impact. He explained to me how their retail stores are sited to be accessible by public transit, so employees and customers have several transportation options. Showers are located at most lululemon stores so staff can start their day on the grouse grind or choose to cycle or walk to work. Alternative transportation is promoted through “go green commuting” choices, such as providing biking route maps, cooperative car sharing, and public transit discounts. The best parking spots are reserved for staff who carpool, or choose drive a smart car or hybrid or any other Earth-friendly means of transportation. He continued on about their valiant efforts to manage waste. He talked about how small bins replaced larger garbage cans to reinforce the matter of the reduce, reuse, recycle method. Each staff member is responsible to empty their own bin so they are mindful of the waste they create. Each floor a has a recycling and garbage station. Refundable containers are collected, with funds donated to the Salvation Army programming. Toner cartridges are recycled, with funds donated to the Food Bank. New retail locations are designed with built-in recycling stations for staff and customer use. The distribution center switched to reusable shipping containers a few years back, so now each retail store recycles excess packaging or shipping materials. A fifty-cent environment discount was given to over ninety-nine thousand thoughtful customers a few years ago, because they chose not to take a bag with their purchase. As a substitution for throwaway bags, reusable bags were brought almost ten years ago for customers. Systems to track total waste and recycling amounts are being established. These systems will be used to set targets and better trash reduction performance. Potdevin is now the current CEO of lululemon athletica, and she has been shooting for an approach that is fitting for both the workers and society. “Fifty percent of Lululemon's board was made up of women. "[I wanted] people to see women in power. They were regularly reporting into that board and saw that [gender equality] mattered there," says Day. She also set a goal that 50% of the executive team would be made of women, although simply by coincidence, the team ended up being 80% women. "I hired the best people and it just happened this way,"” (Evans, 2014, para.5). The arrangement of a
  • 37. Company Report 18 woman-based management will benefit the firm, as the main customers are indeed women.
  • 38. Company Report 19 Strategic Direction The mission statement of lululemon is a short, grammatically incorrect sentence. It states that their goal is to “Create components for people to live longer, healthier, fun lives” (Lululemon athletica, n.d.). The lack of grammar fits in with the general cultural aesthetic of the company, one that puts emphasis on free thinking and independent action. This mission statement stems from their “original intent”, which is to elevate the world from mediocrity to greatness (Lululemon athletica, n.d.). Such lofty statements from a mere clothes retailer are a large part of their tactics in achieving success, as is noted by the New York Times (Walker, 2009). But what is their idea of mediocrity and greatness in relation to their original intent? According to founder Chip Wilson, mediocrity can be defined in quite a few ways. He has said “to paint you a picture, mediocrity is doing an “okay job”, having a relationship that “works,” being just "a little" overweight, or having a job that "pays the bills” (Marati, 2012). Though it is likely that Chip Wilson believes strongly in rising above such a life, the hard part is first, actually raising the world above it, and second and creating a successful profitable business on this philosophy. He continues, stating “mediocrity is putting up with things they way they are with no firm plan to change the situation by a particular date. Mediocrity is following a predetermined and unfulfilling path. Most people live in a state of mediocrity” (Marati, 2012). Who wouldn’t want to join an organization which will make them feel like they are moving from that to greatness? That is, greatness as “demanding the best out of one’s self” (Marati, 2012). He ends his description of greatness with that, but the rest of it is all concerned with demanding greatness from other things: friends, spouses, your job, the company you work for, the pay that company gives you, etc (Marati, 2012). Assumably Wilson considers his own company one that “makes the best products” and is “uncompromising in its promise to its customers” (Marati, 2012). And no doubt he’d like readers to be persuaded by his speech to assume it is. As Huffington post notes, a lot of this sounds like Ayn Rand’s statement that man’s “pursuit of his own rational self-interest and of his own happiness is the highest moral purpose of his life” (Marati, 2012). Does that gel with the average yogi? “Needless to say, the messages are a far cry from the liberal ideals that many in yoga community embrace” (Marati, 2012). But whether or not analysts (and financial earnings) think that is detrimental to their business is yet to be seen.
  • 39. Company Report 20 The mediocrity to greatness vision is encapsulated in Lululemon’s “manifesto”. This manifesto begins with a few introductory words, but mainly consists in a large red and white poster that they encourage one to read so as to “learn a little more about what lights our fire” (Lululemon athletica, n.d.). But first the introduction states that sweating every day, breathing deeply, drinking water, and getting outside “top the list of things we can’t live without” (Lululemon athletica, n.d.). The poster manifesto itself consists of numerous inspirational, motivational, and health related tips. They range from “this is not your practice life. this is all there is” to “sweat once a day to regenerate your skin” to “friends are more important than money” (Lululemon athletica, n.d.). In regards to the last of those, someone following Chip Wilson’s idea of greatness should apparently not demand too adamantly higher pay from their companies.
  • 40. Company Report 21 A poster of the Lululemon manifesto, courtesy of lululemon.com
  • 41. Company Report 22 Human Resources Analysis Lululemon doesn’t always call things by the same name that competitors do, and just as cotton/spandex was to them “seaweed” at one point (Story, 2007), so HR is a more upbeat “people potential” (Lululemon athletica, n.d.). The department is a team that “helps our great people achieve their dreams and live a life they love” (Lululemon athletica, n.d.). Their “people potential” mission statement is upbeat and different too, and outlines the three key parts of their HR department (Lululemon athletica, n.d.). First, their recruiters live the “law of attraction”, a concept explained by Chip Wilson on the company's blog (Wilson, 2009). He states the law of attraction “is the fundamental law that Lululemon was built on” and that it “simply says that you attract aspects, qualities, and people in your life that reflect the type of person you are” (Wilson, 2009). So an important part of hiring new talent at Lululemon is finding people similar to those who already work there. He continues “all our training and culture is predicated on developing great people so we can attract great people. This is not marketing lip service” (Wilson, 2009). This will be seen below in the further discussion of the hiring process at Lululemon. The “people potential” mission statement then says, “our leadership and development team makes the most of our greatest asset—our people” (lululemon athletica, n.d.). This shows a focus on the employee, and such an approach to HR can be crucial to development, a key goal of any HR department. As we will see, the ways in which this team develops its employees is novel to say the least. The last of the three sections of this HR department returns to Lululemon’s tradition of untraditional titling. It is the “health and wealth team” which “ensures our compensation and benefits embody our core values” (Lululemon athletica, n.d.). After attracting and developing employees, every HR department also has the job of retaining them. This last Lululemon “people potential” team is tasked with just that. The law of attraction that is the center of Lululemon’s hiring process can be seen in how they first recruited in the early days of the company. According to a Fastcompany article, they started by truly hiring people just like them (Sacks, 2009). Wilson stated, “when we first started, we hired nothing but yogis” (Sacks, 2009). But, Wilson always being one with a low tolerance for perceived mediocrity soon found that wasn’t cutting it. The yogi
  • 42. Company Report 23 part was still essential, just not sufficient (Sacks, 2009). He states “but it didn’t work because they were too slow. So we started hiring runners who like yoga. They’re more on the ball, more type A” (Sacks, 2009). Lululemon states on their jobs page a number of beliefs about employment and their workforce in a small statement (Lululemon athletica, n.d.). This serves as a statement to anyone interested in working there about what kind of people they are and thus, because of the law of attraction, the kind of people they want. This gives a clear picture of the hiring process at Lululemon. It begins “We believe in a lot of things…” and goes on to detail these (Lululemon athletica, n.d.). Flossing makes the list, so possibly those with poor dental hygiene may be unlikely to find employment at Lululemon (Lululemon athletica, n.d.). The statement says, “Sweat once a day”, which echoes Wilson’s original desire not just for yogis, but also for those yogis breaking a sweat during their run (Lululemon athletica, n.d.). The statement continues, “above all, we believe in self- empowerment, positive inner development and taking responsibility for our own lives” (Lululemon athletica, n.d.). The focus on self-empowerment is consistent with the HR Mission Statement’s opinion that their employees are their greatest asset (Lululemon athletica, n.d.). And the company certainly doesn’t neglect the development of the talent it recruits. After one year at the company, “all staff are invited to take a course at Landmark Worldwide” (Butter, 2014). Landmark, which is not tied to Lululemon, is “an international personal and professional growth, training and development company—a global educational enterprise committed to the fundamental principle that people have the possibility of success, fulfillment and greatness” (Landmark Worldwide, n.d.). In the case of Lululemon, what is offered is three days of free training and development (Butter, 2014). These three days consist of people being “encouraged to experiment with fresh behavior and ideas” (Butter, 2014). But there is controversy over these seminars. While Landmark says their programs are “ontological in design and phenomenological in methodology” some reporters who have been through the program report the usage of everything from Zen Buddhism to existential philosophy to Freud (Butter, 2014). After a year of training and the $600 Lululemon spends on sending each employee to the Landmark seminars, they naturally want to keep the employee turnover rate as low
  • 43. Company Report 24 as possible (Butter, 2014). This ensures that resources aren’t wasted and that the culture of the company can thrive upon those who stay in for the long haul. Part of their retaining efforts are simply in what they sell the company to employees as. They sell it as much more than just a job, but really a new way of life, as was seen in the way they approach hiring and development (Wilson, 2009). But as clever a business move all that may be, it is no replacement for old-fashioned employee benefits. In the Stockholders Equity section of the most recent 10-K annual report from Lululemon, employee stock based compensation plans are detailed (Lululemon Athletica, Inc, n.d.). It states, “The company’s employees participate in various stock based compensation plans which are provided by the Company directly” (Lululemon Athletica, Inc, n.d.). This shows the Human Resources department of Lululemon has a strong focus on retaining employees.
  • 44. Company Report 25 Social Responsibility Analysis A discussion of Lululemon’s social responsibility, and particularly public relations, must begin with the founder Chip Wilson. In January of 2012 he stepped aside as CEO and Christine Day took over for a time (Edwards, 2012). Some analysts felt that this was a result of a long stream of odd statements that had kept Wilson in the news for quite some time. According to BusinessWeek, his “stepping aside” was as a result of his odd statements, and it is easy to see why (Edwards, 2012). The first publicity gaffe from Wilson involves the choosing of the name “lululemon”. In 2005 he stated at the Business Alliance of Local Living Economies conference in Vancouver that he had named the company “lululemon” because Japanese people have difficulty pronouncing L’s (Deveau, 2005). And though he was quoted as saying “it’s funny to watch them try and say it”, he actually chose the name because somehow it would serve as an extra marketing tool (Deveau, 2005). In 2009 he clarified this by explaining that Japanese consumers would recognize the name as distinctly North American since they can’t pronounce it (Deveau, 2005). Tellingly, the link to this statement (referenced by Deveau in his 2005 article) is no longer available at lululemon.com, suggesting that the company has tried to clean up its publicity in the last few years. One of the issues that prompted this clean up were his comments about child labor and outsourcing, which to many showed a lack of care for social responsibility, or at least a very odd take on it (Edwards, 2012). Up until 2004 lululemon produced all it’s garments in Vancouver, Canada, where the company is based (Deveau, 2005). This was meant to sell the company as ethical and locally sourced, but this got more difficult as the brand expanded (Deveau, 2005). Quickly, a policy that promoted good public relations through social responsibility policies was changing. Wilson explained to the BALLE BC conference that when the store was only operating in North America, it made financial sense to keep production local, because once overseas shipping costs and currency conversion fees were accounted for it was no less expensive to outsource hiring to China (Deveau, 2005). That alone is perfectly normal for any company, but it is Wilson’s language that raised concern. He stated bluntly “we have two choices, which are to manufacture everything in the Orient offshore, or to not be in business. You do it or die”
  • 45. Company Report 26 (Deveau, 2005). While this has no doubt been the thought in numerous companies minds, almost none go out and state it so bluntly. Where Wilson saw outsourcing a necessity, he saw child labor as a positive good. He explained to the delegates of the BALLE BC conference that allowing 12- and 13-year- old children to work in factories would allow them to have much needed wages (Deveau, 2005). He likened this to the WTO, saying he saw the issue as they did, that the best way for wealth to be spread around the world is for countries to “pull themselves out of poverty” (Deveau, 2005). Members of the conference were put off by these comments, which reportedly went over “like a lead balloon” (Deveau, 2005). BALLE BC executive Penny Scott said he was straying into grey area, and didn’t address the questions of where such children would be going to school, what they would be paid, and where they would be living (Deveau, 2005). The company was proactive in ensuring their brand was seen as ethical, and that they would not turn out to be a vilified corporation. In May 2004, shortly after outsourcing to China had begun, the company ran an ad in Yoga Journal magazine depicting a pretend newspaper article with people dressed in diapers, with bonnets on their heads and pacifiers in their mouths (Deveau, 2005). Attached to this was a post-it-note from Chip Wilson stating, “How did this get out?” (Deveau, 2005). No doubt, many readers were left scratching their head at this odd ad. As usual, Wilson had to follow up with an explanation, and it didn’t make any more sense than anything else he has said. According to him, the ad was meant “to elicit reactions on the global travesty of child labor in an ironic, humorous way” (Deveau, 2005). While this confusing at best, he did make some statements about their factory that put lululemon in a positive light. Their factory is owned by the same person who owned the one in Vancouver, and they were tasked with making conditions similar for employees (Deveau, 2005). Wilson had inspected the facility himself to ensure it was far from a sweatshop (Deveau, 2005). Sending the CEO over to overseas factories is a good public relations strategy that other companies have used, as it shows that the issue is of high importance. Rather than apologizing for the outsourcing of production, Wilson defended it, claiming that 95% percent of the factories he had seen in “the Orient” were better than ones in North America (Deveau, 2005).
  • 46. Company Report 27 Experts on the Chinese garment industry aren’t convinced by Wilson’s statements (Edwards, 2012). Denise Taschereau is a manager of social responsibility at Mountain Equipment Co-op and attended the BALLE BC conference where Wilson made his statements about outsourced factory work (Deveau, 2005). She brought up the question of whether lululemon had any third party, or even in house, auditing system (Deveau, 2005). An auditing system is key to ensuring decent conditions within a factory. She called to light that even if the factories look modern and are managed by the same person as the one’s in Vancouver were, they may still have issues with sanitary working conditions, child labor, and overtime pay (Deveau, 2005). She stated, “as you grow up as a brand in Canada, your commitment to and your systems around being responsible and ethical retailer have to grow up with you” (Deveau, 2005). Denise Taschereau was hardly the only one to raise such concerns. Miriam Palacios of Oxfam Canada added that the workers might not be given health care or any educational benefits (Deveau, 2005). Wilson’s belief that child labor would be a good for developing countries may have stemmed from his reading of Ayn Rand’s novel called Atlas Shrugged, which espouses the philosophy of Objectivism (Edwards, 2012). Objectivism holds that society is best off when everyone follows their own pure self-interest, with no thought of altruism (Austen, 2011). This alone wouldn’t be a public relations nightmare, if he had kept his enthusiasm to himself like other Ayn Rand fans who hold an important office, such as the former head of the Federal Reserve, Alan Greenspan (Austen, 2011). But in November 2011 the company began printing a new slogan on their bag, “Who is John Galt?” (Austen, 2011). The quote comes from the opening lines of the novel Atlas Shrugged and is used by fans to state their belief in Objectivism (Austen, 2011). Niraj Dawar, who is a professor of marketing at Richard Ivey School of Business, suggests that lululemon may have see the move as an act of corporate social responsibility (Austen, 2011). Whether the move succeeded is very doubtful, as he states “Chip Wilson’s philosophy may not be shared by customers, and there’s little room for these customers to engage in debate, so some of them will express their opinions by walking away” (Dawar, 2011). Indeed, comments on lululemon’s blog did not mince their words, one saying “I was so shocked by being handed this bag today at your Portland, Ore., store that I literally walked back to return this horrific bag” (Austen, 2011). Just like the companies statement about why Chip chose the name lululemon, the link to these comments has been removed, and are
  • 47. Company Report 28 only available through quotes from news articles at the time. On their error page is another interesting message to consumers: a picture of lululemon wearing people smiling and holding up purple signs stating “You’re the sh*t!” (lululemon athletica, n.d.). While Ayn Rand supplied the philosophy behind lululemon and Japanese phonetics inspired the name, it was a social phenomenon that Chip Wilson views as allowing it all to come into existence. In an article, surprisingly still extant, called “how lululemon came into being” Wilson relates how the birth control pill introduced in the 1970’s ultimately led to his yoga company (Wilson, 2009). He believes that womanhood was fundamentally changed by the introduction of “the pill” (Wilson, 2009). Women no longer needed to make a relationship work, as they could ensure no children were produced that would have in the past necessitated a marriage stay together (Wilson, 2009). And, they were empowered and self-motivated by not having to rely on male providers. This caused an “era of divorce” (Wilson, 2009). The 70’s and 80’s led to what Chip Wilson terms “Power Women”, who tried to keep up with men by putting in long workdays, while simultaneously taking care of children as single parents (Wilson, 2009). While they “went to 3 martini lunches and smoked because this is what their “successful” father did” they also gave up their social life, exercise, and sleep (Wilson, 2009). Wilson’s oddball story of the female sex in the latter half of the twentieth century goes on to describe Super Girls, or the daughters of Power Women ((Wilson, 2009). And what influenced them? Saturday morning cartoons, of course. These 90’s girls saw the new female superheroes in such shows donning tight tops and feminine colors and followed en masse (Wilson, 2009). But there was no functional athletic clothing for women. And they certainly needed it, as they realized that endorphins from exercise were the remedy to the stress from 12-hour workdays and the challenge of rearing families on their own (Wilson, 2009). Then, Wilson manages to tie yet another controversy into one little blog post: breast cancer. He suggests that its rise in the 90’s was due to woman smoking while on the pill, to combat the stress of their new lifestyle (Wilson, 2009). Because of all this, yoga arose, as an accessible relief for all the ills besetting the modern Power Girl. As Wilson sums it up “ultimately, lululemon was formed because female education levels, breast cancer, yoga/athletics and the desire to dress feminine came together all at one time” (Wilson, 2009). On the blog post, Chip Wilson is titled merely a “contributor”, not calling attention to the fact that their own founder has such odd beliefs (Wilson, 2009).
  • 48. Company Report 29 But the business wasn’t just founded to fill the need for quality yoga pants. No, it was to spread “The Secret”, as Wilson accounts in another off kilter blog post (Wilson, 2009). This secret is the “Law of Attraction” which states that people attract to themselves others that are just like them (Wilson, 2009). So alcoholics attract alcoholics and athletes attract athletes. Wilson encourages us to look around at the people we surround ourselves with to get a better sense of our own character (Wilson, 2009). But most people, in his opinion, are just mediocre because they don’t love themselves enough and thus decide to act like someone they are not. And since nature only cares that we produce, we’re left on our own as far as achieving happiness and contentment (Wilson, 2009). He is specific with his advice, suggesting that people go to five people, including their boss, to get feedback on certain questions. One of the questions is “12 people have been shipwrecked on a deserted island. There is one boat that will hold 6 people and if the 6 people work perfectly as team they have a 10% chance of survival. The people left behind will perish. Would you take me and if yes why and if not why not?” (Wilson, 2009). Readers must have wondered what kind of feedback Chip Wilson would get if he asked his peers such a question. Alone this would just be an odd blog post on lululemon’s site, but Chip Wilson brings it back to his company at the end. The training at lululemon is meant to provide great service so that they will attract great people (lululemon athletica, n.d.). And their ultimate vision is “to elevate the world from mediocrity to greatness” (lululemon athletica, n.d.). Many of the comments on the post called into question how exactly expensive apparel could elevate the world away from mediocrity (Wilson, 2009). While the actions of the founder of lululemon are important as far as social responsibility and public relations, it is important to look at a history of the company as a whole. In 2007 lululemon ran a line of clothing having a VitaSea fabric, which claimed to be 24% seaweed fiber (Story, 2007). And according to tags the product “releases marine amino acids, minerals and vitamins into the skin upon contact with moisture” (Story, 2007). In addition to detoxifying, hydrating, and reducing stress (CBC News, 2007). But then the New York Times commissioned multiple laboratory tests, and all found that there was no sign of seaweed whatsoever (Story, 2007). They stated, “the tests raise obvious questions about lululemon’s marketing” (Story, 2007). It is also clear that they were trying to appear socially and environmentally responsible, but failing to follow through (CBC News, 2007). Chip Wilson claimed that lululemon had not had enough money to
  • 49. Company Report 30 run their own tests on the fabric, a questionable claim at best as the VitaSea line was introduced in 2006, when lululemon was already quickly gaining popularity (Story, 2007).
  • 50. Company Report 31 SWOT Analysis As a serious investment, lululemon athletica offers a variety of strengths. Purchase of common stocks, preferred stocks, or other ownership in the company, despite struggles with containing public relations issues in the past, present a solid investment proposal. Lululemon athletica presents a strong case for investment because of its dedicated customer base, and its unique technology. In addition, lululemon athletica offers a history of strong customer dedication. While recent press and attention may argue that the company has reached its peak or is leveling off, the company is repositioning itself for success in the coming years. Lululemon athletica mainly appeals to women interested in Yoga. However, recent economic evidence indicates that men will and are becoming a more interested consumer in Yoga and lululemon athletica products overall (Kell, 2014). The brand is growing in appeal with cyclists, cross-training athletes, and men overall (Kell, 2014). Unlike competitors Under Armour and Nike, lululemon athletica is aggressively targeting male athletes and as a result, stands to gain tremendously from their daring marketing goals and campaigns. Lululemon athletica possesses unique anti-stink technology that differentiates the company from competitors and offers a viable incentive for investors going forward. Silver-infused material, a blend of spandex, nylon, and actual silver threads kills bacteria accumulated from perspiration and adds a unique value for competitors interested in working out, potentially in the same clothing, over several days without disgusting teammates, trainers, coaches, and increasing the their own personal health environment (Newcomb, 2014). Lululemon, like all companies, has weaknesses. Lululemon athletica is a relatively new company. It does not have the advantages that older companies have such as a long history of experience and strong brand recognition. The current head of lululemon athletica, Laurent Potdevin, has had two decades worth of experience in the athletic apparel industry; however, he does lack experience in the company lululemon athletica itself (Lululemon Annual Report, 2013). This lack of experience and brand recognition could make it harder as lululemon athletica is trying to expand.
  • 51. Company Report 32 It is important for lululemon athletica to make sure their products are up to date with recent trends. They should make sure their products are of the highest quality possible. Lululemon’s stores are known for their highly attentive employees and positive atmosphere; if either of these qualities were to change the company would be hurt. Lululemon uses mostly social media and word of mouth as their marketing strategy. If negative things were being said about the store their profits could be affected. In our technology driven society, it has become more and more importance to keep lululemon athletica’s computer system’s safe and updated. If the system became outdated or hackers broke into their records there could be a break in trust with customers and sales could be hurt. If their systems are hacked into personal and financial information could be stolen. Products may have to cost more as a result of the need for lululemon athletica to consult with computer experts to make their systems the best they can be. Another weakness that lululemon athletica possesses is the threats that arise from rapid growth. In recent years lululemon athletica has been extremely successful. Keeping up with the growing popularity, and growing demand of the company is a growing concern. If lululemon athletica cannot provide enough of their product the consumers could grow frustrated, and stop trying to purchase their items. Lululemon’s has a weakness in their company concerning patents. “ . . . We currently own no patents or exclusive intellectual property rights in the technology, fabrics or processes underlying our products” (Lululemon Annual Report, 2013). If a competitor of lululemon athletica were to use their intellectual property rights in technology, fabrics, or process underlying their products lululemon athletica would not be able to fight them legally, and their business could suffer. The high reward opportunity plan of expanding business more internationally has begun for lululemon athletica. The original foundation for lululemon athletica is located in the country of Canada, and then eventually moved to the United States of America. The question seemed to be, why stop at only North America? The firm began to reach out and build their business first in the country of Australia and then the country of Japan (Adventurenational.com.) This is an extremely beneficial opportunity because yoga has expanded into a worldwide trend over the past decade, and if lululemon can expand their product before their competitors such as Adidas, Gap, or Reebok can, this will give them
  • 52. Company Report 33 a generous advantage. A second opportunity for lululemon athletica is the apparel expansion to the male gender. Men are indeed participating in yoga as well in this day and age, but also men have been reported of wearing lululemon athletica clothing as casual wear. This could be great for the firm if they could capitalize on this chance, as the only other competitor that has equal support for both genders is the titan company Nike. Lastly, the golden opportunity is that yoga is gaining more and more popularity seemingly by the day. Friends are telling friends and the yoga surge is rushing awfully fast. Hundreds and hundreds of people are trying out yoga daily and want the top quality products for it, and lululemon athletica is almost always the first name that pops up. It is so simple: the more people interested in yoga, the more chance there is for lululemon athletica to expand, and also conduct new relationships Lululemon faces several threats to their current operations. Some of the things they face are an intense competitive market, possible economic downturn, and fluctuating cost of raw materials. “An economic downturn or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our products” (Lululemon Annual Report, 2013). Lululemon faces massive risk in regards to financial markets due to the current economic climate. Since the recession, financial markets have been very volatile and this has led to more unemployment and more consumer fear. This volatility greatly threatens lululemon’s business and can hamper their current operations. Lululemon athletica’s sales can be hurt if the Asian markets change. The majority of lululemon’s products and materials are manufactured in Asia. The health of these companies are important, because a large part of lululemon athletica’s production process depends on the efficiency, reliability, quality, and the low cost that these outsourcing companies provide. If efficiency, reliability, quality, or low cost production were to change in any of the companies lululemon athletica outsources to lululemon athletica itself would be affected. Lululemon also faces massive risk in terms of the fluctuating costs of goods and services. “The fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer”(Lululemon Annual Report, 2013). Many of lululemon’s suppliers could be affected by external environmental conditions that would cause the input price to increase. This would greatly
  • 53. Company Report 34 affect their current margins and hamper their overall business. This increase in inputs could also cause their products to increase in price. “Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices”(Lululemon Annual Report, 2013). Their sales and profitability would be hampered due to the rising input, which would then cause their products to sell for less while costing more. Lululemon also is faced with tough competition such as firms such as NIKE and Adidas. The problem with these firms is their market shares and large amount of cash. “We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in a loss of our market share and a decrease in our net revenue and profitability”(Lululemon Annual Report, 2013). The large amount of cash allows these firms more flexibility and can allow them to operate in ways lululemon can’t.
  • 54. Company Report 35 Investment Recommendation Based on our findings in both the Industry and Company report, and especially our SWOT analysis, we advise that lululemon is overall a solid investment. However, that is not without some reservations. Lululemon has a number of internal strengths, which mean it is a good long-term investment. The company has always relied heavily on the loyalty of it it’s customers, and though some analysts believe this was hurt irreversibly in 2013 from a yoga pants recall, this may not be true as stock just this November surged 16% higher (Motley Fool, 2014). This customer loyalty couldn’t be more critical for a brand like lululemon, which sells its products as much on their own merits as on the feeling customers have that they are buying into a culture of personal growth and enlightenment (Sacks, 2009). Competitors such as Nike, Under Armour, and Adidas offer similar products, and late this November it was revealed that Nike is even setting up yoga stores to directly compete with lululemon (Peterson, 2014). So for lululemon to keep their brand loyalty is critical, and the recent Motley Fool report suggests they are (Motley Fool, 2014). In the relationship era of business, wherein companies thrive and decline based upon the loyalty that they foster year after year, a company like lululemon is set for continued growth and success (Garfield, 2002). Lululemon’s future is also looking bright because of their particular focus on menswear (Kell, 2014). Their innovations in sportswear material, such as the silver infused fabric, will also draw consumers to lululemon (Newcomb, 2014). Lululemon also has serious opportunities to expand both in North America and in other nations. As yoga interest grows, lululemon will have more and more opportunity to expand. It will be an especial draw to people newly interested in yoga because it offers a more complete experience than just apparel. Its stores include free training and the staff are knowledgeable about yoga and can advise new enthusiasts more than competitors (lululemon, n.d.). Thus, lululemon has an opportunity to expand along with the expansion of interest in yoga. Despite it’s strengths lululemon does have some weaknesses beyond what has already been mentioned. Compared to its competitors in the market, it is a relatively new company. It does not have the same experience or financial resources as companies
  • 55. Company Report 36 that have been in the sports apparel business for much longer. Also, to the general public, it does not have the same brand recognition as Nike, Adidas, etc. This means it must rely on word of mouth, whereas competitors are established names that everyone knows and generally trust to provide quality sports apparel. Also, lululemon must be careful to avoid any public gaffes and poor publicity. In the past, they have had a number of serious public relations fiascos, and so they must avoid this to continue their success (. A serious external threat to their future business success is the possibility of economic downturn. Because they sell luxury items rather than necessities, their financial success would be particularly sensitive to any downturn in the economy or even just consumer confidence in the economy. Like other companies in the business, they could also be affected heavily by changes in a change in the cost of the raw materials used in the production of their apparel. This is also true for any change in the cost of labor, which could rise as Asian nations used for outsourcing begin to demand higher wages. Despite the risks that lululemon faces in it’s immediate future, Y.I.G Investments recommends investing in this company based on its strong customer loyalty and other strengths.
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