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This Athletic Player Has a Bright Future

July 09, 2014 | About:
Suravi Thacker

Suravi Thacker

1 followers

According to an eMarketer Retail report, published in May, the athletic retailer Lululemon Athletica (LULU) ranks the fifth among the retailers who have the highest sales per square feet of retail space, in the last twelve months. However, the retailer is facing a number of challenges for the last one year, despite having a loyal customer base.

Although the company has been making efforts to fight the challenges and continue with its growth, its efforts are yet to bear fruits.

Problems faced

In March last year, the retailer had to recall its Luon yoga pants, which were transparent enough to hurt the sentiments of people. This affected its inventory by 17% and led to a loss of market value of $2 billion.

Further, the company’s founder made some customer insulting comments in November last year, which hurt the sentiments of people. Later, the founder (or the chairman) resigned from its post. However, these incidents affected Lululemon’s PR as well as its brand image.

Moreover, other players such as Gap (GPS) and Under Armour (UA) enjoyed the benefits as customers shifted from Lululemon to other alternatives. In fact, Under Armour has been registering great growth since then. Its revenue surged 36% in its latest quarter and earnings jumped a whopping 70% over the last year’s quarter. In fact, Under Armour is also gearing up for the upcoming World Cup advertising in order to attract more and more customers and create more demand.

Even Gap is planning to launch its new global collection in August which will be accompanied with a new marketing campaign. This should help the retailer bring in more customers to its stores since severe winters hampered its sales during the holiday quarter. Also, it plans to expand its online business since most of the customers now prefer to shop merchandise online.

Plans for future

Lululemon has undertaken a number of initiatives to win back lost customers and stage a comeback. Firstly, it wants to be more than just a yoga brand. Therefore, it has diversified into other products apart from yoga related products only. This should help attract a larger base of customers.

It has been expanding its presence in the men’s segment as well as beach gear products. This will enhance its customer base and the company will not be dependent on the women category only. Also, its kid’s brand, called Ivivva, has been a great performer which enabled the company to open 4 new stores in its last quarter.

Moreover, Lululemon launched a new range of products recently, called &go line of products. This introduction can actually change the game for the retailer since it provides more reasons for customers to visit its stores. This line of clothing consists of casual wear which can be worn after a workout, or at the office and even for hangouts with friends. Therefore, its customers don’t need to change their exercise wear for some other brand clothes, which makes it an interesting move.

Key thoughts

Lululemon has had the worst experience since its inception. Therefore, things cannot get worse from here. In fact, its renewed efforts make the picture looks better. Its diversification strategies, new range of products and efforts to build the online business should make the retailer reach new heights. Investors should go for this growing athletic retailer.


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Comments

HrZg
HrZg premium member - 4 months ago

Agree Lulu is a great company and good buy. The only real problem seems to be the lack of unity in the top management and the board caused by the founder. At the moment, the company still seems split between those who support the founder and those who dont. Once this mess clears up (and I assume this could take a while) then market will become more optimistic about the company's stock. I wrote a Gurufocus piece on Lulu earlier here http://goo.gl/07yy9f

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