1
Running head: COMPETITIVE ANALYSIS: LULULEMON
Competitive Analysis: LululemonAthletica’s Inspired Yoga Wear
E.T. Earon Kavanagh
City University of Seattle
Abstract
This paper contains a Porter Competitive Analysis, with LululemonAthletica as the primary company. The competition includes Under Amour and Nike. The diagnostic components used include current strategy, capabilities, future goals assumptions a competitor holds about its own situation and the nature of its industry.
Key words:
Competitive Analysis: LululemonAthletica
Competition theorist Michael Porter (1998: 47) writes that “competitive strategy involves positioning a business to maximize the value of the capabilities that distinguish it from its competitors”. Porter states that there are four diagnostic components to a competitor analysis: (1) current strategy, and (2) capabilities (which include strengths and weaknesses), (3) future goals at all levels of management, (4) assumptions a competitor holds about its own situation and the nature of its industry. Porter refers to the latter two components as “driving factors” that will determine how a competitor will behave in the future. The four components work together to influence a response from the competitor.
FIGURE 1: Porter’s 4 Competition Analysis Components
What drives the Competitor / What the competitor is doing and can doFUTURE GOALS At all levels of management and in multiple
ASSUMPTIONS Held about itself and the industry / COMPETITOR'S RESPONSE PROFILE
Is the competitor satisfied with its current position?
What likely moves or strategy shifts will the competitor make?
Where is the competitor vulnerable?
What will provoke the greatest and most effective retaliation by the competitor? / CURRENT STRATEGY
How the business is currently competing
CAPABILITIES
Both strengths and weaknesses
This paper is informed by the four diagnostic components. They will be embeddedin my reflections on the publicly traded yoga apparel company Lululemon: Athletica (the primary company) and my discussion of two of its competitors.
I will begin with a historical perspective on the primary company, addressing its market share, financial health, and its marketing strategy. I will then discuss Lululemon’s marketing strategy. Following that I will examine what Lululemon’stwo competitors ( )are doing to improve their current competitive position. Following that I will examine what the likely shifts the two competitors will make. This will be followed by what might be making the primary company most vulnerable, and what might be making the two competitors most vulnerable. I will then examine what competitive moves by the two competitors that would provide the greatest and most effective retaliation by the primary company. Finally I will either recommend continuation or modification of the primary company’s current strategy.financial health.
Following that I will examine what Lululemon’s two competitors ( ) are doing to improve their current competitive position.
likely shifts the two competitors will make.
what might be making the primary company most vulnerable,
what might be making the two competitors most vulnerable.
competitive moves by the two competitors that would provide the greatest and most effective retaliation by the primary company.
Recommend continuation or modification of the primary company’s current strategy.
History of Lululemon
Lululemon has been touted as the next Nike by some investor publications, who say that the trend is just as much about lifestyle and fashion as the elegantly shapely fabrics developed by Lulu so appealing to women buyers (investing guide). Lululemon was founded in Vancouver, Canadain 1998 by Chip Wilson, former owner of Westbeach, asnowboarding apparel retailer.Wilson decided he wanted to develop apparel for yoga. Wilson also had a vision to make Lululemonas big as Nike, and he let everyone know it in Lululemon’s media campaigns.In addition, he borrowed the Nike phrase Just Do It and created Just Do It Now (Canadian business). Nike has been considered the leading supplier of sports apparel and athletic shoes in the world (Sage, 2008). In seeking to be as big as Nike, Wilson stopped short of saying he wanted to be the best; thus, in these media statements, he avoided what Joan Margretta, a longtime associate of Michael Porter, calls “the first flaw of competition” (Margretta, 2012: 24). Wilson approached the marketing firm Cowie and Fox to develop a campaign that targeted yoga practitioners and others. Yoga and related apparel were not mainstream at the time. Cowie and Fox positioned Lululemon as the embodiment of a utopian yoga lifestyle and Lululemonbecame the center of a new fashionable trend, led middle and upper income female consumers (Cowie and Fox). Lulumon’s focus for product has been women but has recently expanded to serving men.
Competitive Strategy
Lululemonhas worked a niche differentiation strategy, and developed a strong brand image which focused on trendy, fashionable and quality athletic clothing inspired by yoga (Swinand, 2011). It holds this position with technologically-enhanced fabrics for performance. It distributes it products selectively, through top fitness clubs and yoga studios and as of December 6, 2012 operates 280 retail stores in Canada, USA, and Europe.
While specifically geared toward the practice of yoga, Lululemon’s high quality garments can be used for a variety of sports, and many women now wear these garments daily because of a combination of comfort and style. The company has generated impressive sales growth in the last several years and recently went public.
Lulemon has virtually defined its own market and has become the leading manufacturer/retail supplier of yoga inspired clothing, directed to the female market. It is currently the leading supplier of yoga inspired clothing. It niche status and its branded fabrics have served it well. However, threats are on the horizon, as the popularity of yoga wear rapidly increases (Larson, 2011). Competition is coming from large companies such as Nike and Under Armour, as well GAP Athleta and VFC Lucy, to name a few.
Controversy Emerging Ethical Concerns
Lululemon believes that its products, indeed it’s very presence in the marketplace that is changing the world by motivating concumers to invest in their health. CEO Christine Day (former CEO of Starbucks) states that this is a macro trend and Lulumomon is part of it: incevsting in your health will pay big dividends for individuals and society… elevating the world from mediocrity to greatness” (see Taylor, 2012).
However, there seems to be a lot of controversy associated with the company. It has been argued that Lululemon products are made in sweatshops in China and Indonesia (Deveau, 2005). Fast Company magazine describes Lululemon’s marketing approach and training programs for its staff as “a cult of selling”. Former staff have written into the Yogalilablog and complained about having to take “The Landmark Forum” program or else are forced out of the company (YogalilaBlog, 2006). The Landmark Forum organization has been branded a cult by cult specialist Rick Ross (see Nike, Lululemon’s declared chief competitor, has had its own share of controversy pertaining to offshore sweat shop labor. Organizational theorist David Boje (2008) writes how this situation has been so controversial that Nike has had to move its annual meetings away from its home offices in Oregon; the reason is to avoid having to deal with the activists.
Market Share
Financial Health
However, Lululemon functions as a niche within the much larger sports apparel industry, which is dominated by Nike and Adidas.
GAPs’sAthleta
Its Athleta chain mimics the locales and methods of leader Lululemon
Last month, LululemonAthletica opened a store in Durham, N.C. Three weeks later, Athleta, Gap's answer to Lululemon, opened its own shop in the same mall. The pattern-Lululemon store opens,Athleta pops up nearby-is happening across the U.S. as Gap mounts the most potent threat so far to the Vancouver-based yoga powerhouse.
Gap's Athleta is also borrowing from its competitor's playbook. Like Lululemon, Athleta is hooking up with local yoga instructors and sponsoring classes such as Mommy & Me Yoga. Like Lululemon, Athleta trains staff to make garment recommendations tailored to customers' pursuits-a half-marathon, say, or paddle boarding. And the upstart chain is often undercutting its rival on price. Cropped padded cycling pants sell for $88 online at Lululemon, while similar shorts cost $64 on Athleta's website. Yoga pants are often $15 more at Lululemon.
Gap's yoga upstart is even using special discounts to make headway with a group that's been key to Lululemon's success: yoga and fitness instructors whose personal brand preferences can influence purchases by their students. Says Nomura Securities analyst Paul Lejuez: "Gap looks at what Lulu has established and says, 'Well, why not play off the traffic they attract, and if we offer our product at a slightly lower price, we'll get share.'"
The $14.3 billion U.S. market for such gear is growing twice as fast as women's apparel overall, according to market researcher NPD Group. Stylish yoga gear also commands higher prices and margins than other athletic apparel. As more women pursue sports, many are willing to trade up to pricier fabrics that wick away perspiration and reduce odors, says Tess Roering, Athleta's head of marketing.
In Lululemon, Gap faces a formidable brand. With a canny blend of fashion and lifestyle marketing, the Canadian chain has built a cultlike following since moving into the U.S. in 2003. Lululemon generated a record $1 billion in sales last year with 112 U.S. locations. It boasts the third-highest sales per square foot among North American retailers ($1,948), after Apple and Tiffany, estimates retailing consultant RetailSails.
Gap bought Petaluma (Calif.-based Athleta in 2008 for $150 million to extend its position in women's premium sports clothing beyond its Gap Body division. Founded in 1998, Athleta had a loyal following for products sold through its catalogs and website. Gap is using expertise gained from operating more than 3,000 stores to turn Athleta into a brick-and-mortar retailer. For now, the yoga business is relatively small. Gap reports sales from Athleta and its Piperlime Web store together; at $301 million for the year ended Jan. 28, their combined revenue is less than a third that of Lululemon.
Of Athleta's 22 locations, 13 are about a mile or less away from a Lululemon, based on the addresses listed on both company's websites. Athleta is opening seven stores this summer and fall from Seattle to Boston, and all but one will be a 12-minute walk or closer to a Lululemon. Gap plans to have 50 Athleta locations by the end of next year.
The geographic proximity to Lululemon locations is a coincidence, and Athleta is simply opening stores where, according to a "heat map," its online customers buy the most, says Toby Lenk, head of Gap's online operations. "There are locations where we're not anywhere near that particular competitor," he says.
Yet the similarities between the two chains are hard to ignore. In an echo of Lululemon's famously personalized service, Athletastaff write customers' names on whiteboards outside fitting rooms. The boards allow salespeople to address a shopper by name while she tries on clothes and help them put a name to the face if she comes back.
While the Canadian retailer often provides fitness classes offsite, Athleta holds them in its stores-the racks are on wheels and can be rolled aside. "They both make quite an effort to create a community," says Annie Foster, a 27-year-old yoga instructor and blogger in New York, who attended an Athleta marketing event before the chain's New York debut and received free pants and a top for her trouble. "I don't think I had really heard of them before, and it was a really cool way to lay the groundwork."
While Lululemon gives a 15 percent in-store discount to certified fitness instructors in exchange for feedback on garments, Athleta offers 30 percent off for all fitness professionals-with no input required. It may be working: Foster says that while she loves both brands, Athleta's discount makes it more affordable.
The bottom lineGap's Athleta, which often charges less for yoga pants than leader Lululemon, sees fast growth in the booming yoga market.
Under Armour
Under Armour, founded in 1996, is involved in developing, marketing and distributing performance apparel, footwear and accessories. They manufacture fabrics that wick moisture, are lightweight, and comfortable to wear.
Summary of the Primary Company
However, with increasing competition and a narrow upscale niche, long-term growth could prove to be challenging.
Market Share
References
Boje, D. (2008). Storytelling Organizations. Thousand Oaks, California: Sage Publications.
Larson, P. (2011).LululemonAthletica and Under Armour.Morningstar Stock Investor.
Magretta, J (2012). Understanding Michael Porter: The Essential Guide to Competition and Strategy. Boston: Harvard Business Review Press.
Porter, M (1980). Competitive Strategy. New York: The Free Press.
Sage, Alexandria (June 26, 2008). “Nike profit up but shares tumble on U.S. concerns. Reuters. Retrieved 2008-07-10.
Taylor, T. (2012). CEO of the Year: Christine Day of Lululemon, Globe and Mail (Sept 06, 2012).
Yogalila, 2006
“Looking Closer at lululemon”.
Lululemon 2012 3rd Quarter report
Dec 6 Boomberg Article
Nike is the leader
Lululemon and Nike
Lululemon the Next Nike?
Copycats Keep Lululemon
Lululemon Eyes 1 B in Revenue
Cowie and Fox advertising
Lululemon’s competitors
Lululemon marketing clasims suit - government
Deveau, S. (2005).
Canadian Business
Laura Bogomolny
Toned and Ready: Lululemon transitions, April 24, 2006
Danielle Sacks, Fast Company April 1, 2009