retail

What Retail Slump? Lululemon Lifts Off With New Marketing

Powered by new products, investments in its website and its first global marketing campaign, Lululemon surprised the mopey retail world with strong sales results, with second-quarter revenue rising 13%.

The company says comparable-store sales climbed 7%, based on a 2% improvement in physical stores and a 30% jump in e-commerce. Even when factoring out the results of its online warehouse store, e-commerce rose 15%. Income from operations fell 7% to $68.7 million. The results came in better than analysts had expected.

In a conference call detailing the second-quarter performance, CEO Laurent Potdevin credited the Canadian company’s “This is Yoga” campaign launched last spring, reaching some 50 million guests. "Our performance reflects the growing global consumer response to Lululemon's unique position as the leading brand that defines an active, mindful lifestyle,” he says. Besides product innovations, which include the successful launch of the Enlite sports bra, it is also expanding its offering of yoga and meditation classes. “We are creating experiences that our guests, both existing and new, desire.”

It also says it will break a new campaign this fall for its ABC (anti-ball crushing) men’s franchise, first introduced last spring. 

And it upped the revenue forecast for the full year to $2.545 billion, with total comparable store sales expected to gain in the low single digits.

While it’s all good news for Lululemon’s comeback story, it’s also likely comforting to observers who have been watching athletic brands like Nike and Under Armour wrestle with slowing growth and retailers like Dick’s, Finish Line and Foot Locker struggle with the challenging retail environment.

And it’s evidence that the athleisure trend isn’t over, and that for now, Lululemon knows how to stand out from the schlock and avoid the price wars dogging other brands. “We cited a year ago that many fashion brands were rushing into athleisure to tap into the positive growth the category was experiencing at the time,” writes Matt Powell, sports industry analyst for NPD Group. “This has created a glut of brands that are making performance apparel when they have no history of making (or marketing) “performance apparel.” We predicted a bubble, and that bubble is bursting.”

Much of what retailers are offering “is uninspiring and tired,” he says. “Brands have not done a good job of creating compelling new products to ignite the market…When price is the sole motivator for purchase, retail is in trouble. Shopping in sports has never felt more joyless.”

Certainly, there’s plenty of joy at Lululemon: Enlite, the $98 sports bra it launched this quarter, is already a top-seller. But some analysts wonder how long Lululemon fans will be willing to pay such high prices. 

 “The company’ s strong pricing power appears to be under threat from a horde of new entrants and existing brands’ product extensions, including Gap’s Athleta, Urban Outfitters’ Without Walls, and Net-a-Porter’s Net-a-Sporter,” writes Bridget Weishaar, senior equity analyst for Morningstar. “Existing athletic apparel retailers have also begun to provide more technologically advanced apparel for women, including Nike, Adidas, and Under Armour. We think that this plethora of competition will result in pricing pressure, as consumers now have alternatives.”

She points out that the Luon yoga pant, for example, sells for $98, with some women’s tights costing as much as $148. A similar pant costs $69 at Athleta, or $45 at Nike.

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