lululemon strategy report

LULULEMON STRATEGY REPORT

Prepared by:Aziz Ghani

Aziz Ghani : [email protected] 1416-856-6737

Business Strategy,

Lululemon Strategy Report

mailto:[email protected]

Contents

Introduction………………………………………………………………………………………3

Current State of Affairs………………………………………………………………………..…3

Mission……………………………………………………………………………………………3

Vision…………………………………………………………………………………………..…4

Objective……………………………………………………………………………………….…4

Current Strategy………………………………………………………………………………..…4

Corporate Governance……………………………………………………………………………5

External Environment: PESTLE…………….……………………………………………………5

Porter’s Five Forces………………………………………………………………………………7

Customers……………………………………………………………………………………...…8

Competitors………………………………………………………………………………………9

Corporate Structure………………………………………………………………………………9

Corporate Culture……………………………………………………………………………...…9

Corporate Resources…………………………………………………………………………..…10

Marketing……………………………………………………………………………...…10

Financial resources…………………………………………………………………….…10

Research and Development………………………………………………………………10

Operations and Logistics…………………………………………………………………11

Human resources…………………………………………………………………………11

Information Technology…………………………………………………………………11

Strategic Alternatives……………………………………………………………………………11

Analysis of Strategic Alternatives………………………………………………………………12

Strategic Recommendation…………………………………………………………………...…14

Implementation……………………………………………………………………………….…16

Evaluation and Control……………………………………………………………………….…16

Financial Ratios & Analysis……………………………………………………………………..17

Internal & External Analysis…………………………………………………………………….18

Pro Forma Statement…………………………………………………………………………….19

Bibliography…………………………………………………………………………………..…21


Introduction

Lululemon was founded in 1998 and opened its first retail store in Vancouver in 2000. The

company - designer and retailerof athletic apparel has expanded to become a public trading entity

on major stock exchanges. It currently operates over 200 retail stores on two continents. The

ideology behind Lululemon’s founding was to promote healthy living by means of yoga,

running, cycling and being athletically active. Lululemon continuously broadens the product it

offers to its clients.The product range includeseverything from jackets, yoga pants, mats to

general fitness wear. Lululemon’s primary target used to be young active females but in recent

years it has widened its target market by developing more products for the physically active

male.

Current performance

Lululemon is growing its operations having increased its retail presence in USA, Canada, United

Kingdom, New Zealand, Hong Kong and Australia. As of February 2013, the company has 135

stores in the US, 51 in Canada, 24 in Australia, 2 in Hong Kong and one in UK. As of the last

annual report Lululemon employed 6,383 people, the majority of whom work in the company’s

retail locations. Lululemon experienced double digit growth in its revenue and net income. In

particular its revenue grew by 37% and its net income by 47% vs. 2011 numbers.Lululemon is

currently in search for a new CEO. As per the Board of Directors’ decision the current CEO will

perform her duties until a suitable replacement is found.

Mission

Lululemon was founded with the mission of “providing people with the components to live a

longer, healthier and more fun life”. Its mission is driven by a set of core values supporting it in

developing a high standard of product, integrity in the company, promoting work-life balance,

training its employees in goal setting and self-responsibility. Over the years it has shifted from a

traditional mission statement to a so-called mission-manifesto represented by a list of

inspirational slogans.


Vision

Lululemon’s vision is “elevating the world from mediocrity to greatness.” Lululemon refers to

mediocrity as a path that is unfulfilling and not doing anything about the imperfect life people

are living.Greatness is defined as a means of living a life of getting the best of everything and

doing all that is required to achieve it.

Objective

Lululemon’s onward objective prospects in its operation are based on a number of elements.

Lululemon anticipates maintaining its position in the industry and expects to prevail amongst

competitors. Its objectives reflect current and future goals Lululemon aspires to achieve.The

following is the list of these objectives:

Successfully identify retail locations to open new stores and attract new

customers.

Innovate and provide customers with new products.

Sustain its brand image in the industry.

Achieve a positive growth while maintaining an adequate cash flow.

Maintain and increase sales of current stores.

Operate every department at the company efficiently.

Maintain dedicated and experienced staff in the organization.

Continuously

Current Strategy

Lululemon’s current strategy allowed it to become one of the major players in the athletic

apparel wear. Since the company’s founding it has had to shift between different strategies to

help achieve what it is recognized for today. Lululemon’s strategic factors augmenting it in the

industry are the following:

Lululemon applies a different method of marketing its product compared to competitors,

the approach is known as grassroots marketing. Grassroots marketing is a method where

the company targets a small audience and hopes its message will be passed through to a

larger audience. This marketing strategy costs less and is more effective than others.

Lululemon applies a vertical retail strategy to sell its products to customers. Lululemon

only sells its product through its own stores and authorized yoga studios. The stores are


authorized to control daily operation obstacles that occur, allowing managers to give

feedback to upper levels of management in the company. Store employees are also asked

to interact with clients on an individual basis to meet their needs. Overall this allows

Lululemon to quickly respond to needs of customers and develop new products.

Lululemon has been growingever since its foundation and intends to increase its market

share by opening new retail locations geographically and offering new innovative

products regularly.

Lululemon continuously broadens the product line offered to females, males and the

youth. The company intends to increase revenue and customer base by increasing the

collection of products sold.

Corporate Governance

The Board of Directors elected by stockholders makes significant decisions in the company. The

board is responsible for hiring senior management, and making sure they lead the company

towards achieving its goals. The Board of Directors must be qualified and independent in its

decision-making. A Lead Director is elected from the Board to directly work with the CEO and

senior management to set agendas and goals for the company. Currently 29% of the common

stock is owned by Mr. Wilson, who has major influence in decisions that require shareholders

vote.

External Environment: PESTLE

Political Factors

Lululemon doesnot own any of the manufacturing facilities, instead it outsources its merchandise

production to manufacturers in third-world countries with unstable political environment.

Lululemon is exposed to trade embargos and increase in tariff rates. The companydoes business

in countries that have no counterfeit laws.This allows competitors to easily replicate and sell

products under Lululemon’s brand name, which maynegatively impact Lululemon’s brand image

and bottom line. Lululemon operates in countries with different tax regulations, exposing it to

double taxation if the countries donot have respective treaties in place to avoid double taxation.


Yet governments of these countries may have incentive programs applicable for Lululemon as an

employer of local labour.

Economicfactors

Lululemon operates in different economies, some of which are declining, increasing or are in a

stagnation stage, but no one can foresee the future of a market. Lululemon purchases and sells its

merchandise in different currency affecting the cost of importing and sales, which may serve as

advantage and disadvantage for Lululemon. The company is also exposed to inflation that can

have an adverse effect if operating cost increases while selling price remains the same.

Social factors

Lululemon is part of the health and wellness industry.In today’s society awareness towards living

a healthy life is emphasized, the population is more aware of the advantages that yoga and being

athletically active can bring to one’s life. Statistics has shown that yoga is one of the growing

industries having grown 87% over the past 5 years. Americans spent $10.3 billion dollars on

yoga classes and products in 2012 compared to $5.7 billion in 2008, and forecast indicates the

trend will continue its upward trajectory. The yoga industry is going to experience a rise from the

baby-boomer generation, it is estimated that 76 million Americans fall under that age group, and

they tend to be financially able to spend towards recreational activities.

Technology factors

Lululemon is operating in an era where 2.4 billion people surf the Internet causing the spread of

globalization.This allows Lululemon to have access to different manufacturers to support it in

outsourcing efficiently. The Internet also allows customers to shop more confidently as they can

compare competing productsof different producers. Retailers can take advantage of selling

through e-commerce due to low operating cost.Statistics have shown the amount spent on online

shopping was $763 billion dollars in 2011. The Internet has enabled advertising to be done

through social media, via mobile means and search engine marketing making it one of the

cheapest and efficient ways to market a product.

Legal factors


Lululemon gets involved in legal matters with its customers, employees, competitors and

suppliers due to disagreements and damages caused while doing business. The recent lawsuit

against a competitor,Calvin Klein, Lululemon filed a suit against CalvinKlein for infringing their

yoga pants patent, and however they came to a quick undisclosed settlement. Recently also an

investor has filed a lawsuit against the company for alleging Lululemon of making misleading

statements to artificially increase their stock price and failing to disclose the defects in its yoga

pants recalled for being see-through.Lululemon gets into disagreements with employees at times,

but the resolution of such matters does not have any adverse effect in the operation of the

company.

Environment

Lululemon is currently not affecting the environment directly.This is due to outsourcing all their

products through third party manufacturers. Third party suppliers are mainly located in Southeast

Asia where pollution regulation is becoming stricter.

Porters Five Forces

Threat of new entrants

The threat of new entrants is high due to low entry barriers within the industry. Lululemon does

not own any patents allowing new competitors to easily replicate their product. Lululemon’s

wear is supplied through third party manufacturers and since the company has no long-term

contract, manufacturers can easily supply other retailers under their brand name. The profit

margin can attract investors due to it being high when compared to other industries, and the trend

in people practicing yoga is on the rise. Factors such as brand equity and retail presence can be

hard for new competitors due to Lululemon having a strong position in retail locations and a

strong brand image.

Bargaining power of buyers

Bargaining power of buyers is medium due to Lululemon’s distinctive design and material when

compared to competitors’ product. However, customers can give preference to competitor’s

product due to brand image or discount and allowance pricing. The market Lululemon is


currently operating in will always be competitive and Lululemon is not the only player

dominating the industry.

Bargaining power of suppliers

Bargaining power of suppliers is low due to Lululemon not having a long term contract with its

suppliers, even though 85% of its merchandise comes from only 10 suppliers and some fabrics

are currently supplied by one company. Still Lululemon is confident of being able to get its

merchandise from other suppliers in case of any disruption from current ones, but it may be at a

higher cost.

Threat of substitute products

The threat of substitute products is high. Although the high quality and materials used in the

Lululemon apparel is difficult to replicate there is lots of other brands that cater to active

individuals. However, the lower performance and feel of the materials used by the competition

give Lululemon an advantage since the customers are less likely to switch to products of less

quality.

Rivalry among existing competitors

The rivalry among competitors in the apparel industry is high. Lululemon’s main competitors are

Nike, Adidas and Under Armor. The competitors have access to a great amount of resources as

compared to Lululemon. The competitors have been established for a longer period, they have a

larger and broader customer range, greater financial capabilities, a stronger brand image and a

broader retail presence.

Customers

Lululemon was primarily targeting women customers, but over the year it has broadened its

customer base by designing products for the youth and male. In the latest available data, 11% of

total revenue came from selling men wear, majority of the customer base is female due to many

reasons.Research has shown 82.2% of the public that practice yoga are females in the US.

Although Lululemon is known for yoga wear, female customers have made it a trend to purchase


their clothes for casual wear on daily basis. Customer age group for Lululemon’s product is

mostly 18-44 with household income of $75,000 and above.

Competitors

The athletic apparel wear industry is highly competitive. Lululemon’s top 5 competitors are

Nike, Addidas, Under Armour, Lucy Activewear and Bebe Sport. Competition is mainly through

brand image, quality, innovation and price. Lululemon’s competitors have substantial

competitive positioning due to being more established with a broader customer base and product.

Competitors are also strong in terms of financial, R&D, marketing and retail. However,

Lululemon differentiates itself in the way it markets its product and believes it has a strong loyal

customer base due to its grass root marketing and vertical retail strategy.

Internal Environment

Corporate structure

Lululemon has a functional organizational structure, allowing decisions in the organization to be

decentralized. Lululemon intends to have its organizational structure as flat as possible.

Lululemon believes cross functional communication is crucial, allowing it to innovate and

differentiate their product. Departments such as design, retail operation, information and

technology must be able to give feedback and respond to each other’s’ request quickly.

Management strives to get information flow from design to the retail store shelves in a period of

45 days. The functional structure also allows Lululemon to function more efficiently by

forecasting accurately, operating within budget and strategic plans are selected.

Corporate culture

Lululemon’s organizational culture comes from their mission manifesto and vision statement,

Lululemon’s mission manifesto is made of 31 inspirational phrases that lead one towards a

positive and healthy living. Lululemon’s anticipation is for employees to implement its mission

in their life and work, in the optimism that it would create a definite work culture. In an

interview with the current CEO, it is reported the organization promotes employees to make their


own decision when operating stores.Employees are encouraged to take responsibility and be risk

takers to give them a sense of entrepreneurship. The corporation has a golden rule that states if

an employee makes a mistake they have to take control and fix it in the expectation of learning

from the mistake.

Corporate Resources

Marketing

Lululemon believes it doesnot require implementing a traditional method of marketing instead it

has takena different path to market their product. Lululemon employs a low cost strategy of

marketing that allows it to soar to unprecedented achievements. Its strategy is grassroots

marketing.This strategyis implemented by working closely with fitness professionals and local

gym personals to help in promoting their product. The people helping them in establishing the

brand in the community is calledambassador.The ambassador works closely with the

communities in the store area, each market is separately analyzed before the grassroots

marketing blueprint is applied. Lululemon highly relies on this method of marketing.This method

has enabled it to have a strong brand image, loyal customers and a large market share in the yoga

apparel industry.

Financial

Lululemon has been experiencing positive growth from time of establishment, it recorded $1.37

billion dollars in revenue at the end of 2012.Lululemon experienced a 57% growth in 2010,

40.6% in 2011 and 37% in 2012. Net income has grown 109% in 2010, 51% in 2011 and 47% in

2012. (Please refer to page 17 of this report for full financial analysis of the past 3 years)

R&D

Lululemon’s been innovative in the products they offer to its customers this is achieved through

many means. It thrives for feedback from all areas to help in the enhancement of their product by

information coming from retail employees, ambassadors, third party suppliers and athletes.

Retail employees can communicate the reviews they get from a product to management for it to

be closely studied, ambassadors are given the product to test and give feedback to the design

team. Conventions are also held to get feedback from athletes and consumers on product

enhancement and designs. Lululemon works closely with its suppliers to develop innovative


fabrics, over the course of years Lululemon and its suppliers have been able to be innovate

fabrics such as Luon, Soyla, Boolux, Silverescent, Vitaseaandwet.dry.warm.

Operation & Logistics

Lululemon retails their products through its stores and a small percentage through wholesale to

yoga studios and fitness centers. The products are being outsourced to approximately 50

manufacturers 90% of which are situated in Asia, and the other 10% in the Americas. Forecast of

inventory needs must be accurately estimated due to it being outsourced from countries far from

the distribution centers. Lululemon currently operates three distribution centers located in

Vancouver, Washington and Melbourne. This covers Canada, U.S. and Australia which are the

top 3 countries were they have the highest retail presence.

Human resources

Lululemon reported having 6,383 employees as of the last reporting fiscal. The employees are

expected to share the same vision as Lululemon. Employees are provided with many in-house

workshops such as self-development and goal setting to allow them to lead towards their long-

term objectives. Lululemon believes their employees are satisfied with the compensation they

receive for their employment and has offered them many means to keep their relationship

excellent with the employees.One is to offer them an option to purchase a limited amount of

stocks in the company at a 25% discount from fair market value.

Information Technology

Lululemon is highly dependent on its information system to operate its business.The system it

employs assists them to process transactions, inventory management, purchases, sales and

overall support a cost efficient operation. Lululemon has been able to enhance its image and sell

internationally through its website.Roughly 14% of the total revenue for 2012 came through its

Lululemon and Ivivva website. An advantage of selling through its website is that it allows

customers to purchase at any time, wide exposure, low overhead and helps in entering new

markets.


Strategic Alternatives

Alternative 1: Create a mass market brand that is cheaper than Lululemon.

Alternative 2: Offer sporting gear for main sports like soccer, basketball, baseball.

Alternative 3: Offer yoga apparel wear for plus size active people.

Alternative 4: Create a luxury brand to target high end consumers.

Analysis of Alternatives

Alternative 1

Create a mass market brand cheaper than “Lululemon” that offers yoga wear.

Pros

Revenue and customer base will increase.

A new brand becomes a new subsidiary in the company that can be sold for a profit.

Lululemon has the knowledge and experience to create the products.

The cost of startup would be less than it is for someone who is newly entering the

industry.

A more diversified customer base in terms of income, age and employment.

Can be sold through department stores and other private retail outlets if Lululemon

decides to not open exclusive stores.

Reduce dependence from its Lululemon operation.

Cons

Lower profit margin.

Create a price war with competitors.

It can have a negative effect on the brand “LULULEMON” that is currently successful.

A new subsidiary will require investment in resources, staff and retail locations.

Can affect the profitability of Lululemon, by customers shifting to its cheaper brand.

Alternative 2

Offer sporting uniform for main sports like soccer, basketball, baseball.

Pros

Male customers can be targeted easily.

Increases diversification of product line.


Increases sales by selling to current and new customers.

Increases revenue.

Major sport events happen throughout the year that offer free marketing of the product.

Customers buy sports uniform for more than just playing the sport, but for supporting the

game and wanting to be part of the sport by wearing the sports outfit.

Reduce dependence from its yoga wear.

Cons

Lululemon isn’t experienced in major sports uniform.

Lululemon will need to change its marketing strategy to promote the product by

marketing the traditional way.

A large investment is required.

Lululemon will be competing with companies that have established themselves very

deeply in the industry.

Alternative 3

Offer yoga apparel wear for plus size active people.

Pros

A new demographic of customers that arenot being catered by many other competitors.

There arenot many competitors that currently offer fashionable plus size outfit.

Increase in revenue.

Higher probability of plus size women purchasing regularly to look good.

Frequent purchases of new outfit due to weight loss from working out.

Small investment is required.

Cons

Current Lululemon customers maybe dissatisfied seeing obese people wearing

Lululemon.

It can affect the brand image of the product, and make Lululemon lose its current

customer.

Retail stores will need to change their layout to make space for the new selections.

Obese customers can lose interest in fitness due to extreme challenges and slow results.


Alternative 4

Create a luxury brand to target high end consumers.

Pros

Increase revenue and customer base.

Lululemon possess all the infrastructure required for startup.

High differentiation amongst competitors.

No price war involved between competitors.

Customers are upmarket clientele

Higher profit margin.

Customers have already had a connection with Lululemon and know the product.

Entering a niche market is easily manageable than a mass market.

Reduce dependence from the Lululemon brand

Cons

Customer target is limited to high income earners.

Lululemon customers might feel they’re not getting the best.

Retail location set up will be expensive, due to location, and store design.

Lululemon doesn’t have experience in the high-end apparel wear.

There is an investment risk of being the first movers in a market of high-end yoga wear.

Strategic Recommendation

Lululemon’s IPO since 2007 has grown at a rate of 447%, making investment in yoga pants one

of the most profitable industries. Lululemon has no current or long-term debts in their balance

sheet, and hasnot declared any dividend, giving investors the confidence that they are in a growth

stage, and in hopes of maximizing shareholder wealth. The company has accumulated a vast

amount of knowledge, experience and resources to expand within the clothing industry.

Lululemon currently has $590 million dollars in its balance sheet allowing it to undertake many

business opportunities in the industry. Undertaking new business opportunities gives advantages

of diversifying the business by reducing reliance on current offerings and it maximizes

shareholders wealth.


The strategic recommendation that is best suited for Lululemon is to create a luxury brand to

target high-end customers. Lululemon started as a store targeting a niche market of people that

practice yoga but over the years Lululemon has transformed from being a niche product to a

product that has become appealing to the mass market. People were buying Lululemon not to do

yoga but because it has become a fashion trend and something to wear on a day to day basis.

Lululemon’s yoga wear has become a fashion wear and creating a high-end brand will satisfy the

needs of the customers that wear clothes to make them feel superior in wealth, and the sense of

having money. Customers that will be purchasing the high-end brand have already established a

connection with yoga wear by wearing Lululemon’s apparel and can be attracted easily to the

high-end brand. The benefits to Lululemon in getting into high-end market is that the investment

is not as high compared to other opportunities, and Lululemon will still be operating in a niche

market where growth can be easily controllable versus entering a mass market.

Lululemon currently has a very diverse customer base from high school students to active

moms.Many customers at Lululemon have lost the feel of exclusivity about the brand and the

only way they can get that sense back is for them to purchase a high-brand that only few people

can afford, and for customers that donot need feel the need for exclusivity will remain

purchasing the original Lululemon brand. The markets for high-end brands have been

experiencing growth even during recessions, and extremely high profit margins. Luxury high-

end products have been experiencing a dramatic growth and while common brand retailers are

experiencing a drop in their sales, luxury brands are on the rise. The luxury high-brand industry

is estimated to be worth $285 US billion dollars in 2012 and its forecasted that it will rise more

in the coming years.Research has shown developing countries such as China has accounted for

13% of the luxury brand purchases for 2013, and it is expected that it will grow by 20% in

2014.It is also estimated that sales for luxury brands is going to rise by 6% in the US, and 12% in

central and South America. The other advantage to luxury brands is that they compete in quality

and design and not in price and majority of the consumers that purchase luxury brands make over

$150,000 with a professional secure job. Lululemon should not compete in price but rather

should differentiate itself from its competitors through its products, entering the Luxury brand

market will not only make their profit margins higher but also make them the first movers of

exclusive yoga apparel in the luxury market. They were the first movers in the yoga inspired


athletic wear industry and they proved to be successful and the way the luxury brand industry is

headed, Lululemon will prove to be successful again.

Implementation

Lululemon currently has adequate cash and resources needed to fuel to start a brand aimed

towards luxury high-end customers. Lululemon can implement the strategy in 7 stages.Stage 1

will be to first create a brand name, logo and slogan under which it will be operating, this is one

of the most important stages in the business because your product will be identified by its brand

and it is something that will remain with the business for the life of it. The brand, logo and

slogan must integrate with the company’s mission and vision. Stage 2 of developing the strategy

is to recruit a team of designers that are experienced in luxury brand designing and make them

collaborate with Lululemon’s existing design team. With the experience of two diverse design

teams they must be able to create distinctive luxury yoga apparel that will make it stand out and

fit in a luxury high-end brand yoga apparel store. Stage 3 of the implementation is to find the

locations where the brand will be retailed at, commonly luxury brands are sold in areas of the

city where high income households are located. For example in Toronto the location that would

be most suitable for them is Yorkville, Toronto. This is where majority of all the upscale retailers

are situated in. Lululemon must first implement the strategy in 3 major cities that are populated

with the most high income households. Stage 4 is to put together a team of interior designers to

layout the store for the products. The layout of the store will be a physical representation of the

product; therefore the store design must be elegant and architecturally luxurious. Stage 5 is to

establish a marketing team solely for the brand, Lululemon can still use its grassroots strategy,

but it can include some traditional marketing strategies with it as well to assist it in being

recognized in the elite community. Stage 6 is to hire and train employees to work at the retail

locations, employees must be trained to assist the customers in the best manner. Stage 7 would

be the last part of the implementation process this can only happen when the product, store,

marketing and workforce have been successfully established. The opening of the store must be

grand with media coverage to publicize its opening.

Evaluation and control


Once the strategy has been executed, Lululemon must assess if the new strategy is taking the

corporation in the right direction. Lululemon must make sure that the new brand is earning the

expected amount, because at the end it all comes down to return on investment. A survey must

be completed by the company to see the level of satisfaction with the new brand amongst

customers. New customers must be offered a questionnaire to get feedback of the quality of the

product sold to them. Financial statements must be analyzed to see if profit and revenue is in an

upward trend. Return on investment, net income and revenue must also be compared with the

industry average. The overall outlook of the organization must be on a track to achieve their

short term and long term forecast. (Please refer to page 19 to view pro forma statement)

Financial Ratio & %

Rounded to the nearest number & daysFiscal Year 2012 2011 2010Liquidity RatioCurrent Ratio 5.9 5.1 4.56Quick Ratio 4.47 4.01 3.81Cash Ratio 4.43 3.96 3.71

Activity (days or times)Asset Turnover 1.5 1.6 1.8Inventory Turnover 4.7 5.3 6.2Payable period 4 days 5 days 6 daysInventory Age 78 days 68 days 58 days

ProfitabilityGross profit Margin 56% 57% 56%Operating Margin 28% 29% 25%Net Profit Margin 20% 19% 17%Return on Equity 36% 37% 39%Return on Assets 30% 30% 30%


Internal Factors

Weight

Rating

Weighted

ScoreComments

1 2 3 4 5StrengthsThey industry they are in is experiencing growth.

0.10 4.00 0.40 Yoga practice is on the rise amongst many societies

Loyal Customers 0.15 5.00 0.75 Lululemonpossess customers who are loyal towards the product and brand.

Innovative in its yoga apparel

0.05 4.00 0.20 The fabric and design of the product is innovative.

High equity to debt ratio

0.05 2.00 0.10 Lululemon does not have any major debt in its balance sheets

Strong brand image

0.10 4.00 0.40 Lululemons is one of the well-known brands in the market for yoga wear

Vertical retail strategy

0.15 4.00 0.60 Products are retailed through corporate stores

WeaknessesLululemon does not possess any patents on its product

0.10 4.00 0.40 Product is not safeguarded from being replicated by competitors.

The company relies highly on yoga apparel sales

0.15 5.00 0.75 Lululemon doesn’t have a high diversification in the products it offers.

Grassroots marketing is the only method of advertising

0.10 3.00 0.30 Lululemons only method of marketing is grassroots marketing.

Retail exposure is low, versus competitors

0.05 2.00 0.10 Lululemons retail outlets are limited, potential customers might not have access to purchase its product.

Total Scores 1.00 4.00

External Factors Weight

Rating

Weighted

ScoreComments

1 2 3 4 5

OpportunitiesInternational expansion of its retail stores.

0.10 2.00 0.20

Lululemon has the potential of expanding in developed and developing countries

Increase its product offering for male and youth

0.20 3.00 0.60

Lululemon increasing its male and youth customer base, currently it concentrates more on females.

Diversify its product offering.0.20 2.00 0.40

Offer products for other sports

Acquisition of third party suppliers

0.05 1.00 0.05

Takeover major suppliers to reduce dependence

ThreatsConsumer spending going down

0.15 4.00 0.60

An impact in the economy can affect consumer expenditure.

Losing market share to competitors

0.20 5.00 1.00

The industry of atheletics apparel is highly competitive.

Counterfeiting of its product

0.10 2.00 0.20

Lululemon products can be counterfeited and sold for cheaper price.

Total Scores 1.00 3.05



Lululemon-Luxury Subsidary

For 2013 through 2015(all numbers in $000)

REVENUE 2013 2014 2015

Gross sales $7,665.00$17,520.0

0 $23,360.00

Less sales allowances 229.95 525.60 700.80

Net Sales $7,435.05$16,994.4

0 $22,659.20

COST OF SALES

Beginning inventory 0.00 167.00 200.00

Plus goods purchased / manufactured 1700.00 3704.00 4531.84

Total Goods Available 1700.00 3871.00 4731.84

Less ending inventory 167.00 200.00 230.00

Total Cost of Goods Sold 1533.00 3671.00 4501.84

Gross Profit (Loss) 5902.05 13323.40 18157.36

OPERATING EXPENSES

Selling

Salaries and wages 810.00 1620.00 2240.00

Advertising 500.00 1000.00 1500.00

Depreciation 90.00 180.00 240.00

Rent of retail stores 2100.00 4200.00 5600.00

Other 90.00 180.00 240.00

Total Selling Expenses 3590.00 7180.00 9820.00

General/Administrative

Salaries and wages $450 $550 $600

Rent 5 5 5

Designing 450 450 550

Insurance 80 80 85

Office supplies 1 1 1

Total General/Administrative Expenses $986 $1,086 $1,241

Total Operating Expenses $4,576 $8,266 $11,061

$1,326 $5,057 $7,096

Taxes on income 0 0 0

Net Income Before Taxes $1,326 $5,057 $7,096

Year 1Locations- 3 storesAverage Sales per store $7000Mark up 500%3% of sales allowance6 Full time employees per storeAdvertising per store $166000Average rent per store $700000Corporate expense $0.9 million

Year 2Locations- 6 storesAverage sales per store $8000Mark up 500%3% of sales allowance6 Full time employees per storeAdvertising per store $166000Average rent per store $700000Corporate expense $1.1 million

Year 3Locations- 8 storesAverage sales per store $8000Mark up 500%3% of sales allowance6 Full time employees per storeAdvertising per store $166000Average rent per store $700000Corporate expense $1.24 million


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