Intense competition and high production costs make Lululemon’s new clothing line for men a risky move, says analyst.
Imagine it for a minute: hockey superstar Sidney Crosby sits in the locker room, looking straight at the camera. He’s not here to sell you skates, or cereal, or even that new sports drink. He wants to tell you about his new breathable underwear.
This imaginary commercial might become a reality, if you believe Lululemon’s new growth strategy. Lululemon lists the expansion of its branch of men clothing as a key element in its 2013 annual report.
“The premium quality and technical rigor of our products will continue to appeal to men. There is an opportunity to expand our men’s business as a proportion of our total sales.”
(Lululemon Annual Report, 2013)
A strategy described as a “high risk, knee-jerk reaction to sales dropping” by Steve Tissenbaum, a business & marketing professor at the Ted Rogers School of Management in Toronto.
«Branching out at a moment where Lululemon has lost so much brand equity and when the share price is hurt…it think this is high risk. They are going up against other well-established players,” says Steve Tissenbaum.
In the same annual report, the company recognizes that branching out comes with a number of risk factors, citing “increasing product costs, intense competition and the increased complexity of the business” as potential problems.
Free underwear and hockey star gossip
The company began its men seduction tour in 2013 with a publicity stunt involving − you guessed it − hockey players. “A lot of top hockey players wear our underwears,” CEO Christine Day told the attendees during a Toronto Board of Trade speech, while handing out Game On Boxer Briefs to men in the audience. Day wouldn’t name any athlete wearing the company’s garments, saying it might conflict with their other product endorsements.
Thousands of Breathable Boxer Briefs and No Sweat Tanks later, the company has expanded its men’s offerings and seen encouraging results.
Men’s revenue was up 9 per cent in the company’s last quarterly report, from a current level of 13 per cent of overall sales.
In the United States, there are plans to expand men stores in Miami, Vancouver, and Santa Monica. As for Canada, “all 45 Lululemon stores in the country already feature some items of men clothing in their showrooms,” according to Lululemon’s website and helpline staff.
At the helm of this new venture is Lululemon’s new CEO, Laurent Potdevin. An MBA graduate from France, Potdevin was until recently President of TOMS Shoes. Prior to TOMS, he held numerous positions at Burton Snowboards, rising all the way to the top as CEO in his last 5 years. Potdevin has also worked for French high-end retail stores Louis Vuitton.
The high cost of diversification
This operation comes with a high price. So far this fiscal year, Lululemon has spent over $750 million making yoga clothes for women and men, a rise of 40 per cent up the $600 million spent during fiscal year 2013. Meanwhile, net revenu has increased at a slower pace, stopping just shy of $1,5 billion in 2014.
While costs were climbing, Lululemon’s stock price was plunging. All due to the March 2013 transparent yoga pants recall and the controversial declarations made by Dennis ” Chip ” Wilson, founder of Lululemon.
After stepping down as Lululemon’s CEO and selling half of his stake in the company, Wilson spoke out against the company’s new management who, he thinks, is investing “too much in short-term, high risk initiatives.”
Business professor Steve Tissenbaum agrees with the former CEO. “Branching out is a risky gamble, it takes years of research and development to come up with a viable strategy and edge,” he says. “What is Lululemon going to provide that is different to anyone else? I am guessing they will try to develop their yoga clothing technology to bring that to men. But their competitors like Nike, Under Armour, Adidas, they all have worked with those technologies.” Fierce competitors While Lululemon was busy untangling itself from its annus horribilis, direct competitors such as Nike and Under Armour started eating away at its share of the women market. Revenue from women’s sportswear represented a fifth of Nike’s wholesale revenue in its last quarterly report. Women’s clothing is up 11 per cent from the last fiscal year, the second biggest growth after young athletes. Meanwhile, Under Armour’s CEO Kevin Plank has named women’s business their number one priority in a Q&A included with the company’s last quarterly report, stating ” Women’s can be as large, if not bigger than our men’s business.” Under Armour also reports that their women’s business grew by 26 per cent this past quarter.
Finding an edge
Does Lululemon have what it takes to compete? “They have to work on their image,” stresses Steve Tissenbaum.
“They have to build their brand equity back up and let things blow over. They should start strategically plan what it is they want to do and plan for the long run,” he adds.
The marketing professor, who worked with Sears Canada and The Bay, thinks the company still has time on its side. “Time to take a step back and finds its edge in this highly competitive market.”
As for the possibility of seeing Sidney Crosby in breathable underwear anytime soon, Tissenbaum has a piece of free advice. “It is very high risk and very expensive to look for athlete endorsement. We all know how that worked out for Nike and Tiger Woods.”
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