Sweet and Sour lessons in Brand Building

This post has become one of our Top 5 most-read customer experience (CX) assessments - the chequered history of Lululemon.

First the background. Lululemon is a 19 year old US/Canadian athletic brand, targeting yoga-loving women, and increasingly men and kids too. Its success and growth has been well documented, and has three stand out commercial facts:

1. Stellar retail sales per sq ft of nearly $2000 that only Apple and Tiffanys can beat

2. Impressive bottom line margins that wowed investors…..at first at least.

3. A die hard fan base, that worships the brand, its stores and products alike

And the Lululemon customer experience was an integral part of all three of these. But the brand has struggled in recent years, ever since a product quality scare that wiped $2bn off the stock valuation, and intense competition that has challenged its 1st-mover status.

If you ever doubted the link between customer experience and commercial value, read on!

Retail Sales Formula

Part of the secret of the store formula was that they didn't just sell product. They provided community, using yoga as the main hook. Every store holds regular events around its neighbourhood such as "Run, Yoga, Breathe, Laugh" (RYBL) which showcases local instructors and actively engages people in the brand.

These make the store environment a place to inspire shoppers, a magnet to feeling good around like-minded people, rather than simply a way to buy cool gear.

In retail performance language, this kind of activity drives store visit frequency and dwell time, which directly links to sales. Combine that with a smart use of outdoor space and slick in-store merchandising and you get a chance of those super-high sales per sq ft results (think on that, Nike).

Operational Standards

Bottom line profit figures were impressive at first too, but they came at a cost. Lululemon didn't develop its inventory systems or product sourcing management in line with its growing customer base, resulting in slipping quality standards. Complaints started to arise around colour bleeds, and swimwear that turned rather revealing when wet.

It culminated in a huge backlash in 2013 against its signature black yoga pants that became see-through when worn. The storm only intensified when store customers returning items were asked to evidence the fault by "putting on the pants and bending over" [Ed: unbelievable but yes, true]. Eventually, with the fabric representing some 17 per cent of total inventory, a massive stock withdrawal programme was put in place, dumping $67m of product and $17m of profit.

Worse than that, consumer brand faith and investor confidence was shaken, as the negative PR hit the media.

Lululemon has since tried to recover its commitment to product quality, plus fix the medium term weaknesses in its inventory, commerce and management team. Fast forward by 5 years and its fashionable, slightly less tech products have helped lift Lululemon's stock price to new highs in 2018, built on 3-year sales growth up 14 per cent. Whilst its menswear ambitions have failed to catch on yet, the use of elite Ambassadors has driven excitement into new product areas, like female surfwear.

Brand Community

From the start, Lululemon built its brand on behaviours that it felt reflected what consumers wanted. Unlike most of the sports apparel industry of its day, Lululemon did not settle for making womenswear clothing that was essentially just smaller sized items in pastel colours (so-called "shrink and pink"). Instead, it took its lead from hi-tech running and ski manufacturing, selling breathable fabrics with seamless stitching.

It highlighted TTS (true to size) information, showing where certain lines needed up or downsizing to get a perfect fit, as well as extra supportive bras and long length hoodies. The principle was to help customers find style and comfort for close-fit technical clothing, even if you didn't have a Hollywood body shape. Oh, and don't forget that signature bag to take your goodies home in, helping to remind the neighbourhood that you're part of the cool cache around here.

In return, customers started supporting the brand and each other, to help fix its limitations. For instance, if you want a Lululemon product from an outlet store or in an area that the company didn't ship to,  fellow fans or "Lulu Angels" would go and buy them for you, and mail it to you. And thanks to a strong social media presence, Lululemon die hards took to self-presentation of their latest gear on YouTube, Facebook and countless blogs, effectively driving positive sentiment through Google search and potential new customers as a result.

Does Lululemon still have a competitive edge?

Yoga retail competitors have been around for years, but have never acquired the following of Lululemon. Its CX combination is powerful - premium product style and detailing, set in a community store environment that prides itself on activity and conversation success as much as sales. Leading the charge to compete is lookalike Athleta (owned by Gap) which has been rapidly expanding its store base. Like Lululemon, Athleta puts emphasis on community and in-store events, but with the added muscle and resources to expand quickly and offer similar clothing at lower prices. Other hot brands like Under Armour also have Lulu's consumer target in their sights, but still find it hard to command that winning 'athleisure' mix of style, cut and performance.

And then there's Fabletics - a new addition, whose 'cheeky' advertising has been mocking Lululemon's brand (‘boo-boo-lemon") for years now, and deliberately choosing an irreverent and sharper price positioning to Lululemon, trying to present them as rip-off and establishment even as Fabletics grows into a mainstream offer from its challenger origins.

Even though Lululemon dropped the ball on fabric once, its die-hard fans have so far been forgiving. But they won't achieve growth forever, hence the need to reach out overseas and into other consumer segments.

Most of all, our assessment is that momentum in brand retailing is crucial - Lulu has had a great growth run for well over a decade. But in trying to add new product categories and international markets, it tripped up on just how important solid infrastructure was in order to keep the brand love alive. We sense that now the lid has been lifted on challenger brands, those once-loyal shoppers may share their wallet a little wider, so putting pressure on sales. Nevertheless, gift-ability remains a trump card for Lululemon - something that remains strong in the US market and where none of the other brands have quite the cache and feel-good factor.

Innovation

Innovation remains key for the brand, and can win new fans. A good example is the recent “Alignment Bra Light Support, D–G Cups” - these were developed as sports bras for women in larger bust sizes, but the feedback has been so positive there are many reviews being left saying they are worn as an everyday bra, simply because they are so much more comfortable.

This is interesting feedback and echoes innovation in other sports brands targeting loyalty in female consumers. For instance, in Nike’s latest flagship stores, they offer the "Bra Fit by Nike Fit" service - a kind of smart measuring tape that uses in-house-developed artificial intelligence and algorithms to give size recommendations across all the different types of sports bras that Nike sells, once the consumer or store staff has entered her size information into its system. Given concerns of COVID-19, Nike designed this to be something that a shopper can take her own measurements (engaging them in the process) rather than relying on a store employee to do it. All the information is saved to her profile to seamlessly access it when shopping online later, or in-store.

The goal here for Nike was research findings that, once a bra consumer finds a product they love, they are very loyal to repurchase. Lululemon could develop a similar commitment by shifting awareness from positioning as a sports bra to day-long support.

Did the pandemic hurt Lululemon?

Nope - not really. If anything, they thrived. Just because gyms closed, that didn’t stop folk buying online comfortwear, including guys as well as girls. It beat expectations and exceeded the targets it had set for 2023 by the end of 2021, two years ahead of its growth plan. Now, it is seeking to double sales to 12.5 billion dollars by 2026.

Don’t be doubting confidence in this ambition just because their stock price hasn’t jumped. The reality is that back in 2018, Lululemon earnings were 3.3. billion dollars, a figure it doubled over the next three years. With growth drivers focussing on menswear, digital and international sales, investors has already factored in their faith in growth, so the price for future plans was already built in. New markets such as adding stores in New Zealand demonstrates that even if the pure volume of a small target isn’t huge, the match-up of the brand with a fitness friendly market is always appealing.

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Further Reading: Stellar retail sales per sq ft of nearly $2000 that only Apple and Tiffanys can beat

Photo courtesy of lululemon athletica - http://flic.kr/p/8gKPZY