PEST/SWOT Analysis: Lululemon Athletica

Source: traverseticker.com

Overview

Lululemon is an athletic apparel company founded in 1998 in Vancouver, Canada. Mixing technical athleticism with a passion for yoga, Lululemon has innovated athletic gear catering to both men and women. Their company vision includes a focus on creating a safe place for people to learn and educate themselves on healthy living and enhance their lifestyles by combining mindfulness with athletics creating more than just gear to sweat in (Lululemon, 2020).

PEST Analysis

Political

Since Lululemon operates in many different countries, they are susceptible to increased restrictions on laws and regulations in foreign countries. As the company opened new franchises worldwide, they considered how the business operates in specific countries. This limited how and where Lululemon works as each country has its own laws and regulations. For example, the level of tax within a country directly impacted Lululemon’s profits in the fiscal period of 2017. In 2017, the United States enacted a tax reform that nearly doubled the standard tax deduction resulting in many companies, including Lululemon, to have reduced profits. “Lululemon’s income tax expense has steadily increased over the last few years, going up from $102 million in 2015 to around $231 million in 2018” (Trefis, 2020). Due to new governmental regulations in America, Lululemon was behind in the profit status quo, indicating an apparent setback.

Lululemon also relied and continues to rely on many patents for their athletic wear, which are very important in their operations, resulting in a substantial competitive advantage. To keep up their unique value and ensure product exclusivity, Lululemon had to achieve a patent for its products in all the countries they operated.

Economic

The state of a country’s economy impacts company strategies and operations, specifically including the country’s GDP. Lululemons output decreased by 20% in Canadian retail in April of 2020. Growth Domestic Product in Canada dropped 11.6% this year as the worldwide Covid-19 pandemic hit its worst (RBC, 2020). This drastic change in the economy led to Lululemon’s decreased returns as stores were closed for months following lockdown protocols.

Another impact of the Covid-19 outbreak included a spike in unemployment rates. There was a 40% loss of jobs over the months of March and April, leaving many people jobless and at an income deficit (RBC, 2020). Unemployment rates impact businesses as consumer incomes have a linear correlation with sales. Unemployment causes a lack of revenue, which leads to less disposable income. In conclusion, the spike in the unemployment rate resulted in consumers spending less, which ultimately created fewer sales for companies like Lululemon.

It is also essential that businesses monitor and control raw material prices as they impact their profit margins. Lululemon outsourced the majority of its raw materials, and so they had lower expenses as they allocated cheaper resources from foreign countries (Cox, 2015).

Social

Lululemon relied on many third-party suppliers to manufacture and develop their products as they do not own their own facilities but rather trust their manufacturing partners. Lululemon chose companies that ethically produce their product and treat their employees fairly, no matter what country the facility is located within. This helped their brand image and built good corporate social responsibility, which encouraged consumers to buy from them. Lululemon has signed multiple acts, including the Employee Health and Safety in Bangladesh and the Supply Chains in Transparency Acts (Lululemon, 2020). This ensured that the manufacturers would be open and honest with Lululemon regarding their day to day operations.

Furthermore, there have been many environmental movements, specifically regarding retail clothing. Fast fashion has been exposed in recent years to be extremely harmful to the environment, driving consumers to more sustainable options. An excerpt from Lightco2 states, “Each year, the entire [clothing] industry emits 10% of the world’s carbon and consumes 93 billion cubic meters of water” (Nagel, 2020). As trends are rapidly changing, more consumers are running through fast-fashion clothing, feeling the need to buy more to keep up with the industry. This has created unnecessary amounts of waste that is now being recognized, and attempts are being made for change. Lululemon has adapted to these changes by understanding how much waste they produce themselves. They tweaked their operational systems to increase sustainable methods of production as it benefits their sales. With growing consumer interest in alternative options, Lululemon’s competition rises, and thus they are required to explore further sustainable options to keep up with changing trends.

Technology

Exceptional opportunities are the main factor Lululemon believes will fuel their success, and so they focussed their technological resources towards innovative product development. As mentioned in Fashion Network, this includes “Opportunity for fabric innovation, opportunity for omnichannel guest experiences, and opportunity for continued market expansion.” (Braun, 2019). Along with its strong athletic apparel line, Lululemon has developed new products within the cosmetics industry, including deodorants, lip balms, and more. New product developments as such accelerated Lululemons growth and aided in expansion.

New technology has been further developed as Lululemon created its own loyalty program to enhance the customer experience. “[Lululemon] ran a pilot for the loyalty program back in Edmonton back in 2018. Then, the membership cost $128 annually for a year of free shipping, programming, and other perks.” (StyleDemocracy, 2020). In September of this year, Lululemon officially launched the new program with great success. Loyalty programs increased customer return, and created the opportunity to give loyal customers more perks, enhancing their customer experience.

SWOT Analysis

Strengths

Lululemon has tremendously grown over the past few years, “with the company’s revenues growing by a stellar 50% over 2017–2019.” (Forbes, 2020). This ranks them to be one of the top athletic apparel companies in the world. With this dominance in the market, they have had a great advantage as their brand has been known worldwide. Consumers are able to trust the company as they have proven to be reliable.

Also, Lululemon is well known for the outstanding quality of its products. They have invested many resources to achieve top tier product development, which has enticed consumers to buy more. They have also implemented a good quality promise as stated on their website, “Quality is the heart of who we are. Quality shows up in our people, our conversations and of course, our product. If our product doesn’t perform for you, we’ll take it back.” (Lululemon, 2020). Lululemon guarantees good quality; otherwise, they take the product back. With this strategy, consumers want to buy more as they feel assured they will be getting a product worth their money.

Lululemon also carries a positive brand image as they have a strong CSR. Lululemon hired brand ambassadors with inspiring stories to represent their company. This initiative portrayed the company’s values and showed consumers what the company supports. Lululemon also follows a vendor code of ethics that ensures their suppliers are producing inventory ethically and responsibly.

Weaknesses

Creating and maintaining good quality is one of Lululemon’s strengths; however, it is also one of their weaknesses. This is due to the small number of suppliers the company relies on to produce its product. Having a high dependency on a small number of suppliers can be risky because if there is a complication with the current suppliers, it will be difficult to relocate and find new manufacturers able to meet the same quality levels. Because Lululemon has very few suppliers, they are more susceptible to operational fluctuations, time delays, and inconsistent quality standards (Desai, 2015).

Lululemon also has higher prices compared to its lower level competitors. This is due to the amount of money put into research and resources for good quality fabric. Lululemon must show and educate consumers on their products to see the value of spending more money, instead of finding an alternative for cheaper elsewhere. This creates more time and money Lululemon has to put into its marketing to get their message of value across to consumers.

Opportunities

As consumer preferences for athletic wear increases, it provides Lululemon with an abundance of opportunity. As well, demand for athletic apparel continues to increase as consumers veer towards healthy lifestyles. Moreover, there has also been a surge in trends involving athletic apparel as leisurewear, “Activewear or as the trend is being called right now, especially by tweeps, #atheleisure- happens to have captured the current market dynamic most successfully. These clothes, to put it simply, offer comfort as well as versatility to consumers.” (Intelligencenode, n.d). Lululemon offers precisely what is being demanded right now, and so they have a significant advantage by having already interested consumers.

Another opportunity within Lululemons path is the rise of social media marketing. As mentioned, Lululemon uses brand ambassadors to promote their products; this is where social media can gracefully step in. Lululemon’s brand ambassadors can use their following on social media platforms to reach millions of people effectively and efficiently. This is a massive opportunity for Lululemon to connect with its consumers, get feedback, and reach new potential consumers.

Threats

As other companies experiment with athletic apparel fabrics and designs, it is a possibility they find something better or meet Lululemons quality standard. This introduces new competitors that threaten Lululemons consumer base as they now have more options to choose between. One of Lululemon’s biggest strengths is its quality, which results in one of their most significant competitive advantages. With that being taken away, they will be put back into the race of average athletic apparel companies.

Another threat to Lululemon is increased foreign costs. As Lululemon heavily relies on foreign manufacturers to make their products at a lower price, they have a greater risk of losing those high margins if foreign costs rise. Lululemon should diversify their manufacturing locations; thus, if one location increases their costs, they can still rely on the others. They should also buy inventory in bulk as they would get higher discounts, and it would be cheaper for them. Finally, they should continue to keep good relations with their suppliers to ensure trust between the deal.

Citations

Braun, J. (2019, April 24). Lululemon bets on product innovation, expansion for 5-year growth plan. Retrieved October 30, 2020, from https://us.fashionnetwork.com/news/Lululemon-bets-on-product-innovation-expansion-for-5-year-growth-plan,1092579.html

Cox, S. (n.d.). Extraction of Raw Materials. Retrieved October 30, 2020, from https://u.osu.edu/commoditychainlululemon/extraction-of-raw-materials/

Ecotrend. (2020, July 22). Retrieved October 30, 2020, from http://www.rbc.com/economics/economic-reports/pdf/other-reports/ecotrend.pdf

History. (2020). Retrieved October 29, 2020, from https://info.lululemon.com/about/our-story/history

Human Rights and Working Conditions. (n.d.). Retrieved October 30, 2020, from https://info.lululemon.com/sustainability/responsible-supply-chain/human-rights-and-working-conditions

Nagel, G. (2020, June 20). Fast Fashion. Retrieved October 30, 2020, from https://www.lightco2.org/articles/fast-fashion

Pugsley, T. (2020, March 04). Lululemon Leggings. Retrieved October 29, 2020, from https://storymaps.arcgis.com/stories/099aaf34aa61471f9799efd8a7e426ef

The Rise Of ‘Athletic wear’ In the apparel Industry — Interesting trends. (2019, January 30). Retrieved October 30, 2020, from https://www.intelligencenode.com/blog/athleisure/

StyleDemocracy By StyleDemocracyView Author PostsAug 31st 2020, StyleDemocracy By StyleDemocracyView Author PostsOct 27th 2020, StyleDemocracy By StyleDemocracyView Author PostsOct 23rd 2020, StyleDemocracy By StyleDemocracyView Author PostsOct 19th 2020, & StyleDemocracy By StyleDemocracyView Author PostsOct 16th 2020. (2020, August 31). Lululemon Is Launching A New Membership Program — Here’s Everything We Know So Far. Retrieved October 30, 2020, from https://www.styledemocracy.com/lululemon-membership-program-september-2020/

Team, T. (2020, January 16). Why Lululemon’s 2019 Profits Should Have Grown Nearly 30% Despite A Sharp Increase In Expenses. Retrieved October 29, 2020, from https://www.trefis.com/stock/lulu/articles/480597/why-lululemons-2019-profits-should-have-grown-nearly-30-despite-a-sharp-increase-in-expenses/2020-01-16

Team, T. (2020, October 02). Lululemon Vs Skechers: Lululemon Is Well Ahead Of Its Rival. Retrieved October 30, 2020, from https://www.forbes.com/sites/greatspeculations/2020/10/02/lululemon-vs-skechers-lululemon-is-well-ahead-of-its-rival/?sh=2b0c21754e6a

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