Can Under Armour Capitalize on Lululemon's Struggles?

Can Under Armour Capitalize on Lululemon's Struggles?

Another month, another high profile retail spokesman angers mainstream America with insensitive remarks. The latest transgressor, Luluemon co-founder Chip Wilson, caused quite a stir last week when he insulted the company's very own clientele and hurt the reputation of the company he helped create in the process.

While unfortunate for Lululemon shareholders, the situation is most likely a positive for Under Armour , which has been making a concerted effort to target female consumers in 2013 and beyond.

Too much transparency?
Apparently Lululemon's signature yoga pants are not the only things that are see-through; its co-founder Wilson is too. In an interview with Bloomberg TV, Wilson blamed the company's infamous see-through pants debacle, which occurred earlier in the year, on the unusual body shapes of some women. He stated, "Quite frankly, some women's bodies just actually don't work."

The reaction to his comments was swift and harsh. Numerous customers reportedly stormed to local Lululemon stores and vented frustration to any sales associate who would listen. The media in turn covered the story from all angles, so much so that Wilson soon issued a formal apology. However, that did little to quell the frustrations of the company's disgruntled fans.

The bad PR event comes at a critical time for Lululemon, as the company is fighting through some serious brand concerns. As mentioned earlier, Wilson's recent remarks stemmed from his attempts to downplay Lululemon's recall of 17% of its yoga pants in 2013. The company had to issue full refunds to consumers as well, which hurt the company's profit to the tune of approximately $60 million.

However, the recall dealt the most severe damage to the yoga brand's once pristine image. Several analysts have already downgraded the stock on fears that the company's core audience has been alienated by the unfolding events and will begin to shop elsewhere.

Is a pattern forming?
Does the story sound a bit familiar? It should, because Wilson's recent blunder happened several months after Abercrombie & Fitch CEO Mike Jeffries' remarks about how he felt the company's product lines were not suitable for 'fat' or 'not so cool' kids were brought back to light.

It seems as if many high-ranking retail executives are not only getting meaner but dumber as well. The remarks by both Wilson and Jefferies have had adverse effects not just on the many customers who felt betrayed but on investors as well, as shares of Lululemon and Abercrombie & Fitch have been quite lethargic in recent months despite a rising market.

Under Armour to the rescue
However, there is a plus side to Lululemon's recent publicity woes and it comes in the form of Under Armour shares. Management at Under Armour has prioritized expanding its apparel lines among female consumers, and its biggest hurdle to overcome in this regard is probably Lululemon itself.

In 2012, Under Armour's female business generated approximately $400 million in revenue, which is less than half the revenue of its male business. To rectify this, the company has embarked upon a robust advertising campaign geared toward female athletes.

Backed by advertisements on television and various social media platforms, the "What's Beautiful" campaign has seen management at Under Armour shifting the look and focus of some of its flagship stores to appeal more to women. The changes include a move away from Under Armour's traditional dark and masculine theme to a more natural and lighter look. Additionally, the stores prominently feature the brand's newest female product lines.

CEO Kevin Plank recently told investors that the company plans to achieve $1 billion in sales to women by 2016, with total company revenue approaching $4 billion. This increase in the company's female business would represent growth of 150% in just four years.

Significantly, Under Armour's female product lines are outpacing the company's overall growth. As the company hones its approach to better reach female consumers, growth may even pick up in the coming years. What's certain is that Lululemon's recent struggles will most likely only feed into Under Armour's recent success among female athletes.

Learning from the Lemon
What Lululemon has done very well for years is create a terrifically appealing brand. The Lululemon brand is not just a yoga brand, but a lifestyle brand as well. Many consumers purchase the pants not to work out in but simply to lounge around and be comfortable in. Under Armour can learn from this approach, and indeed management appears to be doing just that.

Under Armour is now challenging the perception of its products as being only for athletes. A large driver of growth among women, and consumers in general, is getting consumers to embrace the products as a lifestyle brand, something that can be worn outside of gym and track atmospheres. This is why the company has been selling its wares in department stores like Macy's and Lord & Taylor, to appeal to consumers who may not have thought to purchase products traditionally associated with athletes.

Next steps
The more I write about Under Armour the more the company seems to make sense as an investment. This indicates that the company's momentum is becoming exceedingly strong as management is executing on all levels and capitalizing on the weakness of competitors. Whether it is through advancing fitness technology, increasing its market share/global footprint, or broadening its brand appeal, Under Armour is demonstrating that it is the strongest growth story in all of retail.

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Philip Saglimbeni owns shares of Under Armour. The Motley Fool recommends Lululemon Athletica and Under Armour. The Motley Fool owns shares of Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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