Lululemon's Real Problem Is that It's Still a Yoga Company
Lululemon Athletica , popular maker of athletic lifestyle apparel, has come under serious fire in recent months. The retailer has struggled to overcome the disastrous consequences of a product recall it suffered in early 2013. Coupled with slowing growth and terrible public relations management, shares of Lululemon have fallen over 20% in 2013.
However, the largest and often unmentioned threat to Lululemon is the incredibly limited appeal of its brand. This is a problem that competitors like Under Armour and Nike do not have.
Brand strength is not universal
It's no secret that Lululemon has a stranglehold on the athletic apparel segment as it pertains to yoga. The company has created a powerful lifestyle brand around its signature yoga gear, one that it continually and effectively reinforces through clever marketing techniques like conscientious advertising campaigns, complimentary yoga classes, and running clubs.
However, what was once the company's source of strength has now become a serious obstacle to future growth. Lululemon has become perhaps too successful at catering to yoga fans, and the company now seems to be able to do little else.
The simple fact is that Lululemon is having trouble expanding its audience outside of yoga circles and female patrons. The main problem is that mostly women practice yoga. According to Yoga Journal's 2012 study "Yoga In America," a staggering 82.2% of people who practice yoga are female, meaning just 17.8% are male.
Not surprisingly, this is also very similar to Lululemon's revenue breakdown by gender. The breakdown was reported by the company earlier in the year to be 88% female and only 12% male.
There is hope
These jarring statistics do not in any way mean that Lululemon is incapable of targeting male customers going forward. It does mean that management at Lululemon has not been very effective at doing so up to this point, though. The evidence is in similarly-sized competitor Under Armour's apparel revenue breakdown by gender, which currently stands at 70% male and 30% female.
Thanks to aggressive marketing and overall brand strength, management at Under Armour was able to grow the company's female product lines extensively over the years. The growth in this regard has been so impressive that it is now outpacing the growth of the overall company. Management at Under Armour expects the female apparel business to generate $1 billion in revenue by 2016.
Impressively, management at Under Armour sees even more growth in its female apparel business going forward. CEO Kevin Plank explained in a recent investor's conference, "Women's has the potential to be larger than men's."
While Under Armour's recent success at appealing to both men and women serves to exaggerate Lululemon's main brand weakness, it also serves as proof that all is not lost for Lululemon. Under Armour, which started as a brand that primarily catered to football athletes, was initially only successful among athletic male consumers. Although it took time, Under Armour successfully diversified its business. If one retailer can do it, another can as well.
Lululemon has started down the path to targeting male consumers. The company plans to open its first dedicated men's store in 2016. Unfortunately, this also highlights a crucial problem for the company. If Lululemon's male product line is not expanded to include more than just yoga apparel, the new male-centric stores will still only attract an extremely limited number of patrons.
The biggest problem for Lululemon is that it continues to be a yoga retailer and not a sports retailer. Under Armour was once a football retailer and Nike was once a basketball retailer, and now both are much more than that. If management at Lululemon can't rectify the company's dependence on yoga (or doesn't want to) then the company's future growth will be tempered or stifled altogether.
To make matters worse, competitors like Under Armour, Nike, and even The Gap (through its Athleta brand) are targeting Lululemon's crucial yoga/running business. While The Gap's Athleta brand offers cheaper-priced wares, offerings from Under Armour and Nike are the real threat as they target more upscale consumers.
Under Armour is aggressively targeting women by opening stores dedicated to female athletes. The company is backing the strategy up with a robust advertising campaign entitled "What's Beautiful," as well as endorsements from popular female athletes.
Nike is also making progress in increasing its sales to women. Nike brand President Trevor Edwards explained in the company's latest earnings call, "We've been building deep and meaningful relationships with women through our digital app called the NIKE Training Club. To date, we have 10 million downloads and 600,000 workouts every week. This virtual club creates a community of women who work out with us every single day."
Nike expects to generate $7 billion from all women's products in 2017, up 75% from $3 billion in fiscal 2013.
Adapt or die
Lululemon's recently lowered projections for the fourth quarter and fiscal 2013 are no doubt due to a combination of the factors described above. Weakening brand strength and increasing competition is a dangerous mixture.
However, the growth for the company only stands to get worse unless management comes to the realization that it can no longer operate as a yoga retailer that happens to offer some running equipment as well. Lululemon's growth aspirations have to grow in order for the company's revenue to grow.
Fortunately, Under Armour and Nike have shown that it can be done successfully. All that is required is the willingness to change the company's brand perception without alienating its core consumer base. It is a delicate balancing act but one that is necessary for Lululemon to survive.
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The article Lululemon's Real Problem Is that It's Still a Yoga Company originally appeared on Fool.com.Philip Saglimbeni owns shares of Under Armour. The Motley Fool recommends Lululemon Athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and 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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