Lululemon: Form, Function and Fashion
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One of the dirty little secrets in clothing is that there is no opportunity for intellectual property. Everything builds on the work of those who came before them. And designers cannot assert copyright or patents on a dress or a pair of pants. It is the most open industry, from a creativity perspective, left in the world. Therefore, companies selling in this space cannot fall back on the internecine world of litigation to hold onto market share, not like in technology, film, publishing or music.
For all intents and purposes Lululemon (NASDAQ: LULU) is a fashion company. Just because they sell sports apparel and, nominally, compete with the likes of Nike (NYSE: NKE) and Adidas, does not mean they aren’t also competing against the likes of Gap (NYSE: GPS) as well.
But, in reality, Gap cannot compare to Lululemon in retail’s most important metric, revenue per square foot. From that perspective Lululemon is keeping company with Tiffany’s and it’s a number that continues to grow, rising to more $2004 for 2011. Net revenue topped $1 billion in 2011 for the first time, rising 40.6% while comps were up a staggering 20%.
The Opposite of Nike
The power of Lulelemon’s business model stems from their community-driven approach which targets educated, professional women through their local fitness instructors to create a word of mouth referral system for driving sales. They are selling something practical and purpose-built, workout clothes, that are also flattering without compromising functionality. It’s an approach that is designed to appeal to women.
Men don’t discuss clothes with other men. Their purchases are certainly influenced by what another man wears, which is why Nike’s athlete-focused marketing works so well. Nike’s is a wish-fulfillment marketing approach designed mostly for men. Lululemon’s is no less wish fulfillment, selling body improvement through exercise and fitness, but designed by the way women communicate. This approach is taken in the store as well, with customer suggestion cards in the dressing rooms.
This approach creates very high brand loyalty that goes beyond the style of clothing itself. The Gap is striking back, attempting to slow down the Lululemon train with their Athleta line of yoga-inspired clothes and stores with the first one opening in Houston, Texas this past week.
Not an Asian Play… Yet
Lululemon has not begun moving on the Southeast Asian market yet, with only a showroom in Hong Kong. It is a pre-cursor for their entry there, however. The company still has growth opportunities in the U.S. having just 88 stores. On the other hand, The Gap is closing 189 stores in the U.S. while opening 30 more in China this year with an eye on doing $1 billion in revenue in the next few years.
The market potential in China is the tantalizing prospect because of the enormous potential in the Tier-1 cities and a middle class focused living healthier. Lululemon’s approach to a new market is to introduce themselves while eliciting feedback and finding what will work before committing resources there, building up awareness first which then drive demand.
Lululemon has done something unique, making clothing whose first purpose is to sweat in, well-made and functional which you can then wear out afterwards and not be embarrassed to be seen in. Combining that with an effective referral network which appeals to educated, middle-class women who are looking for that elusive mix between the practical, durable and attractive will drive sales at premium prices.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Lululemon Athletica. Motley Fool newsletter services recommend Lululemon Athletica and Nike. 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.If you have questions about this post or the Fool’s blog network, click here for information.