By Neil Saunders
- consumer interest in athleisure gifting and self-gifting
- more rounded menswear assortment
- loyal fans
- engaging stores
- sourcing and supply-chain improvements
Lululemon has ended its fiscal year with a flourish—total sales increased by 12% and operating income rose by 18%. While the overall sales gain was slightly softer than that posted during the prior quarter, this is mostly a function of a more challenging prior year comparative. Comparable sales growth was sequentially better than during the third quarter.
Some of Lululemon’s success is due to an elevated level of interest in both gifting and self-gifting within the athleisure space. Our consumer data show that athleisure wear was a key holiday purchase or gift request for many female consumers, and Lululemon’s premium positioning ensured that it was one of the go-to brands. This was no doubt assisted by the strong holiday “Air Out There” marketing campaign and the launch of the company’s first-ever winter lookbook.
Lululemon’s more rounded offer in menswear also encouraged more women to purchase gifts for their partners across the holiday quarter. This aided the already-strong underlying growth that Lululemon is achieving across its men’s division. Here, outerwear was a particular success story across the quarter, helped by both the colder weather and new product launches, including the Einn Shell, Surge Thermo Vest, and Stay Puff Parka.
Lululemon also managed to buck the negative traffic trends across the holiday period. Some of this is due to Lululemon’s army of loyal fans who regularly visit stores to see what’s new. But some is also due to the fact that Lululemon’s stores are engaging and interesting, which gives customers a reason to visit.
“Lululemon’s stores are engaging and interesting, which gives customers a reason to visit.”
While a strong sales performance helped drive the bottom line, its contribution was further enhanced by various efficiencies Lululemon has been working on over the past half year. These include improvements to sourcing and supply chains, which have been beneficial to both gross margins and underlying profits. These are things that we expect to deliver over the first half of the new fiscal year.
Looking ahead, Lululemon is now coming up against tougher comparatives, which will make growth more challenging. Moreover, it will have to contend with the saturation of a slowing athleisure market. These things will take the edge of growth and may mean that Lululemon struggles to increase its comparable sales.
Yet the company is not without firepower, especially on the innovation front. More product launches are in the pipeline in such categories as bras and menswear.
- more product launches
- aggressive international expansion
- larger North American stores
- downsized stores for smaller North American markets
Growth also will be delivered through portfolio expansion on two levels. An international push, including more aggressive growth in China and the recent opening of a flagship store in London, will help the brand grow its awareness in overseas markets.
Closer to home, North American growth will be a combination of larger stores and smaller (around 2,000 sq.-ft.) local shops designed to cater to the needs of smaller markets.
Lululemon serves a discretionary and niche part of the market, and we expect prevailing trends to make 2017 a much flatter, and more challenging year than the fiscal just gone.
Neil Saunders is managing director of research firm GlobalData Retail.