Editor's note: A previous version of this article stated that Lululemon's deal with X-STATIC was exclusive, when in fact the deal is exclusive only for certain product categories. The Fool regrets the error.
It's been a tough year for yoga apparel maker lululemon athletica (NASDAQ: LULU ) . In March, the retailer was forced to recall more than 17% of its signature luon pants from store shelves due to problems with the fabric being too sheer. More recently, Lululemon's CEO Christine Day shocked investors by announcing she's leaving the company. The stock suffered as a result, with shares down as much as 15% this year.
However, a new strategic partnership and international growth opportunities could turn things around for the retailer. Here's a look at how these developments could shape Lululemon's business going forward.
Just what the doctor ordered
Lululemon's corporate transparency may stink these days, but its high-end fitness clothes certainly don't. The company recently inked a deal with Noble Biomaterials to become the exclusive retailer for its X-STATIC "anti-stink" technology. Lululemon has been using the antimicrobial technology in its Silverescent fabric since 2005.
X-STATIC works by bonding pure natural silver to the fiber of specialty fabrics such as Lululemon's Silverescent. Sweat causes the silver in X-STATIC to oxidize, which then eliminates odors by breaking down bacteria. Lululemon's deal for this technology is well timed. That's because performance athletic clothing with anti-stink properties is a big draw for men. If Lulu were able to attract more male customers with its newfound focus on the anti-stink athletic apparel market, it would be a big win for the company.
Lululemon has sold menswear in the U.S. since 2003. However, the category only accounts for 12% of Lululemon's total revenue today. The retailer hopes to change this by opening stand-alone men's stores by 2016, which could benefit from innovative products enhanced with X-STATIC technology. Moreover, Lululemon has an opportunity to differentiate itself from Nike and Under Armour by offering new products and fabrics with X-STATIC's unique anti-stink qualities.
The technical specifications of the fabric might also help convince men that Lululemon's clothes are worth the expensive price tag. The company's short-sleeve running shirts, for example, cost nearly twice as much as similar options from Under Armour and Nike. However, more guys may be willing to pay a premium for the items if Lululemon can convince them that its products offer more than just style.
Stretching into new markets
In addition to growing its menswear business, Lululemon has the potential to increase its sales by 10 times, if it can break into overseas markets. Consider this: Lululemon's stores pull in $2,050 in sales per square foot, making it the most productive apparel retailer in North America today. If Lululemon can replicate this success abroad, it could lead to meaningful revenue growth for the company and its shareholders.
Today, Lululemon is heavily investing in international expansion, with new distribution centers now in Europe, Asia, and Australia, in addition to its locations in the U.S. and Canada . Last year, the yoga retailer opened showrooms in London and Hong Kong to great fanfare. Following this success, Lululemon plans to open showrooms in as many as 15 countries over the next two years. Moreover, the retailer is on track to open three stores in China by the end of the year, as well as additional locations in London, Berlin, and Singapore.
I suspect international expansion together with new opportunities in the men's apparel business will fuel the stock's recovery in the years ahead. Finding a worthy replacement for Christine Day is certainly a challenge. However, given these catalysts, the bigger picture for Lululemon remains bright.
3 other winning retail plays
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.