Lululemon’s New Clothing Line Is Just What the Doctor Ordered

The troubled specialty retailer long seen as a yoga-clothing company is opening a brand new business line, and this could have major implications for shareholders.

Apr 3, 2014 at 7:00AM

Lululemon athletica (NASDAQ:LULU) has suffered from a range of problems recently that have caused the business and shares to languish. These problems have ranged from gaffes by the company's founder to large product recalls. Investors long for the days when Lululemon shares were the darling of Wall Street, and recent moves might just be the ticket to new growth for the retailer.

Not just for the gym
In an effort to expand its offerings and garner an even bigger piece of the clothing-market pie, the company announced the introduction of its "&go" line of clothing. This clothing line is basically comprised of casual dresses, pants, and tops for customers to wear during and after their workout. These clothing items can be worn for exercise, at the office, and out on the town for drinks with friends. Lululemon's loyal customers no longer need to change their wardrobe after a workout. This latest addition to the company's product line has major implications and might just mean brighter days ahead for Lululemon.

Just what the doctor ordered
Selling more merchandise per square foot is the name of the game in retail. Rising foot traffic in stores is one of the reasons that department-store behemoth Macy's (NYSE:M) has done so well in recent years. While J.C. Penney and Sears have experienced declining sales, Macy's has continued to enjoy greater foot traffic; this has had major implications for shareholders.

Macy's has grown sales and net income by a healthy clip over the last few years without the need to open additional stores. This is a boon for shareholders and has allowed Macy's to focus on buying back shares.

Getting more out of the customer can be great for a retailer, and it is even more important for smaller, faster-growing retailers to do this. Competition is fierce in the retail space, and attracting a greater slice of consumers' clothing budgets is very important. It is for this reason that Lululemon's introduction of "&go" is such a fantastic idea: it gives current loyal customers a reason to spend even more of their money at Lululemon.

Lululemon's customers are extremely loyal to the brand. Until now, they've needed to pack a change of clothes in their gym bags for partaking in activities after working out. Customers almost certainly went to other retailers such as Macy's, Gap (NYSE:GPS), and Urban Outfitters for these needs, but that is not the case anymore. They can now go to Lululemon for even more of their clothing needs. The past trend of sales at these retailers paints an interesting picture, and it is probably about to get a lot better for Lululemon.

Company 

Sales per square foot 2011

Sales per square foot 2012

Sales per square foot 2013

Lululemon

$2,004

$2,058

 $1,894

Gap

$337

$364

$365

Macy's

$174

$184

$185.77

 It is clear from the table above that Lululemon's customers spend quite a bit of money in its stores. The newest clothing line "&go" will likely push this number even higher as customers take advantage of the latest options. It will be interesting to see what Lululemon's sales per square foot will be for FY 2014 with "&go" now part of its trendy product collection.

Foolish takeaway
Lululemon has been trying to regain its footing ever since it began to stumble amid product recalls and public relations problems involving former CEO and Founder Chip Wilson. These problems are now history, and the company appears focused on the future by doing what it does best: selling high quality active wear and yoga apparel to loyal customers. The clothing line "&go" may be just what the company needs to transcend its problems. This makes Lululemon shares worth considering.

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Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica. 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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