Why "Smart Fashion" Could Save lululemon athletica and Coach

lululemon athletica and Coach are two distinctly different companies, although both stocks are down considerably year to date. Here's a look at how "smart fashion" -- a blend of technology and style -- could turn things around for these ailing retailers.

Apr 14, 2014 at 6:15PM

lululemon athletica (NASDAQ:LULU) and Coach (NYSE:COH) are two distinctly different retail brands. However, both of these companies are desperately in need of a makeover in the eyes of the consumer. Lululemon's fall from grace started last year when the maker of high-end yoga gear suffered a series of quality-control issues that forced it to recall 17% of its signature Luon pants from store shelves. This debacle not only cost the company more than $40 million in revenue last year, but it also damaged Lululemon's reputation for superior products.

Coach has also suffered recently, though its troubles come at the hands of increased competition in the handbags and accessories space. Plagued by profit declines and slumping same-store sales in its U.S. business, Coach is hoping a new retail strategy and management shuffle will spur a turnaround. As a result, Coach is in the process of rebranding itself as a so-called lifestyle brand. However, adding a new mix of shoes and apparel may not be enough to fuel Coach's comeback.

Both Lululemon's and Coach's stocks have also suffered lately, with Lululemon shares down nearly 18% in the past year and Coach shares down more than 10% year to date. It's in this spirit that we'll look at three ways that these brands could use smart fashion -- stylish wearable technology -- to reignite consumer demand in the years ahead.

A fashionable opportunity
Smart fashion and wearable devices offer companies like Lululemon and Coach a unique opportunity to get ahead of the technological curve by blurring the line between fashion and technology. Lululemon first captured the active consumer's attention with its technical fabrics and sweat-wicking apparel. Recently, however, Lululemon has strayed from this and instead seems more focused on the design and aesthetics of its products.

Screen Shot

Source: lululemon athletica.

Take the company's new &go clothing line, for example, which features peplum-adorned tops, and tailored shorts and pants for wearing inside and outside of the gym. While introducing a new fashion line is the right idea, Lululemon could get more attention by throwing one or two smart products into the mix. The market for wearable technology, after all, is on track to hit $10 billion by 2016 according to recent data from Gartner.

With its history of technical performance products, moving into the burgeoning smart-fashion space seems like a no-brainer for Lululemon. However, jumping in on its own could prove costly, which is why a more likely approach would be if Lululemon were to team up with a tech company like Intel (NASDAQ:INTC) or Google (NASDAQ:GOOG).

Both of these tech giants are already collaborating with fashion houses today to design cutting-edge wearables that consumers will actually want to wear. Intel is working with Barneys New York, the Council of Fashion Designers of America, and Opening Ceremony to create smart bracelets and other stylish wearables that are powered by Intel chips. Meanwhile, Google recently announced a deal with Luxottica Group to make fashionable shades for its Glass device.

This is an important partnership for Google, because when it comes to premium eyewear, Luxottica Group is the market leader, with over 5,000 retail outlets in the U.S. today. However, the tie-up also creates an opportunity for Luxottica to innovate beyond basic eyewear and into the growing category of wearables. Similar partnerships could also help Lululemon and Coach.  

Smart partnerships
To really get ahead of competitors, Lululemon should be working with Intel or another technology company to integrate smart tech into its product mix -- think jackets with tiny built-in sensors that could heat or cool the material based on current weather conditions. "Advances in nanotechnology, which allow manufacturers to control materials on a molecular scale, have enabled researchers to develop smart textiles," writes the Business of Fashion magazine. And this is just the beginning.

Lululemon and Coach have an opportunity to use this emerging market of wearables to their advantage. Coach, for example, could step up its accessories business by introducing smart accessories like Cuff's interactive bracelet that syncs with a wearer's smartphone to enable quick two-way communication between the user and people within their network.   .

Cuff jewelry will vibrate on your wrist when someone needs to get in touch with you. "Say my phone is somewhere in my bag. It's ringing and ringing, and my babysitter really needs to get me. I've programmed her to break through to me. It will vibrate on my wrist, and I'll know to check my phone," Cuff co-founder Deepa Sood told TechHive.com.  Offering integrated technology like this would certainly give Coach an edge over rival Michael Kors, which has recently stolen market share from Coach in the accessories category.

Beautiful design is no longer enough
Going forward, Coach and Lululemon both need to differentiate themselves from rivals in their respective retail segments -- and what better way to do so than through smart fashion? On the flip side, companies like Intel and Google need fashion designers and style experts to design products that consumers will actually want to wear. This is the future, and with a little forward thinking, Coach and Lululemon could use strategic partnerships similar to these to restore their brand images.

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Tamara Rutter owns shares of lululemon athletica. The Motley Fool recommends Coach, Google (A and C shares), Intel, and lululemon athletica. The Motley Fool owns shares of Coach, Google (A and C shares), and Intel. 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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