Lululemon Beats Out Nike and Gap on Customer Loyalty

See what this recent research study uncovered about consumers and where they prefer to shop.

Jul 9, 2014 at 8:30AM

Lululemon athletica (NASDAQ:LULU) has been under fire recently because of multiple public perception problems. While management transition problems have weighed down the yoga-wear retailer, it has also been branded as unfriendly to plus-sized customers and, if that weren't enough, lululemon has for the first time faced questions on the quality of its products.

Specifically, some of the retailer's most popular yoga pants have been found to "bead," which basically means that the fabric begins to degrade and form small ball-like beads after multiple uses. With all of these public relations troubles, customer loyalty is more important than ever -- and that's exactly what lululemon still has going for it.

Customers make a big difference
Retail is a tough world right now. Not only are many retailers, like J.C. Penney, struggling to bring in lost customers, but since the economy crashed in 2009 many consumers have become increasingly cost conscious. This has led many retailers to draw in customers through lots of promotions.

The lucky few retailers who don't need to cut prices in order to draw in customers are the ones that have extremely loyal customers, which is why premium-priced, active-wear retailer lululemon's own customer loyalty is so important. If customers are not willing to shop exclusively at lululemon's stores and also pay the premium prices that the brand commands, then lululemon has nothing. Fortunately for lululemon, its customers don't seem to be going anywhere. 

News in!
In January 2014, during ICR Xchange's 16th annual consumer brands conference, lululemon gave a presentation in which it not only detailed where it plans to go in the future, it also uncovered some interesting data concerning its customers. Lululemon hired consumer research organization Target Research Group to not only assess the loyalty of its own customers, but also the loyalty of other top active-wear brands.

These brands included lululemon athletica as well as Adidas, Athleta of Gap (NYSE:GPS), Nike (NYSE:NKE), Reebok, and Under Armour. (NYSE:UA) Conducted in November 2013, the study was officially titled "lululemon U.S. Canadian Attitudes & Usage Study", and it pulled in 25-35 year-old customers of each brand to take part in the research study. The research group then calculated the percentage of consumers who considered each brand their favorite.

Study results
The results were impressive for lululemon to say the least. In the United States 55% of lululemon's shoppers between the ages of 25-35 said lululemon was their favorite brand. In Canada lululemon fared even better with 70% of shoppers saying that lululemon was their favorite brand. Nike was the second strongest brand with 45% of US customers and 38% of Canadians saying Nike was their top choice. Lululemon also fared well in comparison with Gap's Athleta brand of yoga-wear as just 29% of U.S. shoppers said Athleta was their preferred brand.

What this data tells us is that despite the difficulties lululemon has faced in terms of product malfunctions and management flaws, the retailer's customers have stayed put. Furthermore, this tells us that lululemon consumers are committed to the brand in its entirety, regardless of what problems may arise. What's even more interesting is that Nike took precedence over Gap's Athleta brand since Athleta's products are more geared to yoga, like those of lululemon. Time will tell whether lululemon's consumers stay loyal or gravitate to one of its competitors.

Foolish takeaway
While lululemon certainly can't go on alienating certain customers and not executing on its promise of selling high-quality merchandise, it appears that lululemon's brand is intact for now. What's even more interesting is that many of the company's troubles took place before the research group conducted the study, and lululemon still beat out just about every other major active-wear brand as a customer favorite. Foolish investors would be wise to take consumer loyalty into account when they consider investing in shares of lululemon because, like J.C. Penney discovered, customers drive the business; without them, operations take a turn for the worse. 

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Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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