Shares of lululemon athletica (NASDAQ: LULU ) have been under a great deal of pressure lately. In fact, the yoga-wear retailer, which was once everybody's favorite on Wall Street, has seen its shares fall over 31% since the beginning of 2014. If that weren't enough, shareholders face the reality that the pullback did not just stem from one cause but several.
Not only have there been product quality concerns with its luon pants, there has also been trouble at the top that stemmed from difficulties in finding a new CEO, as well as statements made by the company's founder and largest shareholder, Chip Wilson, who publicly said "Quite frankly, some women's bodies actually just don't work for [the pants]. They don't work for some women's bodies" at lululemon. However, the worst of it all is concerns that the company's best days are behind it and that it just can't and won't grow as much as it did in the past. Fortunately for lululemon shareholders, that might not be the case.
Believe it or not, the company still has plenty of room to grow in its home market of North America. Granted, it will occur at a slower pace, but this will mainly result from the company's organic growth strategy and not problems with the brand or products. Unlike many retailers, lululemon doesn't open stores, run huge ads on television and radio, or hand out coupons; instead, the company seeks to be part of the community and grow organically.
The company generally targets a particular location where it wants to open a store and then opens a showroom, which is typically around a third of the size of a normal lululemon store. This allows local consumers to not only see the products but to warm up to the idea of having a lululemon store in the local community. Once a showroom store sees brisk enough business and its yoga classes fill up fast, the company moves to open a standard lululemon store. This may take longer than the average store opening, but rest assured it leads to huge profits and enormous customer loyalty.
At the end of fiscal 2013, which concluded on Feb. 2, 2014, the company operated just 225 stores in North America comprised of 171 stores in the United States and 54 in Canada. This amounts to just over three stores per state in the US which seems to imply that while growth will be slow and steady due to the company's strategy, lululemon has a large runway ahead of it. In addition to its traditional women-focused lululemon stores, the company also plans to open up its ivivva athletica branded stores (which is the company's youth brand).
England and the rest of Europe
Lululemon's growth plans include an English invasion as London, which has a population of 8.3 million, has a number of yoga devotees. Fortunately for lululemon shareholders who are looking for growth, the company is just getting started here. Believe it or not, lululemon has just one full-sized store in all of London, located in London's Covent Garden district. The store opening created a great amount of buzz and included a yoga-themed event at the Royal Opera House.
Not only that, the company plans to roll out four stores in the near future. Currently, lululemon operates four showroom locations in London. It has a goal of building community support for the brand with these showrooms before it opens full-sized retail stores. It's not hard to imagine lululemon expanding far beyond London into the rest of the United Kingdom and Europe itself.
Asia and Australia
In addition to the company's expansion plans in London, lululemon also has big plans for Asia that are just in their infancy. Surprisingly, the company already has a decent presence in Australia and New Zealand, where the company already has a total of 29 full-sized stores. It currently plans to open two lululemon stores in Australia this year and its first showroom stores in Asia within the next two years. This may not sound like much, but investors need to keep in mind that lululemon has such profitable stores because people see them as part of the community and they grow organically -- and that takes time.
One step ahead of the competition
Lululemon is definitely on its way to further expansion of its brand abroad. This in itself puts lululemon one step ahead of Gap's (NYSE: GPS ) Athleta brand, which is Gap's own athletic brand for women. For instance, as of Feb. 2, 2014, Athleta operated 65 stores in North America and planned to open 30 new stores in North America by the end of fiscal 2014.
Unlike lululemon which opened its first store in November 2000, Gap did not open the first Athleta store until 2011 even though it acquired Athleta in 2008. By February 2015, Gap plans to have about 100 Athleta stores in North America. While these openings will greatly benefit the company's onward expansion and growth, Athleta will still trail lululemon in total store count, as it had 263 stores as of May 4, 2014. Furthermore, it will likely take a few more years for Gap to feel comfortable with expanding its Athleta brand abroad as North America remains its primary focus.
Lululemon's astronomical growth may very well be behind it, but that doesn't mean the company doesn't have many years of healthy, sustainable growth before it. The company has come a long way and hasn't even begun to scratch the surface of the potential markets in London, Europe, and Asia. It's easy to get distracted in the problems of today and forget what the future has in store for this unique yoga brand. Foolish investors should surely keep all of this in mind when they think about buying shares of lululemon athletica.
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