This Yoga Wear Retailer Is Chasing Male Athletes

In an incredibly scientific poll, six of the seven people I asked to describe lululemon athletica (NASDAQ: LULU  ) said a version of this: "They make yoga clothing." The seventh person said the company makes general workout clothing. That seventh is the one who's gotten the message that Lululemon is trying to convey.


Source: Lululemon.  

The company has always been known for its yoga wear and its success has helped turn workout clothing into an acceptable street fashion. But the problem for Lululemon is that by focusing solely on yoga wear, it has pigeonholed itself. To reach new heights, and to further distance itself from the PR sins of its past, the company is hoping to tap into new product markets. The biggest leap for the company is expanding its men's clothing selection. That's a move that will drastically expand the company's potential reach, but it also puts it more directly at odds with Nike and Under Armour, two brands that have no desire to give up ground to the relative upstart.

Men and women, women and men
While Lululemon is hoping to make some headway with men's sales, Nike and Under Armour have their eyes on women's sales as the next big thing. In its last quarter, Nike earned just 20% of its wholesale revenue from sales of women's products. Under Armour has said it believes "that women's can be as big, if not bigger, than men's" -- a bold statement in favor of growing the women's business. Nike has said that it is "completely focused" on capturing more women's sales. 

Meanwhile, Lululemon is trying to work its way into the hearts and minds of male athletes. The company has expanded its men's offerings and seen solid results. Men's revenue was up 9% in the company's last quarter and it's now planning to expand its men's stores in three major metropolitan areas -- Miami, Vancouver, and Santa Monica -- over the next year. 


Source: Under Armour. 

So, Nike and Under Armour are selling more women's clothing, Lululemon is selling more men's clothing, and everyone is a winner -- right?

Lululemon runs into the brick wall
The difficulty for Lululemon is twofold. First, it's still working against the bad reputation it picked up last year when it had to recall overly sheer yoga pants. That mistake gave Nike and Under Armour a free foothold in the women's market. Under Armour had a storming 2013, with its women's revenue crossing the $500 million mark in annual revenue. The company has seen especially strong results in its Studio line, which competes directly with Lululemon's core yoga line.

Nike is a whole different beast, but a beast that Lululemon is going to have to deal with, nonetheless. That 20% of wholesale revenue that's generated by women's products accounts for close to $5 billion in annual sales. Men's wholesale revenue at Nike comes in at over $14 billion annually, and absolutely dwarfs the total annual intake generated by Lululemon -- just $1.6 billion.

Nike is the wall that an expanding Lululemon has to find a way around. Under Armour is in a similar boat, but by focusing on athletes, with a capital "A," Under Armour has been able to distinguish itself. Right now, Lululemon's main point of distinction is its fashion sense. It used to have a quality distinction, but that reputation has yet to return.

How Lululemon can overcome
For Lululemon, the key to growth lies in finding a new niche. A return to the brand that creates quality, lasting goods seems like the most straightforward approach. Lululemon has charged a premium for its quality for a long time, but it's lost some ground over the last year. That's a fall that has been reflected in its gross margin, which fell last year as the company was forced into promotional mode to drive foot traffic.

Gross margin has recently started to stabilize, signifying a return to consumer confidence in the brand. If Lululemon can build back up its reputation for quality, on the strength of its overall brand, then it should be able to make a foray into men's on the back of that distinction. Quality needs to be the company's No. 1 concern, and any shortfall is going to spell catastrophe for its expansion plans.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3064690, ~/Articles/ArticleHandler.aspx, 10/2/2014 12:34:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement