As lululemon athletica's (NASDAQ:LULU) lofty valuation might indicate, this isn't your average clothing company. The yoga outfitter employs a number of unique approaches to both its corporate culture and product line that help separate it from the competition. That idiosyncratic approach has helped drive strong same-store sales growth, inspire a cult-like following and brand loyalty along with it, and even attract competition from a host of pretenders. In the following excerpt from our premium research report, we take a look what makes Lululemon special.
Like so many other disruptive innovations, Lululemon began with a simple observation. At a yoga class, founder Chip Wilson noticed that the women around him were all clad in ill-fitting cotton clothing, not appropriate for the sweating and stretching integral to yoga. Wilson, a veteran of the apparel business, set out to right this sartorial wrong and founded Lululemon in 1998. Initially, he sold clothes directly to yoga instructors and practitioners, adjusting his designs based on their feedback. By November 2000, the company had opened its first retail store in Vancouver, a smashing success. Just 12 years later, the company is now approaching 200 stores worldwide with annual sales over $1 billion.
Like Nike's Air Jordans or Under Armour's compression tee, Lululemon has its own trademark product -- its Groove Pant, which it calls the holy grail of yoga pants. The garment generally retails for $98 and is made of luon, Lululemon's trademarked, original fabric made of nylon and Lycra. The material is moisture-wicking and allows for a "four-way stretch." In addition to form and function, Lululemon's pants are also renowned for their appearance and have become a fashionable item for some. Unlike with sweats and other workout clothes, women often wear Lululemon gear in casual settings.
In addition to yoga pants, the company offers a wide array of workout clothes and related gear and accessories, primarily targeted at women.
Lululemon's unique approach to retail starts with its aspirational philosophy and employee development. The company showers its staff and customers in a culture of personal growth, self-empowerment, and physical health, as its manifesto clearly communicates. It refers to sales staff as "educators," and job openings often require submitting goal sheets along with resumes.
What also separates Lululemon from most retailers is its approach to new markets. The company begins by cultivating relationships with prominent figures in the local yoga and athletic communities, drafting some of them as "brand ambassadors" to help educate prospective customers and build brand loyalty. At the same time, the chain tests new markets first with a showroom, a small outlet with limited hours and selections, to create a buzz and assist with forecasting before jumping in with a full-on store.
This strategy has helped the company establish enviable levels of loyalty among both employees and customers, giving it a strong brand identity and a competitive advantage. It's one of the biggest reasons for Lululemon's market-crushing margins, which hover around 20%.