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Lululemon Competitors Seize Opportunity

By Andrew Marder - Apr 2, 2013 at 5:30PM

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After the yogawear retailer's manufacturing gaffe, its competition looks to lure away customers.

Conventional wisdom says you shouldn't kick a guy when he's down -- forget that. lululemon athletica (LULU -3.39%) is still reeling from the yoga pants recall that it issued two weeks ago. The pants had the unfortunate feature of looking transparent when stretched. As a result of the shortage of product the recall has caused, the company has said that it's going to see a drop in comparable sales growth, revenue, and earnings per share for the first quarter. That's giving competitors a chance to pounce on the lucrative segment, and two have finally taken the initiative by featuring their versions of yogawear on their websites.

Under Armour makes its case
Sport-tech-driven Under Armour (UAA 2.04%) has been trying to increase its sales to women over the past few years. The goal is to generate 50% of apparel revenue from sales of women's clothing, which is a big move from its current state at about 20% of revenue . Tapping into Lululemon's market could be a great expansion for Under Armour.

To help it capture some of the disgruntled customers, Under Armour has added a slide to its main website that features the company's studio pants line. The pants look like the standard Lululemon range, but run about 10% cheaper. The company even featured the line on its Facebook page late last month, driving customers to its site with the tag line "We've Got You Covered." Well played, Under Armour.

Nike does it too
Not to be outdone, Nike (NKE -1.00%) has also brought its line of women's pants to the front of its site. The company's Legend Pants have prime real estate on the front page of The product page also highlights the pants' non-see-throughness, indicating that they provide coverage even when bending or stretching. While the additional income would be a smaller addition for Nike -- it made $6.2 billion last quarter -- the company couldn't help but make at least a gesture toward the customers that might come over from Lululemon. Nike's pants run even cheaper than Under Armour's, at around 25% less than Lululemon pants.

Gap misses an opportunity
For all its talk about increasing its Athleta business, Gap (GPS 3.03%) missed the boat on this one. The company doesn't even mention its yoga line on the brand's homepage, focusing on swim instead. Unlike Nike, Athleta could use a revenue boost in almost any denomination. The segment containing Athleta earned $117 million last quarter, which was a 31% increase from the year before. Still, Lululemon has said that around $15 million in lost sales are on the line, and any of that that Gap can pull in would be helpful. It's too bad the company missed out on the chance.

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Stocks Mentioned

Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
$263.38 (-3.39%) $-9.23
Under Armour, Inc. Stock Quote
Under Armour, Inc.
$8.50 (2.04%) $0.17
The Gap, Inc. Stock Quote
The Gap, Inc.
$8.49 (3.03%) $0.25
NIKE, Inc. Stock Quote
NIKE, Inc.
$101.18 (-1.00%) $-1.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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