Expert answer:MGT429 SVSU Lululemon Athletica Inc Generic Busine

  

Solved by verified expert:lululemon athletica Inc.Jenna Beyer, Leon Faifman, Eric Ho, Miso Kezunovic, and Lance OlianTexas A&M University Please read this case on lululemon athletica Inc. including Case FlashForward 1 & Case Flash Forward 2 And write answers to the following questions in a word document of up to4 pages 12-point single space and submit it onto Canvas.Case Questions1. Define the generic business-level strategy used by Lululemon. Who is thetargeted customer? What customer need does the company satisfy? How doesthe company use its competencies to satisfy the need?2. What industry is Lululemon competing in? Analyze the competitive forces in theexternal environment using Porter’s five forces model.3. Discuss the advantages and disadvantages of Lululemon’s small size relative toits larger competitors. Be sure to address issues related to governance,resources, and structure.4. What challenges will Lululemon face when expanding into Asia? Focus onfactors such as pricing, brand awareness, positioning, customer acquisition,distribution, etc. Within these markets address the differences in culture/businesspractices and recommend a global strategy for Lululemon.5. What ethical dilemmas/issues has Lululemon faced over the last few years?Analyze the impact of the ethical issues by addressing the stakeholders involved,consequences of the ethical issue and laws/standards that are relevant to theissue, if any. How could Lululemon have handled these issues differently?
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lululemon athletica Inc.
Jenna Beyer, Leon Faifman, Eric Ho, Miso Kezunovic, and Lance Olian
Texas A&M University


Please read this case on lululemon athletica Inc. including Case Flash
Forward 1 & Case Flash Forward 2

And write answers to the following questions in a word document of up to
4 pages 12-point single space and submit it onto Canvas.
Case Questions
1. Define the generic business-level strategy used by Lululemon. Who is the
targeted customer? What customer need does the company satisfy? How does
the company use its competencies to satisfy the need?
2. What industry is Lululemon competing in? Analyze the competitive forces in the
external environment using Porter’s five forces model.
3. Discuss the advantages and disadvantages of Lululemon’s small size relative to
its larger competitors. Be sure to address issues related to governance,
resources, and structure.
4. What challenges will Lululemon face when expanding into Asia? Focus on
factors such as pricing, brand awareness, positioning, customer acquisition,
distribution, etc. Within these markets address the differences in culture/business
practices and recommend a global strategy for Lululemon.
5. What ethical dilemmas/issues has Lululemon faced over the last few years?
Analyze the impact of the ethical issues by addressing the stakeholders involved,
consequences of the ethical issue and laws/standards that are relevant to the
issue, if any. How could Lululemon have handled these issues differently?
1
Love
Guests are so pleased with the clothes we offer that they can’t help but tell all their
friends about it,” explains Laci Levisay, a lululemon associate from a store in Austin,
Texas. Levisay continues, “For the other 20 percent who walk into lululemon stores with
no previous knowledge, store employees look to find out as much as possible about the
guests’ lifestyle and then educate them on what products would best suit their needs.”
Choose a Positive Thought
Based in Vancouver, Canada, lululemon athletica provides premium quality athletic
apparel at a premium price. One of lululemon’s signature items is its yoga pants,
typically sold by competitors for between $25 and $50. Yoga pants available in
lululemon stores and online range between $78 and $128 with its most popular pair
priced recently at $98 – two to three times rivals’ prices. However, lululemon’s products
sell and they sell fast. Demand for lululemon clothing is so high that stores have trouble
keeping new lines in stock. Sheree Waterson, Lulu’s chief product officer conveyed this
example, saying, “A hot-pink color named ‘Paris Pink’ that launched in December (of
2011) was supposed to have a two-month lifecycle but sold out its first week.” The
question then arises as to why customers, or “guests” as lululemon refers to them, are
willing to pay high prices for high fashion items that are destined to be soaked in sweat!
It seems the answer to this question resides in lululemon’s ability to connect with its
guests on a deeper level than just the typical sales associate–customer relationship.
After all, other companies such as Nike, Adidas, and Under Armour not only produce
high-tech clothing with the same soft cotton feel, four-way stretch, and moisture-wicking
technology that lululemon touts, but do so much less expensively for their end
consumers. Ultimately, what competitors cannot duplicate is lululemon’s culture. It is
lululemon’s deep understanding of its target market, close relationships with its
communities, and an inimitable culture that transforms customers/ guests into diehard
loyalists. This is not to say that lululemon does not uphold the highest quality standards
in its products. Levisay states, “People will save up if they need to in order to afford our
clothing because of the benefits they provide.” She goes on to explain, “It’s silly to
spend that much on yoga pants if they’re not going to live up to their promise.” Jennifer
Black, president of an investment research firm confirms this sentiment saying,
“lululemon won’t put stuff in its store just to sell it. They don’t compromise on quality.”
Friends Are More Important than Money
lululemon athletica’s in-depth knowledge of its target audience is an important, firmspecific asset. “Rooted in yoga but expanded into any sweaty pursuit you may have,
lululemon creates technical fabrics that work with you instead of against you. Plus, they
look cute!” explains Levisay. The stores’ “…guests comprise anyone living a physically
active life that strives to achieve balance,” although the majority of shoppers are female,
have disposable income, and are in the 15- to 65-year-old range. Fitness blogs confirm
that lululemon “…recognizes this niche market and combines high performance material
2
with attractive product design to create a committed brand following.” One of the
strongest examples of lululemon’s focus on culture is the company manifesto, which
appears on multiple lululemon products, from bags to water bottles. Explaining the
company’s perpetuation of its manifesto, Whitney, a store employee and lululemon
blogger writes, “We are sharing a piece of our culture and inspiration as a company. We
have traditionally printed our [bags] with the lululemon manifesto, which is a series of
statements that embodies our company’s vision, culture and beliefs… [as] a constant
reminder of our vision to create components for people to live longer, healthier and
more fun lives.”
Observe a Plant Before and After Watering
Each and every store employee at lululemon is considered a steward of the company’s
culture. From the beginning of the hiring process, throughout training, and continuing
throughout employment, each employee is expected to reflect the company’s mission
and vision. lululemon athletica’s “…success is reflected in everything within the store
experience. The people who work there believe strongly in the lifestyle and what it
represents.” A focus on employee development is a crucial component of the
company’s strategy. In general, a lot of money and effort is put into training store
employees. Levisay comments, Employees don’t exist just to fold clothes or set up
displays. They share their knowledge of the clothing and culture with every guest that
walks through the door. They have the ability to explain functions of the clothing you
would not necessarily recognize; items such as hidden pockets, body support, material
that protects against harmful UV rays, and special woven silver that makes the material
antibacterial. Another employee, Samantha Baldwin, clarifies the link between
employee and guest. “If your employees are happy and feel supported in their goals,
your genuine nature comes across and this allows consumers to buy the experience,
buy the product.” This “caring-and-sharing” culture bolsters the high-quality products.
Baldwin continues, “It wasn’t just about selling stretchy pants. It was about connecting
with people on an authentic level and finding out their story.”
This Is Not Your Practice Life
lululemon athletica was founded in 1998 by Dennis “Chip” Wilson in response to
increased female participation in sports and in accordance with his belief in yoga as the
optimal way to maintain athletic excellence into an advanced age. Wilson, an avid surfer
and snowboarder, had previously parlayed his passions for these sports into building a
successful company – Westbeach – that sold snowboarding and skateboarding apparel.
After taking a yoga class, Chip fell in love with the practice. Once again melding his
athletic passions with his acumen for producing high-end performance apparel, Chip
saw the opportunity to produce higher-quality yoga attire. Wilson noticed that the cotton
materials used in yoga apparel were inefficient for the demands placed upon them. He
applied his knowledge of materials to design highly technical fabrics that would move
and breathe better. Chip opened a design studio and retail store that doubled as a yoga
studio at night to pay the rent. Yoga instructors at the studio became product testers,
wearing Chip’s designs while teaching, and providing feedback about the product. The
3
first official lululemon store was opened in 2000 in Kitsilano, a beach neighborhood in
Vancouver. The first store served as a community hub for multiple aspects of healthy
living including nutrition, running, biking, and of course yoga. Realizing the potential for
female-centric, high-quality athletic apparel, lululemon began to grow; expanding across
Canada for the next couple of years and entering the U.S. market in 2003. lululemon
athletica continued to expand both in North America and overseas and announced its
initial public offering in May 2007. In 2009, lululemon expanded its offerings by
launching an e-commerce channel and ivivva, a subsidiary specializing in athletic gear
for girls 4 to 14 years old.
Dennis “Chip” Wilson
The success of lululemon is attributable to the vision of Dennis “Chip” Wilson. After
taking the company public in 2007 and serving as Chief Innovation and Branding
Officer, Chip officially turned over the reins in January 2012. During his time with
lululemon, he helped the company grow to 147 stores, transformed the brand into a cult
following, and provided company focus by developing the lululemon manifesto. He
remains chair- man of the board and continues to represent lululemon at investor
meetings. His successor, Christine Day, has renewed the company’s goals and
assembled an exemplary “management team with a complementary mix of retail,
design, operations, product sourcing, marketing and information technology experience
from leading apparel and retail companies such as Abercrombie & Fitch Co., The Gap,
Inc., Nike, Inc., and Speedo International Limited.” Christine Day Christine Day joined
lululemon as Executive VP of Retail Operations in January 2008 and was promoted to
CEO in June 2008. Day was with Starbucks for 20 years, most recently serving as
President of the Asia Pacific Group of Starbucks Coffee International. Starbucks and
lululemon are very similar in that both are high-growth, international companies focused
on cultivating their culture and brand loyalty. Day will focus on brand expansion and
developing long-term corporate and business-level strategies.
Don’t Trust that an Old Age Pension Will Be Sufficient
In terms of financial strength, lululemon athletica (“LULU”) is positioned to weather
declines in the economic environment. The company has a significant amount of cash,
over 50 percent of assets and, although the company has a line of credit should it face
an immediate liquidity need, lululemon holds no debt. Companies such as Adidas, Nike,
and Under Armor all carry some debt and it is certainly noteworthy to see lululemon
operate with none. lululemon athletica has experienced tremendous growth in both
revenue and profitability over the last couple of years. Revenue grew by a compound
annual growth rate of 41.47 percent from fiscal year (FY) 2009 to FY 2012. lululemon’s
net profit margin improved from 12.87 percent in 2010 to 18.39 percent in 2012, driven
mainly by improvements in the gross margin and control over the growth in sales,
general, and administration expenses. As expected by the growth in sales and
profitability, both return on equity and return on assets also increased (Exhibit 2).
4
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prior permission. Violators will be prosecuted.
As seen in Exhibit 3, lululemon compares very favorably to some very well-known
companies within the performance apparel clothing industry. Because lululemon
operates primarily in a niche product market, it is able to compete against the likes of
Adidas, Nike, and Under Armour and still generate above-average returns, principally by
offering customers what it believes are higher- quality products. Historically, Adidas,
Nike, and Under Armour did not offer separate apparel lines for yoga activities;
however, all three have recently entered this particular market. Even so, lululemon is
the only publicly traded company focused solely on the yoga apparel market. While
lululemon does face competition from other companies with yoga apparel lines, none of
these competitors can demand the premium that lululemon has on its products.
The Pursuit of Happiness Is the Source of All Unhappiness
At the beginning of FY 2013, lululemon was forecasting that its revenue and profit would
continue to grow, albeit at a slower pace compared to the firm’s recent growth rates.
Management was forecasting that same-store sales would increase around 20 percent
in FY 2013 and that earnings per share (EPS) would be between $1.50 and $1.57. The
EPS expectation translates into a 16 to 22 percent growth range for net profit in 2013,
which is substantial given the economic condition of the United States. Even so, these
forecasts disappointed stock analysts that had expected the company would maintain
its breakneck pace of growth at least throughout 2013. As the first – and sole – potential
sign of trouble for the company, YE 2012 inventory increased nearly 85 per- cent from
$57 million to $104 million. This growth in inventory combined with a lower sales growth
forecast may reflect pressure from the economic environment, pressure that lululemon
https://bookshelf.vitalsource.com/#/books/9781305142732/cfi/744!/4/4@0.00:60.9
5/10
5
has historically weathered unscathed. Additionally, with the increased popularity of yoga
and sustained above-average returns, new competitors are beginning to enter the
market. For instance, in late 2011, Nike, Gap, and Nordstrom launched their own lines
of yoga clothing to capture part of the growing market. The increased competition from
these major apparel retailers will pressure lululemon and test its ability to continue
generating desirable returns for shareholders as well as for other stakeholders such as
employees.
Life Is Full of Setbacks
lululemon athletica has four primary competitors that operate in the same sphere of
yoga apparel: Nike, Adidas, Under Armour, and VF Corp. Up to this point, lululemon has
been able to successfully expand its business through focused and targeted marketing
– but the firm’s competitive environment is rife with potential threats and challenges.
Nike
Nike began with a handshake between two visionary Oregonians: Bill Bowerman and
Phil Knight. This pair grew the company from a U.S.-based footwear distributor to a
global marketer of athletic footwear, apparel, and equipment that is unrivaled in the
world. Headquartered near Beaverton, Oregon, a suburb of Portland, Nike now
operates in more than 160 countries around the globe. Through its suppliers, shippers,
retailers, and other service providers, Nike directly or indirectly employs nearly one
million people. This includes more than 35,000 Nike employees across six continents,
each of whom contributes to fulfilling Nike’s mission statement: “To bring inspiration and
innovation to every athlete in the world.” The Nike brand is world-renowned and the
company is characterized by strong operational and financial performance. For FY
2011, the company recorded $20.8 billion in revenues and $2.8 billion in income before
taxes. Nike’s balance sheet is strong and the company has approximately $4.6 billion in
cash and short-term investments, representing over 30 percent of assets. Nike holds
under $0.5 billion in debt, a minimal amount compared to its liquidity. In terms of
financial strength, Nike has a substantial capacity to invest in new markets and
ventures. Nike recently launched its own line of yoga apparel to capture part of the
growing market. Nike yoga products are typically part of Nike’s Dri-Fit line and are
priced less than lululemon’s products. Nike tops are priced from $20 to $40 while its
pants are priced from $40 to $70. The line was launched in late 2011 and it has yet to
be seen whether its products will be attractive to lululemon’s customers.
Adidas
Adolf (“Adi”) Dassler was inspired by a single idea when he made his first shoes in 1920
at just twenty years of age: to provide every athlete with the best footwear for their
respective discipline. This principle guided him and his company until his death in 1978.
His first shoe, made from the few materials available in the difficult post-war period, was
constructed using canvas. From the very beginning, Dassler, a passionate athlete
himself, was in close contact with sporting event participants, and personally attended
6
many important sporting events.28 On January 31, 2006, Adidas acquired Reebok
International Ltd., providing the new Adidas Group with a footprint of around €9.5 billion
($11.8 billion) in the global athletic footwear, apparel, and sports hard- ware markets.
Today, the Adidas product range extends from footwear and apparel to accessories for
all kinds of sports. Its key priority sports are running, soccer, basket- ball, and
training.29 Similar to Nike, Adidas is a world-renowned brand and is characterized by
solid operational and financial performance. For FY 2011, the company recorded €3.3
billion in revenues and €0.9 billion in income before taxes. Adidas’ balance sheet is
moderately strong; the company has approximately €1.3 billion in cash and short-term
investments, representing over 12 percent of assets. Adidas holds under €1.3 billion in
debt, a moderate amount compared to its liquidity. Based on these metrics, Adidas has
the capacity to invest in new markets and ventures. Though Adidas does have yoga
apparel, its line is very limited. The firm’s styling is significantly different from
lululemon’s, suggesting that Adidas is targeting a different market compared to
lululemon.
Under Armour
Founded in 1996 by former University of Maryland foot- ball player Kevin Plank, Under
Armour started with the simple plan to make a superior tee shirt; one that provided
compression, wicked perspiration off your skin rather than absorbing it, and worked with
your body to regulate temperature and enhance performance. Under Armour’s mission
is to “Make all athletes better through passion, design, and the relentless pursuit of
innovation.”31 For FY 2011, the company recorded $1.47 billion in revenues and $0.16
billion in income before taxes. Under Armour’s balance sheet is strong and the company
has approximately $175 million in cash and short-term investments, representing over
19 percent of assets. The company holds approximately $78 million in debt, a relatively
minimal amount compared to its liquidity. Under Armour has the capacity required to
invest in new markets and ventures, but not to the degree that Nike and Adidas
possess. The company has grown rapidly over the years, but remains significantly
smaller than Nike and Adidas. The Under Armour brand is strong in the United States;
however, it lacks the worldwide awareness that Nike and Adidas possess.
Nevertheless, the company has strong operations and financial performance and has
marketed its products very aggressively in the United States. Under Armour recently
launched its own line of yoga apparel to capture part of this expanding, growing market.
Under Armour’s yoga products are priced from $40 to $100 and its pants are priced
from $70 to $100. The Under Armour yoga line has styling similar to lululemon yet has a
limited selection as, to date, the company has focused on other apparel lines.
VF Corporation
VF Corporation, organized in 1899, is a worldwide leader in branded lifestyle apparel,
footwear, and related products. VF is a highly diversified apparel company with multiple
brands, product categories, channels of distribution, and geographies. Included in the
VF Corp. p …
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