Operation Management
Lululemon Athletica
April 9, 2014

The Lululemon Manifesto

Lululemon Athletica is a yoga inspired athletic clothing company founded in 1998 by Chipl Wilson. This clothing company has become a retailing phenomenon in Canada with nearly 300 stores. With Lululemon tapping into the underserved women demographic it isn’t hard to see why people are willing to pay $100 for yoga pants or $60 for a tank top of good quality. This has helped drive sales up giving it a rocketing stock price and steadily increasing market share (1). All this has been done with little advertising but through offering quality products and the word of mouth of satisfied customers. Lululemon has since branched off to offer a wide variety of men’s clothing and running gear focusing more on people who are working out and running than just those women doing yoga.
Lululemon is growing fast in Canadian cities and it’s not a surprise to see they have many stores in some of the best locations available. Here in Toronto Lululemon has a thriving store located in the heart of downtown in the Eaton Center shopping complex. This store is very impressive and helps attract a larger customer base by locating itself in an area where the amount of foot traffic is tremendous. The Eaton center is unlike other shopping centers, its a large building located in the heart of the largest city in Canada. Located between two subway stops and countless office and apartment buildings it really is one of a kind. This location and the outstanding quality offered allows Lululemon to seek new and interesting ways of promotion including offering yoga classes and running clubs weekly for free. Lululemon has been transforming and evolving since its start but there are always areas in need of improvement to optimize its success.

Industry Analysis
Porters 5 Forces

Threat of New Entrants: The apparel industry is a very competitive industry with the major brands controlling much of the market. The athletic clothing industry is large but much of this is controlled by brands like Nike, Adidas, and Under Armour. In recent years here in Canada Lululemon is among these names when yoga or exercise is involved. It isn’t difficult for new companies to enter the clothing industry but there is a high risk of failure due to lack of brand awareness and loyalty. Since this is a difficult industry to survive in the threat of new entrants would be lower than other industries but with the overall cost of entry low the threat exists.

Bargaining Power of Supplier: This force gives the suppliers the power to drive the prices up to earn more profit if it feels it can charge more money without losing the business. Lululemon is offering women unique athletic apparel and their target markets are young women interested in a healthy lifestyle. With the fitness and health industry continuously growing there is a big market for these quality products. This product has been noticed by its competitors and brands like Nike and Adidas have begun to offer similar products with similar features and style. Regardless at this point Lululemon’s suppliers will have a lower bargaining power but in the future this will likely change as substitute products begin to appear.

Bargaining Power of Buyer: This force allows buyers to drive the prices down if the seller feels the threat of other less expensive products are likely to replace its own unless the prices are more favorable to buyers. In relation to Lululemon Athletica, they face a lot of competition in their industry from companies like Nike and Addidas. These companies are renowned by consumers since they believe in strong marketing strategies to attract customers centered on popular athletes. Therefore, this company must offer high quality products to sustain their prices. Therefore with many small buyers, no single buyer has power to influence the decisions but a threat exists from other companies.

Rivalry among Competing Firms: Lululemon faces high competition in this industry by its rivals like Nike and Adidas. These companies are beginning to offer identical products with high quality and competitive prices. Lululemon faces high rivalry among its major competitors.

Threat of Substitution: This force allows buyers to seek more affordable substitutes. Lululemon offers high-end but expensive athletic apparel for women. There are substitute products being offered from almost every other athletic apparel brands out there. Therefore the threat of substitutes is very high and something which will likely be an ongoing concern for Lululemon.

SWOT Analysis

Strengths * High quality products * Loyal customers * Word of mouth * Strong brand equity * Free yoga classes | Weeknesses * Expensive prices compared to competitors * Women focused * Undiversified * Lack of store locations * Yoga driven | Opportunities * Further Global expansion * Product diversification, include men’s clothing * Introduce more products/accessories * Locate cheaper supplier to reduce prices | Threats * Product substitution is high * Ever evolving fashion trends * High competition from strong brands * Price conscious consumers * Economic slowdown |

Operations Decision Areas

Human Resource and Job Design Lululemon's culture is about having a healthy lifestyle. They offer free yoga classes and organise events for running. In order to stay true to this kind of culture, they look for employees who enjoy that type of lifestyle and provide a work environment tailored for active people. The company is very community based, they encourage everyone and their employees to join in the yoga classes and running events. Yoga class and running event schedules are posted in the store for everyone to see and on their website. Employees are expected to provide customers the knowledge and enthusiasm for a healthy lifestyle. Lululemon's culture is so strongly embodied within their employees their isn't much left to improve upon.

Intermediate and Short-Term Scheduling Scheduling employees in the retail clothing industry depends on the number of people trafficking the store and their sales. The industry strongly correlates to the economy, if the economy is slow, sales for clothes will decline. Thus, scheduling less employees when sales are in decline and scheduling more when sales are up is the general idea in this industry. Scheduling the right number is important so that their isn't any unproductive employees. Therefore, keeping a close watch on sales and the way the economy is progressing is important for scheduling.

Process and Capacity Design The flow of product is efficient, shipment of merchandise comes in and are tagged with security sensors to prevent theft. They are then moved to the sales floor and placed on display and for sale. Only certain amount of merchandise is ordered in by the regional manager to ensure there is just enough product for customers. Forecasting future sales is important in order to judge how much merchandise a particular store would require. It is also important to not over purchase if the store has limited space.

Layout Design Lululemon's stores requires medium to large retail space for their merchandise and yoga classes. They require open space for their yoga classes, so they place their merchandise on racks and shelves with wheels in order to move around freely to create space. They also place their merchandise on the walls with shelves and racks. It would be great if the store can put up mirrors on the walls to make the space look more spacious and when doing yoga the people can see if they are doing their exercises correctly. Mirrors would also provide customers the ability to try on certain clothes like jackets to see if they like it on themselves. The walls are occupied by their merchandise so mirrors may not be viable, but it is something to keep in mind. Inventory Management The management of all inventory supplies are not directly maintained by each of the retail outlets, however it’s a combination of both regional management and corporate headquarters of Lululemon. Most of its inventory is handled by a regional manager who performs industrial analysis of the outlets area to determine supply and demand needs. The merchandise is then distributed by local suppliers to each store where it is the job of the store managers and employees to sell them. Some of the merchandise in the store is directly handled by the individual stores, such as yoga mats and their production. Typically all Lululemon stores have general blank yoga mats and have the equipment installed which can customize the yoga mats to customer specification. The production, design and coordination of all the aspects of yoga mats are the responsibility of the store managers. To manage all inventory this store uses GFI MAX inventory management software, managed jointly by the store, regional and corporate management. The inventory management system does need some improvement and fix up. The store has very little control over it’s merchandise inventory stock. Most of it merchandise inventory is pre-ordered by regional manager and shipped to the store to sell. Most of Lululemon stores have decentralized design and layout. As such the store should have more control over it’s product that each store sells. By allowing each store to determine it’s merchandise inventory needs, the individual stores can choose which merchandise is popular in each location.

Supply – Chain Management The managing of relation between the Lululemon store at Eaton Center and its vendors are not maintained by the retail store itself. Most decision about supplier relation and service are determined by regional managers and corporate headquarters. There are 230 Lululemon retail store worldwide and about 80 factories in 17 countries. The above in red are location of all factories which produce merchandise for Lululemon stores. To maintain it vision and mission statement “We’re a values-based company with a mission to create components for people to live long, healthy and fun lives. Carrying out our mission is only possible with a healthy planet and thriving company; we’re taking steps to reduce our footprint across all areas of our business while also creating a positive, lasting impact in the world.”(1). Based on its vision and mission goals global manufacturing and supply chain management is not as easy to maintain or coordinate. As such our suppliers implement a vendor’s code of ethics to satisfy any unethical behavior. The code of ethic outlines all global compliance principles Lululemon requires of all its business partners adhere to. Their respective headquarters maintains nearly all of the relationship between Lululemon and its vendor. There could be some improvement in the stores supply chain management. Due to the fact there is 230 Lululemon retail outlets worldwide giving each store some control over its relation with local vendors would be beneficial to both parties. By having control over it’s supply chain the store can control which merchandise is currently in fashion and which need further consideration. Also not every store has similar customer preferences. Each store then can tailor their merchandise requirement to their specific needs and in addition to the over all goal of the company.

Service and Process Design Lululemon began as a strictly women’s clothing line for yoga oriented activities.
Since their establishment in 1998 Lululemon has since expanded its reach into both men’s and women’s exercise clothing with a focus on both yoga and running. Lululemon began as a retail store inside a yoga studio, so keeping with tradition they still offer free yoga classes at each location and with the expansion into running they also hold running clubs (1). In regards to service Lululemon looks to create stores their customers can feel comfortable in. When you walk into the store you are greeted by the athletically diverse people who know the products. The backbone of Lululemon is the fabric they use in their products including Luon which is their signature fabric designed to handle serious stretch and sweat. This is a top of the line fabric designed to absorb sweat, stretch four-ways, be soft like cotton, breathable, and designed not to shrink (1). This fabric is behind the success of Lululemon products as it is the key fabric used in most of what Lululemon creates including their famous yoga pants. When it comes to service and process design it is easy to see why Lululemon has been so successful. With their dedication to quality and a product line aimed to withstand five years of intended use Lululemon has created a very successful company in just 15 years (1). The problem with quality is these fabrics can be very expensive and a pair of yoga pants can be as much as $100. For future growth Lululemon can strive to explore new and cheaper fabrics to offer a less expensive product line. This can attract new shoppers who are looking to enter the yoga and exercise market but don’t want to spend a lot of money. Regardless at the moment people don’t mind paying the money for these top of the line products and this dedication to quality has given the buyers of Lululemon a new standard at which they view yoga and exercise products. Lululemon offers free yoga classes and running clubs at all their locations. In Eaton center the store was focusing more on running clubs and the promotions of their running products. They are currently offering 3 weekly running clubs and only 1 yoga class. If Lululemon wants to stay at the top of the yoga clothing market they need to continue the focus on yoga and offer free class more than once a week. Lululemon was born out of a yoga studio and they need to stick to the promotion of yoga products as well as running and exercising. The store can offer more yoga classes and this will keep attracting new customers in both the yoga and running customer segments.

Quality Management Examining Lululemon’s process design they established the high quality standards they strives to achieve. They aim at giving their products the design and quality to withstand five years of intended wear and tear. Their stores are created to not only sell products but promote awareness for exercise and a healthy living. Lululemon invites you to come to the store for a chat regarding yoga, running and other athletics (1). They invite you to give feedback in the store or online which is actively monitored and considered in future product lines and services. Quality is at the center of the Lululemon experience and has always been the main concern when it comes to the products and services offered. With high quality fabrics like Luon going into its products the quality lives up to expectations and has helped Lululemon become a preferred product in the yoga and athletic clothing market. Quality management doesn’t seem to be an issue when it comes to Lululemon and its products and services. The company was founded and built on the reputation of its product quality and they strived to offer top of the line products which functioned well. They took these products and offered them to yoga studios and instructors. Once people saw the quality and functionality the word of mouth from existing customers helped spread the name of Lululemon. Quality has been the benchmark of the rapid growth Lululemon has seen in the last 10 years. As long as Lululemon continues its focus on quality products they should continue on their current path of growth and success.

Implementation Stratagy

The implementation of all these changes can be difficalt but it would benefical to each store and the company at whole. A well planned strategy would be require to manage these changes, if not than confusion and disorder would rise in Lululemon identity. The first step would be to make changes to the supply chain management process.Their should be a shift from alsolute corporate control to more decentralized standard of management. A (P.E.S.T.D.G.E.) analysis should be preformed on all retail outlets to determine the political structure of local region, economic condition of surrounding neighboorhood, social trend in fashion, technology in production capabilities, demograph of customers, global vendors, and environmental concerns. Once the analysis is done than a strategy can be implemented to which store is more favoured to certain merchandise than others. The managers of each store then take these information and strategy plan and optimise their store to represent their customer needs. This would require each store to maintain a strong relationship with thier vendors and vice versa. The second change would be to allow each store to have some control over its merchandise inventory. This change would be tied to the supply chain management change. By controlling what merchandise is acquired the store can stock enough inventory to meet customer need but not too much for significant surpluses. The current leading inventory software for purchasing, tracking, and analysis of inventory turnover is GFI MAX. Different store have different customer need so a flexible inventory system would allow each store to maximize its customer needs. Most of the othe decision area do not need significant improvement.

Bibliography
1.) Lululemon Athletica. Retrieved From:
< http://shop.lululemon.com/home.jsp >