Will Lululemon Athletica Become the Next Top Brand?
Christopher Boyken
MGT 4013
April 24, 2012

Executive Summary
Lululemon was founded by Chip Wilson in 1998. The company started out in Canada with several stores where the company eventually grew to 165 stores in Canada, United States, Australia and China. The industry in which Lululemon competes in is fitness apparel, with competitors such as Nike, Adidas, Under Armour, and Champion. The fitness apparel industry is very attractive with an ever growing increase in the amount of individuals choosing to lead a healthier life. Lululemon holds a good position in this industry and have room to grow in the future to gain an advantage over its competitors. The way Lululemon has been executing its strategy is a key factor to how well the company has been performing the past years. Although the company’s performance has been outstanding recently, there is a strategic issue in which Lululemon should try to deal with, and this is advertising. There is a couple of action plans that can be implemented and help fix the strategic issue Lululemon faces. Lululemon is a growing company that has a promising future and will continue to attract numerous investors.

Table of Contents Introduction (Needs and Purposes) 4 Strategic Posture 5 Brief History 5 Core Values 5 Mission Statement 9 Vision Statement 9 Business Definition 10 Broad Goals 12 Smart Objectives 14 Key Functional Strategies 16 Key Organizational Structure 19 Analysis of Strategic Posture 20 Conclusions/Recommendations 21 Macroenvironmental Analysis 21 Economic 22 Political 22 Technological 23 Societal 23 Conclusion 24 Industry Analysis 24 Dominant Economic Characteristics 24 Five Forces Model 26 Driving Forces 30 Strategic Group Map 33 Strategic Moves of Rivals 33 Key Success Factors 34 Overall Conclusion 35 Company Situational Analysis 36 Strategic Performance Indicators 36 SWOT Analysis 39 Costs/Prices 41 Weighted Competitive Strength Assessment 43 Overall Conclusions 43 Strategic Execution 44 Structure (Organizational) 44 Systems (Key Operating) 44 Style of Management 45 Skill Level of Staff 46 Staff (Quality) 46 Strategy 47 Shared Values (Organizational Culture) 47 Conclusions 47 Strategic Issue 48 Strategic Issue or Problem Statement 48 Decision Criteria 48 Alternatives 49 Evaluation of Alternatives 50 Strategic Choice 51 Strategic Action Plans 52 Strategic Control and evaluation 53 Conclusion 55 References 57 Appendix 61

Introduction Lululemon has grown to become a top seller in yoga and fitness apparel over the past couple of years. This has created wealth not only for the company, but also for shareholders. The need for this paper is to allow investors to gain information about Lululemon and how the company is growing and maximizing shareholder wealth in this attractive industry in which Lululemon competes. The paper will help investors realize that Lululemon is growing and becoming a top competitor in the fitness apparel industry. The purpose of “Will Lululemon Athletica Become the Next Top Brand?” is to provide the information in which investors will use to gain knowledge about the strategies Lululemon uses, its financial performances, the industry it competes in, and how the company compares to competitors. After reading the paper, the investor will have gained more knowledge about Lululemon and why an investment in the company would be beneficial and help gain profits for the individual.

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Strategic Posture

Brief History
Lululemon Athletica was founded in 1998 by Chip Wilson and the first store opened in Vancouver BC (Lululemon Athletica: our company history, 2012). Chip Wilson had a vision to change the yoga market by introducing newly innovated yoga attire and eventually expanded to include running and fitness attire as well. Lululemon has grown from one store in 1998 to 165 stores as of October 30, 2011 (Quarterly Report, 12/11, 25 Lulu). Lululemon has expanded from Canada to the United States and even to other parts of the world like Australia. Chip Wilson’s main purpose of the first Lululemon store was to appeal to women who wanted better quality and better performing attire while doing yoga or running. The product line of Lululemon has now spread to not only women, but men and young girls who are active in fitness and yoga.
Core Values Core Values | * Quality * Product * Integrity * Balance * Entrepreneurship * Fun * Greatness | (Workplace Code of Conduct, 2007). * Quality
Lululemon’s use of the word quality takes on a number of different meanings. The company produces quality products, customer service, and a quality experience every time a customer walks into one of their stores. Lululemon uses high quality material to create products that surpass the products that their competitors offer. The advanced fabrics that Lululemon uses are Luon, Luxtreme, and Silverscent. These three materials give the final products different features than the competition’s products. Luon pushes away perspiration and wetness to the outside of the shirt so it does not stick to the body. Luxtreme accomplishes the same features, but is also lightweight and silky for more active exercising. Silverscent has silver in the products which reduces odors that are caused from working out (Annual Report 2010). The customer service Lululemon offers is important to the success that the company has achieved. “Our goal was to train our people so well that they could in fact positively influence their families, communities and the people walking into our stores” (Lululemon Athletica: our company history, 2012). Lululemon’s employees provide their customers with knowledge not just about their products, but also about yoga and fitness. The company offers many events for their customers as well. “We host in-store events ranging from self-defense to goal-setting workshops to complimentary yoga classes led by our community ambassadors” (Who is Lululemon Athletica, 2012). Lululemon is not just focused on selling their products and making a profit, they are also interested in helping people who want to become active and stay active in fitness and health. * Product
Lululemon offers products that will motivate people to participate in yoga and fitness related activities. Because the products Lululemon offers are top quality, people will keep being active because the products they wear or use allow for a better workout session. With satisfaction come results, and in the fitness industry, results are what matter most. Lululemon’s product line is somewhat small considering they focus on just yoga, running, and a small amount of workout attire. Lululemon’s products are among the best in the fitness industry, for this reason customers keep coming back and buying the products Lululemon offers. * Integrity
Lululemon has succeeded financially because of the amount of integrity that the company places on every aspect of the business. “Our Company is committed to operating in accordance with the highest ethical standards and applicable laws, rules and regulations. We place the highest value on the integrity of each employee and Company representative” (Code of business conduct and ethics and integrity line, 2012). Lululemon places high emphasis on employee conduct and actions, and rely on employee conduct to represent the business as a whole. Lululemon has set a strict number of rules referred to as the “code” that all employees must abide by. “The Company's name and reputation depend, to a large extent, upon employees taking a personal responsibility for maintaining and adhering to this Code as well as related policies and procedures” (Code of business conduct and ethics and integrity line, 2012). * Balance
The word balance could mean many different things in terms of a business. It appears that Lululemon interprets the word as to balance a healthy lifestyle with the work life, or any other type of life. Lululemon works to inform customers and other active individuals about how to lead a healthy life while worrying about other concerns as well. “She is increasingly tasked with the dual responsibilities of career and family and is constantly challenged to balance her work, life and health” (Lululemon Athletica inc. Stock Description, 2012). “She” being the main target market for Lululemon. Lululemon offers individuals a chance to learn how to become healthy and fit while dealing with other aspects of life. * Entrepreneurship
Lululemon has practiced entrepreneurship over the past couple of years by allowing individuals to open up many new stores because the number of stores has grown dramatically. These individuals turn their passion for health and fitness into businesses that supply others with the same passion. Not only are these individuals practicing entrepreneurship, but the founder Chip Wilson was named entrepreneur of the year for Canada by the University of Victoria’s Gustavson School of Business (Timescolonist.com, 2012). If it were not for the entrepreneurship skills and allowance for others to use those skills, Lululemon would most likely not be as successful as they are today. * Fun and Greatness
One way that Lululemon expresses fun and greatness is through their employees and stores. Employees exhibit a type of attitude that affects the customers and in return affects the sales. From experience, the employees are all knowledgeable and happy to help all customers. The stores are lit and painted to give a mood of happiness and a fun environment. The other aspect in which Lululemon’s core value of fun and greatness is expressed is by wanting to give people a chance at a fun and great life. “Provide our guests with knowledge, tools and the components for people to live longer, healthier and more fun lives” (Wilson, 2009). Lululemon has a mindset that provides individuals with the right information and products in order to live a fun and great life.

Mission Statement Lululemon does not have a set mission statement, but the company does have a manifesto. This manifesto is a number of quotes, and sayings that are used to try to inspire people. It appears that mission statement for Lululemon could be to inform and inspire individuals to lead a healthy and balanced life and provide all the essential tools for them to succeed. Lululemon advertises many of the quotes from the manifesto on the shopping bags, on posters and other various places. Some of the sayings are, “Do one thing a day that scares you”, “Listen, listen, listen, and then ask strategic questions”, and the last one which could also be used as a mission statement, “lululemon athletica creates components for people to live longer, healthier and more fun lives. If we can produce products to keep people active and stress-free, we believe the world will become a much better place” (The Lululemon Manifesto). Lululemon does not have a stated mission statement, but they offer another form of it by creating a manifesto. The manifesto sets Lululemon apart from the competition by giving customers quotes that can inspire them and allow them to change their lives.
Vision Statement
The vision statement for Lululemon has changed over the years as they have grown. When Chip Wilson created Lululemon, the vision statement was “to be a community hub to provide our guests with knowledge, tools and the components for people to live longer, healthier and more fun lives” (Wilson, 2009). Chip Wilson learned that this method was not possible with the small number of stores and the large number of customers. The customers were not receiving the same amount of personal time and therefore they were not learning about all the information Lululemon and its employees had to offer. Chip Wilson decided to expand and create a new vision statement. “People have expressed interest in our training and our vision of elevating the world from mediocrity to greatness” (Wilson, 2009). Instead of offering a place for people to come in and learn about yoga and fitness in a type of workshop setting, Lululemon educated each staff member to be able to give the same information but as a one on one presentation. This cost less money to produce and still gave customers the information and knowledge that they were seeking without having to share time with six other people listening and asking questions of one employee. This new vision statement has lead Lululemon in the right direction considering they have become a top competitor in the yoga and fitness industry.
Business Definition
Lululemon became a top leader in yoga attire and product sales by having a target market of mainly women. Recently they have expanded their target market for men. Lululemon has succeeded mainly because they created a niche and excelled at it. The company started off in yoga sales, but has branched off into products for runners as well. Recently Lululemon created a new brand name called Ivivva Athletica, which is aimed towards younger girls with the intention of selling dance and active wear. The other main aspect of Lululemon’s target market is wealthy individuals who are informed about health and fitness. The average price of a woman’s top is about $70, a woman’s pant averages about $100. The average price of a man’s top is $60-$70, while the average pant price is $100 (Lululemon Athletica, 2012). Lululemon also offers other products to accommodate fitness-minded people. Items such as yoga mats, props, and yoga movies allow for yoga enthusiast to buy superior products for that activity. Lululemon also offers items such as gloves, hats, headwear, bags, underwear and socks.
The technologies that Lululemon uses have been innovated in order to produce top quality products. As stated before, Lululemon uses quality materials in order to produce quality products. Some other fabrics that were not stated earlier that Lululemon uses are; tech fleece, seamless, swift, circle mesh, coolmax, power mesh, stripe mesh, boolux, pima cotton, stretch fench terry, sweater knit, vitasea, and many other fabrics. Lululemon categorizes these fabrics and the other ones not stated into a group of six different families. * Luon Family- these fabrics are ones that are used for yoga, and they will not stretch out or become baggy. It wicks away sweat from the body to the outside of the material. Some of the fabrics in this family are used for running gear and are mainly to stop irritation and allow for breathing among the fabric. * Swift Family- these materials are mainly used for the running line. It is lightweight and allows for a more comfortable run or workout. * Silverescent Family- the materials in this family help with odors, they are anti-stink which helps with individuals who perspire and create a lot of odor as they workout. * Meshes and Liner Family- there are different types of meshes used in this family which all deal with different situations. All the meshes are comprised of anti-stink material, and they are lightweight, breathable, and wicks away sweat. * Natural Blend Family- this family is comprised of the most type of fabrics. They range from fleece to cotton to cashmere, to silk. These are all used for different means, but they all offer a unique factor to the products that they are produced in. * Outerwear and Insulation Family- this family contains materials such as nylon/spandex, water and wind resistant material, polyester, and breathable materials for a better quality product.
The materials and technology used to create these products allow for Lululemon to produce a high quality pant, shirt, jacket or even sock that gives the customer the best performance available (Fabrics and Technologies, 2012). Lululemon is partnered with various suppliers from places such as “Canada, the United States, China, Taiwan, South Korea, Peru, Israel, Cambodia, Thailand and Vietnam” (Our Factories, 2012). Lululemon uses different companies from different countries to do certain jobs in creating the final product.
Lululemon uses a vertical retail strategy as they sell directly from their brand name store and present customers with more information about the products than if they were in a regular retail store. Lululemon offers in store yoga sessions, and other activities that allow customers to really understand and feel like Lululemon is trying to help them become healthier rather than just focusing on profits. The company is increasing the number of stores each year which is a sign that they are focusing more and more on vertical integration.
Broad Goals * Finance Goals
The goal for fiscal year 2011 was to end with over $900 million in revenue (Investor Relations, 2011). After an increase in revenue from about $453 million in 2009 to about $712 million in 2010, this goal is very reachable, especially with an increase in stores the past year (Annual Report 2010, 53, Lulu). The way Lululemon would achieve this is if they opened new stores without going into debt and creating more sales than the total operating costs that would be created with this. Another factor increasing the amount of revenue is the increasing sales over the internet. In 2010 eight percent of revenue came from e-commerce sales. Another financial goal that Lululemon focuses on is to increase the wealth of shareholders. “We are committed to serving the best interests of our shareholders” (Investor Relations, 2011). From 2009 to 2010 the earnings per share increased from $.82 to $1.69 (Annual Report 2010, 53 Lulu). This gives a good probability that the earnings per share will increase in the 2011 annual report as well.

* Market Goals
It appears that Lululemon’s market goal is to become the leader in yoga apparel and equipment, and fitness apparel sales among women in the fitness industry. The company has somewhat reached that goal already, so a new goal could be to become the industry leader in yoga apparel and equipment sales among men. “We believe the premium quality and technical rigor of our products will continue to appeal to men and that there is an opportunity to expand our men’s business as a proportion of our total sales” (Annual Report, 2010, 4 Lulu). There is not a large market for men within the yoga sector, but the way Lululemon could become the leader is if they advertised to men and appeal to them which could take them away from the other leading brands that men are already loyal to. Because the price of their apparel is high compared to competitors in the fitness industry, Lululemon has to prove to customers that the products they offer are in another category in terms of quality. This factor could help them become a leader in the fitness industry. * Operation Goals
The operation goals in which Lululemon wants to succeed in would consist of being able to produce and manufacture the number of goods being ordered. With the increasing amount of customers that Lululemon is receiving, the amount of supplies and speed of producing the goods is becoming hard to keep up with. “We may experience difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products, as well as delays in production and shipments, as our products are subject to risks associated with overseas sourcing and manufacturing” (Quarterly Report 12/11, 29 Lulu). If Lululemon’s supplier can keep up with the demand of materials needed, and Lululemon’s production line can produce the products at a fast enough pace, the company will be able to succeed in their operational goal. The other operational goal Lululemon will focus on is the increase in the amount of e-commerce sales that make up a portion of revenue. If Lululemon can increase the amount of internet sales, the revenue will increase as well as more shoppers are using the internet to shop instead of going to malls or shopping centers. Lululemon estimates that e-commerce sales will increase from eight percent to ten percent in 2011 (Annual Report, 2010, 30 Lulu). The way that Lululemon can achieve this is by advertising on the internet, using Facebook’s advertising space could be a great chance for allowing new customers to become familiar with the brand.

SMART Objectives
Lululemon’s goals of reaching revenues of $900 million in 2011, increasing shareholder wealth, becoming a leader in the men’s fitness industry, and continue to give great customer service even though they might have a tough time producing products, can all be evaluated using SMART objectives. * Specific
In terms of being specific, having a goal of reaching $900 million in revenue is relatively specific. It is a set number for a goal in which Lululemon will benchmark their performance. There is not a specific number on how much Lululemon predicts that earnings per share will rise. In the case of increasing shareholder wealth, Lululemon is focusing on achieving the goal but has not established or stated what type of number the company is trying to achieve. In 2010 the portion of revenue that came from e-commerce was eight percent. For 2011 the company predicts ten percent revenue to come from e-commerce. Lululemon is giving a specific number for what the company wants to achieve in terms of online sales. The company is not specific towards the amount of sales that come from men in the future, and they are also not specific towards the market goals they want to achieve. * Measurable and Achievable
The numbers that Lululemon offers are easily measureable and achievable. From 2004 to 2010 the net income for Lululemon has had a compounded annual growth rate of 61 percent; from 2009 to 2010 the growth rate of revenue was 57 percent (Annual Report, 2010, 30 Lulu). If Lululemon’s revenue grows 30 percent from 2010 to 2011 the company would see revenue at $925.2 million. This number would achieve the goal of over $900 million in revenue with almost half of the growth rate that was achieved the year before. The goal of having shareholder wealth increase is an achievable goal. Earnings per share have increased from $.57 in 2008, $.83 in 2009, to $1.69 in 2010. The growth rate from 2009 to 2010 more than doubled, leading one to believe that the earnings per share in 2011 will increase at a substantial rate. The amount of e-commerce revenue can be measured and achieved as well. The revenue of direct to consumer sales, which includes all internet sales and phone sales was only four percent of revenue in 2009, this grew to eight percent in 2010. If the direct to consumer sales increases by four percent again for 2011 and the revenue is about $925 million, the direct to consumer sales percentage of revenue will be 12 percent, and the amount of revenue received would be $111 million. This number is measurable and achievable. An increase, or expansion, in the amount of sales that comes from men is not really measurable because the numbers are not broken down into different categories of sales between genders. An increase in revenue from males could be practiced through different methods to see what will spark an interest is the products for men. * Relevant and Timely
The goals that Lululemon has set out to achieve are very relevant to the company’s future success in the fitness industry, and the company has set goals that can be achieved in a timely manner. Reaching the goal of $900 million in revenue is relevant to the future of Lululemon and can be achieved within the time limit established for it. If Lululemon keeps growing at the rate that it has been, the company can surpass the goal set for 2011. Becoming a leader in men’s yoga apparel and fitness gear is relevant to Lululemon, but it could take more time than wanted. The goal of increasing e-commerce sales is relevant to Lululemon as it will help bring in more revenue and create more customers. Doubling the amount of sales from e-commerce could be attainable within the next year; therefore timeliness is not an issue.
Key Functional Strategies * Corporate
The corporate strategy for Lululemon is to continue its productivity in the yoga and fitness industry. Lululemon is not looking to venture out too far from the main purpose of the company. Lululemon’s main priority is to continue to innovate and create products for yoga and fitness consumers. With the creation of Ivivva, Lululemon has expanded to younger women’s dancing and fitness apparel, but this is not a far reach from what they have already established. Lululemon has created a winning strategy as the results have proved that they are extremely well off in terms of financial analysis and the expansion of the company. * Business
“The mystery is how the chain has managed to turn yoga gear into a miniempire, notching a market value of $10.4 billion with sales of just $712 million last year, and whether it can sustain the pace” (Mattioli D.). The business strategy that Lululemon needs to use to continue this mini empire is to continue to expand the knowledge of their brand name to new customers. The more knowledgeable that fitness and yoga customers are about Lululemon, the greater the sales will be for the company. “We believe that increased brand awareness will result in increased comparable store sales and store productivity over time” (Annual Report, 2010, 4 Lulu). If Lululemon can achieve the same status of a brand name like Nike, or Adidas, the company’s business strategy will have been achieved. With this strategy in hand, Lululemon will gain competitive advantage over the other brands who produce and sell yoga and fitness apparel only. Lululemon has a plan for getting new consumers and informing others about their brand and products that. One way that the company does this is by using yoga, Pilates and fitness studios to promote the products that the company produces. Lululemon finds any type of these studios that are near their stores and uses that studio to promote their products. “These partnerships are strategically implemented to feature our core athletic apparel and yoga equipment in yoga, Pilates and fitness studios across North America” (Strategic Sales Program, 2012). Lululemon’s business strategy to increase the knowledge of their brand has already been implemented and has helped the company succeed in the recent years.

* Functional
Lululemon’s functional strategy is to keep improving on the quality of its products and produce new ones that are better than the previous year’s edition. The way that the company does this is with the high quality research and development team they have acquired, and continue to spend money on technology and innovation. “Our design team identifies trends based on market intelligence and research, proactively seeks the input of our guests and our ambassadors and broadly seeks inspiration consistent with our goals of style, function and technical superiority” (Annual Report, 2010, 8 Lulu). Lululemon continues to work with partnered suppliers on the quality and characteristics of the fabric that they use. “To ensure that we continue to provide our guests with functional fabrics, our design team works closely with our suppliers to incorporate innovative fabrics that bring particular specifications to our products” (Annual Report, 2010, 8 Lulu). Another technique that Lululemon uses for their functional strategy is to have feedback on their products from ambassadors. These ambassadors consist of many fitness and yoga gurus from all over the United States, Canada and even Australia. This feedback consists of what types of products they believe have the best productivity and performance (Annual, Report, 2010, 8 Lulu). Lululemon is always trying to create new products which give its customers the best fit, feel, quality and performance available. * Operating
In order for Lululemon to continue its success in the future, with the increasing number of stores and customers, the company needs to be able to control its operating functions without any problems. The operating strategy of Lululemon is to control the actions from the suppliers and produce new products within a short amount of time. To ensure the operation of the suppliers will run smoothly, Lululemon pre-approves suppliers to make sure that they will receive what they ordered and in a specified time. Lululemon does not own or operate any manufacturing plants. “We do not own or operate any manufacturing facilities, nor do we contract directly with third-party vendors for fabrics and finished goods” (Annual Report, 2010, 8 Lulu). The strategy to produce new products quickly comes from the North America manufacturers. “Our North American manufacturers provide us with the speed to market necessary to respond quickly to changing trends and increased demand” (Annual Report, 2010, 8 Lulu). Although Lululemon has pushed more of its production to other countries, the company still wants to keep a portion of it in the United States and Canada. There are two distribution centers for Lululemon, one in Canada and one in the United States that distribute items to all of the stores. Lululemon expects the two distribution centers to be able to continue even with the plan to increase the number of stores. Lululemon uses a third party to ship its products to its stores multiple times a week; this gives the stores an assured amount of inventory (Annual Report, 2010, 9 Lulu).
Key Organizational Structure
Lululemon is a non-diversified company; it operates in a single industry. The focus is on athletic gear, mainly for yoga purposes. Lululemon uses a departmental organizational structure for their business. Lululemon organizes its activities into geographic and customer groups. Lululemon’s geographical groups consist of the United States, Canada, and Australia. Its customer groups consist of sophisticated women, men and younger women. The amount of stores for the United States, Canada and Australia are 106, 45, and 14 respectively (Quarterly report 12/11, 25 Lulu). Although the United States dominates in the number of stores, the amount of revenue received was not much more than what Canada received. “Approximately 43% of our net revenue was derived from sales of our products in Canada, 53% of our net revenue was derived from the sales of our products in the United States, and the remaining 4% of our net revenue was derived from sales of our products outside of North America” (Quarterly Report 12/11, 14 Lulu). Lululemon depends majorly on the amount of sales that the company receives from The United States and a large portion from Canada stores as well.
Lululemon depends on a major part of their revenue to come from female customers. There is not a specific number or percentage of what amount of sales come from women, but it is most likely 60-75% of the total sales since the company’s main goal from the start was to sale to sophisticated women who are active in fitness and yoga. The amount of sales from the female counterpart are presumably going to increase over the years as Lululemon produces more and more items for males. Lululemon’s stores and online website do not offer nearly half of the items for males as it does for females. Lululemon started as a company who only focused on females and have recently branched into males, this has a factor on the amount of products for males as the research and development team has not had the same amount of time to create products for males as it has had for female products.
Analysis of Strategic Posture
The strategic posture of Lululemon proves that the overall attractiveness of the company is appealing to investors. With the increase in revenues, earnings per share, stores, and controlled operating expenses, Lululemon will continue to grow as a company and create opportunities for individuals to profit from it. The strategic fit between Lululemon’s goals and its performance is well-matched. Lululemon did not set any goals that the company is unable to reach in a timely manner and each of the goals is achievable if the company continues to improve on the strategies that have already been established. There are not large gaps to fix which allows Lululemon to focus more on innovating and creating new products for the future.
Conclusion/Recommendations
Lululemon’s growth and success has been attained by creating a strategy that works for the company and allows the company to continue growth without having any problems. The ever growing industry for fitness and health has assured that Lululemon will continue to gain new customers and therefore the company will keep seeing revenue rise year after year. The partnerships with the suppliers has helped Lululemon keep an established set of fees and reliability for supplies which allows them to create new products and put them on the market in a short amount of time. If Lululemon wanted to expand at an even greater pace, the company could create a couple of new lines of products. One of these could be a shoe brand, whether it is for running, yoga, or both, the company could experience a greater number of customers through brand awareness. The other strategy that Lululemon could practice is to partner with a sports team, or a couple, and create jerseys which give the athletes a competitive advantage. This idea would also help with the knowledge of Lululemon’s brand to new consumers, and offer a new branch of the company to expand in. If Lululemon can continue to expand and offer new ways to increase brand knowledge, the company can become a part of the big name fitness industry leaders. One factor that can create a problem, or create a positive, for Lululemon’s future is how the macro environment acts and influences the economy and consumers.
Macroenvironmental Analysis The fitness retailing industry has been affected by the macro environment in the past years. As the recession has hit the United States and Canada, the amount of spending on non-essential items has decreased leaving high end retailers, like Lululemon, earning lower revenues and experiencing higher expenses. A list of factors that have affected retailers lately include; “Consumer confidence in the strength of economies, fears of recession, the tightening of credit markets, higher levels of unemployment, higher tax rates, the cost of consumer credit and other factors” (Annual Report 2010 10). The rest of this section will include and explain the major trends in areas such as economic, political, technological, and societal environments and will conclude with a summary of the overall attractiveness of the macro environment. * Economic Environment
As the economy is coming out of a recession, spending and consumer confidence will increase and create even more business for Lululemon. The unemployment rate has declined by about 0.8 percent in August of 2011 to 8.3 percent in January of 2012 (Month: Employment Situation Summary). A decrease in unemployment shows that the economy has grown over the past five years, and that the United States is slowly recovering from the recession. The consumer price index increased 2.9 percent over the last 12 months, therefore causing consumers to spend more money on necessities rather than luxury items (Month: Consumer Price Index Summary). Although the economy has started to see a little bit of growth in employment rates, consumers still have to deal with increasing inflation rates and other economic factors leaving them worried about shopping. * Political Environment
The main factor that will affect the political environment is the next presidential election that will be occurring in 2012. According to Edward McBride, “the election of 2012 will leave America more or less where it started: stuck in an economic slump, bitterly divided politically and worried about its diminishing stature, at least in relative terms, around the world” (McBride, Edward, 2011). New rules and regulations could change how much employees cost for the company either in a good way or a bad way. Shifts towards a greener environment from government rules can affect many companies and cost them more in operating costs. * Technological Environment
Technology has changed more and more the past years, and it will continue to change, creating new opportunities for companies to begin cheaper, faster, and easier forms of production. Another factor that technology has helped is the increase in the amount of online shoppers. The technology to create safe websites to purchase their products allows for companies to earn more revenue than before, and in Lululemon’s case the company earned almost double in 2010 for internet sales than they did in 2009. The technology environment is very attractive for companies. * Societal Environment
The societal environment is starting to lean towards more of a healthy life, and earth. Fast food companies, such as McDonalds could suffer in the long run as people are starting to look for healthier options. Companies who produce a lot of pollution or toxins that are hurting the environment could lose customers who are pro green and want to help the environment. The societal environment is also looking for fast paced service, easy access to products, and more information about products. Companies have to be able to provide services for these characteristics in order to keep customers, and also gain new ones.

Conclusion
The overall attractiveness of the macro environment is moderate due to the economic and political environments instability at the moment. In addition, the societal environment is changing, creating more problems for companies to deal with and adjust their business strategy. The only upside environment is technological. The technological environment offers companies with a promise of being able to offer products that are innovated and can please the needs of customers. As the economy begins to steady off and show promise of higher employment, higher wages, and flat inflation rates for a period of time, the macro environment will begin to become more attractive. The macro environment is not the only factor that companies have to consider when trying to configure to the trends among the population; they also have to figure out the impact of the immediate industry and the competitive environment that comes with it.
Industry Analysis This section of the paper will offer information on the fitness and health retail industry about the dominant economic characteristics, the competitive forces of the industry, what forces are driving industry changes, what market positions do key rivals occupy, the strategic moves rivals are likely to make next, what the key factors of competitive success is, and the overall attractiveness of the industry. Lululemon Athletica is in an industry that contains competitors such as Nike, Adidas, Under Armour, and Reebok, the Gap Inc., Lucy Activewear Inc., and bebe stores Inc. (Annual Report 2010 9).
Dominant Economic Characteristics
The number of customers within the fitness apparel industry is huge and is growing with the increasing number of individuals who are turning to fitness, especially women. The number of rivals is also large, with the main competitors stated above, and other low market ones not mentioned. The fitness apparel industry sales over a five year trend are shown below in the chart. **Lululemon, Nike and Under Armour revenues are in thousands. (Annual Report, 2010, 92 Nike) (Annual Report, 2010, 68 Under Armour) (Annual Report, 2010, 53 Lulu).
The selected companies have all shown an increase in apparel revenues from 2006 to 2010. The growth rates from 2006 to 2010 are shown for each company below. Company | Lululemon | Nike | Under Armour | Growth Rate | 381% | 20.83% | 128.68% | The revenues and growth rates have both shown positive correlations over the past five years. This shows an attractive industry for the fitness apparel. Lululemon has seen the greatest growth rate from the year of 2006 to 2010 at an amazing 381% while Under Armour had less than half of that and Nike was far behind both of them in terms of growth of revenues. While the market size grows, the revenues are going to continue to grow as well if each of the companies continues with product innovation. Product innovation is a large part to becoming a leader in fitness apparel industry. Materials for clothing or shoes influence buyers to what brand or type of product they will buy. If a company can keep up with innovation and produce new products before the others, they will most likely gain new consumers. For example, Nike was the first producer of soccer cleats that weighed less than eight ounces per shoe. This gave Nike the lead in light cleats compared to other companies such as Adidas who took a couple of years to come out with a cleat that was as light as Nike’s. The overall attractiveness of the economic characteristics for the fitness apparel industry is strong because each of the companies has seen growth over the years and there are many different sectors in which companies compete. The five forces analysis will go further in depth into the competitiveness of the industry.
Five Forces Model Because the fitness industry is so large and has many different sectors, the five forces model will focus on the apparel sector mainly for women because that is the main purpose of Lululemon’s operations. Buyer Bargaining Power: Moderate The bargaining power for the fitness industry focusing on women’s apparel is moderate. This is because women do not have as much of an option for fitness apparel as men. The buyer bargaining power is somewhat strong because the switching costs to different brands is cheap, all the buyers have to do is either go to a different store, or look at different brands within retailing stores that are cheaper. There is a large amount of fitness apparel producers, some that are expensive, some that are cheaper, this makes the power somewhat stronger in terms of a buyer’s choice. Some factors that keep the buyer power low are that the customers might not purchase the item frequently, and they purchase smaller quantities. For example, a consumer can buy a couple of shirts that can last a year or two and not have to buy another shirt for a while. Therefore their bargaining power is weaker. The buyer demand for fitness apparel is high which creates a weaker bargaining power. Companies can sell their items at a price they want because they have such a large market. Another factor that creates a weaker bargaining power is that some customers believe certain brands produce better quality and performance and become loyal to the brand. If a customer believes this, they will spend the money for the quality that they will receive. The mix of strong and weak reasoning’s makes the buyer bargaining power moderate. Supplier Bargaining Power: Strong The reason why the supplier bargaining power is strong is because companies such as Lululemon have products which use high quality fabrics. The suppliers develop these fabrics and allow Lululemon to use them and create better products. Other fitness apparel companies use quality materials for their high quality products as well which gives these companies high costs when switching their purchases to alternative suppliers, especially for Lululemon who partner with the suppliers and sign contracts for a certain amount of time (Our Factories, 2012). The other factor that makes the supplier’s bargaining power strong is the fact that the market for the fitness apparel industry is so big and is always in demand of products. Companies cannot afford to drop a supplier and partner with a new one with a chance of not receiving supplies in time to produce and keep inventory levels accurate. For companies who produce products that can use material from many different suppliers make the bargaining power for those suppliers weaker. Other than that, the suppliers for the top companies in the fitness apparel industry have strong bargaining power because they offer the type of materials that give those competitors the edge in performance and quality. Competition from Substitutes: Weak The competition from substitutes is weak because there is really no substitute for fitness apparel other than regular clothing, which most people do not use for work out or fitness. T-shirts are the only type of apparel that could be considered as a substitute because people can work out, run, or do any other type of fitness in regular t-shirts. But jeans, denim shorts, khaki shorts etc. do not offer the same type of comfort as athletic shorts or pants, therefore they are not really a substitute for fitness apparel. Competition from New Entrants: Strong The competition from new entrants is strong, mainly because of the size of the market. The buyer demand is growing rapidly and allowing a chance for a new entrant to come in and take business away from the other competitors. Another factor that makes the entry easier is that other competitors are easily making profits, and a new entrant could expect to earn attractive profits as well. A new competitor could come into the industry focused on a certain product, like Lululemon did with women’s yoga apparel, and create a large market for their product over a few years. The barriers to entry are not that high, the only problems would be start-up costs and finding a supplier of materials. Suppliers of materials are readily available seeing as there are a vast number of suppliers all over the world producing materials for all the companies. The only factor that would make the competition from a new entrant weak is if they tried to compete against companies like Nike, Adidas, and Under Armour, in trying to create a brand image like theirs, and to try to compete in every category against these companies. The new entrant would have a hard time gaining customers who are already familiar with these company’s brands and quality. Rivalry among Competing Sellers: Moderate The competition among competing sellers is moderate, even in terms of women’s apparel. This is because the fitness apparel industry has many competitors who are always active in the market by innovating and making moves in order to improve their market standing and business performance. When focusing on the competitors who produce women’s apparel, the rivalry is somewhat weaker because there are a smaller number of companies who focus on producing women’s fitness apparel. One factor that makes the rivalry strong for fitness apparel is the buyer costs to switching brands are low, allowing for buyers to switch brands whenever they want to. The reason why the rivalry is not extremely strong is because there are a lot of buyers and the demand is still growing for fitness products, therefore companies will have an easier time selling to fitness buyers than they would if the buyer demand was falling. Another reason is because a company like Lululemon who focuses on women’s yoga and fitness apparel, and some men’s apparel, have high quality, differentiated, products and the customer loyalty to those products is high. Depending on what part of the industry is analyzed, the rivalry can either be strong, or moderate. Conclusion The overall attractiveness of the full fitness apparel industry is moderate. The market for fitness apparel is growing and offering more profits for companies in that market. The competition from substitutes is very weak, the companies do not have to worry about other companies creating substitutes for fitness apparel, and therefore they can focus on more revenues and profits. Although the competition among the competitors is moderately strong, there is still room for profits for each company. The women’s fitness apparel industry is extremely attractive. This is because a large amount of women are beginning to work out, yoga is becoming more popular, and a healthy lifestyle is becoming what most women want. Lululemon created a brand that was synonymous with women’s apparel for yoga and other fitness related activities, and this is why the company has succeeded. Companies who solely focus on women’s fitness apparel can earn better profits because they do not compete against many other companies who produce only women’s apparel. The attractiveness of the overall fitness apparel industry is somewhat profitable, but not as much as it would be if there were only four or five companies to compete with. The attractiveness of the women’s fitness apparel industry if very profitable, this is because the companies offer differentiated products and the amount of competitors is small. Driving Forces The fitness apparel industry is always changing. The main reasons for this are the internet, the market growth, buyer’s perception and product innovation. The internet has played a big part in the increase of sales for the competition. More and more people are using the internet as a means of shopping because it is more convenient. One reason is that is saves time as people can shop online 24/7 where malls and stores operating hours might not suit the shopper’s schedule. Another reason is that it also saves time and is less of a hassle. Buyers do not have to drive to the stores, sit in traffic, or wait in lines at the store. Online shopping allows people to purchase items no matter where they are or what the time of day. Most of the time there are more items to choose from, and better prices online compared to the store. “On-line shopping opens up a global marketplace with a much wider range of goods and services” (Ellison J. 6). If customers already know what type of product they like and what size they need, online shopping is more convenient for them. Online retail has offered companies with more customers and therefore more revenues. The next driving force is the market growth among the fitness apparel industry. The amount of people who are choosing a fitness and healthy life is increasing throughout the world and creating a larger market for the companies. The amount of women, especially, who are beginning to do physical activities is increasing at a high rate as sports for women is becoming more popular. With more and more customers, companies have to respond to the growing demand and the type of products that customers prefer. These demands create another driving force which is the buyer’s perception. Fitness and health individuals like to have the products that will offer them the best results. For instance, Under Armour created cold and hot gear that gives customers better protection against the climate. Customers begin to develop a perception of the type of products that they want which change the company’s strategy having to produce products to match the demand. Lululemon has given their customers products that reduce odor, move moisture away from the body and offer comfort. The customers have grown accustomed to these product innovations and now have a new perception of the products they want to use. Buyer’s perception has made product innovation a great driving force that has changed the fitness apparel industry. If a company cannot innovate its products to suit the buyer’s perception of quality, the company will most likely fall behind the other competitors who are giving the customers what they want.
Market Positions Key Rivals Occupy When looking at Lululemon’s key rivals, Nike, Lucy Activewear, Under Armour, and another producer of fitness apparel, but not of the same quality as the other four, Champion, the position of key rivals can be measured. The strategic group map below shows the position of each company in terms of perception from buyers, and the company’s product innovation level. Nike has the best perception from buyers because of the company’s brand name. Although Nike might not produce the same quality of products as Lululemon or Under Armour, the perception of its brand name allows them to bring in more revenue. Lululemon has the highest product innovation in terms of apparel because of the many qualities each product possesses. All of the top four company’s products have moisture wicking material so that does not factor into product innovation because each company uses it. Lululemon has more products with anti-odor materials that the other companies mentioned and higher quality material, which is why the product innovation is the highest. The perception that Lululemon’s customers have about the company is that it only produces high quality products and that they out-perform other companies products. Under Armour’s product innovation and perception is quite high as the company creates different climate products. Many people associate cold gear with Under Armour and this is why the perception of the company’s apparel is relatively high. Lucy Activewear has good product innovation as the company has the moisture wicking material the others offer, and they also have comfortable material that adjusts to the body. The perception is not as high for Lucy as the other companies, mainly because of the brand name. Champion fitness apparel is far behind in both categories compared to the other four companies. The perception of Champion brand is that it is cheap and will not perform like the others. The product innovation is also behind as it does not have the same qualities as the other products the top companies produce.
Nike
Nike
Under Armour
Under Armour
Lululemon
Lululemon
Lucy
Lucy
Champion
Champion Strategic Moves of Rivals Each of the rivals is going to have different strategic moves. Nike’s is most likely going to continue its product innovation and use a defensive strategy to keep its lead in the market. With the amount of profits that Nike has, it can throw money at the divisions that need help in gaining leadership in its category. Nike can depend on its name and the customers who are loyal to the brand. Under Armour will continue to grow its climate gear and innovate it to become better than before. The company seems like it will try to grow its women’s products to gain more revenue from women. Under Armour will also continue to innovate its regular fitness gear to keep up with the demand from the customers. Lucy Activewear’s strategy will most likely to continue its growth of women’s yoga, running, and fitness products. The company specializes in providing women with quality gear and will continue to focus on improving it to give the best performance possible. Lucy Activewear will most likely look to grow by increasing the number of stores and gaining new customers. Lululemon’s strategy will be to continue to add stores and educate customers about its products. Lululemon will keep improving the men’s apparel section and add more products to choose from. This will help the company create more profit and open its target market. Lululemon will defend itself from Lucy Activewear by producing new and improved products and offer better customer service. The company will also look to differentiate its products by offering different types of fitness gear, like athletic skirts, cold gear, and under garments. Champion’s strategy will most likely be to keep its place in the market by offering a lower price than the other competitors. The products will not differ from year to year, but they offer cheaper alternatives to the expensive brands.
Key Success Factors
The main key success factors of competitive success for the fitness apparel industry are manufacturing, marketing, and skills and capabilities. Manufacturing is a huge part of being a leader in the fitness apparel industry. If a company has access to quality materials and an asset which can produce top quality products, the company will strive because they are producing the best performing products available. Also if the company is producing these products efficiently and at a low cost they will be able to gain lead on the market. Like Lululemon, if companies can manufacture products that give buyers the best performance possible it will strive and gain a large amount of buyer loyalty.
Marketing is also a very import factor to a company’s success. A company like Nike, who has a large selection of products to choose from with price variations, will attract all types of customers. This gives a company a large customer base to produce their products and eventually earn profits. Marketing also creates brand image. Companies who can become recognized all over the world will have great success in the apparel industry. An individual who sees a brand they are familiar with will most likely buy that brand over another that they are not familiar with. Advertising also helps a company become familiar with buyers. A company who can create good advertisements and appeal to the targeted market will have the upper hand over a company who cannot advertise as well.
Skills and capabilities of a company will help the company succeed and create a brand that is synonymous with quality. If a company has a very talented workforce, like a lead designer, and a group of people who come up with new ideas, they will be able to grow in the market by offering new products that appeal to customers. Companies that can innovate and create new products that offer the best quality will succeed in the fitness apparel industry. Another factor that will help companies succeed is the ability to attract online shoppers. If a company’s website appeals to online shoppers, the company will gain more revenues and offer products to a new segment of health and fitness individuals who might not live close to a store, like Lululemon, who only offers its products in its store and online, not in retail stores.
Overall Conclusion The fitness apparel industry is very prosperous and has room to grow in the future. As more and more individuals are looking to a healthier life, and buyer’s perception of products change to wanting a better performing product, the industry will see more sales. There are some competitive forces that might lead to companies not making as much profit as they could, and there are some forces that might lead companies to make more and more profit, it all really depends on what segmented group the company is focused on. The driving forces will allow companies to expand and gain more profit as internet sales will increase and product innovation will appeal to more people. As Nike leads the competitors in the industry, other companies will look not to beat Nike, but to beat each other in a fight for the place under Nike. Lululemon will continue to grow and become known as a leader in women’s fitness apparel. The leading companies have the resources to continue performing the key success factors and gain an even bigger advantage over the lower companies such as Champion. The next section will focus on Lululemon in the industry and go further in depth of how the company compares to the other leading companies.
Company Situation Analysis This section of the paper will discuss how well Lululemon’s strategy is working by offering financial information about Lululemon’s important resources and capabilities. A SWOT analysis will be made to show the company’s strengths, weaknesses, opportunities, and threats. This will tell if the company’s costs and prices are competitive compared to the rivals in the fitness apparel industry and if Lululemon is competitively stronger or weaker than the key rivals, as well as an overall conclusion about Lululemon’s situation and if it is attractive.
Strategic Performance Indicators Lululemon’s performance over the past five years has been outstanding, which proves that the company’s strategy has been working. Revenues, stock price, net income, and operating profits have all increased each year except for a decrease in the stock for the year of 2008. The stock prices and growth rates for the past five years is shown below, and the operating profit is shown in the second table along with the growth rates from each year, and the net income is shown in the third table with the growth rates.

Year | 2007 | 2008 | 2009 | 2010 | 2011 | Stock price at end of year | $20.27 | $3.97 | $15.05 | $34.21 | $46.66 | Growth Rate | NA | (80%) | 279% | 127% | 36.40% | Year | 2006 | 2007 | 2008 | 2009 | 2010 | Operating profit (in thousands) | $16,213 | $51,551 | $56,564 | $86,564 | $180,391 | Growth Rate | 335% | 218% | 9.7% | 53% | 108% |

Year | 2006 | 2007 | 2008 | 2009 | 2010 | Net Income (in thousands) | $7,666 | $30,842 | $39,363 | $58,281 | $121,847 | Growth Rate | 450% | 302% | 27.6% | 48% | 109% |

(Lulu Historical Prices) (Annual Report, 2010, 53 Lulu) (Annual Report, 2008, 53 Lulu) The price of the stock was the only category that has a decline throughout the five years. Even with the recession at its worst in 2008, Lululemon was still able to keep its operating expenses low and offer an increase in operating profit from 2007 to 2008. The strategy of cutting out the middle man and selling products directly from its store allows Lululemon to sustain higher operating profits even though the number of stores has increased and the increase in the amount of employees. Net income also rose in 2008 from 2007, this shows that Lululemon is able to continue its sales to customers even though the prices are high and luxury spending has declined. Lululemon has shown that its strategy has worked over the past five years and this has given the company increases in net income from year to year. The overall financial health of Lululemon is superb. The amount of profit that Lululemon sees allows it to achieve the goal of maximizing shareholder wealth. The profit allows Lululemon to expand even more by using the money to open stores and also use it in research and development. As Lululemon continues to grow, and the company name spreads throughout the United States, Canada, and Australia the company will see even more growth rates in each of the three categories shown above. Today the stock price is at $72.09 which is almost $30 dollars more than it was at the end of 2011. The company is already showing more growth and more wealth for its shareholders.
Competitively Important Resources and Capabilities * Research and Development * Customer service * Strategic sales program * Supply partners * Quality Products

SWOT Analysis STRENGTHS * Well-known brand for women’s yoga and fitness apparel * Quality products * Customer service * Product technology * Distribution | WEAKNESSES * Focus mainly on female attire * High prices * Limited number of stores as of this year | OPPORTUNITIES * Extend male line of products * Continued growth * Offer more fitness sessions for customers * Open youth line of apparel | THREATS * The economy * Alternative brands * Too fast of expansion * New entries |

Lululemon’s strengths and weaknesses match up against its opportunities and threats very well. The external environment offers many threats that need to be matched by strength. The internal weaknesses of Lululemon need to be able to be turned into opportunities for the company in the future. The threat of the economy has been matched by Lululemon’s strengths. By offering quality products and having a well-known brand for women’s yoga and fitness apparel allows Lululemon to maintain its sales in the bad economy today. The threat of alternative brands and new entries is matched by quality products and product technology. Having quality products and the best product technology available allows Lululemon to compete against the alternative brands and new entries who do not offer the same performance. As Lululemon expands at a very fast rate, the threat of spending too much on opening new stores, opening a store in a spot that might not generate enough sales to match its costs, and focusing on expanding and departing from the methods that earned Lululemon the business it has received could be threats to the future of the company. Lululemon matches these threats by teaching its employees about the products and about maintaining a healthy and fit life so they can pass it on to the customers. If Lululemon continues to do this, expansion will be matched by customer service and sales will continue to rise. Lululemon’s weaknesses can be matched by the opportunities available. The weakness of focusing mainly on female attire can be matched by the opportunity to extend the company’s line of male products. Lululemon has a large variety of products for women compared to the amount of products for males. Lululemon can gain a larger customer base with an extension of its male product line. The high prices that Lululemon charges is also a weakness. This weakness is more matched by the company’s strengths rather than its opportunities. It could be matched by offering more fitness sessions, such as yoga, for its customers. Customers will be willing to pay high prices for products if they feel like the company is being good to them, and Lululemon already offers a variety of fitness activities for customers, but if they offered more, the company could receive more customers. The weakness of a limited number of stores can be matched by the opportunities of continued growth. Lululemon has grown in the number of stores around the United States especially, but a large number of those stores are found in a limited number of states. 20 out of the 82 stores in the United States are in California, eight in Illinois, seven in New York, and six in Texas (Quarterly Report, 12/11, 25 Lulu). 50 percent of the stores in the United States are located in only four of the states. Therefore customers who live in the other states will not have the opportunity to buy directly from the store. As Lululemon grows, the company should try to place stores in all major cities of the United States.

Cost/Prices The prices that Lululemon charges for its products are very high compared to the key competitor Under Armour. When comparing the prices of women’s tank tops, Lululemon’s prices range from $42-$68 where Under Armour’s tank tops range from $19-$34. There are a couple of tank tops from Under Armour that are $100 and $80. A pair of running shorts from Lululemon can cost from $48-$68 and a pair from Under Armour can cost $22-$39 (Lululemon Athletica, 2012) (Under Armour Sports Clothing, 2012). Lululemon might have higher priced products and cannot compete with a market of less income, but the company’s products offer better performance than Under Armour’s. Although Lululemon’s prices are higher than Under Armour’s, the cost of goods sold, and selling and administrative expenses percentages of revenue are lower than Under Armour’s for the years 2009 and 2010 (Annual Report 2010, 53 Lulu) (Annual Report, 2010, 46 Under Armour). 2009 | Lululemon | Under Armour | COGS % of Revenue | 50.7% | 52.11% | Selling and Admin Exp % of Revenue | 30.1% | 38.0% | 2010 | Lululemon | Under Armour | COGS % of Revenue | 44.5% | 50.2% | Selling and Admin Exp % of Revenue | 30.0% | 38.0% | As shown above, Lululemon’s percentage cost of goods sold to revenue is lower than Under Armour’s for both years. One way that Lululemon most likely keeps its cost of goods sold account low is with the partnership it has with the suppliers. If Lululemon orders material in huge quantities from the same supplier each time the price will most likely be cheaper. Also the cost of goods sold account for Lululemon includes costs such as distribution center labor costs, rent, and utilities. Also it includes the salaries for the merchandise and design departments (Annual Report, 2010, 32 Lulu). Under Armour does not include the salaries for the merchandise or design departments in its cost of goods sold account, therefore Lululemon is taking on more costs, but still have a better percentage for cost of goods sold to revenue. Another reason could be that Lululemon does not use middle men in selling their products while Under Armour uses retail stores for their sales. Lululemon can get more profit from this. Lululemon also had a lower percentage of selling and administrative expenses to revenue for both years. Both Lululemon and Under Armour have similar selling and administrative expense items that go into the account so there is not much of a difference between the two. This shows that Lululemon can keep its expenses lower than Under Armour can and have a competitive advantage over Under Armour in terms of their prices and costs.

Weighted Competitive Strength Analysis

Lululemon matches up very well to the competitors even though the company is not as big as Nike, Under Armour, or Champion. Having quality product performance weighted a large amount allows Lululemon to gain an advantage over rivals with their high performance products. The only two factors that affect Lululemon is the reputation and cost position. As Lululemon continues to grow the company’s reputation will become bigger and the brand name will be known by many. The relative cost position is weighted low because customers will pay for expensive items if they offer a quality performance and that is what Lululemon products do. Nike has an advantage over Lululemon, basically because of the brand image and the financial resources allow them to use more money on new product innovation and technology skills. Lululemon is competitively stronger than Lucy Activewear and Champion USA, the company has a slight advantage over Under Armour and is slightly weaker than Nike.
Overall Conclusion The company’s strategy is working very well as the financial statements show that the company is controlling its expenses and gaining a larger profit margin. Lululemon’s prices might not be as low as the other rivals, but the products the company offers makes up for it and provides buyers with quality. Lululemon posts competition even against the biggest companies and will become an even bigger competitor in the fitness apparel industry as the name of the companies brand spreads and becomes familiar with more fitness and health individuals. Lululemon is very attractive and is most likely going to grow into a bigger and more profitable company in the near future and even beyond. The next section of the paper will discuss Lululemon’s structure, systems, style, staff, skills, strategy, shared values and how well Lululemon is executing its strategy.
Strategic Execution Strategy execution is how managers figure out “the specific techniques, actions, and behaviors that are needed for a smooth strategy-supportive operation and then following through to get things done and deliver results” (Gamble, J 213). The way to execute a strategy is to have the right structure, systems, style, staff, skills, strategy, and shared values. * Structure
Lululemon’s structure has functional divisions (top-down) where there are main officers, and then directors, managers of stores, and employees. Lululemon incorporates many people in the ideas and designs of products and allows others to test the new products and give a pass or fail of the product. Although Lululemon is a top-down company, there are employees below the CEO or lead designer who has the chance to add new ideas and become a resource to the company. * Systems
Lululemon does receive a large amount of revenue from Canada, but the company translates the revenues, expenses, etc. into U.S. dollars which could have an effect on the total outcome. Lululemon only recruits the top prospects in order to continue its success. Christine Day, who is now CEO, was recruited in 2008 from Starbucks and has become an important factor to Lululemon’s success. Lululemon also has standards for the employees that are hired for stores. “We believe the energy and passion of our employees allow us to successfully execute on our business strategy, enhance brand loyalty and create a distinctive connection with our customers” (Annual Report, 2010, 2 Lulu). Lululemon hires candidates who want to help others live longer, healthier, and more fun lives. The employees are educated about the products, and how to succeed (Career Opportunities, 2012). By hiring these types of employees, Lululemon keeps their customers happy and this drives the success of the company. * Style
The image of Lululemon is that the company is fun, wanting to help other people, wanting to better themselves, and create products that will make people happy. To achieve goals, the managers set the goals and steps to achieve these goals. The company is very goal oriented and actually has sessions that will help their customers set goals and teach them how to achieve those goals, so Lululemon is very good at creating and achieving goals. “We promote a set of core values in our business, which include developing the highest quality products, operating with integrity, leading a healthy balanced life, and training our employees in self responsibility and goal setting” (Annual Report, 2010, 2 Lulu). With Lululemon teaching all of its employees to set goals and how to achieve them, those employees will most likely help the company achieve its goals. * Skills
Lululemon has succeeded from the skills that it possesses, creating top quality products which give the best performance available to individuals involved in fitness and yoga. Lululemon has been able to achieve partners who can supply and produce the materials needed for their products. The main skill that Lululemon possesses is the great customer service that it supplies to customers. Employees have the skills needed to provide customers with the education and knowledge of the products and fitness activities available to them. Without this skill, Lululemon would most likely not be where it is today. * Staff Officers | CEO: Christine Day | | CFO: John E. Currie | | VP Retail Operations North America: Delaney Schweitzer | | VP Chief Product Officer: Sheree Waterson | Directors | Michael Casey; RoAnn Costin; Christine Day; R. Brad Martin; Marti Morfitt; Rhoda M. Pitcher; Thomas G. Stemburg; Emily WhiteChairman of Board of Directors: Chip Wilson |

These officers and directors have helped Lululemon succeed in the recent years by implementing new ideas and new strategies in order to receive more revenues, lower costs, and maximize shareholder wealth. Although these people are very important to the company, there are hundreds of employees who are managers, store employees, work in research and development, and others. These employees have a huge impact on the company as they implement the strategy and work to fulfill the needs of the higher employees. (Officers and Directors, 2012) * Strategy
The strategy that Lululemon has to achieve its goals comes from the staff, skills, structure, systems, and styles of the company. The company uses its resources in order to enhance each of its departments, especially product design. By doing this the company is able to create and produce the best quality products available, and make its customers happy, which is the goal of Lululemon. * Shared Values
The beliefs that Lululemon possesses are “developing the highest quality products, operating with integrity, leading a healthy balanced life, and training our employees in self responsibility and goal setting” (Annual Report, 2010, 2 Lulu). Among the company, these values and beliefs are spread to each individual and each store. Lululemon stands for bringing healthy individuals the apparel that will help the performance in the activity that they are involved in.
Conclusion
Lululemon is implementing its strategy very well seeing as the company’s performance has improved year after year. In 2011, Lululemon achieved its goal of $900 million in revenue and even surpassed it and saw their revenue increase to a little over one billion dollars (Annual Report, 2011, 50 Lulu). The number of stores that Lululemon has opened is another factor that supports the reasoning behind why the company is implementing its strategy well. Lululemon is able to open more stores and achieve the same values and beliefs between those stores in order to maximize the revenues. If Lululemon can continue to implement its strategy and share its values and beliefs among each of its stores, the company will continue to achieve its goals. The next section of the paper will provide a diagnosis of Lululemon’s strategic issue.
Strategic Issue
Strategic Issue or Problem Statement The strategic issue for Lululemon is their strategy of not advertising and only focusing on a narrow market niche. If Lululemon wants to compete with companies like Nike, Under Armour, and Adidas, the company will need to grow their brand reputation and knowledge of their products among more health and fitness individuals. The industry is attractive and if Lululemon can gain more customers, it will be able to surpass the other competing companies. If Lululemon also expanded its target market to a wider variety of health and fitness individuals, the company would see an increase in revenue and a chance to expand even larger. The two questions that Lululemon has to ask itself when thinking about expanding its brand and customer base is 1) can the company make money, and 2) can the company develop synergy. The way Lululemon can achieve these two questions is by having a winning strategy.
Decision Criteria The first question to test if Lululemon has a winning strategy is if the strategy fits the company’s situation. Although the economy is not in the best condition right now, the external environment will allow Lululemon to grow and become an even bigger competitor in the fitness apparel industry. The strategy that Lululemon has created does fit its situation that it is in. Lululemon is growing in an industry that is growing as well. Lululemon could spend more money on advertising its brand name which would increase its target market. The strategic issue could easily be fixed and fit into Lululemon’s strategy. The second question to if Lululemon has a winning strategy is if the strategy has yielded a sustainable competitive advantage. The strategy that Lululemon has right now has given them a competitive advantage over some competitors, especially the ones who mainly focus on women’s fitness apparel. If Lululemon can increase its brand awareness, it will see an even bigger competitive advantage. The last question to test if Lululemon has a winning strategy is if the strategy has produced good financial performance. Lululemon has seen its revenues and profits increase year after year, therefore proving that the strategy implemented by the company is a winning strategy. Lululemon has gained financial strength with the rise in profits which will allow them to spend more on advertising and gain a larger customer base. Lululemon has succeeded in the past years to pass all three of these tests which have allowed them to grow and gain revenue from the other competitors.
Alternative Solutions One way to address the strategic issue of not advertising is to simply spend the extra profits on advertising. The way Lululemon is going to grow even larger and become among the top brands known around the United States is to put their name everywhere for everyone to see, especially around communities with a large number of active individuals. The company could also use commercials to gain customer awareness. To inform over a popular network would be a very good tool in order to promote Lululemon’s brand name and the products that it sells. To gain more customers and create a larger target market, Lululemon could do a couple of things. One way would be to increase in the variety of products that the company offers. This would be to create a product line for boys, like the company has the Ivivva line for girls. If Lululemon did this, the company would be able to gain customers at a younger age and possibly keep those customers for life. Another way that Lululemon can increase its target market is by offering different products, like athletic shoes. By offering a shoe line, the company can venture into a new market and gain more customers, even individuals who are not very active in fitness or health. If Lululemon can expand its brand awareness and its product lines, the company will be able to see more profits in the future.
Evaluation of Alternatives The cost of advertising is very expensive in certain ways. To advertise over a popular television network it would take a great amount of money, which Lululemon has. Therefore spending money on advertising is a great choice for Lululemon to increase brand awareness. Creating a product line for boys would need a large amount of money and time in order for it to become successful. It would be hard for Lululemon to make profits off of young boy’s products because of the price of the products it offers. There are probably not many parents who want to spend $50-$70 on products that the kids will grow out of in a short amount of time. The amount of money needed to create a new production line, new inventories and new employees could be more expensive than the profits to be made. The idea of creating a line of shoes could create a large profit for Lululemon after a couple of years. Shoes are a large part of the fitness apparel industry and if Lululemon created a shoe line that could compete again other shoe makers such as Nike, Adidas, Asics and Under Armour it would be able to turn a profit after a couple of years. The ideas of a boy’s line and a shoe line could both be supported and helped grow with the start of advertising. Therefor advertising is the main thing that Lululemon needs to do if the company wants to gain even more customers and create brand awareness for a possible new line of boy’s apparel and a shoe line.
Strategic Choice The strategic choice for Lululemon would be to invest in advertising in order to increase brand awareness. Again, there are three questions that Lululemon has to ask itself to decide whether or not an investment in advertising will benefit the company or not. Does investing in advertising fit Lululemon’s situation? Investing in advertising will fit Lululemon’s situation and help the company compete against the top competitors. Each of the other top competitors all spend massive amounts on advertising each year. Nike’s “total advertising and promotion expenses were $2,356.4 million, $2,351.3 million, and $2,308.3 million for the years ended May 31, 2010, 2009 and 2008, respectively” (Annual Report, 2010, 60, Nike). Therefore an increase in advertising will fit competitive conditions in the fitness apparel industry. The second question is whether or not the strategy will yield a sustainable competitive advantage? Having a competitive advantage over competitors such as Nike and Adidas will be extremely hard with any tactic, but Lululemon can gain a competitive advantage over companies like Under Armour and Champion with advertising. As shown earlier in the paper, Lululemon’s revenues are slightly smaller than Under Armour’s. If Lululemon creates advertisements, there is a strong chance that the company will see its revenue surpass Under Armour’s. The last question is whether the strategy will produce good financial performances? If Lululemon can establish a strong advertising campaign and catch the eye of new consumers, the company’s financial performance will continue to do well. Advertisements will also help the company to gain competitive strength and market standing among the top competitors. There are a couple of reasons why developing a boys product line and a shoe line were not selected for a good strategic choice. The first reason why is because it is probably too early to invest in a new type of product without having any type of experience in designing and producing shoes. Lululemon would need to invest a large portion of its profits to the creation of a shoe line. After a couple of years Lululemon could start to think about the establishment of a Lululemon shoe line and invest small amounts each year in order to obtain a top brand shoe that will sale to the type of customers that Lululemon reaches out to. A boy’s product line would not be too hard to create; the only problem would be the expenses without the assurance of a large enough return in order to turn a profit. Like stated before, the cost of the products might be too high for boys who cannot pay for their own clothes, and their parents might not be willing to spend the money on high priced items.
Strategic Action Plan In order for Lululemon to proceed on to advertising, the company needs to create a strategic action plan. The first thing that Lululemon needs to ask itself is what needs to be done? The company needs to hire an agency that will be able to film and create a commercial for Lululemon. Depending on how much Lululemon wants to spend on a commercial will depend on what agency that the company will ask to produce a commercial for them. Most likely Lululemon will want to put off a vibe with their commercials of being a top quality brand and having a bad or unclear commercial can give viewers a bad opinion of the brand. Lululemon will need to figure out what it wants to advertise; its products, services, website or a mixture of all three. The second question that Lululemon needs to face is who should do it? For this question, Lululemon will want to see which commercial agency can put out the best result for the least amount of money, like stated before. The company might possibly need to create a sector of its company that can focus on advertising and creating commercials that will help Lululemon’s brand to become well-known among many active fitness individuals. The company could save money by allowing employees of Lululemon to feature in the commercial and just give them a bonus without having to pay actors to do the same job. Lastly Lululemon will need to decide on when to create the commercial or other advertisements. Lululemon should create a commercial soon because of the expansion that the company is experiencing. With more and more stores opening up nationwide, and an increase in online shopping, Lululemon should produce the commercials soon in order for the stores to see an increase of new customers and more sales. If Lululemon where to succeed with advertising, the company could see a large increase in sales in proportion to the expenses for advertising. This will help the company compete with the top fitness apparel competitors.
Control and Evaluation Lululemon would need to budget the expenses of advertising so that the company is not spending more money than needed. Lululemon needs to ask itself what is the budget? The average cost to produce a 30 second television commercial is $350,000. The cost to put the commercial on television depends on what channel the company wants its commercial to run on. Some stations charge five dollars per 1,000 viewers while others may charge more. An advertisement during the super bowl can cost more than a million dollars (How Much Do Television Ads Cost?). Therefore with net income of almost $185,000,000 Lululemon has the budget to create a quality commercial and put it on a medium to largely viewed network. The company could budget about $400,000 for a quality commercial and run it on a couple of television channels with large viewing numbers. Channels like ESPN and ESPN2 who had viewers of 2,250,000 and 694,000 on an average primetime audience respectively, could cost the company about around $20,000 a year if just commercialized on those two channels during night time (Most Watched TV Channels). To learn and figure out how to advertise properly and what ways of advertising is effective, Lululemon should use benchmarking. Lululemon can study the way that Nike, Adidas, and Under Armour all advertise and what type of advertisements that the companies use. By doing this, Lululemon can learn which advertisement practices are the most effective and which ones help revenues increase by a substantial amount. Looking at a graph representing Nike’s advertising expenditures and their revenues, there is a positive trend between spending on advertising and increase in revenues and net income. (Cendrowski) Lululemon do not need to spend almost $900 million on advertising, but the company can use these graphs as a tool to understand what types of advertising is trending as of today and which ones are most effective. Lululemon can target certain areas of the nation to where the company wants its advertisements to be shown; therefore the company does not have to pay for national television fees. To start off with, Lululemon could create a commercial and air it in the state with the most Lululemon stores, and then measure the amount of increase in revenues around that area. If there is a substantial increase in revenue in that state, Lululemon could expand its advertising over more states. If commercials do not work, Lululemon could use the same technique that Nike uses, internet advertising. As more social networks are using advertising in order to create funds, more companies are investing in internet advertising. As shown above in the chart, Nike spent over $700 million on media marketing. Lululemon can follow this action and spend money as well and see revenues increase as their brand awareness is increasing at a fast pace. Depending on when the advertisements are implemented, Lululemon should evaluate how advertising is helping the company. If Lululemon were to have advertising, whether it be commercial or on social networking sites, the best way to evaluate on a timeline would be quarterly. Lululemon would check on how the quarterly reports look and whether or not the amount of sales increased for that quarter compared to the previous year. After the first year Lululemon could calculate whether or not the expenditures for advertising paid off and if the revenues increased by a larger amount than what they would have without advertising.
Conclusion
The question is whether or not Lululemon will become the next top athletic brand. There are certainly tough obstacles to overcome in terms of competition, changing markets, the status of the economy, and how Lululemon’s strategy pans out. If Lululemon continues its practices of expanding and increasing the amount of stores not only in the United States and Canada, but in other countries, the company will continue to see revenues increase each year. Continuing to offer excellent customer service, quality products, and increases in the amount of products offered, Lululemon will have no problem in catching up to competitors in terms of apparel sales. Again, the purpose of this paper is to help investors realize the opportunity of investing in Lululemon, and that profits are to be made in the future. After comparing Lululemon to the top competitors, analyzing the industry in which the company competes in, how the macro environment is affecting the industry, and what solutions can be made in order to help Lululemon’s profits grow; the investor should have a better understanding of what type of company he or she is investing in.

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