Case Summary and Analysis- Company History
Lululemon Athletica Inc. is a sports and athletics clothes company that operates from Vancouver, Canada. The company initially started its operations as a clothes design shop that was also a part time yoga studio (Lululemon Athletica Inc 1). The proprietor’s observation of the lack of quality yoga apparel prompted him to design stretchy and athletic yoga pants. Although the company had been designing other athletic wear including snowboarders and skiers’ clothing, its major success came with the yoga pants (Lululemon Athletica Inc 1). Later on, the company opened its first major store in Vancouver with its current brand name, Lululemon Athletica. The company initially concentrated its operations within the Canadian market but expansion came later when the company started trading publicly. Most of the company’s expansion has been in the form of franchises.
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Products and Services
Currently, Lululemon is one of the most promising brands in Canada when it comes to growth and expansion. For instance, by the year 2012 Lululemon had two hundred and eighteen stores across the world in addition to having a strong online presence in both Canada and other regions. The value of the Lululemon brand is estimated at over three billion dollars as of the year 2012. This represents a growth-rate of more than 292% from the year 2010. The company’s signature product is women’s yoga clothing, and it accounts for approximately 40% of the organization’s total business. The company also sells a variety of other athletic-wear including casual and running clothes.
The company’s business strategy is to target high-end customers through a vertical-retail mode of operation. Consequently, the company has managed to manage its brand outlook and distribution channels. The company’s vertical retailing strategy relies on community-level marketing whereby individuals such as trainers and yoga instructors are the main brand ambassadors (Hill and Jones 274). Lululemon’s main competition comes from other casual/athletic clothing sellers such as Under Armour and Nike. Nevertheless, the company’s business model sets it apart from other similar organizations. For instance, even though Lululemon is a big company, it has managed to retain control of its product design, distribution, and community presence.
Company Market Position
The company’s major strength is its brand loyalty, which observers have cited that it almost resembles a cult following (Nelson 28). This perception comes from the fact that the company has managed to achieve market presence and expansion using grassroots means. This approach sets the company apart from the rest because this business model is not common. The company also perpetuates the community-yoga model by offering free yoga lessons in most of its shops. This strategy has made it possible for the business to keep attracting new customers due to its retention of brand ambassadors. Furthermore, the brand is associated with several populist trends such as healthy living and the need for community support. In future, the company aims at expanding its stores outside the North American region, and increasing its level of brand awareness. Furthermore, in future the brand seeks to introduce new products and technologies in a bid to make its business model more appealing in the current environment. The company’s financial position stood at 3.3 billion dollars in 2010, but this capitalization has currently increased to accommodate average share prices of $47 in 2012. In 2013, the company went through a financial shock after an international recall of its pants and a subsequent change in management.
The yoga apparel industry has become competitive over the last few years, thereby “attracting major global brands such as Nike, Under Armour, Adidas and Gap as well as smaller startups such as Lole, Prana and Lucy Activewear” (Nelson 28). Nike presents the biggest competition for Lululemon because it enjoys big economies of scale and well-established distribution networks. Over the last few years, Nike has acquired a sizeable market share in the women’s sports clothing industry. Other Lululemon’s competitors include Under Armour, which has a significant market presence but lower brand recognition, and Athleta, which offers similar goods to consumers but at a lower price.
Critique of the Company
Porter’s Five Forces Analysis
Bargaining Power of suppliers
The company has several options when it comes to suppliers competing for its business. For example, the raw materials that the company requires including cotton and rubber are abundant in Canada and this gives Lululemon options when it comes to making purchases. Consequently, suppliers have low bargaining-power in relation to Lululemon’s business model.
Threat of New Entrants
The threat of new entrants does not affect Lululemon’s business model in a major way, and its level is moderate at best. The current business environment means the world is saturated by new and upcoming brands, most of which are marketed through the internet. Therefore, it is unlikely for a new company to garner the brand reputation that Lululemon has accumulated over the years in the midst of the high competition (Morhart 22). However, internet establishments also give consumers low switching costs.
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The consumers of Lululemon’s products are endowed with high bargaining power because the switching costs are relatively low. Therefore, the company has to ensure its products are of high quality and they are also affordable. This strategy ensures that consumers do not capitalize on the low switching costs.
Lululemon’s area of operation is one of the most competitive businesses in the world at the moment (Bourne 1). Various businesses are realigning themselves to ensure that they achieve considerable market share in the sports clothing industry. In addition, low switching costs have enabled players in this industry to poach consumers from their rivals with ease.
Threat of Substitutes
The clothes company has focused on making apparel that does not appeal to the masses but to select clientele. This strategy ensures that the threat of substitutes for Lululemon remains low.
Several economic implications have slowed down the company’s expansion rate including stringent measures in the European Union. The slowdown of major global economies such as that of the United States has also diminished the buying power of potential customers.
One factor that has had a major impact on the company is its advocacy of a healthy lifestyle. The culture of leading an active lifestyle in the modern society gives Lululemon positive future prospects. For example, the number of individuals who incorporate yoga into their lifestyle is set to increase in future (Nelson 28).
The current political policies make it easy for a company from Canada to expand into the North American territory easily. Lululemon has also obtained important patents that are meant to protect its business interests in various jurisdictions across the world. The company has strong connections to China and other Asian countries because it outsources production of some of its products from these areas. However, increasing labor costs in these areas is set to raise the company’s manufacturing costs.
Technology has a major impact on Lululemon’s business model because most of its products are widely available through online channels. For example, social media avenues have given the company the ability to reach new audiences and specific demographics. Nevertheless, advances in technology also translate to higher levels of competition for Lululemon (Ives and Learmonth 1195).
There is an emerging market for sports apparel within the aging population that is seeking to pursue a healthy lifestyle. The attention of the sports clothing industry has mostly been directed to the youth thereby ignoring a potential market among the older but active population.
One of the most vital resources for Lululemon is the company’s distribution networks. Currently, the company has established three major networks that are headquartered in Sumner, Vancouver, and Melbourne. The company is also equipped with intellectual property in the form of trademarks, logos, designs, and brand names. The fact that the brand name is well established in North America makes it hard for Lululemon’s products to be imitated. Another vital resource for the company is its physical presence in the North American market. Currently, the company has over 200 stores across US, Canada, New Zealand, and Australia. The company’s brand name is also another intangible resource for Lululemon because the organization has managed to stand out from its competitors. This strong branding has also given the company a reputation of efficiency in the production of premium products.
The company’s capabilities include the fact that the company is able to maintain an inventory management system that ensures that artificial scarcity of products in its stores. This inventory tactic motivates consumers to make fast purchases when they are available in their stores. Lululemon has also shown great capability when it comes to community-based advertising. For instance, the organization has succeeded in forming localized networks of distribution. In terms of services, the company provides much needed yoga lessons to customers as well as education on healthy living. Another notable capability in the company is the ability design unique and technologically relevant products. Advanced employee training has also helped the company to withstand competition in the long-term.
One core competency for Lululemon is the company’s ability to establish strong relationships with its customers. This competency has resulted in a strong brand loyalty that has been crucial to the company’s survival in a competitive business environment. It is also important to note that the relationship that Lululemon has formed with its customers is rare and it is hard for other companies to replicate this strategy. The relationship with its customers also gives Lululemon a chance that can be exploited in order to increase revenue. Lululemon’s other core competency is that the firm has managed to create its business model around an effective culture. The company’s business revolves around healthy-living and this tactic has given Lululemon a lifeline that new entrants might find difficult to imitate. Another competency involves the company’s product design, which has managed become prominent in the sports clothing industry. The patents that Lululemon has acquired continue to act as valuable assets because competitors are unable to duplicate Lululemon’s products and services. On the other hand, this competency has increased the demand for the company’s products because they are unique and of high quality.
The Role of Information Technology for Lululemon
Information technology is a key element in Lululemon’s evolution and expansion goals. The formative years for the company were dominated by innovativeness that led to “notable product designs, niche targeting, and a unique retail business model that was centered on relationship and experience” (Lululemon 1). Traditionally, Information Technology (IT) was not a prerequisite for retail business because this field was dominated by the creation of physical distribution networks. However, Lululemon mimicked a tech business with its highly innovative and tailor-made products.
The founder of the company has also indicated that his experience designing skate and snowboards was instrumental to Lululemon’s success. The technical nature of this business included reliance on computer-assisted technology, thereby creating a culture of cutting-edge technology. In the early days when the firm operated on a small scale, the need for IT in the company was also limited. However, IT became part of the firm’s operations when the store began expanding from the original store in Vancouver and into new localities. Adoption of IT systems was set to enhance the company’s management capabilities, especially in regards to customer feedback.
Since its inception, Lululemon has had various waves of technology use. These waves have all contributed to various changes and benefits within Lululemon. Technology has been instrumental in the reduction of operating costs for the company. For instance, the Point of Sale system was adopted in the company to help deal with accounting and inventory management. The PLM logistics that the company uses in its operations also make it easy for the management to track investments. Furthermore, online feedback channels are utilized in a bid to improve service delivery. Analytics from web platforms are also used by the management during decision-making and product development (Rapp 547). Lululemon uses blogs and other social media avenues to reach potential customers. Location-based applications are also useful to the company when it comes to creating and maintain partnerships.
A significant technology moment for Lululemon was in 2007, when the company was preparing for an initial public offering (IPO). During this period, the company sourced third-party technology services in a bid to scale its operations, manage costs, and ease inventory management. Consequently, “the company implemented transaction technology from Datavantage, a commercial software that enabled point of sale information through hardware and software integration that delivered insights to inventory flows and sales revenues” (Hill and Jones 274). The commercial software also provided critical data that helped the company in decision-making and the scaling of business intelligence applications. The POS application that is utilized by Lululemon is also a benchmark for retailers around the world. The most important aspect of this technology implementation was to avoid costly mistakes that could derail the company’s operations.
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Application of IT in Lululemon’s Strategy
In the course of the company’s history, Lululemon has incorporated IT in its strategic management. One such instance came in 2008 when Lululemon’s main competitor, GAP Inc., acquired Athleta an n organization that sold women sports clothes online. This move posed a major threat for Lululemon because it threatened its niche market. The company quickly moved to develop a commercial website that could rival what Athleta was offering its customers. By the year 2009, the company had managed to sell products directly to the consumers through online platforms.
The company’s online retailing was also subject to institutional problems. For instance, the company found it difficult to keep inventory of its products because consumers expected different levels of discounts on both online platforms and physical stores. Reports indicate that customers were disappointed because they felt that there were not offered discounts like the ones they were used to getting on other online stores. This development is an indicator of how IT strategies clash with other priorities. In the case of Lululemon, the issue was that inventories for store and online shops were expected to reconcile. The threat that resulted from GAP Inc. acquiring Athletica acted as a catalyst for IT-based strategy.
Although this strategy was not perfect at first, it influenced future strategies for Lululemon. For example, a core competency for the company is its ability to collect and act on feedback from online customers. IT also helped the company to hold on to its competitive edge, achieve growth, and institute feedback mechanisms. Nevertheless, the fact that the firm entered into online business as a reaction to competition indicates that it lacks good IT practices. In the last five years, Lululemon has managed to implement a viable IT strategy whereby “ the company remains focused on its core competencies and the rapid deployment of E – commerce, via outsourcing, closed a strategic gap and direct threat to the firm’s market position” (Itami and Numagami 119). The organization’s presence in online platforms has also improved over the last few years. Currently, the company has a Chief Information Officer, who coordinated the firm’s implementation of IT strategies.
Areas of Improvement for Lululemon’s IT Strategy
Several opportunities exist for implementation of an IT strategy in relation to Lululemon’s business model. All the available opportunities give the company the ability to solidify its market presence and achieve growth. First, the company can raise awareness on its products through the development of a data farm. Big data has become an essential tool for modern businesses because it is a reliable source of specific information. Data farms provide businesses with specific customer needs and trends, tools that can enhance a company’s efficiency. On the other hand, modern technology has enabled companies to get the most out of big data. The decision-making of the company can benefit from this IT strategy and ensure real-time delivery of relevant information.
Lululemon is recognized as a legitimate advocate of health living among its followers. The company can use the low cost of setup that is provided by IT to leverage on its market position and diversify on other practices apart from yoga and running. For example, the firm can use Smartphone applications to provide notification on related healthy-living activities such as yoga classes, hiking trails, organic products, and other practices. This strategy cements the company’s position as a companion to its customers.
Furthermore, this soft marketing strategy does not make consumers suspicious but it maximizes brand recognition when it is implemented efficiently. Currently, the online market has become a burden to consumers because they are spoilt for choice when it comes to making purchases. Consequently, modern IT strategies should not focus on marketing but on increasing brand awareness. A recognizable and trustworthy brand saves the customer the agony of perusing through thousands of alternatives. Modern business models have also indicated that holistic adoption of technology is a more effective strategy than the implementation in waves. A holistic model offers Lululemon a basis for maintaining a mutual relationship with customers and an avenue for monitoring business activities.
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