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Case Study

Back in 1998, self-described snowboarder and surfer dude Chip Wilson took his first commercial yoga class. The Vancouver native loved the exercises, but he hated doing them in the cotton clothing that was standard yoga wear at the time. For Wilson, who had worked in the sportswear business and had a passion for technical athletic fabrics, wearing cotton clothes to do sweaty, stretchy power yoga exercises seemed totally inappropriate. And so, the idea for Lululemon was born.

Wilson’s vision was to create high-quality and stylishly designed clothing for yoga and related sports activities using the very best technical fabrics. He built up a design team, but outsourced manufacturing turning to low-cost producers, primarily in South East Asia. Rather than selling clothing through existing retailers, Wilson elected to open his own stores. The idea was to staff the stores with employees who were themselves passionate about exercise and could act as ambassadors for healthy living through yoga and other sports such as running and cycling.

The first store opened in Vancouver, Canada, in 2000. It quickly became a runaway success, and other stores soon followed. In 2007 the company went public – Lululemon Athletica Inc (Nasdaq: LULU) - , using the capital raised to accelerate its expansion plans. It currently has a share price of

USD$153 (5 October 2018). As of 29 July 2018, Lululemon had 415 stores, 335 located in North America, sales in excess of USD$3.2 billion, a triple increase from approximately 5 years ago. Its market capitalisation has also increased to USD$20 billion. Sales per square foot were estimated to be around $1,800 in 2013 – more than four times that of luxury department store Nordstrom, making Lululemon one of the top retailers in the world on this metric. This figure has dropped significantly to USD$1534 in 2017. LULU is ranked #4 of 67 stocked in the Fashion and Luxury category (StockNews.com).

Along the way, Chip Wilson stepped up into the chairman role. Wilson hired Christine Day to be the CEO in 2008, while he continued to focus on branding. Day had spent 20 years at Starbucks overseeing retail operations in North America, and then around the world. Day stepped down as CEO in

As it has evolved, Lululemon’s strategy focuses on a number of key issues. Getting the product right is undoubtedly a central part of the company’s strategy. The company’s yoga-inspired athletic clothes are well designed, stylish, comfortable, and use the very best technical fabrics. An equally important part of the strategy is to only stock a limited supply of an item. New colours and seasonal items, for example, get 3-12-week life cycles, which keeps the product offerings feeling fresh. The goal is to sell gear at full price, and to condition customers to buy when they see it, rather than wait, because if they do, it may soon be “out of stock”. The company only allows product returns if the clothes have not been worn and still have the price tags attached.

The scarcity strategy has worked; Lululemon never holds sales, and its clothing sells for a premium price. For example, the company charges approximately $20-$40 more than its competitors.

Lululemon continues to hire employees who are passionate about fitness; it was ranked 38th in 2017 of the 50 best places to work (Glassdoor). Part of the hiring process involves taking prospective employees to a yoga or spin class. Some 70% of store managers are internal hires; most started on the sales floor and grew up in the culture. Store managers are given $300 to repaint their stores (any colour) twice a year. The look and interior design of each store are completely up to its manager. Each store is also given $2,700 a year for employees to contribute to a charity or local event of their own choosing. One store manager in D.C used the funds to create, with regional community leaders, a global yoga event in 2010. The result Salutation Nation, is now an annual event in which Lululemon stores host a free, all level yoga practice at the same time. Employees are trained to eavesdrop on customers, who are called “guests”. Clothes-folding tables are placed on the sales floor near the fitting rooms rather than in a back room so that employees can overhear complaints. Nearby, a large chalkboard lets customers write suggestions or complaints that are sent back to headquarters. This feedback is then incorporated into the product design process.

Lululemon now has an Ambassador Program; the intention is to celebrate and promote local leaders who reflect our culture and share our passion and dedication for elevating the health and fitness of our communities. The program also nurtures a community of driven athletes and inspirational individuals to harness the brand’s passion, in order to inspire new and existing customers and boost sales. The company also had a dedicated web page promoting various events held within the community.

Despite the company’s focus on providing quality, it has not all been plain sailing for Lululemon. In 2010. Wilson caused a stir when he had the company’s tote bags emblazoned with the phrase “Who is John Galt,” the opening line from Ayn Rand’s 1957 novel, Atlas Shrugged. Atlas shrugged has become a litertarian bible, and the underlying message that Lululemon supported Rand’s brand of unregulated capitalism did not sit too well with many of the stores’ customers. After negative feedback, the bags were quickly pulled from stores. Wilson himself stepped down from any day-today involvement in the company in January 2012 and stepped down as chairman in 2013 and removed himself from the business completely in 2015.

Former CEO Day was not a fan of using “big data” to analyse customer purchases. She believed that software-generated data gave a company a false sense of security about the customer. Instead Day personally spent hours each week in Lululemon stores observing how customers shopped, listened to their complaints, and then used their feedback to tweak product development efforts. On one visit to a store in Whistler, British Columbia, Day noticed that women trying on a knit sweater found the sleeves too tight. After asking store associates if they had heard similar complaints, she cancelled all future orders.

In early 2013, Lululemon found itself dealing with another controversy when it decided to recall some black yoga pants that were apparently too sheer, and effectively “see through” when stretched due to the lack of “rear-end coverage”. In addition to the negative fallout from the product itself, some customers report being mistreated by employees who demanded that customers put the pants on and bend over to determine whether the clothing was see-through enough to warrant a refund! This quality control issue cost the company a US$17miillion write-off from the recall of over 17% of their popular Luon leggings. A few months after the incident, Day stepped down as CEO and was succeeded by Laurent Potdevin in January 2014.

Over the years Lululemon has continued rapid growth but recently the company has been in the spotlight once again. CEO Potdevin left the company abruptly in February 2018 due to misconduct including having a relationship with a subordinate, a female designer at the company. Due to his lack of leadership and his inappropriate actions, he left the internal culture of the company ‘toxic’.

Lululemon Athletica‘s appointed its new CEO in July 2018, Calvin McDonald, who has come from a top executive role at makeup chain Sephora, part of the LVMH conglomerate.

Case Discussion

In order to successfully implement its business-level strategy, what does Lululemon need to do at the function level? Has the company done these things?

Answer 
Functional level

The functional level strategies include the various actions and goals given to various departments to support the business and corporate level strategy. This strategy enables the management to come up with several strategies that will align their goals from the top management to the individual workers and also to have a clear understanding of how their departments influence the business and corporate level strategy.

From the functional level, Lululemon should to strengthen their customer loyalty and to hold on to the market share with the growing competition, the company should come up with several exclusive site fitness memberships to partner with the various studios that offer diverse activities. Their loyal buyers will find agreat value in the given opportunity to try several workouts while the partner studios benefit from increased traffic and brand awareness.

Lululemon needs to acquire the various factories that produce their fabrics to lower the costs that may be related to the use of a third-party manufacturer.  It should also take advantage of increasing the production of men’s fitness wear to increase its market and through expanding the production like to include traditional sports specific wear like soccer or baseball. To supplement this strategy, Lululemon should expand the ambassador program to the various professional athletes in sports to increase its reach to many audiences.  

In conclusion, the suggested strategies above have not been used by the organization, the aim is to boost the organization into a sustainable competitive edge and to build a continuous trusted reputation

References

Roll, M., 2016. Asian Brand Strategy (Revised and Updated): Building and Sustaining Strong Global Brands in Asia. Springer.

Stead, J.G. and Stead, W.E., 2014. Sustainable strategic management. Routledge.

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