Porter’s Five Forces And Core Competencies Of Lululemon Athletica Inc. Essay.

The following questions are based on the case “Lululemon Athletica Inc.”

1. Critically evaluate Lululemon’s competitive environment. Does the company have a source of (sustainable) competitive advantage?
2. Based on an analysis of the internal environment, discuss the company’s capabilities, and core competencies. Does Lululemon have any weaknesses that can impact its ability to compete in the future?
3. What are the trends and conditions in the external environment that will have a dominant influence on the firm’s strategic actions? In what ways (if any) should Lululemon change its strategic direction?
4. What are the advantages of Lululemon’s business level strategy? What are the risks?
5. As the company grows and expands internationally, what challenges is it likely to face? What recommendations can you make to reduce these potential risks?

Competitive environment of Lululemon Athletica

Lululemon Athletica is an upstart company based in Vancouver that provides finest quality athletic apparel at finest price. It has so many branches in all over the world. The mission statement of this company is “Creating components for people to live longer, healthier, fun lives.”  The vision of Lululemon is to make an environment for their customer that they love.

Lululemon is the only company that has been producing financial advantages in every area of performance in the time of declination of the worldwide economy (Hirst, Thompson & Bromley, 2015). The report will define the entrepreneurial thoughts, strategy and vision by taking help of excellent examples to force in the external environment. The case will mention the niche strategy, the value of leadership and the incomparable corporate culture of Lululemon. The company has to face various challenges to remain fit in the competitive market. As per given evolving situation, the question raises as to whether the Lululemon company can handle and nurture the efficiency of the community centered and effective relationship as it put grow the business and expand globally.

The Lululemon Company is the athletic apparel industry. The competition has increased due to increase popularity of the sport. The competitive environment of the Lululemon will be discussed below by using porter’s five forces which reflects that the rivalry in this industry is initiating to enhance.

Figure 1: Porter’s five forces model of Lululemon

Source: (Thomas & Peters, 2015).

There are so many companies have come in this field so the threat of new competitors is high. Various huge and well known apparel companies have initiated to produce the clothes for yoga- some with direct competition with the products of Lululemon. Due to that, retailers are taking benefits of low entry barriers. Nike, Under Armour and the Gap inc. are the main competitors of Lululemon Company. These all companies are larger and strong but Lululemon Company has broader distribution channel, financial resource, product mix and high range of sales (Freeman, 2010). It would be creating the high challenge for Lululemon to compete with well known company such as Nike, gap and Nordstrom.

There are not so many products present much f a challenge. The threat of substitute for Lululemon is low. The Yoga enthusiast desires to get the features from those companies that are able to satisfy their needs and deliver them in superior form and the alternative of this product is not available in the market to make satisfy the yoga enthusiast customer.

Porter's Five Forces analysis

The customers are maintaining the bargaining power from moderate to high level. There are pricing spectrums in which buyers have option to choose different price of same products by compromising the quality and that is why the switching cost is not the factor (Roy & Banerjee, 2014). There are various tactics regarding brand equity and artificial scarcity which provides prevention against buyer bargaining power. It would be facilitated to create the demand and make enable the company to charge premium prices for its product regarding Yoga.

Bargaining power of supplier is moderate in the context of Lululemon industry. This element is not considered as the necessary strong competitive force.  It shows the certain risk for the company including the political and environmental risk. This risk can be in specific for margins, which could decline if the company was to see cost increases the main focus of the company is on the sourcing strategy which is depending on the five major suppliers in the Asian Pacific region (Gamble, Peteraf, Strickland, Thompson, 2014).

Rivalry is not yet forceful. The range of sales regarding segment is growing and the profit can be earned in huge manner by companies with strong capabilities and efficient products. The company is capable to stand in the competitive environment due to its loyal customers and financial condition (Eden & Ackermann, 2013).

Company can earn competitive advantages because it has supply chain management and distribution channels. The company is reaching to its customer by using various methods such as direct contact with customer, corporate owned retails stores and franchise and some other channels.

Figure 2: Revenue by distribution channels

Source: (Stokes, 2008).

Lululemon produces different products which is helpful to make differentiate Lululemon from different industry. It has been found that the product and design quality is considered as the core competencies of the Lululemon. The system, resources and the way of communicating are the capabilities of the organization to get the competitive benefits against its competitors.   

The product design and the pricing policies of Lululemon are effective because it produces yoga pants and jackets to enhance the appearance of fitness among customers. The design of the yoga pants and jackets are different which can give the look to an individual to reduce the lower stomach part of women. It is the most advantage factor which may force to the customers to buy product at high price to get different quality (Schermerhorn, et. al., 2014). There are so many manufactures of yoga pants and leggings available that are trying to copy the product, but they are failing to exactly replicate it. The financial performance of this company is strong which make them enable to stand in the competitive market efficiently.

Threat of potential entrants

The company does not use a huge process to gather the data of customers but it utilizes the advanced process to know the trends of the market. The research and development system of the company comprises deliberate positioning of tables for apparels that make employee happy. Furthermore, the company is starting to keep focus on hiring the yoga trainer and instructors to know the need of yoga enthusiast and to examine the products of the company such as fabric, size, fit and so on. Along with that the organizational culture of the company is more effective and the main focus of the company is on making good relationship between employee and employer (Thomas & Peters, 2015). The training and personal development program has been implemented by the company to improve the efficiency of the employees.

The competitive advantage can be attained due to efficiency of the core competencies. The different organizational culture of the company is the core competencies of the company. The company is concentrating on the feedback of the customer to get know about the weakness and implement strategy to reduce the weakness of the company to attract the customer.

Figure 3: Lululemon Athletica price

Source: (Gill, 2013).

By evaluating the internal environment of the company, the two weakness of the organization has been found such as dependent on the single segment that is yoga clothes and another is higher prices. The product of the Lululemon is discretionary but it is vital for the company to select the target market carefully. The premium price may reduce the customer of the company as the price of the yoga pants in Lululemon is $103 while the price of yoga pants in Nike and Under Armour are $55 and $85 respectively. Company has to face unfavorable financial condition if it fails to recognize the fluctuation of customers spending (Financial Post, 2017).  

The strategic actions of the Lululemon may get influence due to external environmental factor. It in integral for the company to consider the all external factors to stay competitive in today’s business. Pestle will be mentioned below to describe the external factors of the company.

The nature of the company is wide because the branches of Lululemon is established in all over the world so it is important for the company to have the efficient knowledge about the international law and policies to implement the strategic decision adequately. It has been found that the manufacturer sites of the company are located in South Korea, Peru, Thailand, Cambodia and Vietnam. It reflects that the company is operating its operation in different country by complying different policies and taxation. The strategic operations and decision may get influence due to various taxation policies of different country.

Threat of substitutes

The organization is operating its business under different economy that is why the company is targeting higher income segment. The rate of the products of Lululemon is higher that reduce the bottom line of the company. It influences the strategic decision of the company and it is also open to the inflation and in case of increasing operation cost lead company in adverse situation.

Technological factor has major role in the strategic decision of the company. It uses high tech of fabrics and in some cloth it utilizes the silver thread to increase the high tech product. It has e-commerce sales channel which connect it in to customer with all over the world and to facilitate global expansion.  These factors force the company to move in to strategic direction to attain the maximum profit.

The company is outsourcing its material from third party that is why the company is not influencing directly the environment. The suppliers of its product are majorly located in Asia where the laws and policies are very strict. However, company is using environmental scanning to identify the threats as well as opportunistic trends for anticipated outcomes (Ho, 2014).

To make amendments in strategic decision, it is vital for the company to take decision regarding reducing prices or offer some discount on a huge purchase of products. Before expanding its business in different country, it should consider its rules and laws, which are imposed on this industry.

There are various strategies which can be implemented by the company to take strategic decision. Lululemon is implementing the focused differentiation strategy and that is why the organization is engaged with value creating activities. In order to implement this strategy, the main concern of the company is to develop the products regarding yoga pants and other clothes. The main feature of this strategy is to evaluate the gap between fashion and fitness industry. The role of this strategy is useful to enhance the sales of the athlete uniform because athlete and practioners prefer to wear functional and comfortable clothes for their sport and yoga practices.

The strength of the relationship between customer and the customers are the key foundation of the competitive strength of the company. It enables company to provide quality services to the customer in the term of richness and affiliation dimension (Frynas & Mellahi, 2015). With the help of knowledge based information, Lululemon is capable to analyze the demands of the customer and take initiate step to make their needs satisfied, and fosters the internal capacity in term of satisfying the needs of customer in that ways that competitors cannot.

Bargaining power of buyers

Despite these benefits, there are some certain risks included in the focused differentiation strategy of Lululemon. Competition is the major risk for the Lululemon Company because there are various companies has entered in this field with lesser price which may attract customers of Lululemon Company (Clifford, 2013). Another risk can be taken place in the organization if it unable to identify the changing fashion and trends of economic and due to this the sales of lululemon’s get influenced hugely.

Lululemon has expanded its business internationally and started various stores in all over the world, it might face some challenges. It has been analyzed from case study that the company has initiated its operation in New Zealand and Australia, the culture of the both countries are similar which is the sign of good advantages that refers the lower barriers in comparison of the barriers in India and China.

The hiring and staffing process can be the challenge for the foreign country as the organization hire a specific athlete individual, the place where fitness is not considered as dominant, will define the rare pool of talented employees. Labor disputes, political controversy, trademark protection and variations in economic conditions can be the other challenges that company has to face while expanding its business (Hill, Jones & Schilling, 2014). Global standardization strategy should be implemented by the company as it is the ability to utilize the standard marketing internationally. It is the marketing strategy which helps to promote the product of the brand globally.

It has been recommended to the company to use extensive strategy for the loyal customers via developing the fitness club membership. It would be the different and unique idea which may connect many customers with the company and they will get efficient discount from the company which may force them to buy the products of the company (Campos, 2013). Another strategic recommendation for the company is to build the luxury brand to focus the high-end customers. It is crucial for the company to manage the political as well as economical risk of the country. It should company with the rules and regulations, which are forced by the government of the company. The company should realize that its strategy of product mix only for certain area that is only women would reach a point of saturation (Grant, 2016). The company should focus on the casual wear of the women that help to make the sustainable business because casual wear may attract those women who are not interested in the sports and yoga but they are active physically. These recommendations can be aided for the organization to overcome the related risk in the market of international business.

References

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Clifford, S, 2013, Recall is expensive setback for maker of yoga pants, Retrieved on 3^rd December, 2017 from: https://www.nytimes.com/2013/03/22/business/lululemon-says-yoga-pants-mishap-will-be-c ostly.html.

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