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Lululemon is coming to an office (and golf course) near you

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Bloomberg

Published


June 6, 2024

Lululemon Athletic Inc. just accomplished a difficult feat. The Canadian leggings and tights manufacturer reported better-than-expected first-quarter earnings and improved its full-year profit outlook. Shares rose as much as 9% in premarket trading.

Lululemon

But the company still faces a whole host of challenges and needs to evolve further, especially by adding more products to its apparel offering designed to be worn outside the gym.

Lululemon effectively invented athleisure and once dominated the category. Lately, however, newer vendors including Alo Yoga, with its trendy styles and colors, and Vuori are gaining traction. Meanwhile, Inditex SA’s sports and leisurewear Oysho was the fastest growing brand last year, growing at almost twice the rate of its flagship Zara.

Retailers from Free People to Gap Inc. to Target Corp. all have training sequences. Because Lululemon already has the largest market share in North American women’s apparel, expansion is becoming increasingly difficult at a historically breakneck pace, according to Bernstein analysts.

The fashion cycle is also changing. After the slim-leg silhouette reigned supreme from 2006 to 2016, wider pant styles are now on the rise. Loose attacks were a hit in the first quarter, Lululemon CEO Calvin McDonald told Bloomberg News on Wednesday.

Yet the company is most associated with the sculpted leggings look, and with well-heeled customers who look like they just stepped out of Pilates without breaking a sweat. That doesn’t fit with the latest TikTok trends, such as Blokecore, which are about dressing as if you really do sports. Think an Adidas three-stripe hoodie instead of a Lululemon wrap top.

Many of the company’s customers are also likely to be affluent, but not super-wealthy, shoppers who have retreated from luxury purchases thanks to inflation and higher borrowing costs. $100 leggings may just not be worth it.

Against this background, the company must ensure that the range of colors and sizes is sufficiently wide. It does not want a repeat of the bag shortage of the first quarter. After the success of the Everywhere Belt Bag last year, there wasn’t enough stock of alternative items to make up for the backlog as demand for the viral hit waned. No wonder same-store sales in America, its biggest market, were flat in the three months to April 28.

But amid a sea of ​​newcomers, Lululemon still enjoys tremendous brand recognition. And while markdowns are being made to shift excess inventory, it remains clearly premium. And most importantly, the company has successfully made the transition into workout gear that can pass for more formal wear with the ABC pants, popular with Wall Street bankers.

Lululemon

Lululemon has shown it can tap into the demand for classic but comfortable with its men’s range, which was the fastest growing part of the business in the first quarter. It goes beyond the ABC Pant with a new polo shirt, which hides the appearance of sweat and can be worn on the golf course (another area of ​​focus) or in the office.

Now things could go even further in women’s clothing. It has some more formal styles, but wider leg trousers, dresses, jumpsuits and smarter jackets could make up a bigger part of the range. For example, it could do more with its fabric technology and design skills to create moisture-absorbing workwear that can be worn to cycle to the office and then confidently all day.

As consumers have shifted to online shopping, mid-market fashion has been eroded, with names like J Crew and Gap’s Banana Republic shrinking their retail bases. This leaves room for alternatives. Lululemon has a strong online and physical store presence, so if it can run effectively, it should be able to benefit.

Given the success of the Everywhere Belt Bag, there is also a rich seam of accessories to be found. And while demand in America is slowing, Lululemon’s international sales are growing, with same-store sales up 29%, excluding currency fluctuations in the first quarter.

The reassignment of responsibilities following the departure of Chief Product Officer Sun Choe, who recently left the retailer for the top job at VF Corp.’s Vans, presents an opportunity to further expand into these categories. The company could even consider bringing in a top designer to work with creative director Jonathan Cheung. After all, the appointment of Zac Posen seems to be working for Gap.

Becoming more mainstream obviously brings other challenges. It would compete with a much wider range of rivals than those focused solely on athleisure – for example, not just Zara and its low-key luxury sibling Massimo Dutti, but also more accessible luxury names, such as Ralph Lauren Corp. and Hugo Boss AG.

The risk is worth taking. Shares are down about 40% from the start of this year through Wednesday’s close.

Expanding the more flexible range will take time. But the fact that its first-quarter performance wasn’t as bad as feared gives Lululemon more wiggle room.