While some retailers lost momentum in the third quarter, Lululemon firmly bucked the trend and continued its run of strong growth unabated.
On the top line, total sales grew by a robust 22.5 per cent, supported by a strong underlying comparable uplift of 16 per cent. Both physical stores and the digital channel contributed to growth.
On the bottom line, operating income rose by 29.3 per cent driven by higher sales and improved margins. Net income was up by 33.4 per cent.
Lululemon remains a great example of what can be accomplished by the development of a strong brand alongside offering great products. Not only does this produce a loyal following of engaged customers, it also means that price integrity can be maintained ensuring that excessive discounting is not needed to sell through merchandise. This latter factor is one of the reasons why Lululemon has been able to improve margins against the backdrop of a more promotional environment.
Part of Lululemon’s success comes from it leaning more heavily into areas where it is less developed. One aspect of this comes from the menswear business where it is succeeding in capturing more interest and spending. The technical detailing of Lulu’s products resonant with many of its male shoppers as does the uncomplicated styling.
Despite a run of growth, we believe the company is nowhere near the finish line in menswear and it has a lot of potential to attract more customers and secure a greater proportion of their spending.
Another area of success has been geographical expansion where Lululemon continues to make inroads to areas like Europe. Here there is scope to strengthen the profile of the brand through the continued hosting of events such as the Sweatlife Festival in Berlin and London, which will provide buoyancy to future growth.
Brand and range innovation
As much as successfully seizing new opportunities has aided Lululemon’s growth story, the company also deserves credit for the work it has done to improve sales to existing customers through brand and range innovation. These things have supported the strong uplift in comparable sales across North America and other regions.
On the range side, the push into non-traditional fitness categories, such as personal care, has paid dividends. This is mostly because Lululemon has added products mindfully and ensured that they stick to its principles of functionality and technicality – such as body lotion that cools you down after a workout – rather than just expanding the assortment in a random way. A lot of core consumers are now adding self-care products to their baskets which is helping Lululemon increase the size of an average transaction. We expect the personal care lines to be very popular over the holiday period.
The continued enhancement of stores, and the recent opening of new concepts such as the Lincoln Park shop, have also helped Lululemon to outperform. These locations allow the company to better showcase its products, connect with consumers in a more meaningful way, and generate incremental revenue streams from classes and foodservice. While Lululemon cannot open such high-profile outlets in every location, it has enormous scope to open more in big cities and to develop a diluted form of the concept in smaller regional locations.
As much as Lululemon succeeds because of the strength of its offer, we are most excited about the company’s pivot to creating a community with membership programs and classes. Not only does this lock in loyalty, it also provides significant scope for future revenue development and ensures physical shops will remain a destination.
- Neil Saunders is MD of GlobalData Retail.