Fortunes turn quickly
Riding on China’s new-found obsession with health after the pandemic, Lululemon built a new cult following among Chinese consumers. In the fiscal quarter before the incident, the brand reported a growth rate of 60 per cent in the mainland market alone.
Up to last year, the brand had 71 physical locations on the Chinese mainland, with plans to open 16 more across the mainland, Hong Kong, and Macau. The company’s Q3 2021 earnings report states that Lululemon’s net income jumped 30 per cent, year on year, to $1.5 billion, with a 28 per cent increase in the North American market and a 40 per cent increase in the international market.
The brand was also the official sponsor of the Canadian Olympic team during the recent 2022 Winter Olympics, hosted in Beijing. The Canadian team’s maple-red Lululemon jackets became a hot topic on Chinese social media platform Weibo and quickly sold out on the brand’s local website after the opening ceremony.
This momentum came to a screeching halt after the brand’s products failed to pass Beijing market regulators’ standards. The penalty issued in March of this year stated nine Lululemon outlets in Beijing sold 59 defective products priced at $287 (1,380 RMB) each from October 2021, of which 51 of the products had been sold and could not be recovered.
In response to the penalty, Lululemon said it immediately co-operated with the relevant investigations and removed the defective products from sale. The brand also noted that it would conduct an internal review to address the issue. In addition to the fine, Lululemon was ordered to issue an official apology to customers while other illegal merchandise was confiscated.
As a result of Lululemon’s quality blunder, Chinese consumers have chosen to boycott the brand. After it posted an apology on its Weibo profile, negative comments flooded the post, eventually forcing Lululemon to turn off its comment section entirely.
The Canadian-based brand also quickly topped Weibo’s Hot Search List with the hashtags #Lululemonsellspoorlyqualifiedproducts and #Lululemonapologies, which garnered over 200 million views.
Although the financial impact of this boycott has yet to be seen, Bally’s similar run-in with the Beijing Municipal Bureau of Supervision may offer some clues.
The Swiss luxury brand was fined $8677 (41,930 RMB) for selling suspected fake goods and poor-quality products for a second time. The penalty listed seven items, including tops from the brand’s womenswear collection.
The incident prompted customers to inspect their own Bally purchases and soon more and more images of badly glued seams and other defects started to trend on China’s social platforms. Many outraged customers commented that they would no longer buy any Bally products.
Along with this incident, the brand’s local celebrity ambassador, actor Deng Lun, was involved in a major tax-evasion scandal, which further tarnished Bally’s image in China. Many customers now consider Bally a ‘second-tier’ luxury brand, as its desirability declines.
A market too precious to lose
As the world’s second-largest economy, China has become essential to Lululemon’s international growth, outpacing North America and other international markets. This has been mainly due to increased interest in workouts like yoga and pilates, which helped doubled sales during the pandemic.“We continue to open stores in China at a steady pace,” Lululemon CEO Calvin McDonald said. “We are just in the early phases of our growth, both in China and around the world.”As more than 80 per cent of Lululemon’s revenues are generated from outside North America, China remains an integral part of its business. The Chinese yoga market is poised to register a 12 per cent growth rate this year, valued at about $11 billion, while the number of yoga studios in China has also tripled in the past five years.
By 2025, the global health and wellness industry is likely to grow to more than a trillion dollars, a 13 per cent rise over 2020 figures. China is projected to outpace this growth, and is forecast to hit $202.2 billion in this period – an increase of 19.2 per cent.
During the brand’s five-year plan presentation in April, André Maestrini, executive vice-president of international, said the company plans to expand from 71 stores in the country to 220 by 2026.
Under Beijing’s scrutiny
Lululemon has yet to address the quality controversy since its online apology posted on 5 May but gaining back its Chinese customers’ trust is necessary to the company’s future growth.
Moving forward, brands will have to be more conscious of the Beijing Xicheng District Market Supervision Bureau’s watchful eye. This includes minding their quality standards, product authenticity, and even pricing.
Luxury French house Chanel’s recent price hikes, which tripled the cost of its bags and accessories, has already alarmed local market supervisors and consumer associations, and called out consumers to be wary.
China’s move to embrace homegrown brands more may also rock the Western market. During the pandemic, China saw a massive shift to local brands, amidst political tensions with the US and racism faced by Asians abroad.
Most recently, Worker’s Daily, China national newspaper, defined luxury as “non-essential” and “unworthy for investment”. Some speculate that this could be a hint that the government will pull back on the West’s involvement in the market, especially as more focus and resources are being directed to domestic companies.
However, with China still unable to fully open up as it grapples with its worst Covid-19 outbreak yet, it might still be too early to predict how the market and its consumers will behave once the government reels back its Covid-19 protocols.