Why Lululemon has been so successful.
Lululemon is fascinating. It is a phenomenally successful Canadian brand of trendy work-out gear. At the moment it is in the news because it is ditching its CEO and its Chief Product Officer after its signature product, thin yoga pants, turned out to be a little more sheer and transparent than was intended. It also got unwanted brand association in 2011 when an employee murdered a fellow employee in what became known as the “Lululemon murder”. All this aside there is much to learn from Lululemon, a self-described “yoga-inspired athletic apparel company” based in Vancouver, British Columbia.
From humble beginnings in 1998, when founder Dennis “Chip” Wilson opened his first store, Lululemon Athletica Inc has come an awfully long way; it has just reported last quarter revenues of $346M and net income of $47.3m even as it struggles to manage the product-shortfall aftermath of the see-through pants crisis. It has a truly phenomenal growth story: over the past five years it has averaged compound annual sales growth of 50% and profit has grown even faster. It gives us a great insight into high growth businesses that we can all learn from:
- Mr Wilson had already sold one company in this sector before he started this business, so he had a strong knowledge base to build on.
- The trend for female participation in sports was growing and the business benefitted from that trend continuing and accelerating.
- The brand was wonderfully positioned around the health benefits of yoga and a collection of hippy-sounding ideas that formed a philosophical context. The original intent of Lululemon was, believe it or not, “to elevate the world from mediocrity to greatness!” Though it has something a little more deliverable in its sights today.
- The company has a very empowering and aligning, if a little doctrinaire, management philosophy that sees all its staff as Educators; it requires them to not only be fit but also to buy into its core beliefs. It sees itself as a high commitment firm and one that embraces human relationship theory.
- It decentralises a lot of decision-making to entrepreneurial store management, which allows local adaptation and empowerment.
- In 2005 it sold nearly half of the business to VC’s to strengthen the balance sheet and help drive continued growth at a time when the business model was proven and it had a real opportunity to scale-up the business.
I would say that Lululemon demonstrates many of the things which I think drive growth businesses: a strong and experienced leader with prior sector knowledge and success; the development of a ”fast flowing stream” of demand; a strongly differentiated value and belief based positioning; an in-house “religion” that allowed strongly aligned behaviours; delegated responsibility and incentives; and it applied both financial and human capital “leverage” at exactly the right time, by collaborating with the VCs and recruiting others to lead the business.
Now, the future is uncertain, and no one could have predicted the growth in demand for such trendy and high-priced sportswear for women, but it turned out to be an inspired choice of focus for Mr Dennis. (The right choice of focus early on is also a very important thing to get right and it deserves more thinking about than many give it.) The suggestion is now that the business is showing signs of losing control of its supply chain, which is commonly seen in high-growth retail businesses. Yes, that is probably true, but it’s a tiny slip-up in an otherwise exemplary tale of business growth and success.
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