lululemon athletica, Inc., in 2014
Overview
In April 2014, shareholders of lululemon athletica—a designer and retailer of high-tech athletic apparel under
the lululemon athletica and ivivva athletica brand names that offered performance, fit, and comfort—were
concerned whether customers were losing enthusiasm for the company’s stylish, premium-priced products.
Revenue growth of 16.1 percent in fiscal 2013 was well below the 36.9 percent increase in fiscal 2012. Sales at
lululemon’s retail stores open over 12 months grew an average of only 2 percent (4 percent excluding the effect
of adverse changes in foreign currency exchange rates) in fiscal 2013, compared to average sales growth of 16
percent in fiscal 2012 (both with and without the effects of changes in currency exchange rates). Of equal or
greater concern, however, was the extent to which the company’s brand image had been damaged by product
quality problems encountered in March 2013 when shipments of women’s black Luon bottoms proved to be
sheer and revealing of the garments being worn underneath. Customer complaints about the see-through and
unflattering nature of the fabric—which were quickly reported by the media because of the company’s rapid
growth and high public profile—prompted the company to quickly pull all of the affected items from the shelves
of its retail stores (amounting to 17 percent of the company’s inventory of yoga pants) and initiate expedited
actions action to work with the fabric supplier to correct the problem and with its garment manufacturers to get
replacement products into its stores as quickly as possible. The lost sales, the additional costs incurred, and the
write downs on the affected inventory all had a significant negative bottom-line impact and were a big reason
why lululemon’s net income rose a meager 3.3 percent in fiscal 2013 after increasing a resounding 47.0 percent
in fiscal 2012.
But the more pressing concern was the extent to which the incident with the overly sheer Luon bottoms and
apparent lingering damage to lululemon’s brand image in the last three quarters of 2013 would continue to haunt
lululemon in upcoming years. Would strong sales growth at lululemon retail stores resume in 2014 or would
sales stagnation continue, especially in light of the fact that several important competitors (Under Armour, Nike,
adidas, and The Gap’s new Athleta brand retail stores) were broadening their product lines to include a bigger
selection of fashionable, high performance athletic and fitness apparel for women? Might the heretofore “must
have” appeal of lululemon’s functional and stylish apparel among fitness-conscious women be fading? Were a
significant fraction of the company’s customers switching to lower-priced brands and/or brands they considered
to more cutting edge or more trend-setting or more appealingly designed? Was the market signaling that the “fad
for lululemon apparel” was ending? What strategic actions could lululemon management initiate to get strong
revenue growth back on track? And, given whatever actions top management decided to take to rejuvenate sales
growth, how long would it be before the company’s stock price climbed from around $50 per share (where it
traded for most of the first three months of 2014) back to around $80 per share (where it was trading in March
2013 when the problems with the black Luon bottoms first surfaced)?
There’s ample detail in the case for students to evaluate:
■ lululemon’s strategy.
■ The attractiveness of the company in light of recent events, its current situation and future prospects.
■ The company’s financial performance.
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TEACHING NOTE
CASE 6
:
Can the Company Get Back on Track?
Case 6 Teaching Note lululemon athletica, Inc., in 2014
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Suggstions for Using the Case
This freshly revised case should generate considerable student interest and provoke a lively, interesting class
discussion of the apparent interruption in the company’s rapid climb to prominence in women’s upscale yoga
and fitness apparel. How much further can the company grow now that it has tarnished its image and witnessed
declines in growth and stock price? Is the push towards broader product lines to appeal to different segments
for lululemon apparel sustainable or will the declining growth in demand for the company’s core products
continue to be a drag on earnings and stock price appreciation? Are the “not-quite” departure of the company’s
founder (and still majority shareholder), Chip Wilson, accompanied by changes in top management—namely, a
new Chief Product Officer and Chief Executive officer—likely to get the company back on track? What, if any,
further changes in strategy are needed at lululemon?
The lululemon case works especially well as a follow-on to Case 5 on Under Armour, also freshly revised for
this edition. Students can compare and contrast the strategies of the two sports apparel companies and note how
their track records of rapid growth have converged or diverged and state the reasons therefor.
As with the Under Armour case, lululemon athletica is probably best assigned after you have covered Chapters
1–7, but it can be successfully used after students have read just Chapters 3, 4, and 5. The topics covered in
Chapters 5 and 6 are pertinent to student identification and assessment of lululemon’s strategy and competitive
approaches. And, with lululemon’s entry into foreign markets, the material in Chapter 7 regarding competing in
foreign markets comes into play as well.
As a consequence, you’ll find that lululemon athletica is a good case for drilling students in (1) applying the tools
of analysis covered in Chapters 3 and 4, (2) identifying and evaluating a company’s strategy, and (3) identifying
strategic issues/problems that merit top management attention and the proposing action recommendations to
resolve these issues/problems. The case provides an opportunity for class members to evaluate industry and
competitive conditions, weigh an assortment of competitive factors, draw a strategic group map, identify driving
forces and key success factors, think strategically about lululemon’s resources and capabilities versus those of
its main rivals, crunch some numbers in the financial exhibits, and make action recommendations regarding
lululemon’s future course of action.
Videos for Use with the lululemon Case There are two YouTube videos and a Bloomberg Businessweek
video that you can show in class (or have students view on their own):
nA 3:27-minute June 4, 2013 YouTube video of an interview with lululemon founder Chip Wilson concerning the
show-through pants controversy. It can be accessed at http://www.youtube.com/watch?v=O6MANRD70Jk.
nA 3:44-minute November 14, 2013 YouTube video calling Chip Wilson’s apology the worst ever. It can be
accessed at http://www.youtube.com/watch?v=u4jIBlTIkSk.
nA 4:22-minute December 13, 2013 Bloomberg Businessweek video about whether lululemon can fend off
rising competition. It can be accessed at http://www.businessweek.com/videos/2013-12-11/can-lululemon-
fend-off-rising-competition.
Our recommendation would be to show either or both of the first two videos when you opt to have the class
discuss the issue of lululemon’s limited selection of pant sizes and the recall of the see-through pants. The
third video is best shown right before you ask the class for action recommendations (or else in discussing the
mounting competitive threat from Gap’s Athleta and others), but you can also show it at the beginning of the
class period if you prefer.
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The Connect-based Exercise for the lululemon Case. We developed an exercise for lululemon athletica
for inclusion in the publisher’s Connect™ Management web-based assignment and assessment platform
because:
nMany of the topics in this case bear directly on the material in Chapters 3 through 7.
nOne of the purposes of the case exercises is to drill students in applying the core concepts and analytical
tools discussed in the chapters to the circumstances posed in the cases.
This particular Connect-based exercise focuses on the following five questions:
1. What does a SWOT analysis reveal about the attractiveness of lululemon’s situation and future prospects?
2. What are the primary components of lululemon’s value chain?
3. What are the chief elements of lululemon’s strategy?
4. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that lululemon is employing
5. What does the data in case Exhibit 1 reveal about lululemon’s financial and operating performance?
It should take class members roughly 30 minutes to complete the exercise, assuming they have done a conscientious
job of reading the case and absorbing the information it contains. All of the questions are automatically graded,
and the grades are automatically recorded in your Connect grade book, which makes it easy for you to evaluate
each class member’s ability to apply many of the concepts and analytical methods in Chapters 3–5.
What to Tell Students in Preparing the lululemon athletica Case for Class. To give students guidance
in what to do and think about in preparing the lululemon case for class discussion, we strongly recommend two
things:
1. Have class members complete the Connect-based exercise for the lululemon case in the event you
have adopted the Connect software for your course.
OR
2. Provide class members with assignment questions and insist that they prepare good notes/answers
to these questions before coming to class. Our recommended assignment questions for the lululemon
case are presented in the next section of this TN. You may wish to have the class concentrate their
attention on a subset of these questions, depending on what you want to concentrate on during the class
discussion.
To facilitate your use of assignment questions and making them available to students, we have posted a file of
the Assignment Questions contained in this teaching note on the instructor resources section of the Connect
Library. In all instances, these assignment questions correspond to the assignment questions in the teaching
note for the case.
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
expect students to bring their notes to the study questions to use/refer to in responding to the questions that
Case 6 Teaching Note lululemon athletica, Inc., in 2014
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Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. We
believe the lululemon athletica case is quite well-suited for written assignments and/or oral team presentations.
Our suggested assignment questions are as follows:
■ Incoming lululemon CEO Laurent Potdevin has employed you as a consultant to assess the company’s
overall situation and recommend a set of actions to improve the company’s future prospects. Please prepare
a report to Mr. Potdevin that includes: (1) an evaluation of competitive forces in the market for yoga and
fitness apparel, (2) an assessment of lululemon’s strengths, weaknesses, opportunities and threats, (3) an
■ Prepare a brief report to lululemon CEO Laurent Potdevin outlining the 3–4 top priority issues that lululemon
management needs to address and the actions you believe he must initiate to address these issues—and
reboot lululemon to attain future growth and profitability. Your report should contain detailed and convincing
Assignment Questions
1. How strong are the competitive forces confronting lululemon in the market for performance-based yoga and
fitness apparel? Do a five-forces analysis to support your answer.
2. What does your strategic group map of the performance sports apparel industry look like? Is lululemon well
positioned? Why or why not?
3. What do you see as the key success factors in the market for performance-based yoga and fitness apparel?
4. What does a SWOT analysis reveal about the overall attractiveness of lululemon’s situation?
5. What are the primary components of lululemon’s value chain?
6. What are the key elements of lululemon’s strategy? [If you have previously covered the Under Armour case,
which features of lululemon’s strategy stand out as being different from the strategy at Under Armour?]
7. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that lululemon is employing?
8. What do the data in case Exhibit 1 reveal about lululemon’s financial and operating performance?
9. What 3–4 top priority issues do CEO Laurent Potdevin and lululemon management need to address?
10. What recommendations would you make to lululemon CEO Laurent Potdevin? At a minimum, your
recommendations should cover what to do about each of the top priority issues identified in question 9.
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Teaching Outline and Analysis
1. How strong are the competitive forces confronting lululemon in the market for
performance-based yoga and fitness apparel? Do a five-forces analysis to support
your answer.
Above is a representative five-forces model of competition for companies that design and market performance-
nRivalry among the designers and marketers of performance-based yoga and fitness apparel—a
moderate to strong competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.4 in Chapter
3 (and the related text discussion).
The rivalry among lululemon and its competitors in the market for performance-based yoga and fitness
apparel is moderate to strong and seems to be on the verge of growing stronger because of the dramatic
• Product quality, styling, comfort, and performance features
Competitive pressures coming from
the market attempts of sellers in
Competitive pressures coming
Competitive
pressures
Competitive
pressures
Case 6 Teaching Note lululemon athletica, Inc., in 2014
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• Product line breadth
• Brand image and brand reputation
Students should be pressed to identify the following rivalry-related competitive pressures at work:
• Rivalry-related competitive pressures are being intensified by the efforts of rivals to expand their
• Rivalry-related competitive pressures are being intensified by the active efforts on the part of the
designers/marketers of performance-based yoga and fitness apparel to build and strengthen the
• Rivalry is weakened by the differentiation that exists from one brand of performance-based yoga
and fitness apparel to another (as concerns product selection, brand image, quality, design, and
• Growing demand for performance-based yoga and fitness apparel acts to weaken the rivalry among
rival designers/marketers because there is enough new demand to enable each rival to grow sales/
On the whole, we think it is fair to say that the competitive pressures associated with rivalry among
the designers/marketers of performance-based yoga and fitness apparel are moderate to strong.
Class members should recognize that there is little evidence in the case that indicates the competitive
nCompetitive pressures associated with the threat of new entry into the market for performance-based
yoga and fitness apparel—a weak to moderate competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.5 in Chapter
3 (and the related text discussion).
Factors that are acting to intensify the threat of entry:
• The fast rate of growth in buyer demand for performance-based yoga and fitness apparel
• Existing industry members are actively striving to expand their market reach by broadening their
product offerings (more types and styles of fitness apparel, items for a wider range of fitness
Factors that are acting to weaken the threat of new entrants:
• The small pool of apparel designers/marketers likely to begin adding performance-based yoga and
fitness apparel to their product offering
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• Somewhat formidable entry barriers—brand new designers/marketers of performance-based yoga
and fitness apparel face high barriers in building a retail distribution network and securing attractive
retail display space for their product offerings to consumers.
• Relatively weak in the case of brand new competitors entering the marketplace on a grand scale
with intentions to take on the market leaders. However, we would not disagree with students
• Relatively strong in terms of the existing competitors (particularly Nike, Under Armour, adidas-
Reebok, lululemon, and Athleta) entering new geographic areas where they currently do not have
nCompetitive pressures associated with substitutes for performance-based yoga and fitness apparel—a
moderate to strong competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.6 in Chapter
3 (and the related text discussion).
Factors that are acting to intensify competitive pressures from substitute products:
Factors that are acting to weaken competitive pressures from substitute products:
• Substitute types of athletic apparel often deliver less comfort and are viewed by many users as being
of inferior quality (despite the attraction of their often lower prices).
All things considered, it is fair to say that the competitive pressures from substitutes for performance-
based yoga and fitness apparel are moderate to fairly strong. Some students might argue for strong to
maybe very strong because of the lower prices of substitutes but we think a convincing case can be made
nCompetitive pressures associated with the bargaining power of suppliers—a moderate competitive
force
In assessing this competitive force, students should draw upon the information in Figure 3.7 in Chapter
3 (and the related text discussion).
The two types of suppliers that really matter here are (1) the suppliers/makers of performance-based
fabrics and (2) the contract manufacturers that actually produce the apparel items.
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Factors that are acting to intensify the bargaining power of suppliers:
• Fabric suppliers having proprietary fabrics with superior performance features and/or superior
quality and/or especially stylish designs have significant bargaining power to influence the prices
• Fabric suppliers—that serve upstream designers and marketers of performance-based yoga and
• The designers and marketers of performance-based yoga and fitness apparel are not a strong threat
Factors that are acting to weaken the bargaining power of suppliers:
• The presence of numerous contract manufacturers who are eager to win the business of producing
• The costs to lululemon, Nike, Under Armour, adidas-Reebok, and others of switching their orders
• Fabric suppliers having non-differentiated or commodity-like performance fabrics lack any
All things considered, it is fair to say that competitive pressures from the bargaining power and leverage
of suppliers are weak in the case of contract manufacturers and moderate when certain fabric
nCompetitive pressures associated with the bargaining power of buyers—a weak to moderate
competitive force depending on the type of buyer
In assessing this competitive force, students should draw upon the information in Figure 3.8 in Chapter
3 (and the related text discussion).
The buyers of performance-based yoga and fitness apparel consist of:
Class members need to understand here that individual buyers of performance-based yoga and
fitness apparel are really in no position to bargain with the store personnel at the retail stores/outlets
(or websites) of lululemon, Athleta, Under Armour, Nike, or adidas-Reebok for lower prices or other
Case 6 Teaching Note lululemon athletica, Inc., in 2014
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favorable terms and conditions of sale because they buy in such small quantities. The only “power”
any individual shopper for performance-based yoga and fitness apparel has is to not buy an item
they believe is overpriced or of inferior quality. Those customers may opt to shop elsewhere and/or
• The retailers of performance athletic apparel have some freedom to decide which brands they want
to stock in their stores and also which specific apparel items within a branded product line to
stock—retailers are unlikely to stock all brands and all models/styles of each brand of performance-
• It is easy and relatively inexpensive for the retailers of performance-based yoga and fitness apparel
to switch a portion (and in some instances, perhaps, even a big fraction) of their purchases from one
• Retailers have the freedom to determine which brands of performance-based yoga and fitness
apparel to display in which space on their floors (all floor or shelf locations or types of merchandise
displays may not be equally attractive in terms of generating sales). Retail buyers may therefore be
• Some retailers of performance-based yoga and fitness apparel have bargaining power and leverage
because they buy in large quantities and thus qualify as very important and competitively valuable
Factors that act to weaken the bargaining power of chain retailers of performance-based yoga and fitness
apparel:
• Inasmuch as the performance-based yoga and fitness apparel category is small, at least relative
to the entire universe of sports apparel and equipment, a vast majority of retailers will not for the
foreseeable future pose a credible threat to integrate backward into the design, manufacture, and
marketing of performance-based yoga and fitness apparel—and compete head-to-head against Under
• Retailers are aware that growing numbers of individuals who buy performance-based yoga and
Case 6 Teaching Note lululemon athletica, Inc., in 2014
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• Because there are so many different retailers of performance-based yoga and fitness apparel, no
All things considered, buyer bargaining power tends to be:
• Strong for large chain retailers who buy performance-based yoga and fitness apparel directly from
• However, lululemon is not confronted with bargaining power from chain retailers (as are Nike,
Under Armour, and adidas-Reebok) because it only sells to individuals at its own company-
operated and –owned retail stores. lululemon does not distribute its products to consumers
• Weak to nonexistent for individuals who shop at the stores/outlets/websites of retailers of
performance-based yoga and fitness apparel.
Conclusions concerning the Overall Strength of All Five Competitive Forces: The collective
strength of the five competitive forces facing lululemon, Athleta, Lucy, bebe Sport, Under Armour,
2. What does your strategic group map of the performance sports apparel industry look
like? Is lululemon well positioned? Why or why not?
Strategic group maps are beneficial for determining relative company placement in the industry. A good
Students can choose among any of several strategic variables to divide the performance sports apparel
industry into strategic groups and illustrate the different market positions that industry rivals occupy. We
have chosen to employ breadth of product line (in terms of number/variety of movies/TV episodes offered)
A representative strategic group map is shown in Figure 1.
Once students have come up with a map, then we think you should press them for their evaluation of what we
learn from the map. Any of the following questions can be posed to help draw out their views:
nHow well is lululemon positioned?
nWhich other industry members are well positioned?
nWhich industry members are weakly positioned?
The point here is that students should not stop their analysis with just drawing a strategic group map. The
most important part of strategic group mapping is to draw some conclusions about the story the map tells.
On the whole, we like lululemon’s position on the map because its product offerings and distribution channel
strategy are distinct from those of its key rivals. It is the only designer-marketer of performance-based yoga
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and fitness apparel with its own chain of company-owned retail stores and a relatively strong (and improving)
brand-name reputation and image. Those designers/marketers that sell their performance-based yoga and
fitness products at such retailers as Nordstrom, bebe Sport, Lucy, The Gap, sporting goods chains like
Dick’s and The Sports Authority, and other retailers of sports apparel (some of which may be merchandising
FIGURE 1. A Representative Strategic Group Map of the Designers/
Marketers of Branded Performance Sports Apparel
Wide
Breadth of Product Offerings
Distribution Channels Utilized
Independent
retailers of
athletic
apparel
Company-
owned retail
Combination
of independent
retailers and
Narrow
lululemon,
Under
Armour
Nike, adidas-Reebok
Other less
well-known
designers-
marketers