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TEACHING NOTE
CASE 9
Lululemon Athletica, Inc., in 2016:
Can the Company Get Back on Track?
Overview
In May 2016, shareholders of lululemon athletica—a designer and retailer of high-tech athletic apparel sold
under the lululemon athletica and ivivva athletica brand names—were concerned whether customers were
losing enthusiasm for the company’s stylish, premium-priced products. Revenue growth of 16.1 percent in
fiscal 2013, 12.9 percent in 2014, and 14.6 percent in 2015 was well below the 36.9 percent increase in fiscal
2012. Average annual sales at lululemon’s retail stores open at least 12 months had dropped from a record high
of $5.83 million per store in 2012 to $5.44 million in 2013 to $4.95 million in 2014 to $4.57 million in 2015—a
disturbingly big 21.6 percent decline.
to pump up the company’s performance? And, given whatever actions top management might take to rejuvenate
sales, how long would it be before stockholders could reasonably expect for the company’s $64 stock price (as
of May 9, 2016) to climb above $80 per share (where it was trading in March 2013 when the problems with the
black Luon bottoms first surfaced and sales began to slack off)?
There’s ample detail in the case for students to evaluate:
Case 9 Teaching Note Lululemon Athletica, Inc., in 2016: Can the Company Get Back on Track?
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Suggestions for Using the Case
This freshly revised case should generate considerable student interest and provoke a lively, interesting class
discussion of whether and how long it might take for the company to resume strong growth and attractive
profitability, given its recently tarnished image stemming from design and product quality problems and the
actions of key competitors to broaden their product lines to include a bigger selection of fashionable, high
performance athletic and fitness apparel for women. the apparent interruption in the company’s rapid climb
to prominence in women’s upscale yoga and fitness apparel. Will the new Chief Product Officer and Chief
Executive officer succeed in getting the company back on track? How long will it take? What, if any, changes in
strategy are needed at lululemon?
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 then 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 videos that you can show in class (or have students
view on their own):
Links to the two videos are also posted in the instructor resources section of the Connect Library.
One option is to show either or both videos right before you ask the class for action recommendations, but you
can also show them at the beginning of the class period if you prefer.
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:
Many of the topics in this case bear directly on the material in Chapters 3 through 7.
One 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.
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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:
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 student section of the publisher’s Online
Learning Center for the 20th edition (www.mhhe.com/thompson). (You should be aware that there is a set
of assignment questions posted in the student OLC for each of the cases included in the 20th edition.) 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
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 follows Case 31. The content of this Guide is particularly
helpful to students if your course is their first experience with cases and they are unsure about the mechanics of
how to prepare a case for class discussion, oral presentation, or written analysis.
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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:
■ 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 identification of the primary components of lululemon’s value chain, (4) an evaluation of
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? You should
use the financial ratios in Table 4.1 of Chapter 4 (pages 66-68) in performing calculations to determine
which aspects of lululemon’s financial performance might be characterized as impressive, improving, or not.
In addition to the ratios in Table 4.1, you will also need to calculate compound average growth rates (CAGR)
for certain financial measures. The formula for calculating CAGR (in percentage terms) is as follows:
CAGR % = [ending value ÷ beginning value] 1/n – 1 x 100
(where n = the number of year-to-year or period-to-period changes)
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.
Case 9 Teaching Note Lululemon Athletica, Inc., in 2016: Can the Company Get Back on Track?
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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.
of Performance
Yoga and
Fitness
Apparel
from
supplier
bargaining
power
from the
bargaining
power
of buyers
Substitutes for
Performance
Yoga and Fitness Apparel
Performance
Yoga and
Fitness Apparel
Competitive pressures
created by the
jockeying for better
market position
and competitive
advantage
Above is a representative five-forces model of competition for companies that design and market performance-
based yoga and fitness apparel (the portion of the larger performance sports apparel arena where lululemon
competes). These forces are discussed in turn, below:
Rivalry 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
Case 9 Teaching Note Lululemon Athletica, Inc., in 2016: Can the Company Get Back on Track?
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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
product lines and offer wider selection to those people who wear performance-based yoga and
fitness apparel.
• Rivalry-related competitive pressures are being intensified by the active efforts on the part of the
rival designers/marketers because there is enough new demand to enable each rival to grow sales/
market share without having to steal customers away from rival brands in a head-to-head battle for
the business of fitness-conscious buyers.
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
Competitive 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:
Factors that are acting to weaken the threat of new entrants:
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• The degree of product differentiation and brand name awareness enjoyed by Under Armour,
Nike, adidas-Reebok, and lululemon—trying to go head-to-head against these rivals would be
quite expensive from the standpoint of establishing a credible and potent brand image and brand
reputation.
All things considered, we think it is fair to say that the competitive pressures associated with the threat
of additional entry into the marketplace for performance-based yoga and fitness apparel are:
Competitive 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:
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
Competitive 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).
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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
and other terms and conditions under which they will sell/supply these fabrics for use in the
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
apparel items for lululemon, Nike, Under Armour, adidas-Reebok, and others and who also have the
capabilities (1) to make these items to the designer/marketer’s specifications and (2) to meet their
delivery schedules.
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
Competitive 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:
• Retailers that stock performance-based yoga and fitness apparel in their stores and buy the items
they carry directly from Nike, Under Armour, adidas-Reebok, and other designer/marketers
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
Case 9 Teaching Note Lululemon Athletica, Inc., in 2016: Can the Company Get Back on Track?
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Likewise, fitness centers/yoga studios have little bargaining power because they, too, buy in small
quantities.
• 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-
brand to another. In other words, they have some freedom in choosing what mix/proportion of the
items of each brand they opt to stock.
• 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
status may enable them to wring concessions regarding prices or other terms and conditions they
consider important.
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
• Retailers are aware that growing numbers of individuals who buy performance-based yoga and
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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-
Conclusions concerning the Overall Strength of All Five Competitive Forces: The collective
strength of the five competitive forces facing lululemon, Athleta, Under Armour, Nike, Adidas-Reebok,
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
strategic group map should utilize two strategic variables that differentiate the various competitors in the
movie rental marketplace.
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:
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.
Case 9 Teaching Note Lululemon Athletica, Inc., in 2016: Can the Company Get Back on Track?
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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 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, Athleta, The Gap, sporting goods chains like Dick’s,
FIGURE 1. A Representative Strategic Group Map of the Designers/Marketers of Branded
Performance Sports Apparel
Under
Armour
Wide
Breadth of Product Offerings
Independent
of independent
retailers and
Narrow
Other less
marketers