Lululemon promises ‘strategic pricing’ as profits grow

The Canadian activewear brand wants to maintain its focus on full price sales, as it targets the “open space” of lifestyle garments and explores new categories.

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Lululemon is prioritising minimal discounting and “strategic” pricing in 2022, as the activewear giant celebrates gross profit exceeding $1bn during the fourth quarter.

The Canadian clothing brand saw its net revenue increase by 23% to $2.1bn (£1.6bn), primarily attributed to increased sales generated by company-operated stores. Revenue in the womenswear business rose by 20% during the fourth quarter, while menswear sales rose by 28% and accessories revenue increased by 33%, compared to the same period two years prior.

During the period, Lululemon notched up a gross profit of $1.2bn (£916m), or 58.1% of net revenue, compared to $1bn (£763m), or 58.6% of net revenue in the fourth quarter of 2020.

The brand promised to continue to be “strategic” on pricing and not take any “drastic” moves. According to CEO Calvin McDonald, “modest selective” price increases are planned from the second quarter onwards, impacting around 10% of styles.

McDonald explained the brand sets its prices based on several factors, including the value of the innovation and an analysis of the range within the product category and market. The company also likes to ensure its garments perform “at a higher index” than the pricing, relative to competitors.

While the Lululemon CEO acknowledged supply chain delays, he explained core seasonless product – equivalent to 45% of inventory – carries a minimal markdown risk and will enable the brand to fulfil ongoing demand.

We will fuel ongoing growth in both traffic and conversion by continuing to make foundational investments across our digital platform.

Calvin McDonald, Lululemon

Earlier this month Lululemon made its debut into footwear with the launch of its Blissfeel running shoe. McDonald described the launch of the Blissfeel range as opening in a “competitive position”, meaning “very little discounting” will be needed.

“We priced it effectively based on the innovation. The immediate response has been incredible. So, we feel well priced. I don’t plan to take any additional actions on footwear this year and we will manage the category as we look forward with additional innovation, as well as evolution of the category, over the years ahead,” he stated on an investor call yesterday (29 March).

The business has exceeded its total revenue target, said McDonald, while doubling its ecommerce business on a two-year basis. Lululemon is now on track to quadruple its international business by the end of 2022.

Identifying an accelerated level of “cross-shopping” throughout the pandemic period, Lululemon sees a higher value coming from customers who shop with the brand across ecommerce and physical retail. The revenue from Lululemon stores rose by 47% compared to the same period last year, when many locations were under lockdown, and increased 3% on a two-year basis.

On a two-year basis, the brand’s ecommerce sales grew by 50%. During the fourth quarter, online sales hit $1bn (£763m), or 49.3% of total revenue, compared to $899.5m (£686m), or 52% of total revenue, during the same period in 2020.

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“Looking forward, we will fuel ongoing growth in both traffic and conversion by continuing to make foundational investments across our digital platform,” said McDonald.

“These will include enhancing our storytelling by adding more content and product comparisons, improving inventory accuracy and continuing to make the guest checkout experience more seamless.”

For the full year 2021, international revenue grew by more than 50%, with Lululemon’s EMEA business turning a profit for the first time. In mainland China, revenue increased by more than 60% on a two-year basis. McDonald continues to note how well the brand “translates across borders”, with plans to open 40 new stores in international markets.

Lululemon also reported Mirror, the fitness startup it acquired in June 2020 for $500m, is performing in line with revised expectations. McDonald claimed the business remains “enthusiastic” about the opportunities presented by hybrid fitness. However, during the fourth quarter the company “reduced digital marketing costs” related to the Mirror business.

Mirror sells a $1,500 (£1,145) device that enables customers to join fitness classes at home, positioning Lululemon squarely in the same market as troubled at-home fitness company Peloton.

Exploring ‘open spaces’

McDonald sees various opportunities for the brand in 2022, buoyed by demand for athletic apparel continuing to “outpace growth” in overall fashion.

The Lululemon CEO also noted the importance of combining physical retail with the convenience of digital engagement, which he sees as playing into the company’s business model.

He also highlighted Lululemon’s sponsorship of the Canadian Olympic Committee, as seen during the Winter Olympics in February, alongside the launch of footwear, as further means to create brand awareness, consideration, drive loyalty and attract new customers.

“I am excited by the reaction to our product in the buzz this partnership created for our brand, notably both inside and outside of Canada. Partnering with Team Canada is a unique opportunity for us to build awareness for Lululemon on the global stage and to support some of the world’s most elite athletes,” said McDonald.

“We are off to a great start. And I am thrilled that this month, we launched our footwear collection and we have received a very broad-based positive reaction to our unique women’s first positioning.”

The business also sees real potential for sales of ‘on the move’ lifestyle garments, which McDonald believes is a “completely open space” for the brand. The plan is to expand this collection, with new styles of tops and bottoms for men and women to be introduced throughout the year.

Lululemon sees further opportunity in sportswear, as supported by the launch this week of its first tennis collection and a golf collection rolling out next week.

Promising updates on its loyalty proposition in the coming weeks, McDonald believes the brand has built “very strong” loyalty by forging relationships with customers and a focus on product.

“We tested a loyalty programme that extended that relationship into sweat and strengthened our position of community in our stores. And that led to our confidence around the Mirror acquisition, which is really an opportunity for us to position it in that membership base as a means to drive loyalty and retention,” said McDonald.

Another area of focus is sustainability. Lululemon is investing in the co-creation of a plant-based alternative to nylon, intended to help the brand achieve its goal to make 100% of its products with sustainable materials and have end-of-life solutions by 2030.

A key part of this push is what Lululemon calls re-commerce. The Lululemon Like New programme, currently being tested in California and Texas across 80 stores, encourages customers to return used Lululemon garments, which are then washed and re-sold on the brand’s website. Consumers returning the products for re-use receive a gift card to spend at Lululemon.

“It’s meeting and exceeding in terms of its goal, which is getting current guests to spend more, acquisition of new guests with a more approachable entry price point and supporting our planetary initiatives, and offering end-of-life solutions for our guests and being leaders in those goals,” McDonald added.