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Athletic wear retailer Lululemon has most recently been making headlines for its much-publicized lawsuit filed against warehouse club Costco, with Lululemon alleging that Costco has been engaging in trademark infringement via the sale of ostensible "dupes" targeting the appearance of its own apparel lines.
Now, however, Lululemon appears to be making the news over an entirely different concern: the state of its U.S. business. According to a Retail Dive report outlining research presented by Jefferies, the retailer most known for its significant growth and continued physical expansion could be facing some fundamental headwinds pertaining to its stateside operations.
Significant Markdowns To Clear Inventory Could Signal Trouble for Lululemon
Per Jefferies analysis based on a number of store visits termed "lackluster" by the outlet's Dani James, Lululemon is exhibiting signs of difficulty in clearing out existing inventory — at least at its typical pricing.
“It is becoming evident that the company is struggling with sell through and is resorting to markdowns to clear inventories,” Jefferies analysts said in a research note.
“With US sales continuing to decline, mall traffic weakening, and momentum in China fading, we see increasing risk to [management’s] topline guidance. Elevated markdown activity poses a threat to gross margins, and with costs now rising faster than sales, SG&A deleverage is set to accelerate. If current trends persist, we expect mounting pressure on earnings," the noted continued.
Despite Costco Lawsuit, Existing Competitors Could Prove More of a Threat
And while the Lululemon-Costco suit is hogging headlines, Jefferies analysts appeared much more interested in the present danger to the apparel retailer posed by competitors like Vuori and Athleta — rival brands that often operate stores in close proximity to Lululemon's stores.
Indicating that these brands were playing host to stores which outperformed Lululemon's in terms of visual marketing cohesion and overall aesthetic appeal, Jefferies also pointed to data which suggests that rival retailers had begun a trend — since February of this year — of beating Lululemon on the vital metrics of digital and store traffic.
Amid pressing price increases set against a more price-conscious American consumer, a tumbling of U.S. store traffic in its most recent quarter, and stalled progress more broadly in terms of its stateside balance sheet, Lululemon remains committed to a sizable expansion of its brick-and-mortar footprint in the United States.
Can a Slate of New Product Lines Bolster the Brand?
Finally, the retailer's pivot to focus on "newness," as emphasized during comments made by CEO Calvin McDonald during a Q4 earnings results call, could be a risky play during a time of relative turbulence.
That's the position taken by Jefferies, with analysts indicating "skepticism about the potential for positive impact from this new design, saying that frequent store checks reveal a very limited rollout of the product," per James.
For his part, McDonald said in June that customers were engaging with the newer product, highlighting the incoming rollout of its No Line Align legging as a key launch, set to hit store shelves nationwide by September.