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What Is Lululemon’s Secret Sauce?
Lululemon Athletica posted its 14th straight quarter of double-digit same-store gains since the pandemic’s arrival and remains one of retail’s breakout darlings as the yoga-themed retailer celebrates its 25th anniversary.
The strong recent performance came despite the challenges faced selling upwards of $100 leggings amid inflationary pressures.
A 2012 article from the Wall Street Journal identified “scarcity” as Lululemon’s “secret sauce.” New colors and seasonal items arrive in three-, six-, or 12-week life cycles with the threat of out-of-stocks supporting full-price selling. Lululemon’s CEO at the time, Christine Day, told the WSJ, “Our guest knows that there’s a limited supply, and it creates these fanatical shoppers.”
Speaking recently to Yahoo Finance, Adrienne Yih, Barclays’ analyst, likewise identified Lululemon’s “secret sauce” as the continued commitment by the current executive team, led by CEO Calvin McDonald, to innovation over three-, four-, and five-year time frames. She said, “They never stop innovating. They never think they have enough. They never think they’re winning enough.”
On its third-quarter analyst call, McDonald highlighted a number of successful new fabrications and products driving sales in the latest quarter as well as those planned for coming quarters. He said, “One of our competitive advantages is our ability to consistently bring newness and innovation into our assortment. Our product teams work with our athletes and ambassadors, leverage our Science of Feel innovation platform, and solve for the unmet needs of our guests.”
As usual, McDonald also called out Lululemon’s efforts to “continue to lean into our grassroots approach to building community and engaging with guests on a local and one-on-one basis.”
At its analyst day last year, Lululemon detailed the grassroots approach that includes training in-store “educators” to discuss products and guide customers to local studios, signing up fitness trainers and yoga instructors as local ambassadors, and supporting community events. Partnering with local studios is a core driver of its recently launched Essential Membership program.
Nikki Neuburger, Lululemon’s chief brand officer, said at the event, “Strong relationships have been a critical ingredient of our secret sauce since the early days of the brand. It started in our stores and now membership will allow us to do the same digitally and at scale.”
McDonald on the company’s third-quarter call said that as U.S. adult active apparel revenues decreased in the third quarter, Lululemon gained 1.5 points of market share, according to Circana’s POS data tracking. He said of the North America opportunity, “With unaided awareness of only 25%, we have several ways to bring new guests into the brand, including ongoing innovation within our product assortment, new store openings and optimizations, and our unique approach toward connection, encompassing both local activation and larger-scale marketing campaigns.”
Discussion Questions
Is product, the customer experience, or something else the “secret sauce” to Lululemon’s success? What threats do you still see to Lululemon’s continued growth?
Poll
Loading …BrainTrust
Ken Morris
Managing Partner Cambridge Retail Advisors
Allison McCabe
Director Retail Technology, enVista
The secret source is great product which is constantly innovated to ensure new designs and technicalities give shoppers reasons to buy regularly. The desirability of Lululemon is also seen in its refusal to discount outside of set times, something which aids margins and profits. The challenge is to keep growth going quarter after quarter in a market that is getting more crowded and competitive. For now, Lululemon seems to be managing this, but its share price is based on high multiples so it needs to maintain its stellar numbers.
Lululemon’s secret sauce is its consistent high quality products with a constant flow of fresh designs that keep customers excited for the latest new designs. With limited quantities, Lululemon passionate fans are inspired to purchase the current designs, as they can’t wait for a deal. This helps Lululemon protect their margins. The biggest threat is a hot new competitor that finds a way to lure customers away from Lululemon.
Lululemon’s blend of product, customer experience and process excellence is its key to success. High standards and reliability deepen brand trust and attract a vibrant wellness community willing to pay a premium.
Risks include fierce competition, waning loyalty and inflation, as consumers may switch to cheaper dupes and similar matches.
Some brands/retailers just do it right – Apple and Lululemon are two of them. They seem to be plugged-in to a rich vein of the economy, that just seems to grow for them. That’s Lululemon. For decades, we watched this brand/retailer, get better and better. Meaningful, profitable revenue growth; new products; new approaches. At the same time, it was reasonable to ask why no one had given them a serious run for their money? Many tried, like Athleta for example, but it hardly slowed Lululemon down – it may have spend them up.
We should also give some credit to Calvin McDonald. He’s had big roles with a number of major retailers/brands, so experience was a given. But what he also seems to possess is a drive to keep pushing a truly successful company to even higher heights. The leader needs to want to compete and grow like Lululemon does, and Mr. McDonald is driving the bus. And while there’s always a threat of cheaper product at similar quality impacting the company – not to mention the fickleness of consumers – the Lululemon brand transcends the product, and the product is pretty exceptional (IMHO).
It has to be the high quality product, great customer experience and its cult-like following (great marketing). However, there’s also an image (luxury) and timing component to its success though it’s hard to argue against a multi-billion dollar, global company that has been around for a quarter century. Is Athleisure threatened by the return to the office movement? Is its logo a Greek letter or a wig or none of the above? Regardless, the threat is undeniably the competitive environment in which it exists and the finicky nature of the image conscious buyer. The other threat is managing a growing brand and misfiring along the way like it did with Mirror. Maybe Peloton will work out better. There are definitely threats to Lululemon but it has a high quality product, raving fans and great leadership – I trust my colleague Mark Ryski’s comments about Mr. McDonald though I’m not ready to elevate Lululemon to Apple status. I’m neither a fan nor a customer but I respect what Lululemon has been able to accomplish.
Lululemon has been able to successfully create demand while limiting supply by taking informed risks on constantly innovating product. Any company that has a Science of Feel platform has a keen grasp on customer requirements. Combine that with the “cool kids” logo, the ability to interact with the brand community, and a “no guts, no glory” approach to risk taking. The key elements of a successful retail brand are fully present.
With Lululemon, I believe it’s the product, the experience, and the tsunami of people championing it by wearing the brand. Peer pressure and fashion are contributing to their phenomenal success. You can charge pretty much any price for the last bottle of water in the desert. That’s why Lululemon’s strategic scarcity is a perfect fit for their fanatical fanbase, some of whom might actually practice yoga. Meanwhile, they’ve created their own shortened fashion cycle. So, you’re not only out of luck when you’re too late to find the three-week season items, you’re also out of style. Brilliant!
But wait, there’s more. Lululemon markets like the world’s best campaign strategist. They engage every constituent in every network that even remotely touches their current and future customers. It’s not a legging, it’s a lifestyle and a movement.
Retail brands everywhere should look at Lululemon’s playbook and figure out how to apply it to their brands. Not every segment will be able to play the scarcity card, but the networking and campaign strategy moves are all fair game.
Our data repeatedly highlights that the most relevant attribute to success is quality product. Lululemon always has products that are in demand.
Tried and true strategy- focus on your customer and your value proposition. Lululemon excels at customer experience and product development. They know their customers and what they want. Not-So-Secret Sauce is great execution of these strategies.
There are multiple factors at play which are driving Lululemon’s success: 1) Quality. Adults who buy their product swear that the quality justifies the price. 2) High income customers. Those that can spend $100 on leggings, as a general rule, will likely have greater disposable income (enabling additional purchase) and will keep coming back because of their belief that the quality justifies the price. 3) Limited supply driving urgency. 4) Social currency. Due to the limited quantities and high price, not everyone can afford it, and the brand drives social currency for teens within their peer group. Underpinning all of these is innovation. If they were to stop innovating, the engine that drives the other purchase motivations slows or comes to a halt, right along with their growth. It is the key that unlocks all the other drivers.
The timing was great for Lululemon to break out. They took full advantage.
i know I’ve mused before about how scarcity is a big part of luxury. Retailers are kind of addicted to inventory. Good to slow down.
Product by a large margin. It fits well, and, knowing the inventory refreshes gives one incentive to go, then buy something you see that you like. I found this out the hard way a couple of years ago when a white top for my wife got stained…nothing remotely similar in stock by the time this happened. Fit, finish, quality all support the impressive results as well.
Lululemon may have been gifted a sales boost from the pandemic lockdowns, but the product offering, quality and value proposition was well defined prior to 2020. Anyone who purchased clothing from them knew exactly what they were buying, pricing a side issue.
Lululemon has done a good job ensuring smart growth remains at the core of business decision making, and deserves credit for staying close to brand. A success story.
It’s the combination of innovating high performance products that look great, but also combining it with a scarcity strategy. Great products drive strong brand loyalty. Scarcity drives the sense of urgency that results in full-price sales – particularly given their FOMO fueled teen fan base. They know their customer really well.
In my opinion, Lululemon’s success results from a strategic mix of cutting-edge products and an outstanding customer experience. Their “secret sauce” involves an unwavering commitment to innovation and community engagement. In addition, their limited-time offerings and a sense of scarcity drive customer enthusiasm.
However, navigating through challenges such as the impact of inflation on premium-priced items poses a threat. As such, striking the right balance between affordability and quality is pivotal. Moreover, there’s still room for growth for Lululemon by expanding its market share beyond the current 25% unaided awareness. To achieve sustained success, Lululemon must continue to adapt to market dynamics, maintain its focus on product excellence, and foster enduring customer relationships.
There are many factors that contribute to Lululemon’s success, including product innovation and the company’s emphasis on delivering an exceptional customer experience both in-store and online. Additionally, the company demonstrates how beneficial personalized service, community engagement, and a focus on customer well-being can be to overall brand loyalty. Lululemon has created an identity as a lifestyle brand that goes beyond activewear by promoting a healthy and aspirational lifestyle. Despite its success, every company faces threats. For Lululemon, these include market saturation and competition, supply chain disruptions and broader economic factors. Evolving e-commerce challenges like increased competition and changing online shopping behaviors also need to be navigated carefully despite Lululemon’s strong online presence.