By Tom Ryan
Lululemon, a rapidly-expanding upscale yoga retailer, promises to be the next hot retail IPO.
Founded in Vancouver in 1998, the company sells yoga-inspired apparel under the "lululemon athletica" brand name, primarily in its own high-end stores. As of June 1, it operated 57 in Canada and the U.S. Plans call for 20 to 25 stores openings in 2007, and 30 to 35 in 2008.
Net revenues catapulted from $40.7 million in 2004 to $148.9 million in 2006 - a 91.1 percent compound annual growth rate. During 2006, same-store sales increased 25 percent and stores open at least one year averaged sales of about $1,400 per square foot, which Lululemon believes is among the best in apparel retail.
What's the key to its success?
According to its prospectus, founder Dennis "Chip" Wilson noticed an increasing number of women participating in sports, specifically yoga, and the concept directly addresses that void in the women's athletic market. In its prospectus, management said it expects both yoga and broader fitness-related participation to continue to grow as a result of a "sustained shift toward health and well-being" on the part of women and men.
"We also believe longer-term growth in athletic participation will be reinforced as the aging Baby Boomer generation focuses more on longevity," the prospectus said. "In addition, we believe consumer purchase decisions are driven by both an actual need for functional products and a desire to create a particular lifestyle perception. As such, we believe the credibility and authenticity of our brand expands our potential market beyond just athletes to those who desire to lead an active, healthy, and balanced life."
Well beyond sport, the concept also taps into customers' spiritual sides, specifically Lululemon's earthy values and vision of "elevating the world from mediocrity to greatness."
Much of the spirituality comes through Lululemon's staff who share the company's values. For many, their job is "an extension of their personal philosophy and lifestyle."
Referred to as "educators", many are fitness practitioners and all receive approximately 30 hours of in-house training to help explain the technical features of products to customers.
But employee training for Lululemon also involves personal development.
Each employee is encouraged to set goals "to reach their full professional, health and personal potential." At least three quarters of its staff have written professional, health and personal goals and Lululemon offers programs such as personal development workshops and goal coaching to assist them in realizing their objectives. All have access to an updated library of business, leadership and personal development books.
With the help of its staff, stores are positioned as community hubs designed "to educate and enrich" customers. Each posts a community board featuring local yoga studios, athletic events and other information. The staff also serves as knowledgeable references for guests seeking information on fitness classes, instructors and events in the community.
The stores clearly evoke an upscale look and touches, including providing customers with fresh filtered water. But the enlightenment primarily comes from employees.
"We believe the energy and passion of our employees allow us to successfully execute on our business strategy, enhance brand loyalty and create a distinctive connection with our customers," Lululemon said.
Through Goldman Sachs and Merrill Lynch, Lululemon plans to raise up to $200 million from the sale of shares in the U.S. and Canada.
Discussion Questions: Why do you think Lululemon has been so successful so far? What do you think of their efforts to reach consumers on a spiritual level? With only 15 stores here, what challenges will they face as they expand across the U.S.?