CASE 7 lululemon athletica’s Strategy

®peak months of the COVID-19 pandemic but alsofrom the propensity of many buyers to shift theirpurchases of apparel and other products online, washow much longer lululemon would be able to sustainits recent rates of growth in retail stores, revenues,and profitability.COMPANY BACKGROUNDA year after selling his eight-store surf-, skate-, andsnowboard-apparel chain called Westbeach Sports,Chip Wilson took the first commercial yoga classoffered in Vancouver, British Columbia, and foundthe result exhilarating. But he found the cotton clothing used for sweaty, stretchy power yoga completelyinappropriate. Wilson’s passion was form-fitting performance fabrics and in 1998 he opened a design studio for yoga clothing that also served as a yoga studioat night to help pay the rent. He designed a numberof yoga apparel items made of moisture-wicking fabrics that were light, form-fitting, and comfortableand asked local yoga instructors to wear the products and give him feedback. Gratified by the positiveresponse, Wilson opened lululemon’s first real storein the beach area of Vancouver in November of 2000.While the store featured yoga clothing designedby Chip Wilson and his wife Shannon, Chip Wilson’sRandall D. HarrisTexas A&M University-Corpus ChristitrategyGrowthues, andle?Copyright ©2021 by Arthur A. Thompson and Randall D. Harris. Allrights reserved.In May 2020, shareholders of lululemon designer and retailer of high-tech athletic apparel sold under the lululemon athletica and ivivva ath athletica—aletica brand names—were highly pleased with theremarkable turnaround in the company’s performancesince January 2016. Calvin McDonald, who becamethe company’s CEO in August 2018, had provenhighly adept in continuing to grow the company andboost its profitability somewhat faster than his predecessor had done during 2016 and 2017. Since theend of fiscal 2016 on January 31, 2016, lululemon’srevenues had almost doubled and net profits wereup 243 percent. The number of company-operatedstores had increased from 368 stores in 9 countriesin February 2016 to 491 stores in 17 countries as ofFebruary 2020, and the company’s stock price hadrisen from $60.75 in early February 2016 to an alltime high of $343.74 in early August 2020. Averageannual sales at lululemon’s retail stores open at least12 months, which had dropped from a record highof $5.83 million per store in 2012 to $4.57 million in2015 (a 21.6 percent decline), had climbed back to$5.2 million in fiscal 2020, ending February 2, 2020,while online sales rose from $401 million in the fiscalyear ending January 31, 2016, to $1.14 billion in thefiscal year ending February 2, 2020.Going into June 2020, the question lurking forshareholders, given the falloff in retail store salesand customer traffic that most apparel chain retailers were struggling to overcome not only during theArthur A. ThompsonThe University of Alabamalululemon athletica’sin 2020: Is the Recein Retail Stores, RevProfitability SustainantebCASE7 CASE 7 lululemon athletica’s Strategy in 2020 C-69symbol among yoga fans in areas where lululemonstores had opened. Avid yoga exercisers were nothesitating to purchase $120 color-coordinated lululemon yoga outfits that felt comfortable and madethem look good. Mall developers and mall operatorsquickly learned about lululemon’s success and beganactively recruiting lululemon to lease space for storesin their malls.In December 2005, with 27 company-ownedstores, 2 franchised stores, and record sales approaching $85 million annually, Chip Wilson sold 48 percentof his interest in the company’s capital stock totwo private equity investors: Advent InternationalCorporation, which purchased 38.1 percent of thestock, and Highland Capital Partners, which purchased a 9.6 percent ownership interest. In connection with the transaction, the owners formedlululemon athletica inc. to serve as a holding company for all of the company’s related entities, including the two operating subsidiaries, lululemon CanadaInc. and lululemon USA Inc. Robert Meers, who had15 years’ experience at Reebok and was Reebok’sCEO from 1996–1999, joined lululemon as CEO inDecember 2005. Chip Wilson headed the company’sdesign team and played a central role in developingthe company’s strategy and nurturing the company’sdistinctive corporate culture; he was also Chairman ofthe company’s Board of Directors, a position he hadheld since founding the company in 1998. Wilson andMeers assembled a management team with a mix ofretail, design, operations, product sourcing, and marketing experience from such leading apparel and retailcompanies as Abercrombie & Fitch, Limited Brands,Nike, and Reebok.Brisk expansion ensued. The company endedfiscal 2006 with 41 company-owned stores, 10 franchised stores, net revenues of $149 million, and netincome of $7.7 million. In 2007, the company’s owners elected to take the company public. The initialpublic offering took place on August 2, 2007, withthe company selling 2,290,909 shares to the publicand various stockholders selling 15,909,091 sharesof their personal holdings. Shares began trading onthe NASDAQ under the symbol LULU and on theToronto Exchange under the symbol LLL.In 2007, the company’s announced growth strategy had five key elements:1. Grow the company’s store base in North America.The strategic objective was to add new stores tovision was for the store to be a community hub wherepeople could learn and discuss the physical aspectsof healthy living—from yoga and diet to running andcycling, plus the yoga-related mental aspects of livinga powerful life of possibilities. But the store’s clothing proved so popular that dealing with customerscrowded out the community-based discussions andtraining about the merits of living healthy lifestyles.Nonetheless, Chip Wilson and store personnel werefirmly committed to healthy, active lifestyles, andWilson soon came to the conclusion that for thestore to provide staff members with the salaries andopportunities to experience fulfilling lives, the onestore company needed to expand into a multi-storeenterprise. Wilson believed that the increasing number of women participating in sports, and specifically yoga, provided ample room for expansion, and hesaw lululemon athletica’s yoga-inspired performanceapparel as a way to address a void in the women’s athletic apparel market. Wilson also saw the company’smission as one of providing people with the components to live a longer, healthier, and more fun life.Several new stores were opened in the Vancouverarea, with operations conducted through a Canadianoperating company, initially named LululemonAthletica, Inc. and later renamed lululemon Canada,Inc. In 2002, the company expanded into the UnitedStates and formed a sibling operating company,Lululemon Athletica USA Inc. (later renamed aslululemon USA, inc), to conduct its operations inthe United States. Both operating companies werewholly-owned by affiliates of Chip Wilson. In 2004,the company contracted with a franchisee to opena store in Australia as a means of more quickly disseminating the lululemon athletica brand name, conserving on capital expenditures for store expansion(since the franchisee was responsible for the costsof operating and operating the store), and boostingrevenues and profits. The company wound up its fiscal year ending January 31, 2005, with 14 companyowned stores, 1 franchised store, and net revenues of$40.7 million. A second franchised store was openedin Japan later in 2005. Franchisees paid lululemon aone-time franchise fee and an ongoing royalty basedon a specified percentage of net revenues; lululemonsupplied franchised stores with garments at a discount to the suggested retail price.Five years after opening the first retail store, itwas apparent that lululemon apparel was fast becoming something of a cult phenomenon and a statusC-70 PART 2 Cases in Crafting and Executing StrategyAustralia and New Zealand, and 47 stores in the restof the world. The company’s e-commerce web site,www.lululemon.com, was available to customersworldwide. In the company’s most recent fiscal yearending February 2, 2020, retail store sales accountedfor 62.8 percent of company revenues, web site salesaccounted for 28.6 percent, and sales in all otherchannels (sales at outlet centers, showroom sales,sales from temporary locations, licensing revenues,and wholesale sales to premium yoga studios, healthclubs, fitness centers, and a few other retailers)accounted for 8.6 percent.Exhibit 1 presents highlights of the company’sperformance for fiscal years 2015–2019. Exhibit 2shows lululemon’s revenues by business segment andgeographic region for the same period.lululemon’s Evolving SeniorLeadership TeamIn January 2008, Christine M. Day joined the company as Executive Vice President, Retail Operations.Previously, she had worked at Starbucks, functioning in a variety of capacities and positions,including President, Asia Pacific Group (July2004- February 2007); Co-President for StarbucksCoffee International (July 2003 to October 2003);Senior Vice President, North American Finance& Administration; and Vice President of Sales andOperations for Business Alliances. In April 2008,Day was appointed as lululemon’s President andChief Operating Officer and was named ChiefExecutive Officer and member of the Board ofDirectors in July 2008. During her tenure as CEO,Day expanded and strengthened the company’s management team to support its expanding operatingactivities and geographic scope, favoring the additionof people with relevant backgrounds and experiencesat such companies as Nike, Abercrombie & Fitch,The Gap, and Speedo International. She also spent anumber of hours each week in the company’s storesobserving how customers shopped, listening to theircomments and complaints, and using the information to tweak product offerings, merchandising, andstore operations.Company founder Chip Wilson steppeddown from his executive role as lululemon’s ChiefInnovation and Branding Officer effective January29, 2012, and moved his family to Australia; however, he continued on in his role of Chairman ofstrengthen the company’s presence in locationswhere it had existing stores and then selectivelyenter new geographic markets in the United Statesand Canada. Management believed that the company’s strong sales in U.S. stores demonstratedthe portability of the lululemon brand and retailconcept.2. Increase brand awareness. This initiative entailedleveraging the publicity surrounding the openingof new stores with grassroots marketing programsthat included organizing events and partneringwith local fitness practitioners.3. Introduce new product technologies. Managementintended to continue to focus on developing andoffering products that incorporated technologyenhanced fabrics and performance features thatdifferentiated lululemon apparel and helpedbroaden the company’s customer base.4. Broaden the appeal of lululemon products. Thisinitiative entailed (1) adding a number of apparelitems for men, (2) expanding product offeringsfor women and young females in such categoriesas athletic bags, undergarments, outerwear, andsandals, and (3) adding products suitable for additional sports and athletic activities.5. Expand beyond North America. In the near term,the company planned to expand its presence inAustralia and Japan and then, over time, pursueopportunities in other Asian and European markets that offered similar, attractive demographics.The company grew rapidly. Fitness-consciouswomen began flocking to the company’s stores notonly because of the fashionable products but alsobecause of the store ambience and attentive, knowledgeable store personnel. Dozens of new lululemonathletic retail stores were opened annually, and thecompany pursued a strategy of embellishing itsproduct offerings to create a comprehensive line ofapparel and accessories designed for athletic pursuitssuch as yoga; running and general fitness; technicalclothing for active female youths; and a selectionof fitness and recreational items for men. Revenuestopped $1 billion in fiscal 2011, $2 billion fiscal2016, and $3 billion in fiscal 2018.For fiscal year 2019, lululemon revenues grew by21 percent over fiscal 2018 to just under $4 billion.lululemon products could be bought at its 368 retailstores in the United States and Canada, 38 storesin the People’s Republic of China, 38 stores inCASE 7 lululemon athletica’s Strategy in 2020 C-71 problems with the black Luon bottoms occurred,Sheree Waterson resigned her position and left thecompany. In October 2013, lululemon announcedthat Tara Poseley had been appointed to its SeniorLeadership Team as Chief Product Officer andwould have responsibility for overseeing lululemon’sdesign team, product design activities, merchandising, inventory activities, and strategic planning.Previously, Poseley held the position of Interimand 2019.Source: Company 10-K reports for fiscal years 2015, 2016, 2017,the company’s Board of Directors and focused onbecoming a better Board Chairman, even going so faras to take a four-day course on board-governance atNorthwestern University.1 Christine Day promotedSheree Waterson, who had joined the company in2008 and had over 25 years of consumer and retailindustry experience, as Chief Product Officer toassume responsibility for product design, productdevelopment, and other executive tasks that Wilson2018,EXHIBIT 1 Financial and Operating Hi2015–2019 (in millions of $, ehlixcehts, lululemon athletica, Fiscal Yearspt per share data) President at Bebe Stores, Inc, President of Disney Selected IncomeStatement DataFiscal Year2019(EndingFeb. 2, 2020)Fiscal Year2018(EndingFeb. 3, 2019)Fiscal Year2017(EndingJan.28,2018)Fiscal Year2016(EndingJan 29, 2017)Fiscal Year2015(EndingJan. 31, 2016)Net revenues$3,979.3$3,288.3$2,649.2$2,344.4$2,060.5Cost of goods sold1,755.91,472.01,250.41,144.71,063.4Gross profit2,223.41,816.31,398.81,199.6997.2Selling, general, andadministrative expenses1,334.31,110.5904.3778.5628.1Operating profit889.1705.8456.0421.2369.1Net profit (loss)$ 645.6$ 483.8$ 258.7$ 303.4$ 266.0Foreign currency translationadjustment(7.8)(73.9)58.636.7(64.8)Comprehensive income$ 637.8$ 409.9$ 317.2$ 340.1$ 201.3Earnings per share—basic$ 4.95$ 3.63$ 1.90$ 2.21$ 1.90—diluted$ 4.93$ 3.61$ 1.90$ 2.21$ 1.89Balance Sheet DataCash and cash equivalents$1,093.5$ 881.3$ 990.5$ 734.8$ 501.5Inventories518.5404.8329.6298.4284.0Total assets3,281.42,084.71,998.51,657.51,314.1Stockholders’ equity1,952.21,446.01, 597.01,360.01,027.5Cash Flow and Other DataNet cash provided byoperating activities$ 669.3$ 742.8$ 489.3$ 385.1$ 298.7Capital expenditures283.1225.8157.9149.5143.5Store DataNumber of corporate-ownedstores open at end of period491440404406363Sales per gross square foot atcorporate-owned stores openat least one full year$ 1,657$ 1,579$ 1,554$ 1,521$ 1,541Average sales at corporateowned stores open atleast one year$5.18 million$4.78 million$4.68 million$4.47 million$4.57 million had been performing. Shortly after the qualityC-72 PART 2 Cases in Crafting and Executing Strategy EXHIBIT 2 lululemon athletica’s RevenBusiness Segment, GeograYears 2015–2019 (dollars inuesphicmilliand Income from Operations, byRegion,and Product Category.Fiscalons)*The “All other channels” category included showroom sales, salesing revenues, and wholesale sales to premium yoga studios, healthSource: Company 10-K Reports, Fiscal Years, 2017 and 2019.at lulclubsulemon outlet stores, sales from temporary store locations, licens, fitness centers, and other wholesale accounts. Revenues by Business SegmentFiscal Year2019(EndingFeb. 2,2020)Fiscal Year2018(EndingFeb. 3,2019)Fiscal Year2017(EndingJan.28,2018)Fiscal Year2016(EndingJan 29,2017Fiscal Year2015(EndingJan. 312016)Corporate-owned stores$2,501.1$2,126.4$1,837.1$1,704.4$1,516.3Direct-to-consumer (e-commerce sales)1,137.8858.9577.6453.3401.5All other channels*340.4303.1234.5186.7142.7Total$3,979.3$3,288.3$2,649.2$2,344.4$2,060.5Percentage Distribution of Revenues byBusiness SegmentCorporate owned stores62.9%64.7%69.3%72.7%73.6%Direct-to-consumer (e-commerce sales)28.6%26.1%21.8%19.3%19.5%All other channels*8.5%9.2%8.9%8.0%6.9%Total100.0%100.0%100.0%100.0%100.0%Income from Operations (before generalcorporate expenses), by Business SegmentCorporate owned stores$ 689.3$ 575.5$ 464.3$ 415.6$ 346.8Direct-to-consumer (e-commerce sales)482.4354.1224.1186.2166.4All other channels*72.662.635.622.35.8Total Income from Operations (beforegeneral corporate expenses)$1,244.3$ 992.2$ 724.0$ 624.1$ 519.0Revenues by Geographic RegionUnited States$2,854.4$2,363.4$1,911.8$1,726.1$1,508.8Canada649.1565.1491.8447.2416.5Outside of North America475.8359.8245.6171.1135.2Total$3,979.3$3,288.3$2,649.2$2,344.4$2,060.5Percentage Distribution of Revenues byGeographic RegionUnited States71.7%71.9%72.2%73.6%73.2%Canada16.3%17.2%18.6%19.1%20.2%Outside of North America12.0%10.9%9.2%7.3%6.6%Total100.0%100.0%100.0%100.0%100.0%Revenues by Product CategoryWomen’s products$2,791.0$2,352.8$1,892.6Not reportedNot reportedMen’s products933.8694.9526.5Not reportedNot reportedOther categories254.5240.6230.0Not reportedNot reported CASE 7 lululemon athletica’s Strategy in 2020 C-73Prior to TOMS, Potdevin held numerous positions atBurton Snowboards for more than 15 years, including President and CEO from 2005–2010; BurtonSnowboards, headquartered in Burlington, Vermont,was considered to be the world’s premier snowboard company, with a product line that includedsnowboards and accessories (bindings, boots, socks,gloves, mitts, and beanies); men’s, women’s, andyouth snowboarding apparel; and bags and luggage.Burton’s grew significantly under Potdevin’s leadership, expanding across product categories and opening additional retail stores.Tension between Chip Wilson and lululemon’sboard of directors erupted at the company’s annualshareholders’ meeting in June 2014 when he votedhis entire shares against re-election of the company’schairman and another director. In February 2015, aftercontinuing to disagree with lululemon executives andboard members over the company’s strategic directionand ongoing dissatisfaction with how certain lululemon activities were being managed, Wilson resignedhis position on lululemon’s board of directors. InAugust 2014, he sold half of his ownership stake to aprivate equity firm. In June 2015, lululemon filed documents with the Securities and Exchange Commissionenabling Wilson to sell his remaining 20.1 millionshares (equal to a 14.6 percent ownership stake worthabout $1.3 billion) in the event he wished to do so. Asof April 2020, Chip Wilson owned 10.7 million sharesof lululemon’s common stock, equal to an ownershipstake of about 8.1 percent. Wilson, together with hiswife and son, in 2014 formed a new company, Kit andAce, that specialized in high-end clothing for men andwomen made from a machine-washable, high performance, cashmere fabric; the innovative clothing linewas designed for all-day wear and included a range ofitems suitable for running errands or attending an evening event. In 2016, there were some 60 Kit and Acestores in the United States, Canada, Australia, Britain,and Japan; however, in 2020, the company only had 8locations, all in Canada.In 2018, lululemon CEO Laurent Potdevinresigned as CEO following allegations of misconduct.Potdevin was replaced by Calvin McDonald as ChiefExecutive Officer in August 2018. McDonald hadpreviously served for five years as the President andCEO of Sephora America, a division of the LVMHGroup. Mr. McDonald had been very successful inhis previous position, a period during which SephoraAmerica grew annually by double digits. McDonaldStores North America (The Children’s Place), CEOof Design Within Reach (DWR), and a range of senior merchandising and design management positionsduring her 15-year tenure at Gap Inc.In the aftermath of the pants recall in March2013, the working relationship between ChristineDay and Chip Wilson deteriorated. Wilson made itclear that he would have handled the product recallincident differently and that he did not think therewere problems with the design of the product or thequality of the fabric. But the differences between Dayand Wilson went beyond the events of March 2013,especially when some consumers began to complainabout the quality of the replacement pants. Wilsonreturned from Australia in May 2013, and weekslater Christine Day announced she would step downas CEO when her successor was named. A lengthysearch for Day’s replacement ensued.In the meantime, Chip Wilson triggered a firestorm when, in an interview with Bloomberg TV inNovember 2013, he defended the company’s designof the black Luon bottoms, saying “Quite frankly,some women’s bodies just actually don’t work” withthe pants. Although a few days later he publiclyapologized for his remarks suggesting that the company’s product quality issues back in March 2013were actually the fault of overweight women, hisapology was not well received. In December 2013,Wilson resigned his position as Chairman of lululemon’s board of directors and took on the lesser roleof non-executive Chairman. A few months later,Wilson announced that he intended to give up hisposition as non-executive Chairman prior to the company’s annual stockholders meeting in June 2014 butcontinue on as a member of the company’s Board ofDirectors (in 2013–2014, Wilson was the company’slargest stockholder and controlled 29.2 percent ofthe company’s common stock).In early December 2013, lululemon announcedthat its Board of Directors had appointed LaurentPotdevin as the company’s Chief Executive Officerand a member of its Board of Directors; Potdevinstepped into his role in January 2014, and, to helpensure a smooth transition, Christine Day remainedwith lululemon through the end of the company’sfiscal year (February 2, 2014). Potdevin came tolululemon having most recently served as Presidentof TOMS Shoes, a company founded on the missionthat it would match every pair of shoes purchasedwith a pair of new shoes given to a child in need.C-74 PART 2 Cases in Crafting and Executing Strategywas also an endurance athlete who had competedin both triathlons and marathons.2 In April 2020,the Chief Financial Officer (CFO) for lululemon,Patrick Guido, resigned as CFO. Guido had not beenreplaced as of June 17, 2020.THE YOGA MARKETPLACEAccording to the most recent study on the practiceof yoga in the United States, a “Yoga in America”study funded by the Yoga Journal, in 2015 there were36.7 million people in the United States who hadpracticed yoga in the last six months in a group orprivate class setting, up from 20.4 million in 2012and 15.8 million in 2008.3 Worldwide, it was estimated that were about 300 million yoga practitioners.4 About 72 percent of the people who engaged ingroup or class yoga exercises were women, and closeto 62 percent of all yoga practitioners were in the agerange of 18–49.5 The level of yoga expertise variedconsiderably: 56 percent of yoga practitioners considered themselves as beginners, 42 percent consideredthemselves as “intermediate,” and two percent considered themselves to be in the expert/advanced category.Spending on yoga classes, yoga apparel, equipment,and accessories was an estimated $16.8 billion, upfrom $10.3 billion in 2012, and $5.7 billion in 2008.6The market for sports and fitness apparel wasconsiderably larger, of course, than just the marketfor yoga apparel. The global market for all types ofsportswear, activewear, and athletic apparel was estimated to be about $250 billion in 2020 and was forecast to grow at roughly five percent annually through2026.7 Sales of various types of sports apparel wasamong the fastest-growing segments in the $3 trillionglobal apparel market. In the United States, sales ofactivewear and all types of gym and fitness apparel,which included both items made with high-tech performance fabrics that wicked away moisture and itemsmade mostly of cotton, polyester, stretch fabrics, andselected other manmade fibers that lacked moisturewicking and other high performance features, werethe fastest growing segment of the apparel industry.8LULULEMON’S STRATEGYAND BUSINESS IN 2020Lululemon athletica viewed its core mission as“creating components for people to live longer,healthier, fun lives.”9 The company’s primary targetcustomer was“a sophisticated and educated woman who understandsthe importance of an active, healthy lifestyle. She isincreasingly tasked with the dual responsibilities ofcareer and family and is constantly challenged to balance her work, life and health. We believe she pursuesexercise to achieve physical fitness and inner peace.”10In the company’s early years, lululemon’s strategy was predicated on management’s belief thatother athletic apparel companies were not effectively addressing the unique style, fit and performance needs of women who were embracing yogaand a variety of other fitness and athletic activities.Lululemon sought to address this void in the marketplace by incorporating style, feel-good comfort, andfunctionality into its yoga-inspired apparel productsand by building a network of lululemon retail stores,along with an online store at the company’s website, to market its apparel directly to these women.However, while the company was founded to addressthe unique needs and preferences of women, it didnot take long for management to recognize the merits of broadening the company’s market target toinclude fitness apparel for activities other than yogaand apparel for population segments other than adultwomen.In 2009, lululemon opened its first ivvivabranded store in Vancouver, British Columbia, to sellhigh quality, premium-priced dance-inspired apparelto female youth (ivviva was a word that lululemonmade up). The Vancouver store was soon profitable, and 11 additional company-owned ivviva storeswere opened in Canada and the United States during 2010–13. In 2014–15, the opening of new ivvivastores accelerated. However, in June 2019, lululemonannounced the closure of all but seven of the company’s ivviva stores. Sales of many ivviva branded products were moved online to the lululemon website,and sales of some ivviva products continued throughother retailers, including Target and Amazon.com.In September 2019, lululemon announced it wouldclose the seven remaining ivviva stores by mid-2020.In 2013–14, the company began designing andmarketing products for men who appreciated thetechnical rigor and premium quality of athletic andfitness apparel. Management also believed that participation in athletic and fitness activities was destined to climb as people over 60 years of age becameCASE 7 lululemon athletica’s Strategy in 2020 C-75with local yoga studios and running clubs, andunique store formats (like a 25,000 square-footstore in Chicago which had a yoga studio, meditation space, a healthy food and juice bar, and areasfor community gatherings). In addition, management intended for the company’s digital ecosystem to become a greater source of informationand communication and a means of inspiring andigniting community building.• Continuing to Add lululemon Retail Stores inBoth Its Core North American Market andInternationally. Outside North America, China wasthe company’s primary focus for new store openings, with 16 new stores added in the 2019 fiscalyear and more planned for 2020. One to two newcompany-operated stores were being opened in several countries across Europe (notably in the UnitedKingdom, France, Germany, the Netherlands, andthe Scandinavian countries), and in selected countries in the Asia-Pacific (Australia, Japan, Malaysia,Singapore, and South Korea).lululemon reported significant progress on itsstrategic goals in early 2020, stating that the company’s performance was on track to achieve its five-yearstrategic plan goals to double online sales, doublesales of men’s products, and quadruple internationalrevenues by year-end 2023 and was well-ahead of itspreviously set target to reach $4 billion in annual revenue in fiscal 2020.Product Line StrategyIn 2020, lululemon offered a diverse and growingselection of premium-priced performance appareland accessories for women, female youths and menthat were designed for healthy lifestyle activities suchas yoga, swimming, running, cycling, and generalfitness. Currently, the company’s range of offeringsincluded:If you are not familiar with lululemon products,it would be useful to spend a few minutes browsingthe company’s e-store at www.lululemon.com.lululemon’s Strategy of Offering Only a LimitedRange of Apparel Sizes. In the months followingthe product recall of the too-sheer bottom pants inMarch 2013, lululemon officially revealed in a posting on its Facebook page that it did not offer clothing in plus-sizes because focusing on sizes 12 andbelow was an integral part of its business strategy;increasingly focused on living longer, healthier,active lives in their retirement years and engaged inregular exercise and recreational activities. Anotherdemand-enhancing factor was that consumer decisions to purchase athletic, fitness, and recreationalapparel were being driven not only by an actual needfor functional products but also by a desire to createa particular lifestyle perception through the apparelthey wore. Consequently, senior executives had transitioned lululemon’s strategy from one of focusingexclusively on yoga apparel for women to one aimedat designing and marketing a wider range of healthylifestyle-inspired apparel and accessories for womenand men and dance-inspired apparel for girls. In2019, men’s product lines became a major focus ofgrowth for the company.In early 2019, lululemon announced a new fiveyear “Power of Three” strategic plan featuring threegrowth initiatives:• Product Innovation. The company sought to pursue a disruptive innovation strategy in its coreapparel markets, using what management calleda Science of Feel approach to product development that emphasized using fabrics and technologies that provided both excellent technicalperformance and feel-good comfort, to introducenew products with innovative features and maintain a fresh and growing lineup of yoga, running,and training products for both women and men.The plan also called for the company to continueits product collaborations, expand its popularOffice/Travel/Commute line, and pursue newopportunities such as selfcare.• Omni Guest Experiences. The company soughtto become “an experiential brand” and use allof the company’s marketing channels to growand deepen its relationship with the guests whopatronized its stores and the consumers whoshopped its website, and, further, to create a series of ongoing experiential moments and opportunities where local community members strivingto live the “sweatlife” and lead a healthy, mindfullifestyle could connect and come together. Thecompany’s concept of integrated “omni guestexperiences” thus went beyond just the experiences customers had in shopping, purchasing, andusing the company products to include creatingand hosting a variety of local community events,an innovative membership program, partnershipsC-76 PART 2 Cases in Crafting and Executing Strategy 2010 determined that having franchised stores wasnot in lululemon’s best long-term strategic interests.A strategic initiative was begun to either acquire thecurrent stores of franchisees and operate them ascompany stores or convert the franchised stores toa joint venture arrangement where lululemon ownedthe controlling interest in the store and the formerfranchisee owned a minority interest. By year-end2011, all lululemon stores were company-operated.As of February 2020, lululemon had 491company-operated stores in 17 countries:• 305 stores in the United States (including 19 factoryoutlet stores in discount malls).• 63 stores in Canada, including seven ivviva storesslated for closure later on in 2020.• 38 stores in the People’s Republic of China, inclusive of six stores in Hong Kong, two stores inMacau, and one store in Taiwan.• 31 stores in Australia.• 14 stores in the United Kingdom.• Seven stores in Japan, seven stores in NewZealand, six stores in Germany, five stores inSouth Korea, four stores in Singapore, three storesin France, two stores in Malaysia, two stores inSweden, and one store in each of the Netherlands,Ireland, Norway, and Switzerland.In fiscal year 2020, management had announcedthat in new store openings would come primarilyfrom company-operated store openings in Asia andthe United States. Management reported that thecompany’s real estate strategy going forward wouldbe to focus on (1) the opening of new companyaccording to the company’s posting and to the postings of lululemon personnel who responded to comments made by Facebook members who read thelululemon posting:11Our product and design strategy is built around creating products for our target guest in our size range of2–12. While we know that doesn’t work for everyoneand recognize fitness and health come in all shapes andsizes, we’ve built our business, brand and relationshipwith our guests on this formula.We agree that a beautiful healthy life is not measured by the size you wear. We want to be excellent atwhat we do, so this means that we can’t be everythingto everybody and need to focus on specific areas. Ourcurrent focuses are in innovating our women’s design,men’s brand, and building our international market.At this time, we don’t have plans to change our current sizing structure which is 2–12 for women.In 2016, the largest size appearing in the sizeguide for women on lululemon’s website was 12,which was said to be suitable for a 40” bust, 32.5”waist, and 43” hips. In 2020, the largest women’s sizeappearing on the company’s website was 14 (but size12 was the largest offered for most products). Somewomen’s products were offered in sizes ranging fromXXXS (for a 21” waist, 29” bust, and 32” hips) toXXL (for a 35” waist, 42” bust, and 45” hips), butmost such products were sized XS to XL.Retail Distribution and StoreExpansion StrategyAfter several years of experience in establishing andworking with franchised stores in the United States,EXHIBIT 3 lululemon athletica’s ProduRepresentative Sample, 20t20fferings for Women and Men, operated stores, and (2) expansion of the company’sAustralia, Japan, and Canada, top management in WomenMen• Sports bras• Swimwear• Tops• Tanks• Socks and underwear• Jackets and hoodies• Sweaters and wraps• Scarves• Pants and shorts• Jackets and hoodies• Gear bags• Gear bags and backpacks• Long-sleeve and short-sleeve tops and tees• Caps and headbands• Caps and gloves• Pants and crops• Sweat cuffs and gloves• Swimwear• Shorts• Water bottles• Socks and underwear• Skirts and dresses• Yoga mats and props• Run accessories• Outerwear• Instructional yoga DVDs• Yoga mats, props, and instructional DVDs CASE 7 lululemon athletica’s Strategy in 2020 C-77One unique feature of lululemon’s retail storeswas that the floor space allocated to merchandisingdisplays and customer shopping could be sufficientlycleared to enable the store to hold an in-store yogaclass before or after regular shopping hours. Everystore hosted a complimentary yoga class each weekthat was conducted by a professional yoga instructorfrom the local community who had been recruited tobe a “store ambassador;” when the class concluded,the attendees were given a 15 percent-off coupon touse in shopping for products in the store. From timeto time, each store’s yoga ambassadors demonstratedtheir moves in the store windows and on the salesfloor. Exhibit 4 shows the exteriors and interiors ofrepresentative lululemon athletica stores.lululemon’s Showroom Strategy. Over the years,lululemon had opened “showrooms” in numerouslocations both inside and outside North America as ameans of introducing the lululemon brand and cultureto a community, developing relationships with localfitness instructors and fitness enthusiasts, and hostingcommunity-related fitness events, all in preparationfor the grand opening of a new lululemon athleticaretail store in weeks ahead. Showroom personnel:• Hosted get-acquainted parties for fitness instructors and fitness enthusiasts.• Recruited a few well-regarded fitness instructorsin the local area to be “store ambassadors” forlululemon products and periodically conduct instore yoga classes when the local lululemon retailstore opened.• Advised people visiting the showroom on where tofind great yoga or Pilates classes, fitness centers,and health and wellness information and events.• Solicited a select number of local yoga studios,health clubs, and fitness centers to stock andretail a small assortment of lululemon’s products.Showrooms were only open part of the week sothat showroom personnel could be out in the community meeting people, building relationships withyoga and fitness instructors, participating in localyoga and fitness classes and talking with attendeesbefore and after class, promoting attendance at localfitness and wellness events, and stimulating interestin the soon-to-open retail store. lululemon used showrooms as a means of “pre-seeding” the opening of alululemon retail store primarily in those locationswhere no other lululemon retail stores were nearby.overall retail square footage through store expansionsand store relocations.12 With sales per square footof $1,657 in lululemon retail stores in fiscal 2019,management believed its sales revenues per squarefoot of retail space were close to the best in the retailapparel sector. By way of comparison, the stores ofspecialty fashion retailers like Old Navy, BananaRepublic, The Gap, and Abercrombie & Fitch typically had 2015 annual sales averaging less than $500per square foot of store space.lululemon’s Retail Stores: Locations, Layout, andMerchandising. The company’s retail stores werelocated primarily on street locations, in upscale stripshopping centers, in lifestyle centers, and in malls.Typically, stores were leased and ranged from 2,500to 3,500 square feet in size. Most stores includedspace for product display and merchandising, checkout, fitting rooms, a restroom, and an office/storagearea. While the leased nature of the store spacesmeant that each store had its own customized layoutand arrangement of fixtures and displays, each storewas carefully decorated and laid out in a mannerthat projected the ambience and feel of a homespunlocal apparel boutique rather than the more impersonal, cookie-cutter atmosphere of many apparelchain stores.The company’s merchandising strategy was tosell all of the items in its retail stores at full price.13Special colors and seasonal items were in stores foronly a limited time—such products were on 3, 6, or12-week life cycles so that frequent shoppers couldalways find something new. Store inventories ofshort-cycle products were deliberately limited to helpfoster a sense of scarcity, condition customers to buywhen they saw an item rather than wait, and avoidany need to discount unsold items. In one instance,a hot-pink color that launched in December was supposed to have a two-month shelf life, but suppliessold out in the first week. However, supplies of coreproducts that did not change much from season toseason were more ample to minimize the risk of lostsales due to items being out-of-stock. Approximately95 percent of the merchandise in lululemon storeswas sold at full price.14 When certain styles, colors,and sizes of apparel items at lululemon retail storeswere selling too slowly to clear out the inventoriesof items ordered from contract manufacturers, lululemon typically shipped the excess inventories to oneor more of the 19 lululemon Factory Outlet stores inNorth America to be sold at discounted prices.C-78 PART 2 Cases in Crafting and Executing StrategyMay 2020, the company website reached 6 continents and 84 separate countries in North America,South America, Africa, Asia, Europe, and theMiddle East. lululemon provided free standard shipping (2–6 business day delivery) on all lululemon tocustomers in North America; a flat $30 shipping fee(5–10 business day delivery) was charged to buyerslocated in international destinations.The merchandise selection that lululemon offeredto online buyers differed somewhat from what wasavailable in the company’s retail stores. A number ofthe items available in stores were not sold online; a fewonline selections were not available in the stores. Stylesand colors available for sale online were updated weekly.On occasion, the company marked down the prices ofsome styles and colors sold online to help clear out theinventories of items soon to be out-of-season and makeway for newly-arriving merchandise—online customerscould view the discounted merchandise by clicking ona “we made too much” link.In addition to making purchases, website visitorscould browse information about what yoga was, whatthe various types of yoga were, and their benefits;learn about fabrics and technologies used in lululemon’s products; read recent posts on lululemon’s yogablog; and stay abreast of lululemon activities in theircommunities. The company planned to continue todevelop and enhance its e-commerce websites in waysthat would provide a distinctive online shopping experience and strengthen its brand reputation.Direct-to-consumer sales at the company’s websites had become an increasingly important part ofthe company’s business, with e-commerce sales climbing from $106.3 million in fiscal 2011 (10.6 percentof total net revenues) to $1.14 billion in fiscal 2019(28.6 percent of total revenues)—equal to a compound annual growth rate of 34.5 percent. In April2020, when the majority of lululemon’s retail storesin North America and elsewhere were closed due toCOVID-19, e-commerce became a vital link betweenthe company and the consumer. Exhibit 4 shows thegrowth in quarterly e-commerce sales for fiscal years2018 and 2019 and the first quarter of 2020.Product Design andDevelopment Strategylululemon’s product design efforts were led by a teamof designers based in Vancouver, British Columbiapartnering with various international designers.Wholesale Sales Strategylululemon also marketed its products to select premium yoga studios, health clubs, and fitness centers asa way to gain the implicit endorsement of local fitnesspersonnel for lululemon branded apparel, familiarizetheir customers with the lululemon brand, and givethem an opportunity to conveniently purchase lululemon apparel.lululemon management did not want to growwholesale sales to these types of establishments intoa significant revenue contributor. Rather, the strategic objective of selling lululemon apparel to yogastudios, health clubs, and fitness centers was to buildbrand awareness, especially in new geographic markets both in North America and other internationallocations where the company intended to open newstores. Wholesale sales to outlet stores were madeonly to dispose of excess inventories and therebyavoid in-store markdowns on slow-selling items.lululemon had entered into license and supplyarrangements with partners in the Middle East andMexico to operate lululemon athletica branded retaillocations in the United Arab Emirates, Kuwait, Qatar,Oman, Bahrain and Mexico. lululemon retainedthe rights to sell lululemon products through theire-commerce websites in these countries. Under thearrangement, lululemon supplied their partners withlululemon products, training, and other support. Asof February 2020, there were four licensed retail locations in Mexico, three in the United Arab Emirates,and one in Qatar, none of which were included in thecompany-operated store numbers in Exhibit 1.The company’s wholesale sales to all these channels accounted for $340 million in sales, or 8.6 percentof total net revenues in fiscal 2019, versus 9.2 percentof total net revenues for the company in fiscal 2018.Direct-to-Consumer Sales StrategyIn 2009, lululemon launched its e-commerce website,www.lululemon.com, to enable customers to makeonline purchases, supplement its already-functioningphone sales activities, and greatly extend the company’s geographic market reach. Managementsaw online sales as having three strategic benefits:(1) providing added convenience for core customers, (2) securing sales in geographic markets wherethere were no lululemon stores, and (3) helpingbuild brand awareness, especially in new markets,including those outside of North America. As ofCASE 7 lululemon athletica’s Strategy in 2020 C-79 specifications called for the use of advanced sewing techniques, such as flat seaming, that increasedcomfort and functionality, reduced chafing and skinirritation, and strengthened important seams. All ofthese design elements and fabric technologies werefactors that management believed enabled lululemonto price its high-quality technical athletic apparel atprices above those of traditional athletic apparel.Typically, it took 8 to 10 months for lululemonproducts to move from the design stage to availability in its retail stores; however, the company had thecapability to bring select new products to market inas little as two months. Management believed its leadtimes were shorter than those of most apparel brandsdue to the company’s streamlined design and development process, the real-time input received fromcustomers and ambassadors at its store locations,and the short times it took to receive and approvesamples from manufacturing suppliers. Short leadtimes facilitated quick responses to emerging trendsor shifting market conditions.lululemon management believed that its designprocess enhanced the company’s capabilities todevelop top quality products and was a competitivestrength.Sourcing and ManufacturingProduction was the only value chain activity thatlululemon did not perform internally. Lululemondid not own or operate any manufacturing facilitiesto produce fabrics or make garments. In 2019, fabrics were sourced from a group of approximately 76fabric manufacturers, with five fabric manufacturerssupplying 59 percent of the total and the largest single fabric manufacturer supplying 32 percent of thefabric used. During fiscal year 2019, approximately46 percent of the required fabrics were sourced fromion at www.lululemon.com.The design team included athletes and users of thecompany’s products who embraced lululemon’sdesign philosophy and dedication to premium quality.Design team members regularly visited retail stores ina proactive effort to solicit feedback on existing products from store customers and fitness ambassadorsand to gather their ideas for product improvementsand new products. In addition, the design team usedvarious market intelligence sources to identify andtrack market trends. On occasion, the team hostedmeetings in several geographic markets to discuss thecompany’s products with local athletes, trainers, yogis,and members of the fitness industry. The design teamincorporated all of this input to make fabric selections, develop new products, and make adjustments inthe fit, style, and function of existing products.The design team worked closely with its apparelmanufacturers to incorporate innovative fabricsthat gave lululemon garments such characteristicsas stretch ability, moisture-wicking capability, colorfastness, feel-good comfort, and durability. Fabricquality was evaluated via actual wear tests and by aleading testing facility. Before bringing out new products with new fabrics, lululemon used the services ofleading independent inspection, verification, testing,and certification companies to conduct a battery oftests on fabrics for such performance characteristicsas pilling, shrinkage, abrasion resistance, and colorfastness. Lastly, lululemon design personnel workedwith leading fabric suppliers to identify opportunitiesto develop fabrics that lululemon could trademarkand thereby gain added brand recognition and branddifferentiation.Where appropriate, product designs incorporated convenience features, such as pockets to holdcredit cards, keys, digital audio players, and clipsfor heart rate monitors and long sleeves that covered the hands for cold-weather exercising. ProductSource: Quarterly Financial Results, posted in the Investor Relations sectEXHIBIT 4 lululemon’s Quarterly E-comerce Sales, Q1 2018 through Q1 2020 Online SalesQuarter 1Quarter 2Quarter 3Quarter 42018$157.8 million$167.4 million$189.4 million$344.2 million2019209.8 million217.6 million246.7 million463.7 million2020352.0 million C-80 PART 2 Cases in Crafting and Executing StrategyToronto, Ontario, and a leased 150,000 square-footfacility in Sumner, Washington. All four were modern and cost-efficient. In 2011, the company beganoperations at a leased 54,000 square-foot distributioncenter in Melbourne, Australia, to supply its storesin Australia and New Zealand. Third-party logisticsproviders in China and the Netherlands were usedto warehouse and distribute finished products fromtheir warehouse locations to supply the company’sretail stores in China and Europe. Merchandise wastypically shipped to retail stores through third-partydelivery services multiple times per week, thus providing stores with a steady flow of new inventory.lululemon’s Community-BasedMarketing Approach andBrand-Building StrategyOne of lululemon’s differentiating characteristicswas its community-based approach to building brandawareness and customer loyalty. Local fitness practitioners chosen to be ambassadors introduced their fitness class attendees to the lululemon brand, therebyleading to interest in the brand, store visits, and wordof-mouth marketing. Each yoga-instructor ambassador was also called upon to conduct a complimentaryyoga class every four to six weeks at the local lululemon store they were affiliated with. In return for helping drive business to lululemon stores and conductingclasses, ambassadors were periodically given bags offree products, and large portraits of each ambassadorwearing lululemon products and engaging in physical activity at a local landmark were prominently displayed on the walls their local lululemon store as ameans of helping ambassadors expand their clientele.Every lululemon store had a dedicated community coordinator who developed a customized plan fororganizing, sponsoring, and participating in local athletic, fitness, and philanthropic events. In addition,each store had a community events bulletin board forposting announcements of upcoming activities, providing fitness education information and brochures,and promoting the local yoga studios and fitness centers of ambassadors. There was also a chalkboard ineach store’s fitting room area where customers couldscribble comments about lululemon products ortheir yoga class experiences or their appreciation ofthe assistance/service provided by certain store personnel; these comments were relayed to lululemonheadquarters every two weeks. Customers could usesuppliers in Taiwan, 14 percent from suppliers inmainland China, 19 percent from manufacturers inSri Lanka, and the remainder from other regions.Other raw materials used in lululemon products,such as content labels, elastics, buttons, clasps, anddrawcords, were obtained from suppliers located predominantly in the Asia Pacific region.Garments were sourced from approximately39 contract manufacturers, five of which producedapproximately 56 percent of the company’s products in fiscal 2019, with the largest of these producing about 17 percent of the total. During fiscal 2019,approximately 33 percent of the company’s productswere produced in Vietnam, 16 percent in Cambodia,15 percent in Sri Lanka, 11 percent in China (including two percent in Taiwan), and the remainder in othercountries. The company deliberately refrained fromentering into long-term contracts with any of its fabricsuppliers or manufacturing sources, preferring insteadto transact business on an order-by-order basis andrely on the close working relationships it had developed with its various suppliers over the years. lululemon maintained production relationships with severalmanufacturers in North America that provided thecompany with the capability to speed select productsto market and respond quickly to changing trends andunexpectedly high buyer demand for certain products.lululemon took great care to ensure that its manufacturing suppliers shared lululemon’s commitmentto quality and ethical business conduct. All manufacturers were required to adhere to a vendor code ofethics regarding quality of manufacturing, workingconditions, environmental responsibility, fair wagepractices, and compliance with child labor laws,among others. lululemon utilized the services of aleading inspection and verification firm to closelymonitor each supplier’s compliance with applicablelaw, lululemon’s vendor code of ethics, and otherbusiness practices that could reflect badly on lululemon’s choice of suppliers.Distribution Facilitieslululemon shipped products to its stores from ownedor leased distribution facilities in the United States,Canada, and Australia. The company owned a310,000 square-foot distribution center in Columbus,Ohio and operated a leased 156,000 square-foot distribution center in Vancouver, British Columbia,a leased 250,000 square-foot distribution facility inCASE 7 lululemon athletica’s Strategy in 2020 C-81to promote and ingrain a set of core values centeredon developing the highest-quality products, operating with integrity, leading a healthy balanced life, andinstilling in its employees a sense of self responsibilityand the value of goal setting. The company sought toprovide employees with a supportive and goal-orientedwork environment; all employees were encouragedto set goals aimed at reaching their full professional,health, and personal potential. The company offeredpersonal development workshops and goal-coachingto assist employees in achieving their goals. Manylululemon employees had a written set of professional, health, and personal goals. All employees hadaccess to a “learning library” of personal developmentbooks that included Steven Covey’s The Seven Habitsof Highly Effective People, Rhonda Byrne’s The Secret,and Brian Tracy’s The Psychology of Achievement.Chip Wilson had been the principal architect ofthe company’s culture and core values, and the company’s work climate through 2013 reflected his business and lifestyle philosophy. Wilson had digestedmuch of his philosophy about life in general and personal development into a set of statements and prescriptions that he called “the lululemon manifesto.”The manifesto was considered to be a core elementof lululemon’s culture. Senior executives believedthe company’s work climate and core values helpedit attract passionate and motivated employees whowere driven to succeed and who would support thecompany’s vision of “elevating the world from mediocrity to greatness”—a phrase coined by Chip Wilsonin the company’s early years. For a number of years,the company’s shopping bags were emblazoned witha full print of the manifesto, as a means of sharing itsculture and beliefs about life in general with customers, the local community, and the public at large.In 2018, to celebrate the company’s 20th yearin business, lululemon’s Brand Creative DirectorRémi Paringaux headed an effort to create a freshlydesigned manifesto showcasing lululemon’s longstanding brand values across nine themes: Integrity,Personal Responsibility, Social Impact, Honesty/Authenticity, Overcoming Fear, Greatness, Purpose,Elevating the World (even on hard days), and Fun+ Laughter, Sweat + The Practice of Yoga. Eachphrase included in the Manifesto, both the originaldevised by Chip Wilson and the revised version, wasintentionally designed to inspire, provoke thought,and spark conversation. Excerpts from the Manifestoare shown in Exhibit 5.a lululemon micro website to track their progressregarding fitness or progress toward life goals.lululemon made little use of traditional advertising print or television advertisements, preferringinstead to rely on its various grassroots, communitybased marketing efforts and the use of social media(like Facebook and Twitter) to increase brandawareness, reinforce its premium brand image, andbroaden the appeal of its products.Store PersonnelAs part of the company’s commitment to providingcustomers with an inviting and educational store environment, lululemon’s store sales associates, who thecompany referred to as “educators,” were coached topersonally engage and connect with each guest whoentered the store. Educators, many of whom hadprior experience as a fitness practitioner or were avidrunners or yoga enthusiasts, received approximately30 hours of in-house training within the first threemonths of their employment. Training was focusedon (1) teaching educators about leading a healthy andbalanced life, exercising self-responsibility, and settinglifestyle goals, (2) preparing them to explain the technical and innovative design aspects of all lululemonproducts, and (3) providing the information neededfor educators to serve as knowledgeable referencesfor customers seeking information on fitness classes,instructors, and events in the community. New hiresthat lacked knowledge about the intricacies of yogawere given subsidies to attend yoga classes so theycould understand the activity and better explain thebenefits of lululemon’s yoga apparel.People who shopped at lululemon stores werecalled “guests,” and store personnel were expectedto “educate” guests about lululemon apparel, notsell to them. To provide a personalized, welcoming,and relaxed experience, store educators referred totheir guests on a first name basis in the fitting andchanging area, allowed them to use store restrooms,and offered them complimentary fresh-filtered water.Management believed that such a soft-sell, customercentric environment encouraged product trial, purchases, and repeat visits.Core Values and CultureConsistent with the company’s mission of “providingpeople with the components to live a longer, healthier and more fun life,” lululemon executives soughtC-82 PART 2 Cases in Crafting and Executing Strategymade of high-tech fabrics, most especially Nike,The adidas Group AG (which marketed athleticand sports apparel under its adidas and Reebokbrands), and Under Armour. Nike had a powerfuland well-known global brand name, an extensive anddiverse line of athletic and sports apparel, and 2019global sales of $39.1 billion ($15.9 billion in NorthAmerica). Nike’s sales outside of North Americaaccounted for just over 57 percent of its worldwiderevenues in fiscal 2019. Not only was Nike theworld’s largest seller of athletic footwear (its footwear sales exceeded $26 billion in fiscal 2019), butit was also the world’s largest sports apparel brand,with 2019 sales of $11.6 billion. Sales of Nike products to women totaled $7.4 billion in 2019. The company had selling arrangements with independentdistributors and licensees in over 190 countries; itsretail account base for sports apparel in the UnitedStates included a mix of sporting goods stores, athletic specialty stores, department stores, and tennisand golf shops, plus it had a network of factory outlet stores (217 in the United States and 648 acrossthe rest of the world) and Nike and NIKETOWNretail stores (29 in the United States and 57 in therest of the world). Nike also had a strong online salespresence with websites in 46 countries; in fiscal year2019, its Nike Direct revenues were $5.0 billion inNorth America and $7.1 billion worldwide.The adidas Group, with its adidas and Reebokbrands, was a global company headquartered inGermany that had worldwide sales of €23.6 billion($26.0 billion) in 2019. Worldwide sports apparelrevenues for the company were €9.0 billion($9.9 billion) in 2019; its product lines consistedof high-tech performance garments for a wide variety of sports and fitness activities, as well as recreational sportswear. The adidas Group sold productsin virtually every country of the world. In 2019, itsextensive product offerings were marketed throughthird-party retailers (sporting goods chains, department stores, independent sporting goods retailerbuying groups, lifestyle retailing chains, and Internetretailers), 2,500 company-owned adidas and Reebokretail stores, 15,000 franchised stores, and throughthe company’s e-commerce websites at www.adidas.com and www.reebok.com.Under Armour, an up-and-coming designer andmarketer of performance sports apparel, had totalsales of $5.3 billion in 2019, of which $3.58 billion wasin apparel. Like lululemon, Under Armour’s apparel COMPETITION IN ATHLETICAPPARELCompetition in the market for athletic and fitnessapparel was fierce. Companies competed principallyon product quality, performance features, innovation,fit and style, distribution capabilities, brand imageand recognition, and price. Rivalry among competing brands was global, vigorous, and involved bothestablished companies who were expanding their production and marketing of performance products andrecent entrants attracted by the growth opportunities.lululemon competed with wholesalers and directsellers of premium performance athletic apparelSource: The lululemon expert, “The lululemon Manifesto: TheControversies (!) and also my favorite Manifesto-printed items,”www.lululemonexpert.com, September 6, 2019, accessed May 26,2020.EXHIBIT 5 Excepts from The lululemonManifesto, as Revised in 2018 • Breathe deeply• Hope is not a strategy• Put away your phone. The real world is not on hold.• Creativity is maximized when you are living in themoment• Your biggest opportunity for growth is when it all hitsthe fan• Gratitude is contagious• That which matters most should never give way tothat which matters least• Reconnect with nature. The better you know it theless you take it for granted• The most important answers will never be found in asearch bar• Open your ears, eyes and heart &Open your mind• Jealousy works the opposite way you want it to• Replace the word Try with Will and watch the magichappen• The pursuit of happiness is the source ofunhappiness• Before speaking, ask yourself: Is it kind? Is itnecessary? Is it true?• You attract love when you love yourself• Treat goals like coconuts. Hit them hard, crack themopen, celebrate• Do one thing a day that scares you• Life is full of setbacks; success is determined by howyou handle setbacks• This is not your practice life. This is all there is• Stress is related to 99% of all illness• Friends are more important than money• Vulnerability makes a good leader great CASE 7 lululemon athletica’s Strategy in 2020 C-83The Gap had total sales of $16.4 billion in 2019and was the owner/operator of three well-knownretail chains: The Gap, Banana Republic, and OldNavy. Product offerings at the 1,033 worldwide Gapbranded stores included a GapFit collection of fitnessand lifestyle products for women. In 2008, The Gapspent $150 million to acquire Athleta, whose productline consisted of yoga, running, skiing, snowboarding,and surfing apparel that was sold online and throughcatalogs, and proceeded to turn it into a retail chainto compete head-on against lululemon in the marketfor comfortable, fashionable, high-performance women’s apparel for workouts, sports, physically-activerecreational activities, and leisure wear. Going into2020, Athleta had grown to 190 retail stores in NorthAmerica Athleta stores open at least 12 months hadsales growth of 16 percent, 9 percent, and 5 percent in2017, 2018, and 2019, respectively. The Gap planned tocontinue opening Athleta stores in 2020 and beyond.In addition to its retail stores, Athleta collected substantial revenues from sales at its e-commerce websitewww.athleta.gap.com. Athleta also had a socialmedia website, www.athleta.net/chi, that connected women with interests in sports and fitness,nutrition and health, tutorials and training plans, andtravel and adventure.Athleta’s expanding product line included swimwear, tops, bras, jackets, sweaters, pants, tights,shorts, tee shirt dresses, performance footwear,sneakers, sandals, bags, headwear, and gear. Itemswere colorful, stylish, and functional. As of May2020, Athleta offered 391 different items under“activity” line of products at its e-commerce website.Athleta apparel items were typically available in sizesXXS, XS, S, M, L, XL, and plus sizes 1X and 2X.Athleta utilized well-known women athletes and localfitness instructors to serve as brand ambassadors byposting blogs on Athleta’s website, teaching classesat local stores, and testing Athleta garments. In 2016,Athleta introduced Athleta Girl, which introducedfashion and accessories for younger women. In 2019,Athleta announced a partnership with decoratedtrack and field athlete Allyson Felix.A number of other national and regional retailers of women’s apparel, seeking to capitalize ongrowing sales of activewear made of high-tech fabrics, were marketing one or more brands of fitnessapparel suitable for yoga, running, gym exercise,and leisure activities. A few were selling these itemsunder their own labels. For example, Nordstrom, aproducts were made entirely of technically-advanced,high performance fabrics and were designed to beaesthetically appealing, as well as highly functionaland comfortable. Under Armour regularly upgradedits products as next-generation fabrics with betterperformance characteristics became available. UnderArmour’s product line included apparel for men,women, and children. Under Armour’s sales in NorthAmerica unexpectedly plateaued at $4.0 in 2016, thendropped to $3.8 billion in 2017, $3.74 billion in 2018,and $3.66 billion in 2019. The company reportednet losses $48.3 million in 2017 and $46.3 million in2018. While roughly 70 percent of Under Armour’ssales revenues in 2019 were in North America, thecompany’s revenues were growing in the other regionsof the world where its products were sold, particularlyin the EMEA (Europe-Middle East-Africa) regionand the Asia-Pacific region. The majority of UnderArmour’s sales were made through wholesale channels, including sporting goods stores, independentand specialty retailers, department stores, institutional athletic departments, and sports leagues andteams. However, the company also operated 169 factory outlet stores and 19 Brand House stores in NorthAmerica and 104 factory outlet stores and 96 BrandHouse stores in international locations as of January2020. Under Armour had direct-to-consumer sales ofabout $1.8 billion annually at its e-commerce website,www.underarmour.com.Nike, The adidas Group, and Under Armourall aggressively marketed and promoted their highperformance apparel products to women and menand spent heavily to grow consumer awarenessof their brands and build brand loyalty. All threesponsored numerous athletic events, provided uniforms and equipment with their logos to collegiateand professional sports teams, and paid millionsof dollars annually to numerous high-profile maleand female athletes to endorse their products. Likelululemon, they designed their own products but outsourced the production of their garments to contractmanufacturers.New Entrants into the Sports and Fitness ApparelMarket for Women. Retailers responded to thegrowing market for women’s sports and fitnessapparel by introducing brands and product lines tocompete in this segment. Entrants into this segmentof the apparel market included The Gap, Nordstrom,and Victoria’s Secret.C-84 PART 2 Cases in Crafting and Executing Strategyemployees to work from home where feasible, andmandate the closure of retail stores and all “nonessential” local businesses until the daily/weeklynumber of people in their locales being newly diagnosed with COVID-19 began to flatten out or subside.People were urged to practice “social distancing” andwear face masks when grocery-shopping, picking upto “to-go orders” from local food establishments, orotherwise venturing out beyond the confines of theirhomes to run errands. However, by the end of May2020, widespread concerns about the long-term economic damage the business shutdowns were causingand signs that the spread of the virus was being contained in a growing number of locations promptedgovernment officials to begin reopening their localeconomies. A growing percentage of retail stores hadre-opened or partially re-opened in much of Asia,and limited re-openings were occurring in Europe andNorth America.The global pandemic had a devastating impacton most apparel retailers. In North America, luxuryretailer Neiman Marcus, apparel retailer J Crew,and department store retailer J.C. Penney filed forbankruptcy in May 2020. Nordstrom announced onMay 5, 2020, that it would soon permanently close 16department store locations. The Gap, Inc. was alsostruggling in the new environment; the price of thecompany’s stock had plummeted since January 2020,and most of its stores in the United States remainedclosed as of late May 2020. Back in February 2019,The Gap announced it would close some 230 of itsstores over the next two years. L Brands announcedit would not be making rent payments while itsVictoria’s Secret and Bath and Body Works storeswere closed. Many other retail and restaurant chains,also running short on cash, told landlords that theywould be unable to make their rent payments untiltheir stores and their cash flows improved. Headedinto June 2020, most all chain retailers and millionsof local businesses in North America, Europe, andelsewhere were wrestling with the uncertainty created by the global pandemic, store closures, howlong it would take for customer traffic to return toformer levels, and the extent to which consumer buying and shopping patterns would be affected both inthe short term and the long term.Retailers with robust e-commerce sales were better able to weather the global pandemic crisis. Nike,the global sports apparel leader, had a strong digital presence and was expected to experience only anationally-respected department store retailer, wasmerchandising its own Zella line of attire for yoga,cross-training, workouts, swimming, and “beyond theworkout;” many of the initial products in the Zella collection were designed by a former member of lululemon’s design team. Zella-branded products wereoffered in regular sizes (XXS, XS, S, M, L, XL, andXXL) and plus sizes (1X, 2X, and 3X). Nordstromwas also marketing several other brands of activewearfor women, men, and juniors, including Nike, UnderArmour, Patagonia, Reebok, and Adidas. In 2019,Nordstrom’s activewear offerings could be purchasedat 136 Nordstrom full-line department stores (typically 140,000 to 250,000 square-feet in size) and 242Nordstrom Rack stores (typically 30,000 to 50,000square-feet in size) in 36 states, at Nordstrom’s website (www.nordstrom.com), and at the NordstromRack website, www.nordstromrack.com.Victoria’s Secret also marketed its own line ofwomen’s fitness apparel under the Sport label. Asof May 2020, Victoria’s Secret offered 118 separateSport brand items on the company’s e-commercewebsite, www.victoriassecret.com. Offeringsincluded sports bras, bottoms, yoga pants, sweatshirts, and hoodies.Typically, the items in the Athleta, GapFit, Zella,and Sport collections were priced 10 percent to25 percent below similar kinds of lululemon products.Likewise, Nike, Under Armour, adidas, and Reebokapparel items were usually less expensive than comparable lululemon-branded items.GLOBAL PANDEMIC FORCESTEMPORARY CLOSUREOF MANY RETAIL STORESACROSS THE WORLDAn outbreak of the COVID-19 disease, also knownas the coronavirus, began in China in December2019, spread to other countries in the first severalmonths of 2020, and was declared a global pandemicby the World Health Organization in March 2020.Mounting concerns about the potential for the coronavirus to infect a large percentage of the populationand overwhelm local hospitals and health professionals, prompted government officials in many countriesduring February-April 2020 to issue “stay-at-home”orders to the general public, urge companies to allowCASE 7 lululemon athletica’s Strategy in 2020 C-85 operating on reduced hours. In China, all of our storesexcept our location in Wuhan are open with most operating on regular schedules. Our stores also remainedopen in other Asian markets, except for Malaysia,where our two locations are currently closed. In addition, we are closely monitoring our supply chain andstaying in constant contact with our vendors as they toonavigate this situation.. . . .the underlying health of our business isstrong. . . . we are confident in our abilities to navigatethe near-term while working to realize the opportunitiesover the longer term. . . we have early learnings fromChina which show us that our business will bounceback. We are not yet back to pre-closing volumes, butthe business is getting stronger week by week.Although we do not know exactly when the currentsituation will pass, what we do know is that our storeswill reopen. We know that initially the business will belower than it was pre-COVID-19, but we believe thateach day and each week, it will keep building. We areplanning for multiple scenarios, but in any one of thesewe know that our brand is strong and has unique pillars of strength that will keep driving our momentumforward.As of May 21, 2020, lululemon had reopenedmore than 150 stores across five continents. Planscalled for reopening another 200 stores over thefollowing two weeks. Modified store hours, storeemployee face coverings, physical distancing,enhanced store cleaning and sanitization, and amore relaxed return policy were being instituted at allreopened stores.modest and fairly short-lived downturn in apparelrevenues. forecast to weather the storm. Further,with the re-opening of the company’s Nike stores inChina in May 2020, the company saw signs of salesimprovement in Asia, pointing the way to a possiblestrong recovery in Europe and North America.15The adidas Group, number two globally and financially strong, was also expected to come through thepandemic in a competitively strong position. UnderArmour’s situation, already weakened by sales troubles in North America, was made worse by the pandemic. Many investors and industry analysts believedthe near-term hit to the company’s sales could be asmuch as 30 percent in 2020. As of May 2020, thecompany had announced layoffs, pay cuts for remaining employees, and the postponement of plans for anUnder Armour flagship store in New York City.16LOOKING AHEAD ATLULULEMONIn a March 26, 2020, conference call to discussthe company’s Q4 and full-year 2019 performancewith Wall Street analysts, lululemon CEO CraigMcDonald commented on the impacts of the coronavirus pandemic:17. . . .we are seeing virus-related impact on performanceacross our markets. In North America and Europe,our stores have been closed since March 16. Stores inNew Zealand are closed at this time, while Australia isENDNOTES5 2016 Yoga in AmerYoga Journal and Yoposted at www.yogaApril 29, 2016).6 Allied Market ReseMarket—Report,” puwww.alliedmarketre7 Allied Market ReseMarket—Report,” puwww.alliedmarketre8 Renee Frojo, “Yogato the mat for markeBusiness Times, Decat www.bizjournals.c(accessed April 10, 29 As posted on www.May 2, 2016).10 Company 10-K Reending January 31,1 Beth Kowitt and Colleen Leahey,“LULULEMON: In an UncomfortablePosition,” Fortune, September 16, 2013,p. 118.2 Biography of Calvin McDonald, posted atwww.investor.lululemon.com (accessed May18, 2020).3 2016 Yoga in America Study, conductedby Yoga Journal and Yoga Alliance, January2016, posted at www.yogaalliance.org in 2016(accessed May 22, 2020 and April 29, 2016);and “Yoga in America” Yoga Journal, pressrelease dated December 5, 2012, postedat www.yogajournal.com (accessed April 7,2014).4 “Yoga Statistics,” compiled by The GoodBody and last updated in November 2018,posted at www.thegoodbody.com (accessedMay 22, 2020).ica Stga Allialliancarch, “blishedsearcharch, “blishedsearchclothit shareembeom/sa014).lululeport fo2016,udy, conducted byance, January 2016,e.org (accessedSports ApparelOctober 2019,.com.Sports ApparelOctober 2019,.com.ng retailers go,” San Franciscor 28, 2012, postednfranciscomon.com (accessedr the fiscal yearp. 1.11 Kim Basin, “Lululemon Admits Plus-SizeClothing Is Not Part of Its ‘Formula’” postedat www.huffingtonpost.com, August 2, 2013(accessed April 7, 2014).12 Company 10-K Report for fiscal year2019.13 Dana Mattoili, “Lululemon’s SecretSauce,” The Wall Street Journal, March 22,2012, pp. B1–B2.14 Ibid.15 ValueLine, “Nike, Inc.” April 24, 2020,accessed at www.valueline.com, May 19,2020.16 ValueLine, “UnderArmour, Inc.” April 24,2020, accessed at www.valueline.com,May 19, 2020.17 Lululemon Athletica Inc. Earnings Call,March 26, 2020, posted at www.seekingalpha.com (accessed May 19, 2020).