How Lululemon legitimized leggings as the new business casual
How innovation, omni-guest experiences and market expansion made Lululemon a winner during the pandemic.
When asked “What clothes have you been buying during the pandemic?” how many of you would respond “Yoga pants and hoodies”? Most likely, many of you! With people working (and working out!) from home, leggings became the new business casual. Activewear was one of the winning industries of 2020, accounting for 40% of all online sales .
Canadian athleisure brand Lululemon Athletica increased its value by 40% in 2020 , despite prolonged shop closures and quarantine restrictions. Lululemon reported revenues of $1.12 billion, up 22% from 2019, with online sales accounting for 45% of total revenues, and an e-commerce business growth of 93% .
Key to Lululemon’s success during the COVID-19 outbreak are a number of interlinked factors.
Strong financial position. Lululemon strongly benefitted from its strong balance sheet and liquidity. At the beginning of 2020, the company had no long-term debt, $1.1 billion in cash and a $400 million revolving credit facility . Therefore, the company was able to invest in innovative technologies and forge new partnerships.
Leveraging online channels to create an engagement platform. Lululemon has a strong online presence: its customers can shop both on its website and mobile app. The online channels were not only used for sales, but also became an engagement platform. The company recognized the importance of adapting to the new ecosystem, offering lockdown routines to its customers, who could access a range of free home-workouts, such as yoga session, high intensity interval training, pilates and meditation. Lululemon also introduced free sport challenges in partnership with the app Strava, such as the Move and Stay Connected challenge, to create a worldwide community.
Partnerships with ambassadors to engage users and support local businesses. Lululemon relied on its brand ambassador to interact with worldwide users and local community on social media, by organizing wellness classes and workouts on Instagram. By doing so, the company has not only supported its clients, but also provided an economic relief to its ambassadors, who are small business owners forced to close their studios due to the pandemic. Lululemon created a $2 million Ambassador Relief Fund to assist ambassador studio owners in sustaining their businesses worldwide .
Investments in RFID technologies. Thanks to investments in technology, Lululemon was also able to maximize its inventory, and use its closed stores as ship-from-store locations to meet e-commerce orders. As noted by CFO Frank the investments “have demonstrated the ability to more than handle the anticipated spike in volume” . CEO McDonald acknowledged that investments in RFID inventory-tracking technology reduced the need of flushing out inventory ”.
Changes in the pricing strategy of best-selling items. Another strategy executed after May 2020 has been to increase prices of top-performing items. For example, leggings’ price increased by 5% and sport bras’ by 12% . Notwithstanding the price growth, sales of these items between May and August 2020 were 152% higher than sales between January to April . At the same time, Lululemon introduced flexible payment plans, allowing customers to pay for purchased items in four installments .
Acquisition of Mirror to boost omnichannel retailing. In June 2020 Lululemon acquired Mirror, a home-fitness tech startup, which produces an interactive workout machine to stream live and on-demand classes. McDonald commented that the acquisition allows Lululemon to bolster its vision of being “the experiential brand that ignites a community of people living the sweatlife through sweat, grow and connect”  while enhancing its Power of Three plan  and boosting digital and interactive capabilities.
Reacting fast to the present crisis while “building for the future”. Last, but not least, Lululemon developed a two-phase (support and recovery) response plan. The current support phase involves continuing operations, amplifying customers engagement, providing support to ambassadors and compensating employees. Meanwhile, Lululemon, has not “stop building for the future” , remains focused on being ready to serve its customers and support its communities  and will use its balance sheet to “look ahead and continue to plan for growth while managing the business for day-to-day” . According to Barclays analysts , as there will be an increase of people working from home after the end of the pandemic, Lululemon is well positioned to continue growing.
In summary, Lululemon took advantage of the crisis to boost digital technologies, strengthen partnerships, acquire a start-up and engage more customers. Its innovation, omni-guest experiences and market expansion made Lululemon a winner during the pandemic.
 Marci, Kayla. 2021. “Activewear market analysis” in Edited.com, Jan 12, 2021. https://edited.com/resources/activewear-market-analysis/
 Kurichenko, Victoria. 2020. “How Lululemon Increased Their Brand Value by 40% in 2020” in Medium.com, Jun 17, 2020. https://medium.com/better-marketing/how-lululemon-increased-their-brand-value-by-40-in-2020-d767b36e4edb
 Crets, Stephanie. 2020. “Lululemon’s online sales offset declines in store traffic” in Digital Commerce 360, Dec 15, 2020. https://www.digitalcommerce360.com/2020/12/15/lululemons-online-sales-offset-declines-in-store-traffic/
 Market Watch https://www.marketwatch.com/story/lululemon-will-be-in-a-better-position-post-coronavirus-thanks-to-its-strong-balance-sheet-and-online-strategy-analysts-say-2020-03-27
 “Supporting our ambassadors in unprecedented times” in Lululemon website. https://shop.lululemon.com/story/ambassador-relief-fund
 Crets, 2020, cit.
 Dignan, Larry. 2021. “Lululemon steps up digital efforts, e-commerce as physical stores closed due to COVID-19” in ZDNet, March 30, 2020. https://www.zdnet.com/article/lululemon-steps-up-digital-efforts-e-commerce-as-physical-stores-closed-due-to-covid-19/
 Marci, Kayla, 2020, “Spotlight on Lululemon’s pandemic-proof strategy” in Edited, Sep 16, 2020. https://edited.com/resources/lululemons-pricing-strategy/
 “Pace your payments” in Lululemon website https://shop.lululemon.com/story/installment-payments-buy-now-pay-later?icid=cdp-cdp:mens-clothes;15;promotile;story:afterpay-buy-now-pay-later;campaigns
 “Lululemon Athletica inc. to acquire home fitness innovator Mirror” in Businesswire.com, June 29, 2020. https://www.businesswire.com/news/home/20200629005789/en/lululemon-athletica-inc.-to-Acquire-Home-Fitness-Innovator-MIRROR
 The Power of Three strategic plan set in 2019 aim at accelerating growth focusing on the company’s three priorities (1) Product Innovation – to double its men’s revenues by 2023; (2) Omni guest experiences – to double its digital revenues by 2023; (3) Market expansion – to quadruple its international revenues by 2023.
 Dignan, 2021, cit.
 Smith, Chloe. 2020. “Lululemon takes on COVID-19” in SM Look, May 8, 2020. https://smulook.com/2020/05/08/lululemon-takes-on-covid-19/
 Dignan, 2021, cit.
 Bloomberg and Freund, Janet. 2020. “Lululemon shares hit an all-time high on strength of work at home wear” in Fortune, May 21, 2020. https://fortune.com/2020/05/21/lululemon-stock-lulu-shares-all-time-high-coronavirus-work-at-home-clothing-athleisure-2020-covid-19/
Student comments on How Lululemon legitimized leggings as the new business casual
This is a great perspective on one of my favorite brands of workout wear. I think Lululemon’s success was also bolstered by the customer-centric reputation they had built before the pandemic, as well as their decision to vertically integrate from design and manufacture to retail in order to control the entire value chain. I’ve heard that Lululemon did an excellent job of sanitizing fitting rooms and ensuring that customers feIt safe to shop during the pandemic while companies like Nike and Under Armour had less control over the shopping experience at third party retail outlets such as Dick’s and in some cases customers could not try on Nike and Under Armour clothing. It really highlights how important strategy is in allowing companies to weather unforeseen events like economic downturns and global pandemics. It seems that some of the most successful companies during the pandemic, such as Lululemon and Domino’s, rely less on partnerships and therefore have more flexibility to quickly adjust to changing circumstances. I am interested to see how sustainable the price increases are as more and more companies are entering the athleisure space which will undoubtedly increase competition and put pressure on prices. I am also curious as to how the acquisition of Mirror will impact their operations, culture and costs since it is a very different product from their core clothing line.
Thanks for sharing your thoughts, Tiffany! And is very true, as you mentioned, that vertical integration allowed Lululemon to have more control and, therefore, to leverage on technologies to enhance value chain operations.
I’m very intrigued by your point on how less partnerships allow for more flexibility and faster adaptation. It’s an important trade off, especially relevant in the post-COVID scenario!
Giulia – very insightful and well researched piece of writing. What I am left wondering after your assessment is how much of it was a result of the pandemic or accelrated by the pandemic and how much would have happened regardless of the pandemic? It is fascinating that many of the initiatives that you mention were put forth during the pandemic and built around the existing context, but I wonder how many of these changes would have had to happen regardless of the situation as brick and mortar retail migrates towards ecommerce.
Thanks for the analysis, Francisco!
I think that while support for ambassadors, enhancing home workouts and investments in some specific technologies for inventories were driven bu the COVID-19 induced crisis, some other changes, as you mentioned, would have happened regardless the pandemic – first of all, the increased focus to e-commerce.
With regards to the Mirror acquisition I am a bit undecided – perhaps Lululemon had the acquisition already on its radar, but the increased popularity of home-workouts might have speed up the process?
Dear Giulia, this is a thorough analysis of an exceptional brand that managed to leverage the pandemic into exponential growth. Although I acknowledge the strong cash position of Lululemon was an asset to respond to the changing customer needs in the last year, I am still wondering if the acquisition of the Mirror was the best investment for Lululemon. There are less expensive, high-quality competitors of Mirror on the market (e.g. Solos) while there are several popular outdoor sports that boomed because of the pandemic where Lululemon is not yet active in (e.g. cycling). Was paying 500M USD for Mirror worth this investment or would a further diversification of the product portfolio pay-off more in the long run?
Thanks, Tim! Very interesting reflection on acquiring a less-expensive competitor of Mirror! Happy to discuss about that in class or offline, if you have time!
Very interesting analysis Giulia. I think it’s fascinating how Lululemon has undergone such a dramatic digital transformation, and right on time to take advantage of the opportunities presented by the pandemic. I think it is a great example of successfully applying technology to traditional industries, in this case retail clothing. In my opinion, Lululemon has transformed itself into a technology company that happens to sell sportswear. I think this strategy is particularly effective in their industry, where fashion tastes are fickle and hard to predict. They have become a comprehensive, active lifestyle brand, beyond a simple fashion trend.
Very good thoughts, Rolando! I like your definition on Lululemon transforming itself into a “technology company that happens to sell sportswear”
Very interesting to see how a consumer goods company leveraged digital. So many have been slow to adapt, relying on slotting fees for in store placement in big box retailers. Like Nike, Lulu has been able to develop itself into an experience / lifestyle v. just an apparel company. Such a positioning is easier to leverage digitally and makes products stickier when they shift to e-commerce driven sales.