Lululemon Final1 1t15x

Strategic Management Case : Lululemon Athetica, Inc. In 2014: Can the Company Get Back on Track? Presented By : • Harris Torma Raya P. (15/387270/PEK/20820) • M. Reza Ariansyah (15/387296/PEK/20846) • Riana Purwandani (15/387315/PEK/20865)

Company Profile (Video 1)

Company Background Lululemon Athletica Inc. designs and retails athletic clothing. The Company produces fitness pants, shorts, tops and jackets for yoga, dance, running, and general fitness. Lululemon serves customers globally through its online and 254 retail stores.

Company History

Mission Creating components for people to live longer, healthier, fun lives. Lululemon has developed a distinctive community-based strategy that we believe enhances the brand and reinforces guest loyalty.

The key elements of the company’s strategy Design and develop innovative athletic apparel that combines performance with style and incorporates real-time guest Locate stores in street locations, lifestyle centers and malls that position each Lululemon Athletica store as an integral part of its community Create an inviting and educational store environment that encourages product trial and repeat visits Market on a grassroots level in each community, including through social media and influential fitness practitioners who embrace and create excitement around our brand

The Yoga Marketplace Accourding to the yoga journal “Yoga in America” : • In 2012, there were 20,4 million people in the United State who practiced yoga. (million in a previous 2008) • 82% in yoga exercise are woman • 63% yoga parctitioners were in 18-44 age range. • 44,8% beginners level • 39,6% intermediate level • 15,6% expert level • Spending on yoga classes, apparel and related items was estimated $10,3 Billion in 2012 (up from $5,7Billion in 2008).

Case Story • In April 2014, Shareholders of lululemon athetica – a designer and retailer of high tech athletic apparel letica brand names that offered performance, fit,and comfort - were concerned whether customers were losing enthusiasm for the company’s stylish, -priced products. • The lost sales, the additional cost incurred, and the write-downs on the affected inventory all had a significant negative bottom-line impact and were a big reason why lululemon’s net imcome rose a meager.

Lululemon’s Financial Highlights YEAR (fiscal)

Revenue

Sales

Net Income

2011 2012

36,9%

16%

47%

2012 2013

16,1%

GROWTH

20,8 %

2%

14 %

3,3%

43,7 %

Company Background In 2007, the company’s announced growth strategy had five key elements: 1. Grow the Store Base in North America. 2. Increase our Brand Awareness. 3. Introduce New Product Technologies. 4. Broaden the appeal of lululemon products. 5. Expand Beyond North America.

Main Issue What strategic actions could lululemon’s management initiate to get strong strong revenue growth back on track?

Corporate Structure

Laurent Potdevin (CEO) Tara Poseley (O)

John E. Currie (CFO)

Dalaney S. (EVP. Retail Op. North America)

Dennis J.W. (Chairman Of the BOD) Michael C.

Robert B. RoAnn C.

William G.

Rhoda M.P

Thomas G.

Emily White

Martha A.M

Core concept • The macro-environment encomes the broad environment context in which a company’s industry is situated.

PASTEL analysis can be used to assess the strategic relevance of the six principal components of the macro-environment :

The five competitive forces : • • • • •

Competition from rival sellers Competition from potential new entrants Competition from producers of subsitute products Supplier barganing power Customer bargaining power

Using The Five – Forces Model Of Competition Step 1

For each of the five force, identify the different parties involved, and the specific factors that bring abaout competitive pressures

Step 2

Evaluate how strong the pressures stemming from each of the five forces are ( strong, moderate, or weak)

Step 3

Determine whether the collective strength of all five competitive forces is conducive to earning attractive profits in industry.

Factors Affecting the Strength Rivalry • • • •

Buyer demand is growing slowly or declining. Buyer cost to switch brand are low. Industry products are becoming more alike. There is unused production capacity, and\or products have high fixed costs or high storage costs. • The number of competitors is increasing and\or they are becoming more equal in size and competitive strength. • The diversity of competitors is increasing. • High exit barriers stop firms from exiting the industry.

Factors Affecting the Threat of Entry • Economies of scale in production, distribution, advertising, or other areas of operation  • Experience and learning curve effects • Unique cost advantages of industry incumbents • Strong brand preferences and customer loyalty • Strong “network effects” in customer demand • High capital requirements  • Building a network of distributors or dealers and securing adequate space on retailers’ shelves  • Restrictive government policies • Expected reaction of incumbent firms.

Factors Affecting Competition From Substitute Product • Substitute Products Considerations: ▫ Ready availability of substitutes ▫ Pricing, quality, performance, and other relevant attributes of substitutes  ▫ Switching costs that buyers incur

• Indicators of Substitutes’ Competitive Strength: ▫ Increasing rate of growth in sales of substitutes ▫ Substitute producers adding output capacity ▫ Increasing profitability of substitute producers

Factors Affecting the Bargaining Power Of Suppliers Supplier Bargaining Power Considerations: ▫ ▫ ▫ ▫ ▫ ▫ ▫ ▫

Ready availability of supplier products  Criticality of supplier products as industry inputs  Number of suppliers of standard\commodity items  Buyers’ costs for switching among suppliers  Availability of substitutes for suppliers’ products  Fraction of supplier sales due to industry demand  Ratio of suppliers relative to industry buyers  Backward integration into suppliers’ industry

Factor Affecting the Bargaining Power Of Buyer • Buyer Bargaining Power is stronger when : ▫ Buyer demand is weak in relation to industry supply. ▫ The industry’s products are standardized or undifferentiated. ▫ Buyer costs of switching to competing products are low. ▫ Buyers are large and few in number relative to the number of industry sellers. ▫ Buyers pose a credible threat of integrating backward into the business of sellers. ▫ Buyer are well informed about the quality, prices, and coasts of sellers. ▫ Buyers have the ability to postpone purchases.

• Buyer are price-sensitive when : ▫ Buyer earn low profits or low income. ▫ The product represents a significant fraction of their

Core Concept • The strongest of the five forces determines the extent of the downward pressure on an industry’s profitability • Having more than one strong force means that an industry has multiple competitive challenges with which to cope

How Are Industry Rivals Positioned – Who Is Stongly Positioned And Whis Not ?  A Strategic Group • Is a cluster of industry rivals that have similar competitive approaches and market positions:   Have comparable product-line breadth   Sell in the same price/quality range   Emphasize the same distribution channels   Use the same product attributes to buyers   Depend on identical technological approaches   Offer similar services and technical assistance

Using Strategic Group Maps to Assess the Market Positions of Key Competitors Constructing a strategic group map: ▫ Identify the competitive characteristics that differentiate firms in the industry. ▫ Plot the firms on a two-variable map using pairs of differentiating competitive characteristics. ▫ Assign firms occupying about the same map location to the same strategic group. ▫ Draw circles around each strategic group, making the circles proportional to the size of the group’s share of total industry sales revenues.

Key Success Factors: • Are the strategy elements, product and service attributes, operational approaches, resources, and competitive capabilities that are necessary for competitive success by any and all firms in an  industry.  • Vary from industry to industry, and over time within the same industry, as drivers of change and competitive conditions change.

Identification of Key Success Factors • What product attributes and service features buyers strongly affect buyers when choosing between the competing brands of sellers? • What resources and competitive capabilities are required for a firm to execute a successful strategy in the marketplace? • What shortcomings will put a firm at a significant competitive disadvantage?

Industry Profitability Considerations:  • The industry’s overall growth potential  • Effects of strong competitive forces  • Effects of prevailing drivers of change in the industry  • Competitive strength of the firm: its market position relative to its rivals, its capability to withstand competitive forces, and whether its position will change in the course of competitive interactions • The success of the firm’s strategy in delivering on the industry’s key success factors

Comparative market positions

Target Consumer • 32 year old female Affluent – earns > $85,000 per year Educated • Career and goal oriented • Works out 4-5 times per week • Confident

7 Core Compents • Broaden the Lululemon product line • Grow the store base in North America, primarilly the United States. • Open additional store outside North America • Broaden awarness of the lululemon and ivivva brands • Provide a distincitive in-store shopping experience • Grow traffic and sales at the company’s website • Incorporate next-generation fabrics and technologies to strengthen consumer association

Product Line Strategy • 2014, Lululemon offered a diverse and growing selection • Lululemon’s strategy of offering only limited range of apparel sizes ▫ Lululemon’s size range of 2 – 12

Retail Distribution and Store Expansion Strategy • 2010, top management determined that having franchised store was not in Lululemon’s best long-term strategic interests • Management would be concentrated mainly in the United States and that Lululemon would gradually expand into additional counteries, primarly Asia and Europe (company-owned stores or t-venture)

Lululemon’s Retail Stores • Location : primarly on street locations, in upscale strip shopping center, in lifestyle center, and in malls • 2500 to 3000 square feet in size • Unique feature : has a class yoga before or after regular shopping hours

Lululemon’s Retail Stores

Wholesale Sales Strategy • Lululemon’s management did not want to grow wholesale sales to these types of establishment into a significant reveneu contibutor • The strategic objectives of selling lululemon apparel to yoga studios, health clubs and fitness center was to build brand awarness

Direct-to Consumer Sales Strategy • 2009, Lululemon launched its e-commerce web site ▫ to enable customers to make online purchases ▫ supllements its already functioning phone sales activitie ▫ greatly extend the company market reach • Strategic benefits ▫ Providing added convenience for core customer ▫ Securing sales in geographic market where there were no store lululemon ▫ Helping build brand awarness

Product Design and Development Strategy • Lululemon’s producr design efforts were ed by a team of designers based in Vancouncer, British, Columbia. • Design team member regulary visited retail stores • The design team worked closely with its manufactures to incorporate innovative fabrics

Focused Differention • Focusing on lifestyle perception • Creating superior products (features, design, performance) • Striving for innovation and technologies advances • Empharizing marketing and brand – building activities

Lululemon’s Community Based Marketing Approach and Brand-Building Strategy • Every lululemon store had a dedicated community coordinator who developed a customized plan for organizing, sponsoring and participating local events

Business Strategy Approach : Competitive Advantages

oga inspired athletic wear

Function is fashion”

uilt to exceed expectations

vestment in quality fabric and trims

uropean counture inpired style with West Coast function and

ncourage healty living

ross-over functionality and appeal

Sustainable Advantages : Has communiny that built awarness brand

Mapping Competitor

Conclusion • Lululemon’s has some strategy ▫ Product line strategy ▫ Retail distribution and store expasion strategy ▫ Wholesale sales strategy ▫ Direct-to- Consumer Sales Strategy ▫ Product design ▫ Brand building strategy • Lululemon has some strategy, the strategy stay in sync with the company’s business strategy

Recomendation • Recomendation for Lululemon is to create a luxury brand to target high-end customers. The benefit from this strategy : ▫ Lululemon can build brand awarness ▫ Lululemon can make community more exclusive and closer ▫ Lululemon can controll operation easier than entering a mass market