Forget Inflation, Lululemon Grows Without Offering Discounts

Despite many Americans being worried about the economy, the athleisure company expects to keep getting bigger.

Inflation typically makes people take a hard look at their budget. When your dollars don’t stretch as far as they did a year ago, luxuries that make life more comfortable, but aren’t strictly necessary, are often the first to go. For some people, that might mean cutting back on restaurants or fancy vacations, or putting off buying a new car.

But based on the second quarter earnings call from the high-end athleisure brand Lululemon Athletica  (LULU) – Get lululemon athletica inc. Report, it seems that the devoted fans of the brand have decided that the company’s exercise clothes and accessories are a luxury they simply cannot live without.

What’s remarkable about this increase is that Lululemon isn’t just thriving during a period of inflation, it’s growing while its closest competitors have been having a tough year. Under Armour  (UAA) – Get Under Armour Inc. Class A Report reported in its Q2 earnings call that the quarter was flat in North America, “compared to the prior year at $909 million, and international revenue decreased 3 percent.” 

In its earnings call on June 27, Nike  (NKE) – Get Nike Inc. Report also reported that its fourth quarter reported revenues were “down 1 percent compared to prior year.”

Lululemon Had Surprising Success In Its Second Quarter

By comparison, Lululemon’s total net revenue increased 29 percent to $1.87 billion, says CFO Meghan Frank, who notes this was “ahead of our guidance,” and “comparable sales increased 25 percent with an 18 percent increase in stores and a 32 percent increase in digital.”

This is an impressive level of growth, for a number of reasons.

Fashion bloggers have been wondering if the “athleisure” craze of spending money on fancy, fashion-forward exercise clothes had either run its course, or had been subsumed into the greater cultural whole.

Lululemon’s items are fairly expensive for exercise clothing, with its leggings tending to cost more than $100 and its sports bras starting at $48. It is very intentionally a luxury product. In the earnings call, CEO Calvin McDonald notes “we are not creating this traffic through markdowns or price promotions. Lululemon remains predominantly a full-price business, and we have not changed our promotional cadence or markdown strategy and we have no plans to do so.”

If you’re trying to save money, you can find cheaper alternatives, and it’s just clothing you’re going to sweat in, right?

That may be the mindset that some companies’ customer base have. At the same time that Lululemon was surging, Under Armour, arguably its most direct competitor in the fashion-forward exercise clothing field, has been struggling due to supply chain issues.

But Lululemon has long marketed itself as much more than just an athleisure company, even as it’s largely considered to have created the concept.

“By promoting a lifestyle of health and wellness, they’ve cultivated a strong cult-like community of active enthusiasts who desire premium quality,” notes Smile.IO, a small business resource, via its blog. It also points out that it built its following through a social media presence that cheers on users who testify about how the products push them to hit exercise goals.

The company also rewards customers for liking it on Facebook and Instagram through its Rewards Programs, and organizes a variety of fitness events, which help to engender strong customer loyalty.

Lululemon Has Been Feeding Its Customer Base

Lululemon has endured through criticism, supply chain headaches, and whispers about the death of the athleisure trend through a relentless focus on pleasing existing customers, while also reaching new customer bases by branching out into new areas without ever forgetting about its core base. The result is what McDonald terms “very healthy new guest acquisition numbers at plus 22 percent.”

The company has long been known for its focus on clothes designed for yoga, cardio-based exercises and running, but has expanded into clothes and accessories aimed at people who play golf and tennis, or who prefer to hike. It’s also seen great success with its belt bags collection, McDonald said.

“When we expand into new categories… it really resonates with our existing guests, which is a big part of the positioning of the strategy, and we saw that through existing guests increasing transactions with us at plus 17 percent, very healthy,” he said.

athleisure
wellness
fitness