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Lululemon redefined — or maybe even defined — athleisure, tapping into a goldmine of women underserved by major sports brands. Now, as those same companies pursue Lululemon’s core customer with vigour, CEO Calvin McDonald plans to cede no ground. The goal is to grow its revenue by more than 50 per cent from $8 billion in 2022 to $12.5 billion by 2026. New categories may play a key role, but fashion is awash with leggings. Is there still that much space to stretch?
“Heading into and coming out of the pandemic, unlike most brands, [Lululemon] was able to sustain great momentum. In fact, we accelerated,” says McDonald from a modern, top-floor office in the brand’s Vancouver headquarters. Lululemon flew a group of journalists to its home base in Canada to lay out its plans, plus celebrate its 25th anniversary. “If you took our 2022 performance and sliced it across category, across gender, across activity, they’re all positive and they’re all contributing. There’s still room to grow.”
Lululemon is one of the most duped brands on TikTok. This weekend, the brand will launch a dupe swap in LA, giving customers branded Align leggings for free in return for dupes to prove the value of the real thing.
Part of the plan is to grow beyond its yoga leggings niche. Lululemon has been investing in building up its activewear categories, including running, weightlifting and tennis. The label has bet on menswear, which is now 30 per cent of the business, as well as footwear, which it launched in 2022 (the brand doesn’t yet breakout footwear sales). At the same time, Lululemon has had to regain the good graces of its core customer — women in yoga pants — after 2013 comments from founder and former CEO Chip Wilson defended criticisms of the leggings’ sheerness by body shaming his customer. Wilson resigned shortly after, and the last decade has been spent reaffirming the label as a women-centric and inclusive brand.
McDonald joined from Sephora in 2018, and began to implement a five-year “power of three” growth plan, aiming to double sales to $6 billion from 2019 to 2024, with product innovation, omni customer (or “guest”) experience, and international expansion. It reached — and surpassed — the $6 billion milestone ahead of schedule, boosted by 30 per cent year-on-year growth in 2022. Now, he plans to double the men’s business while growing women’s double digits; double digital sales; grow bricks-and-mortar sales by double digits; and quadruple the international business while still growing North America, to reach the $12.5 billion goal.
McDonald is focused on boosting brand awareness globally with increased marketing spend, scaling responsibly to maintain company culture, continuing to manage down inventory and investing further in new, high-competition categories like menswear and footwear, going up against well-established legacy players. The company is sold 100 per cent through its own retail channels, which McDonald says is the “moat” between the brand and other players. The brand has 650 stores worldwide and is going to add 45-50 this year, McDonald says, 35 of which will be outside North America, focusing on markets like Australia and China, which it expects to be its second biggest market by 2026.
Global expansion may be key to finding growth now that the pandemic boom has passed. Analysts say the sportswear market isn’t done growing: it’s expected to be worth $385 billion in 2023, up 3.4 per cent on 2022, according to Euromonitor, and the environment is “relatively strong” compared with other categories of apparel, footwear and accessories in 2023, says Jay Sole, managing director at UBS. “The [current] macro economic environment could have a negative effect on the industry as a whole. But I would say that the sportswear part of the industry is probably the place to be.”
Lululemon’s 2022 revenues place it close to the size of Puma ($9 billion in revenues in 2022) but still small compared to market leader Nike ($47 billion) or Adidas ($24 billion). On Thursday, Lululemon reported that first quarter revenue increased 24 per cent to $2 billion.
Beyond the leggings
Since its inception, Lululemon has focused on designing performance wear for women’s bodies and needs, be it an emergency hair tie worked into a zipper, secure pockets in the sides of running leggings or sports bras based on breast dynamics. It’s now moving further into sport: an upcoming initiative called Further will invite 10 women ambassadors with different backgrounds and bodies to complete a six-day ultramarathon in March 2024. The group includes ultramarathon world record holder Camille Herron and Vriko Kwok, a Brazilian jiu-jitsu fighter from Hong Kong. Lululemon will conduct scientific research on women’s endurance during the training period and the event, in collaboration with the Canadian Sports Institute Pacific; the research will inform new Lululemon activewear and footwear design.
“The women’s business is the sports industry’s greatest failure and its greatest opportunity,” Circana (formerly NPD) sports advisor Matt Powell told Vogue Business last year, when Adidas announced it was launching women’s products including a new, better fitted bra range. Nike later declared 2023 “the year of the woman”, with a new range of products designed with women’s needs in mind, from period-proof leggings to a shoe designed to account for women who like to walk, jog and run in one session.
Can it recreate that same magic for men, who have long been served by the sports industry? Lululemon entered menswear in 2014 but has invested further in the category since the pandemic. (The men’s business was worth an estimated $2.3 billion in 2022.) “It should never be 50/50,” McDonald says, “she will always spend more than him on apparel. But maybe we’ll get to 40/60 one day. Doubling our men’s business and having it grow at a greater rate than our women’s business is indicating, we are getting at the opportunity.”
The men’s offering is focused slightly more on athleisure, where Lululemon saw white space, with hero items including the “wrinkle proof” ABC pant, an everyday trouser designed for outside the gym. Lululemon’s On The Move franchise, focused on athleisure products like the ABC pant and chinos, presents opportunity across women’s too: the product team plans to roll out more women’s fashion-led pieces through 2024.
Lululemon also sees opportunity in categories that others have been in for many years, McDonald says, like footwear, which the brand launched in March 2022 with the Blissfeel, Chargefeel and Strongfeel shoes, created for a woman’s foot anatomy, with a narrower heel and higher arch, said VP of footwear Simon Atkins, which differentiates it from other shoes in the market. Differentiation will be key to success, as challenger brands like On Running and Hoka One One are already capturing share from Nike and Adidas with highly technical running shoes across genders.
“To think that we were able to create the world’s first lineup of women’s athletic footwear built especially for her foot in 2022 is pretty shocking,” McDonald says. “And yet we were, because that opportunity existed.” For now, it’s in a test-and-learn phase, McDonald says, and while initial response has been strong, he purposefully didn’t include footwear in the power of three x2 growth goals, to allow the brand the freedom to iterate.
Building a community
Membership is another key priority for Lululemon. The brand made an ill-fated acquisition of at-home fitness startup Mirror — which uses smart mirrors to project fitness instructors in 3D — in 2021, which cost shareholders close to $500 million. “While members love our content, Mirror hardware sales did not match our expectations,” McDonald said on its Q4 earnings call. Mirror is still operating online, but Lululemon is no longer investing in growing the business.
However, it did show demand for at-home fitness content, McDonald says, so last October Lululemon pivoted and launched Studio and Essentials, its two new membership tiers where customers access at-home fitness via an app. The free Essentials programme already has over 9 million members and the brand found that members spend on average 9 per cent more on Lululemon products.
“We see a lot of value in our membership programme as it helps us to build community, increase engagement, and drive long-term value,” McDonald says. “We are continuing to take a test-and-learn approach with membership and listening to guest feedback to help inform our future membership expansion plans.”
Its direct-to-consumer business helps maintain that relationship with customers. “There isn’t another $8 billion apparel brand that can leverage a direct relationship with the guest all the time,” McDonald says.
Traditionally, wholesale is a key way to boost brand discovery and has been a springboard for the bigger sportswear players. Would Lululemon consider it to scale? “No,” McDonald responds instantly, “mainly because it’s short term in nature. We’re thinking long term in terms of the strength of the brand and the power of owning that [customer] relationship in DTC. Wholesale isn’t a vehicle and lever that we’re gonna pull. We have no interest in it and it’s not part of the growth plan right now.”
Boosting brand awareness
Without wholesale to lean on, Lululemon is reliant on its own marketing channels alone — an expensive endeavour when up against industry giants and a sea of newcomers. Up until now, Lululemon’s marketing spend has traditionally been low, at around 4 per cent of sales for 2022. And unlike other sportswear brands, the brand doesn’t work with high-profile athletes from the NBA, NFL or UK Premier League to boost reach, either.
“You’re not going to turn on the television and see a football match with Lululemon logos on the players,” Sole says. “They don’t do the kind of things that are going to raise brand awareness. That doesn’t mean that it can’t continue to grow, it can. But it’s not the same as other sports brands.”
McDonald admits that Lululemon’s unaided brand awareness is low globally — even in its leading market, the US — versus other players. He sees this as a “runway for growth”, adding: “Top of funnel activations through branding and campaigns are definitely one of the key areas and one in which we’ve started and we’ll continue to invest in.” The brand’s Get Into It Align campaign — rolling out different silhouettes of its bestselling Align yoga pants including a flare and wide-leg version — was a strong success and demonstrates Lululemon’s marketing potential, says analyst Dana Telsey of Telsey Advisory Group.
Another recent success was the dupe swap, which took place in Los Angeles in early May, in response to young consumers promoting dupes (duplicates) of Lululemon Align pants on TikTok at a fraction of the price. Lululemon swapped customers’ Lululemon dupes for free Align pants, to show new customers the quality of the real thing.
McDonald is confident that new competition won’t hurt Lululemon. “We’ve always been women’s first, not women’s “also” in our 25 years,” he says. “I’m confident because it’s authentic to who we are. Others haven’t demonstrated the same tenacity and longevity in trying to pursue and create based on unmet needs for [women]. Unmet needs is where we start our innovation.”
Correction: Article updated to reflect Lululemon launched menswear in 2014, not 2017.
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