Over the past five years, lululemon (LULU 5.31%) saw its share price soar 433%. It’s much better than the S&P50080% total return over the same period. The boom retailer has achieved remarkable success in a fiercely competitive industry.
The sale of high quality products which are in high demand by customers has certainly boosted the popular sport clothes the society. But there’s another big, under-the-radar factor that helped Lululemon. Let’s take a closer look.
Lululemon is building a community of passionate supporters
Lululemon’s marketing strategy is unique and very effective. While his great rival, Nike (NKE 2.00%)spends heavily on celebrity favors and expensive athletes, Lululemon has taken a grassroots, community-driven approach.
It’s about building a network of ambassadors to promote the brand. The company has 47 Global Ambassadors who are elite athletes themselves, but likely aren’t household names. And then there are 1,240 Store Ambassadors, who are social and fitness community influencers, in the markets where Lululemon has a physical presence. These Store Ambassadors host get-togethers at Lululemon stores, for things like yoga classes and other events.
In return, Ambassadors receive priority access to new Lululemon products and ongoing support that can help them grow their individual businesses. Additionally, some are given the opportunity to be part of the company’s design process, try out new clothes, and provide feedback. It’s a mutually beneficial relationship that seems to be working.
Lululemon knows it can’t play the same game as Nike, which spent $854 million (or 7.9% of revenue) on branding and marketing in its last fiscal quarter (ended February 28). Instead, Lululemon takes a genuine, authentic approach to building its brand. These ambassadors truly love and support Lululemon, and that enthusiasm can shine through in the company’s current 574 stores.
While I certainly appreciate seeing a Nike commercial featuring LeBron James or Tiger Woods, I know they are paid over tens of millions of dollars to promote the brand. Lululemon’s creative branding strategy is a more affordable option. While the company doesn’t explicitly detail its marketing spend, I’m pretty sure it’s lower as a percentage of sales than Nike’s. When was the last time you saw a Lululemon commercial on TV?
Add an active network of committed ambassadors to the mix, who consistently show their support for Lululemon on a personal level, and the chances of staying known.sustainably relevant to consumers are stacked in favor of the company.
Lululemon’s success is undeniable
Lululemon’s past success proves that this differentiated approach has worked tremendously, all the more impressive considering Nike’s stranglehold on the entire activewear market. Over the past five years, Lululemon’s revenue and profit have grown 174% and 221%, respectively. And its operating margin fell from 18.3% to 22% during this period.
The brand has also proven to be incredibly strong. During its last fiscal quarter (ending January 30), Lululemon’s Gross margin 58.1% was higher than Nike Gross margin 46.6% in its last fiscal quarter (ended February 28). And this is not a one-time event, as its higher profitability has been a consistent trend over the past decade. Plus, Lululemon’s impressive gross margin is higher than luxury brands like Apple, Ferrariand HR.
management new five-year outlook expects continued success. By 2026, they expect annual sales to double to $12.5 billion, supported by a doubling in the men’s segment, a doubling in digital revenue, and a quadrupling in international sales. If history is any indication, the company will likely have no problem meeting these goals.
In the fierce retail and apparel industry, Lululemon has employed an inventive marketing campaign that will continue to propel it to new heights.