New categorisation and a price hike are part of Lululemons new approach

New categorisation and a price hike are part of Lululemon's new approach

Lululemon, the cult brand favoured by yoga fans, has been at the forefront of athleisure since the trend began. But despite its early mover status the brand cannot afford to rest on its laurels as the success of sportswear has brought more competition than ever to the category, writes Emily Potts, contributing analyst at Euromonitor International.

Lululemon's Q2 2015 earnings saw net revenue climb 16% to US$453m, up from $390m during the same period a year ago. Despite this, shares fell as the firm's inventory grew 55% to $281m at the end of the quarter, up from just $181m a year earlier. With such a large amount in stock, the worry for investors is that the retailer could be forced to discount, thereby further reducing margins, which are already lower than many rivals'. Prior to revealing its Q2 results, Lululemon announced a reinvention of its product range and a revised pricing strategy. The success of this new approach will be crucial to shifting the large amount of stock it holds.

A fresh emphasis on feeling over fit

Lululemon has long categorised its legwear using practical descriptions based on fit; how tight, loose or long the trouser is for example, as is standard practice across the category. Its new strategy focuses on feeling over fit, with products categorised by 'sensation'. Feelings include 'Relaxed', 'Held In', 'Hugged', 'Tight' and 'Naked'. Naked is the most lightweight fabric the brand has used to date – although the manufacturer promises no repeat of the transparency issues that saw a huge product recall in 2013, with the brand losing $67m in sales as a result. Along with this shift in focus, the brand is introducing four new silhouettes and technical design updates, including a seamless front and bonded, laser-cut hems, all of which makes for a better fit.

Design updates aside, Lululemon's new approach is marketing, rather than innovation, led and could be perceived as little more than a fresh sales spin on the company's standard product range. While it is too early to gauge the likely success of this new approach, given that the athleisure trend means sportswear is regularly worn for a wide variety of day-to-day tasks, the move may well strike a chord with fans of the brand and generate additional purchases. It is easy to imagine customers wanting a 'Held In' supportive fit for a high intensity workout, but also purchasing 'Relaxed' fit for more casual, day-to-day activities. It will be interesting to see if rival sportswear makers follow suit.

Price hikes bring in criticism from consumers

With the new categorisation has come a price hike for a number of the brand's leggings. Cropped pants, for example, have increased from $72 to $88, while the new All the Right Places, Zone In Crops, and Tight Stuff Tights retail at $128, $118, and $148, respectively. Lululemon has always operated at the premium end of sportswear and its brand maintains a strong following despite higher price points than many rivals. Nevertheless, the increase has attracted criticism from consumers on social media. One consumer highlighted the fact that the new price equates to a 22% increase; well above inflation and pay rises. Lululemon, meanwhile claims that the price increase is reflective of the increase in quality of products.

But Lululemon has history of surviving storms unscathed

The backlash over price increases is just one of many storms the brand has faced. Aside from transparent leggings and the resulting PR nightmare in which the company's founder laid blame on the women wearing them, earlier this year 318,000 women's tops were recalled in North America following reported eye and facial injuries caused by faulty drawstrings. But while each blunder made headlines at the time, provoking speculation that the brand will suffer, Lululemon continues to defy critics and grow stronger. While some customers will no doubt be lost as a result of price rises, the fact remains that for the most part, Lululemon fans are incredibly loyal to the brand and the recent price increase is unlikely to deter the masses. Prices still remain low enough to be accessible, but high enough to be seen as a status symbol, and this sweet spot is part of the appeal for the brand's consumer base.

There is no doubt that Lululemon has considerable inventory to sell in the second half of the year, but the brand has proven doubters wrong time and again – and its position as a pioneer at the forefront of athleisure should see growth continue as sportswear sales continue to outgrow those of apparel.

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