Lululemon is not selling well anymore, will Arc’teryx be the next?

The decline in lululemon's stock price and the adjustment of its market strategy have triggered in-depth thinking about the consumption trend of the middle class and brand positioning. This article analyzes lululemon's performance and challenges in the Chinese market, and compares it with Arc'teryx's situation, exploring how brands can find new growth points and customer groups amid consumption downgrades and market competition.

There is a popular saying on the Internet: The three treasures of the middle class are lululemon, Ralph Lauren and Arc'teryx.

Recently, lululemon, one of the three treasures, seems to be having some troubles.

lululemon announced that Sun Choe, the chief product officer who had worked at the company for seven years, was leaving and the brand team would be reorganized. Since then, the company's stock price has fallen below $300 for two consecutive days, a 40% drop from the beginning of the year. As a result, lululemon has become the worst performing stock in the S&P 500 index this year.

Starting with a pair of yoga pants, lululemon quickly penetrated into the hearts of thousands of Chinese female consumers. "Men wear Arc'teryx, women wear lululemon" has become the standard for the new generation of outdoor sports and fitness people.

However, in 2023, lululemon lost momentum in its home base of the Americas. The year-on-year revenue growth rate for the full fiscal year was only 12%, a significant slowdown from 29% in 2022. It should be noted that the American market accounted for 79% of lululemon's annual revenue.

Unlike the slump in the U.S. market, lululemon's performance in China remains strong. In 2023, the company's growth rate in China was as high as 67.2%, twice the growth rate in 2022.

Lululemon, which is not selling well in the United States, naturally shifted its business focus to the Chinese market, striving to achieve "the East shines when the West is dark". However, can lululemon really achieve its goal? As a "kind" of lululemon, what about Arc'teryx, which is also a favorite of the middle class?

01 The middle class dream is shattered

Who are the worst-off people right now?

They are probably the people who were called the middle class in the past, those who bought a large flat at the peak of the real estate cycle at the highest loan interest rate.

They still shuttle through the morning rush hour, doing a seemingly decent job, but the salary is neither high nor low, and they don't have enough money on hand. With the heavy burden of life on their shoulders, most middle-class people dare not squander the little disposable cash on hand. It is not easy to change jobs, and promotion seems to be endless. When it is difficult to increase revenue in the short term, saving money has become a top priority, and consumption downgrade has naturally become everyone's unanimous choice.

With consumption downgraded, merchants are both happy and sad. At both ends of K-type consumption, affordable consumption, led by Pinduoduo, has risen rapidly, and people are no longer willing to pay for brand premiums; and luxury goods, represented by Hermès, are mainly frequent consumers, not the middle class in our traditional sense, but the higher-end crowd, so the degree of "injury" is not high. After cutting off the head and tail, the middle of the olive - mid-to-high-end products with the middle-class consumer group as the main audience has become the hardest hit area.

lululemon is one of them.

At the opening ceremony of the 2022 Beijing Winter Olympics, the Canadian team's red sports down jackets caught the eyes of Chinese audiences. Since then, Chinese consumers have known a little-known brand that makes yoga pants. Coincidentally, it was also the period when women's consumption awareness was rising. Women + yoga pants, a highly compatible supply and demand was born.

Image source: lululemon official website

Why do girls love to wear yoga pants when they exercise? First of all, many girls do have the need for yoga and Pilates in their fitness sub-items. Yoga pants have multiple functions such as yoga, weight-bearing anaerobic and aerobic exercise.

Secondly, high-quality yoga pants can outline the curves of women's bodies while avoiding excessive restraint, and can also allow fitness enthusiasts to see the changes in their body more intuitively. It can be said that any woman who exercises must have at least one pair of yoga pants.

As a result, yoga pants have become a necessity for women who exercise.

With the right time, right place and right people, it is no accident that lululemon has become popular in China. In July 2022, the market value of lululemon, a harvester for middle-class women, surpassed Adidas and became the world's second largest sports brand after Nike.

It can be said that lululemon has been riding the wave of the middle class to the top. As the saying goes, profit and loss come from the same source. When the middle class is no longer high and mighty, lululemon's beautiful bubble may burst with a single poke.

It’s true that yoga clothes are a necessity, but lululemon may not be a necessity.

The popularity of lululemon in the Chinese market is due to both the surge in demand and the lack of supply. Women who work out need a good pair of yoga pants, but they can’t find a good pair. So at that time, lululemon, which is comfortable to wear, was indeed a rare good brand for consumers.

In the business world, demand will inevitably lead to supply.

When other brands figured out the ins and outs of yoga wear, the influx of sports brands caused lululemon’s scarcity to drop sharply.

02 Differences among the same category

Yoga clothes are not high-tech.

Whether in Europe and the United States or in China, people have found more and more substitutes. In China, high-quality imitations of lululemon are all over various e-commerce platforms. Some consumers said on the Internet that the so-called 1:1 replica lululemon yoga pants range from 50 to 300 yuan. Some are as comfortable and easy to wear as the originals, and some can even be mixed into the counters. As for domestic brands, Maia Active and other brands focusing on women's fitness are also eroding lululemon's market share at lower prices.

Compared to lululemon, Arc'teryx, one of the three treasures of the middle class, seems to be doing well.

At the beginning of this year, Arc'teryx launched a limited edition jacket for the Year of the Dragon. The original price of the jacket, which was already as high as 8,200 yuan, was hyped up to around 12,000 yuan. Although many netizens complained that it was a "tax on IQ", many middle-aged men still enjoyed buying Arc'teryx.

Image source: Arc'teryx official Weibo

Both are from Canada, both started as niche brands, and both focus on a single gender as their target customer base. Why is Arc'teryx's sense of crisis significantly weaker than lululemon's as competition intensifies?

First, in terms of tonality, Arc’teryx has more luxury attributes.

Lululemon is not cheap, while Arc'teryx is expensive. As its style is more daily, Lululemon has more consumption scenarios, but Arc'teryx is more focused on the outdoor line.

At first glance, lululemon undoubtedly has an advantage in consumption frequency, but Arc'teryx's single products are priced much higher than lululemon. This may not mean that the former is more noble than the latter, but at least in the eyes of consumers who use price as an evaluation system, Arc'teryx is a symbol of higher-end.

For this reason, when the middle class faces certain consumption constraints, Arc'teryx is more stress-resistant and counter-cyclical than Lululemon. After all, the middle class will inevitably be more cautious about jackets that cost thousands or even tens of thousands of yuan, but the real high-spending people will still flock to luxury goods.

Second, Arc'teryx has stronger technological attributes.

At Arc'teryx, the brand value lies in craftsmanship, technology and durability. Among them, the most talked-about is GORE-TEX fabric. Unlike everyday clothing, jackets need to face the harsh test of nature, and fabric is the key.

Jackets need to be highly waterproof, but strong waterproofness is often accompanied by airtightness. But GORE-TEX fabric can solve this problem, making it waterproof without affecting the discharge of sweat. Take GORE-TEX Pro as an example. It has the strongest protective fabric, the thickest film thickness, and supports designs with different numbers of layers. The current maximum is 3 layers. It is designed for outdoor sports enthusiasts such as mountaineering and skiing.

In addition to GORE-TEX, Arc'teryx also has some less famous but still hardcore ingredients. For example, Arc'teryx's exclusive Coreloft cotton (C cotton) has extremely strong skin-friendliness. It is not only soft and thin, but also highly warm, quick-drying, and water-repellent. ThermaTek cotton (T cotton) is based on C cotton, but its performance is even better, and it can withstand extremely low temperatures of up to minus 30 degrees.

Almost every girl who wears lululemon will say, "It's so comfortable." Comfort is lululemon's strongest moat, but it's not difficult to imitate. But if you want to copy Arc'teryx, the difficulty is still one step behind Ralph Lauren compared to copying lululemon.

03 Let go of obsession

Although Arc'teryx has stronger technical barriers than lululemon, it does not mean that it is invincible.

At present, nearly half of the Arc'teryx in the world are bought by Chinese people. This is a serious lack of risk resistance for a foreign brand. If one day Chinese consumers turn against Arc'teryx, it means that Arc'teryx will lose half of its market share. At a time when most people are increasingly paying attention to cost-effectiveness, we cannot be sure that Arc'teryx will be able to remain immune.

On the other hand, Arc'teryx's most important brand foundation - its luxury attributes - has also been questioned after being acquired by Anta.

In 2019, Arc'teryx's parent company Amer Sports was acquired by an investor group consisting of Anta Sports, FountainVest Partners, Anamered (owned by lululemon founder Chip Wilson), and Tencent at a premium of about 40%, which is known as the largest cross-border acquisition in the history of Chinese sporting goods. Anta acquired Arc'teryx to enter the luxury goods circle that it had never been involved in, and to go global and truly realize "Becoming the world's Anta".

In terms of luxury goods, Anta has completed half of the task and achieved the status of a domestic luxury brand. After Anta acquired Arc'teryx, a large number of online and offline dealers were eliminated, and almost all sales channels were turned into self-operated ones. After Anta took full control of the "military power", it made drastic moves to enter the top first-tier business districts in China. It can be said that Anta's price increase in China is inevitable.

However, in the international market, Arc'teryx's approach does not work. Arc'teryx, which started as a niche brand, faces countless foreign outdoor sports brands, such as Mammut, which was founded in 1862. Not to mention that Anta did not completely take back the distribution rights, even if it did, consumers would not necessarily choose Arc'teryx in the face of outdoor brands that are flourishing everywhere. As a result, Arc'teryx has always received mediocre response overseas.

In stark contrast to the "hard to find" and "premium purchase" in China, Arc'teryx abroad is "always in stock" and "frequently discounted". Ironically, purchasing agents began to occupy Arc'teryx's overseas stores, resulting in the following situation: clothes made in Asia were shipped abroad and finally shipped back to China by the Chinese.

This stark difference makes people wonder whether Arc'teryx's popularity is sustainable.

Arc'teryx is certainly technologically advanced. But does the technological content outweigh other factors, including price? Just like the professionalism of Arc'teryx is unquestionable, but not every person who plays outdoors needs the ultimate technological components to protect them from wind and rain.

"Enough" is a very wonderful word. For entry-level or even intermediate outdoor enthusiasts, there are actually many alternatives to choose from. Although many of them are not as well-known as Arc'teryx, they also have certain technological content and can easily meet the demands of most people.

As domestic outdoor brands begin to step up their efforts, focusing on high cost-performance while developing high-tech, the downward shift of the overall price center of outdoor products will be a foregone conclusion.

It must be admitted that the current popularity of Arc'teryx among domestic consumers is largely due to the "bullish market". It is human nature to buy when prices are high and not to buy when prices are low. Once demand drops and the supply-demand relationship reverses, both Arc'teryx and lululemon are likely to suffer a double kill from Davis in the domestic market.

Is there a correct solution to this matter?

The most effective means is probably to reduce prices. However, it is a limited price reduction. Lululemon and Arc'teryx have already formed a certain brand power. Even if the "irreplaceability" will be falsified, it cannot be denied that both are still excellent brands.

Although it is called the "Hermes of the outdoor world", it is clear that Arc'teryx still has a long way to go before becoming a true luxury product. After all, it is impossible for real luxury goods to be discounted all year round abroad.

In this case, Arc'teryx can gain more market share by lowering its profile to a certain extent, even if it just reduces the price difference between domestic and foreign brands. As for Lululemon, the price difference between the new Maia Active and its discounted price is not that big. If it can be "harder on itself", it can also expect to trade price for volume.

In the recently popular TV series "Joy of Life 2", the prince character has a classic line - "Things feel sad for their own kind", which means that when you see your own kind die, you feel sad when you think about your own future fate.

Looking at lululemon’s valuation, I wonder what Arc’teryx feels.

In the context of the loss of the middle class, the three treasures of the middle class should think about expanding their customer base and attracting more customers with high-quality and cost-effective products. A moderate price reduction may help them gain a larger market share.

For a brand, being able to go against the cycle is of course perfect, but being able to go with the flow is equally important.

Only by respecting and understanding the market can you win the market.