10,000 words to solve five puzzles of lululemon, subverting your understanding of brand breaking circle

Lululemon's brand slogan has swept the world. Let's take a look at the mystery behind it.

"Coke, Pepsi and all the other sodas are the cigarettes of the future. Great marketing, terrible product."

It is hard for us today to imagine that this sentence was once used as a brand slogan, printed on all lululemon shopping bags, and eventually delivered to millions of users - the two giants who were innocently caught in the crossfire angrily sent their legal teams to fight with it for many years[1].

This arrogant personality seems to have infinite magic, allowing lululemon to grow from a street store in Canada to a global clothing giant.

However, just as lululemon’s market value hit an all-time high, its founder Chip Wilson, who retired 10 years ago, openly jumped out to refute the company’s claims: “lululemon is trying to be like Gap, doing everything for everyone. And I think the definition of a brand is that you can’t be everything… You have to make it clear that you don’t want certain customers to patronize you.”[2]

He has said more than once that rapid expansion will cause the brand to lose itself – lululemon, a once great company, is becoming mediocre.

In our opinion, regardless of whether lululemon is successful or not, the contradiction behind this is actually a difficult problem that all business managers are concerned about: brand breaking the circle.

When a brand moves from niche to mainstream, how can it sell its products to more people while retaining its uniqueness?

Although there have been many studies and analyses on lululemon in the market, we decided to use it as a benchmark to explore the logic and strategy of the brand breaking out of the circle. After two months, we conducted a lot of user research, store visits, data mining, etc., and finally obtained some knowledge that subverted common sense.

Next, this article will solve the five major mysteries of lululemon one by one and bring you new thinking.

1. Logical mystery: Why is lululemon’s breakthrough so different from others?

To study lululemon’s path to breaking out of the circle, we must first answer a question about the business model: Who is lululemon making money from?

You may have heard about the history of lululemon's rise: creating a lifestyle that middle-class women are crazy about, and this group of people with high spending power will continue to pay for it - according to Wilson himself, lululemon's customers are 32-year-old "super girls" who earn $100,000 to $150,000 a year, are unmarried, and have a high level of education.

However, if we use common sense to think about it, how many female elites around us earning millions a year are there?

According to data, only 4 million people in North America, lululemon's largest market, meet the above conditions. In other words, even if the penetration rate is 100%, if everyone buys 10 pairs of $100 yoga pants every year, lululemon can only make $4 billion. In fact, lululemon's revenue in 2023 is close to $10 billion.

The high quality requirements doomed lululemon to be unable to continuously expand its SKUs like fast fashion brands. Its categories and styles in the early years were very simple. Even if the customer repurchase rate was high, the ceiling for doing business around a small group of wealthy people was not high.

So there is only one possibility: lululemon does not make money from "Super Girls" at all.

More than a decade ago, then-CEO Christine Day revealed the secret behind this[3]. In fact, lululemon has always had two completely different types of users:

First of all, lululemon's most loyal customers are indeed "super girls", who are called target customers. The entire brand culture is built around them, and they are also the first group of people that the brand penetrates. Although these people are very active in participating in activities and word-of-mouth communication, and use a lot of actions to vote for lululemon, these white-collar elites have more room for brand selection and do not contribute the most to lululemon's sales.

Their real role is attractor, that is, walking "billboards". As yoga enthusiasts, triathletes, runners, etc., they are themselves sports trendsetters in the local community, naturally attracting another type of core customers.

Core customers are usually between 40 and 45 years old. They may not like sports and pursue fashion as much as target customers, but they have high requirements for quality of life and are richer than ordinary middle-class people. They really vote for lululemon with their money and are willing to spend a lot of money to buy products, thus forming the main source of income for lululemon.

Because core customers believe that this lifestyle "makes them look more like 32 years old." Lululemon first "builds a circle" through the lifestyle of one group of people, and then lets it "break the circle" and become the dream of another group of people.

This path is not only still used today, but has also expanded to a new interest group, namely teenagers and Generation Z. This is equivalent to making arrangements in advance for the growth of "super girls". Their lack of money now does not mean that they will have no money in the future. Lululemon's strategy today is no longer focused on yoga, but on a wider range of trendy fashion, so it will target the people who are most sensitive to fashion. By the way, lululemon is already the third favorite clothing brand among American teenagers [4].

In the Chinese market, we also observed that lululemon's customers are divided into two distinct categories:

1. The first category is ordinary customers, who have high purchase frequency, low single consumption amount, and annual consumption of less than 10,000 yuan; they are generally white-collar and gold-collar workers in the first-tier cities, and they also include interest and target circles. They have sports needs, pay attention to fashion and aesthetics, and most of them do not have financial freedom, but like the exquisite feeling of petty bourgeoisie life.
2. The first category is VIP customers, who have low purchase frequency and high single-time consumption amount, with annual consumption of up to 50,000 to 100,000 yuan; they are generally more down-to-earth, older entrepreneurs and their families, business and government officials. These core customers are successful in their careers, but they do not exercise frequently and live a low-key life. Consuming lululemon is equivalent to transferring part of the luxury budget to them.

In some regional stores, ordinary customers account for more than 80% of the user base; but from the perspective of actual consumption, VIP customers account for 30% to 50% of total sales.

It seems that it is nothing new to build a circle first and then break it. Why is lululemon different?

In our opinion, lululemon’s logic should be called “brand trap”.

The conventional idea of ​​breaking the circle is to penetrate a precise group of people first, and then conquer the next potential group. This results in the separation and weak connection between different circles. Every time a new group of people is conquered, new products and marketing systems must be launched, and even sub-brands must be launched to adapt, which will inevitably cost more money on advertising. The relationship between circles is more like a "parallel superposition".

For example, we have studied Proya before, which has been very successful in breaking into the younger market. But the premise is that new ingredients and new channels are specially customized for the new group of people to meet their needs again. Young people don’t think Proya is cool just because their mothers use it.

The various circles of lululemon are constantly "nested" in Super Girls. The initial circle is strongly related to the expanded circle. The first circle naturally drives the consumption decisions of the later circles in daily life. Although the circle has become larger, a set of products and marketing systems can accommodate everyone. Thanks to the "compound interest" of the circle, lululemon's marketing rate has remained at 2-5%, far lower than the 10% in the clothing industry.

Flora, the No. 1 employee of Lululemon China, summarized her experience after completing the entire Chinese market from 0 to 1: "People and communities are the cornerstones of a brand. Once this community is formed, the core customer base is found, and resonance is established with everyone, the loyal customer base will further fission. With such a cornerstone, the follow-up only requires replication and acceleration." [12]

Let’s use the formation of snowflake crystals as an analogy: first there is a grain of dust as a stable core, and the free water vapor around it will actively condense and form a connection with the core, allowing the crystal to slowly grow and become hundreds of times larger than the original one.

Looking back at the history of Lululemon’s early success, it was through the real estate model that it “circled” [3]:

1. First, they entered the most affluent urban areas of a city and built the foundation of brand loyalty in places where target customers were most concentrated. Since the target customer profiles were highly similar to those of Starbucks, they only needed to follow the path of the first three Starbucks stores[1].
2. Secondly, enter the ordinary urban area, which is often a mixture of target customers and core customers, thus creating a cohesive effect to expand the influence.
3. Finally, entering the affluent suburbs can reach a wider range of core customers and other types of audiences and truly open up sales.

2. The mystery of sinking: How can a high-end brand image achieve downward compatibility?

Lululemon's breakthrough in the circle has the characteristics of being compatible with both the upper and lower levels. It uses a group of relatively wealthy people, and at the same time drives a group of very wealthy people and ordinary people.

From the overall survey of lululemon users, 64% have a monthly income of more than 15,000 yuan, and 62% spend more than 3,000 yuan per year. However, if we look at the users who entered the market (first purchase) in different years, we can find that the proportion of users with a monthly income of less than 15,000 yuan is increasing, and the proportion of users with an annual purchase amount of less than 3,000 yuan is increasing, and the degree of backward compatibility is higher.

However, the proportion of users with higher income (greater than 25,000 yuan) and stronger purchasing power (greater than 10,000 yuan) remains basically stable.

According to the company's internal estimates, the brand's market capacity in China is in the hundreds of millions, but the current customer base is only in the tens of millions, so there is enough market potential to be tapped for several years.

Although lululemon has long been able to break through the circle, it is obvious that the increase in the Chinese market will be greater if it takes the mass route and is backward compatible. Therefore, recently lululemon has been moving towards more sinking channels both online and offline.

However, refusing to "go down" seems to have become a consensus among high-end brands. Because once high-end brands lower the threshold, it will inevitably dilute the brand's unique image and reduce the brand's value in the hearts of old customers. High-end brands are meant to be "upright", selling at a higher price rather than adapting to more people.

For example, many years ago, Burberry, Tiffany, and Gucci all tried to launch cheap "leadership" products to attract more new users. This significantly increased sales in the short term, but also made the brand logos so common that they were "popular on the streets." Under public criticism, the brands had no choice but to stop this downward strategy.

Wouldn’t lululemon’s brand image be diluted as it moves toward the masses?

In 2014, Harvard Business School proposed a completely different view in its research: under certain conditions, brand value will increase when the brand goes down. Brand uniqueness does not necessarily have to be achieved by setting a threshold[13].

The study first proposed the "brand tourist" theory, which posits that brands are like countries. A large influx of immigrants may cause resentment among a country's citizens, but a large influx of tourists - visitors who appreciate the local area but do not intend to stay long-term - generally enhances a country's status.

Let’s take an example to illustrate the relationship between citizens, immigrants, and tourists:

If I buy a classic Hermès bag and I am a big fan of Hermès, then I am a brand citizen;

If I just bought a Hermès keychain and thought I could fit into the Hermès circle, then I am a brand immigrant; on the contrary, if I don’t think my identity has anything to do with Hermès but still appreciate the brand, then I am a brand tourist.

The authors of the paper conducted surveys on multiple brands such as luxury goods, education, the Internet, and sports, and verified that "brand tourists" have a positive impact on brand image - positioning non-citizens as brand tourists will generate positive feelings among citizens. The more tourists a brand's new users are, the more beneficial it is for the brand to break through the circle.

For citizens, they actually hope that there will be more tourists. The logic can be understood like this: if you are a fan, you will definitely spare no effort to recommend your idol to the people around you. The more famous the idol is, the more people appreciate it, and the more prominent your status as a fan is. When you mention your idol to others, you naturally hope that the other person will answer: I have heard of this star, very famous and excellent - this is an indirect compliment to you.

We tried to apply this theory to the survey of lululemon users.

First of all, lululemon has a rule: all the latest and core products are never discounted, but limited quantities are used for hunger marketing. The products that are usually discounted are almost all non-core and peripheral products.

Then this model can be simplified as follows: only observe the static situation of "new users". Those who are attracted by non-discounted products (core models) are citizens, and those who are attracted by discounted products (peripheral models) are non-citizens.

Based on this, we used a scenario-based approach to investigate citizens’ attitudes toward two types of non-citizens:

1. Immigrants: bought products at half price and considered themselves part of the lululemon community
2. Visitors: purchased products at half price, do not consider themselves part of the lululemon community, but appreciate and admire the brand

(Control group: citizens do not know the identity of the new user)

The results show that from the perspectives of brand pride, uniqueness, high-end status, and prestige, citizens have a more positive attitude towards tourists than immigrants - this is highly consistent with the conclusions in the paper that the more tourists there are in a country like lululemon, the more citizens recognize the image of the country.

In fact, the sampling shows that the proportion of tourists to lululemon is as high as 36.5%, which is higher than that of citizens (36.1%) and immigrants (27.4%). This means that in the process of the brand exploring and breaking through the circle, more "passerby fans" have indeed joined, which has made the brand image even better in the hearts of "brainless fans".

So why does lululemon have such a high proportion of brand tourists?

We think the first reason is that discount activities are a means of attracting new users. Unlike other clothing brands, its main purpose is not to clear inventory, but to provide passers-by with a chance to try, which is more like market education.

We have observed that the frequency of lululemon's discount activities in 2023 will be 20-30% higher than the previous year, including WMTM (we made too much) abroad and hot sweat feedback in China. However, lululemon's discount method has a big feature: the discount is very wide, and the number of SKUs participating in the discount is large; but the discount depth is not high, and the discount for each product is very small.

The left figure shows that the discount breadth in the international market increased by more than 10% from 2018 to 2023, while the discount depth in the right figure remained almost unchanged.

In the domestic market, the average discount rate of lululemon on its official website, stores and other core channels is 10% or even 95% off, and there is no discount at all during non-event periods. The budget originally used for discounts has actually been transferred to costs such as retail experience and community, but there are more and more limited-time and limited-quantity discount activities - through data monitoring, we found that the hot sweat feedback event in December brought a wave of GMV surge.

The second reason is that lululemon's strong product innovation ability makes good products a common value standard for users from different circles. Even if new users do not follow the brand culture fanatically, they will appreciate the product quality.

The survey shows that what attracts users to lululemon is the product itself, such as fabric material and style, followed by social communication and brand effect. From the satisfaction score, product quality and comfort surpass all other options. Perhaps not so many new users value lululemon's brand culture and sense of circle, but they buy it because it is comfortable to wear and has a sense of fashion. The value of the product is greater than ideology.

This also shows from the side that a brand cannot rely solely on marketing and packaging capabilities to deliberately create uniqueness. Ultimately, it must return to whether it can make products that truly meet consumer needs. If you want your high-end brand image not to be diluted in the market, you also need to rely on excellent product design and quality.

The driving force behind lululemon's continued product innovation is its user insight capabilities under the DTC model.

Ten years ago, The Wall Street Journal described lululemon as an "outlier" in the apparel industry: it did not conduct focus group interviews, big data analysis, or even buy CRM tools.

The company’s insights into customers all come from the observations of frontline store staff: by recording the preferences, characteristics, and product feedback of old customers, the company can get to know them like real friends, which can be called “human CRM.” For example, the company deliberately placed clothing folding tables near the fitting rooms, rather than in the back rooms, so that employees can “eavesdrop” on users’ complaints and complaints[6].

So, in addition to core yoga products, what peripheral categories has lululemon created that meet consumer needs?

According to the data from Jiuqian Middle Platform, we found that the first is the gender leap. Lululemon no longer has a female-exclusive label. The sales share of male products in e-commerce channels has been rising. At the same time, the product line has become richer and more unisex. The iconic Align yoga pants product line does not account for the majority. We also learned that from 2019 to 2023, the proportion of male consumers has risen from single digits to more than 30%.

The second is the expansion of scenarios and categories. Lululemon's product scenarios have shifted from single yoga to running, outdoor, training, etc., meeting the more diverse needs of users and also in line with the current trend of the domestic market.

Lululemon's more popular sports and leisure products have become the largest and fastest-growing category, surpassing yoga in all aspects.

3. The mystery of scale: How does decentralized retail become centralized?

Our previous research shows that the key reason why lululemon can drive growth through the power of three strategies (i.e., community marketing, product innovation, and customer experience) is the DTC model + decentralized organizational structure. Each store is like an independent BU, with great autonomy and high talent density, and can freely formulate plans from strategy to tactics.

Other leading footwear and apparel brands are dominated by distribution and pay more attention to scale expansion. Their retail systems are centralized and standardized. The headquarters is the brain, and regional stores are just the executors of headquarters policies.

It is not difficult to understand that when a brand is small, it still relies on people to build a retail system, and everything can be personalized and autonomous. Although this model can achieve a high efficiency per square meter, it is "uneconomical in scale": first, the company's talent supply cannot keep up, and second, the carrying capacity of touchpoints and services cannot keep up.

In the past, lululemon was known to be the best at social marketing. For example, it signed thousands of "brand ambassadors" in China to organize offline activities, which played a huge role in attracting new customers and promoting store activation. However, research shows that today, users often choose online channels such as Xiaohongshu and Tmall to obtain brand information, and the decentralized offline model is not efficient.

Loyal fans abroad have observed that the company’s resources are shifting from the brand ambassador model (sweat collective) to the social media creator network (content creator network), and even cut the benefits of brand ambassadors last year - this is obviously in pursuit of greater economies of scale [14].

Since centralization is the only way to expand, how can lululemon retain the unique advantages of decentralization?

The company's CEO said in the Q1 2023 earnings call: In order to strengthen brand awareness in the Chinese market, in addition to relying on traditional brand marketing campaigns, lululemon will continue to increase investment:

• Digital communication channel construction
• WeChat ecosystem, especially using WeChat for Business to strengthen community building

So we immediately monitored hundreds of lululemon's private communities and public channels, and found some shocking figures: in one month, on average each group sent more than 60 messages per day, 35 of which were pictures - that is, 4,000 pictures were posted in the private domain every day, totaling more than 110,000 pictures!

Why are there so many marketing materials? Through AI algorithm recognition, it was found that most of the pictures in the private domain are daily outfit photos, and they come from more than 2,000 Xiaohongshu accounts - that is, Xiaohongshu continuously provides sales materials for the private domain.

At this point, we have a bold assumption: the content system is the key - digitizing shopping guide capabilities, using content to connect consumers and global retail scenarios. Through decentralized production and distribution of content, and then centralized management and supervision, the contradiction between individuality and scale can be resolved.

After extensive research, we finally came up with a set of online and offline, public and private domain linkage "combination punches": relying on store shopping guides to create KOS, disseminating content and attracting offline traffic through Xiaohongshu, and then using corporate WeChat to drive online growth. This not only retains the personalized elements of shopping guides, but also enables online dissemination in a large-scale manner, while reducing risks and improving operational efficiency under the management of the headquarters.

Let’s first look at the first layer: producing massive amounts of content in a decentralized manner, linking online and offline.

Each lululemon store encourages employees to open their own Xiaohongshu accounts and regularly post notes on new products, outfits, and life as ordinary consumers. At the same time, the store will also open an official account to push notes as an employee.

The vast majority of the more than 2,000 KOS accounts are operated in a "love-based" model. Employees operate the accounts based on their interests, and the headquarters does not incur any additional costs. 10-20% of the accounts are centrally managed by the KOS system provided by Xiaohongshu. Shopping guides produce content but the headquarters manages it centrally and assesses indicators such as traffic to stores.

There will be a dedicated space in the store (near the fitting rooms) for employees to try on new products, take pictures and videos every day, and continuously provide content updates for the Xiaohongshu account – this is often referred to by employees as “paid trying on clothes”.

The content posted by the Xiaohongshu KOS account can generate a lot of user interaction. We estimate that more than 100 stores across the country can generate thousands of private messages from accounts every day, which can bring in more than 10% additional customer traffic by attracting customers to the store. Users often come into the store with Xiaohongshu notes and ask if they have the same item.

So, what scaled value does this decentralized content bring? We estimate based on data: In the past 2-3 years, all lululemon KOS accounts have produced 370,000 pieces of content, bringing in 4.5 million fans and nearly 10 million interactions. If we estimate based on the CPE of Xiaohongshu, these contents are equivalent to 300 million yuan in advertising fees for free - almost equivalent to lululemon's total marketing expenses in China for the whole year.

Let’s look at the second layer: let the content produce a compound interest effect and link the public and private domains.

Each lululemon store is equipped with only one corporate WeChat account, which is managed by store employees in turn and responded to private messages. By revealing QR codes and mobile phone numbers in notes, new users can be directly attracted to WeChat accounts. After a series of incubations such as Moments and private messages, new users will join the community and then place orders in stores.

The community is the main form of operation for lululemon's private domain. The headquarters will have a dedicated person to manage the corporate WeChat group of each store, and push a large number of pictures, small programs, videos, etc. in the community every day, which is very active. The content produced by the Xiaohongshu KOS account will be reused as content material for daily community operations.

When users see KOS’s outfit pictures in the community, they will have a desire to learn more, and then search for lululemon-related content on Xiaohongshu again, returning to the KOS account and increasing its weight.

The mini-programs and posters pushed in the community are directly attributed to store performance through channel codes, and the value of the private domain can be effectively measured. We estimate that the GMV of lululemon's private domain accounts for about 10% (about 700 million).

So, with so much content being pushed in the group, is it really valuable to users?

Through interviews with consumers, we found an interesting example: Since lululemon is a very "politically correct" brand, a large number of product images use black and fat models. However, many domestic consumers cannot accept this aesthetic, and users often complain about the ugliness of the models.

However, if you want to customize a set of localized product main picture system, the time from shooting to putting on the shelves will be very long, and it may even delay the pace of new product launches. These KOS outfit photos that can be taken in a few minutes have become the best substitute and do not affect the official tone.

If users are not used to politically correct aesthetics, they will go to WeChat groups and Xiaohongshu to find unofficial photos of KOS. This obviously has a great effect on promoting conversions.

The "combination punch" of content can enable the brand to retain its individuality while having the ability to serve hundreds of millions of people. From lululemon's user behavior, we can also observe a general trend in footwear and apparel retail: today's consumer purchase decision-making process relies more on omni-channel rather than a single touchpoint. Therefore, a content system that is fully linked is the optimal solution for retail scenarios.

4. The mystery of growth: where to find more consumers?

For lululemon, the most valuable and scarce asset is actually the crowd asset - this breakthrough system must continuously inject high-spending people as fuel and as a driving force for new growth.

Brands should go wherever consumers are, and overseas markets and e-commerce channels have become new gold mines.

First of all, lululemon once conducted a global user survey, and the data showed that the brand awareness in the North American market is already very high, while in mainland China it is only 7%. The opportunity for "geo-arbitrage" is self-evident. There are rumors that as early as 2019, at the lululemon internal business conference, the CEO spent a quarter of the time talking about the Chinese market.

The current CEO mentioned that lululemon’s international expansion is not a blind attack, but a complete decision-making logic: using a formula called the “Sweat Index” to calculate data to measure local market capacity, the potential level of high-end sportswear, and consumers’ positive and healthy attitude towards life. Therefore, lululemon can not only view the market space based on residents’ income levels, but also evaluate the best time to enter the market [16].

Some speculate that the principle of this highly confidential algorithm is to screen out market areas with low customer acquisition costs and high LTV[17].

We found that lululemon's market in China has not only reached a scale of 7 billion, accounting for more than 10% of its business, but also maintained the highest growth rate among all regions in the world.

According to the retail data of Jiuqian’s middle platform, the sales per square meter and store efficiency in China continue to maintain strong growth; with the continuous expansion of the number of stores, the same-store growth rate can be as high as 30%, which is 2-3 times higher than that in North America.

Secondly, since lululemon's revenue is growing every year, let's take a look at what drives the growth, that is, where does the extra revenue each year (the difference from the previous year's revenue) come from? Why does it always make more money than the previous year?

If we break down the contribution of channel types to new sales by year, we can find that the contribution of e-commerce is increasing every year, from 17% in 2011 to 50% in 2022. Half of the extra money lululemon makes each year is from e-commerce. From the perspective of total revenue, the current share of e-commerce for lululemon has exceeded that of offline stores.

As early as 2010, lululemon, led by its founder Wilson, had already started to develop e-commerce. However, due to the limitations of the Internet technology at that time, the user experience of the website could not meet the brand's tone and could only be used as a channel to clear inventory. Wilson insisted on continuing the e-commerce business until 2013 when the technology matured and the lululemon official website finally grew into a true "super store".

In the Chinese market, while the leading sports brands are generally experiencing sluggish growth, lululemon's growth rate is still at the top level.

Wilson has always believed that the key to catching up with the e-commerce wave is to rely on the foundation laid by offline retail – “doing e-commerce without stores is bound to fail.” Lululemon has just enough stores to allow users to build up enough awareness, but it is not as ubiquitous as fast fashion brands. While improving the transaction efficiency of e-commerce, it also ensures the high-end tone of the brand[11].

In summary, going overseas and e-commerce have provided lululemon with a larger "crowd package" resource, betting on stronger dividends.

5. The mystery of the failure: What are the lessons learned from lululemon’s past failures?

We need to remind everyone: lululemon’s road to breaking out of the circle is not smooth sailing, but has an unknown "black history", which is even worse than Huaxizi’s failure last year.

So, what is the trap that lululemon fell into?

It eventually followed the old path of the footwear and apparel industry: opening stores crazily and reducing inventory.

From a retail perspective: From 2005 to 2010, it took Lululemon six years to open 87 stores. From 2011 to 2012, it opened 87 stores in just two years, a three-fold increase in store opening speed!

However, speed is contrary to the characteristics of lululemon's "brand circle" and cannot match its original retail model.

The secret of Lululemon's early store openings was simple: 12-18 months before opening a regional store, brand awareness was built by building showrooms. Showrooms are not formal stores and are only used to sell goods three days a week. The rest of the time is used for community activities, developing brand ambassadors, etc., thereby stimulating consumer demand. When the store officially opens, the initial sales can be pulled to a very high level, so the cash flow payback cycle is very short. When the single-store model is highly controllable, cash flow can be accurately calculated, and more loans can be obtained to open new stores[3].

Lululemon’s employees are highly similar to its customers, and 95% of them are women. This brings up a problem: most of them will have two children, and each time they will take a year of maternity leave. In order to prevent a gap in high-quality employees, Lululemon has spent many years figuring out a mechanism that requires it to start reserving new talent six months in advance[1].

Part 1 mentioned that since there is a "circle" sequence for lululemon to open stores, there are strict requirements and rhythm control for site selection.

If we force the issue, it will not only cause management chaos, but also reduce the retail experience. How can we find so many suitable locations in such a short time? Where can we find so many high-quality store employees? How can we accumulate the elite customer base as the cornerstone? The rhythm of "circling" will be disrupted.

It can be seen that although the number of Lululemon stores has increased a lot, the same-store growth rate has hit a record low, and the sales per square meter has also entered a downward trend, which has lasted for 5 years. In North America, as a retail benchmark whose sales per square meter was once second only to Apple, this performance can only be described as terrible.

From the perspective of inventory: In order to prepare for the next expansion, lululemon must reserve a large amount of inventory. In the consecutive quarters of 2011-12, the company's inventory growth rate was over 50%.

But the problem is that Lululemon does not own any production facilities and is still a pure OEM model. It purchases the necessary fabrics from more than 50 suppliers and then sends them to more than 20 factories for production. The core luon fabric accounts for 30% of the company's total consumption, but for ten years, it has only one supplier, Eclat Textile Co in Taiwan, China.

If the outsourcing company is far away from the foreign manufacturing center, the quality control ability will be greatly hindered. Lululemon's supply chain management ability was not yet at the first-class level. With so many orders from upstream in a short period of time, who can guarantee that there will be no problems in the factory?

Lululemon's inventory began to accumulate in large quantities in 2011, and it only gradually returned to normal after 2016, which put a lot of pressure on its finances.

"It is a great irony that I made a fortune by buying and selling Nike and Under Armour stocks because I lost confidence in Lululemon, which I founded!"

Wilson wrote in his autobiography that 2013-2017 was Lululemon’s “lost five years” and that investing in any competitor’s stock would have made more money than investing in the company he founded[1].

In 2013, lululemon's stock price had increased 18 times in four years. However, starting in January of that year, the company suddenly received a large number of user complaints: its classic yoga pants were too "transparent", and if you did bent-over yoga poses, it would be like not wearing pants.

The trouble was, all pants made from Luon material had problems – and this batch of goods accounted for 17% of all women’s bottoms inventory! In order to restore user reputation, Lululemon had to spend $65 million to recall all problematic products in March 2013[6].

Users were expecting a sincere apology, but unexpectedly, founder Wilson added in an interview: “Frankly speaking, some women’s bodies are not actually suitable for yoga pants… What’s more important is the friction on the thighs and how much pressure there is over a period of time.”[7]

The entire public opinion immediately exploded: the quality of the pants is not good, but it is the user’s own body shape that has problems?

Recalling the failure of a top anchor last year, it is surprisingly similar: "Sometimes you should look for the reasons yourself. Has your salary increased over the years? Have you worked hard?"

Whether it was a malicious editing by the media or he was just too arrogant, the truth is unknown. But what is certain is that lululemon's performance was greatly affected.

Data shows that within a year of the incident, users’ willingness to purchase lululemon had dropped to one-third of its original level (red line); and their perception of the brand also dropped from positive to negative (black line) [8].

This accident not only damaged the company's current reputation and inventory. As the company was busy filling the inventory gap caused by the product recall, it focused on old products, resulting in product innovation not keeping up and declining market competitiveness. At the same time, Under Armour, Nike and even Gap performed well.

On the other hand, the company had a huge management change due to this incident, and even Wilson himself was kicked out of the board of directors, which delayed the Q4 sales season. 40% of lululemon's sales came from Q4.

By 2014, lululemon's market value had been halved. Fortunately, lululemon has the support of the DTC model, and its profit margin is higher than some luxury goods, which is why it was able to get out of the trough in 2018.

VI. Conclusion

So far, we have been able to see from lululemon the logic and path of a top brand constantly breaking through the circle:

• Relying on the Super Girls group to "build a circle", and using a solid foundation to continuously gather older and younger groups to achieve "breaking the circle", thereby creating linkage between circles, it is more appropriate to describe it as "brand circle".
• Through user insights to drive product innovation capabilities + special discount strategies, the proportion of brand tourists has greatly increased. Therefore, in the process of declining the high-end market, we did not dilute our own brand image too much.
• Use digital content as a link to link users and retail scenarios, give full play to the strengths of decentralization, and ensure scale and standardization under centralized management. This will enable us to welcome new growth in an orderly manner.
• Conquer overseas and e-commerce channels, find larger population assets outside the saturated offline retail market, and become the fuel for long-term breakthroughs.

The pits lululemon have stepped on in it are also worthy of our vigilance: too fast expansion will not only not promote the breaking of the circle, but will also bring a huge blow to the brand.

In the clothing industry, we can see that many brands have fallen into a dead cycle: expanding by opening stores and reducing inventory - 》Misjudgment of market trends & expansion too fast - 》Expansion is blocked, inventory backlog - 》Sharp price reduction and inventory clearance- 》Brand depreciation

In the past, lululemon has maintained a slow pace in the Chinese market to lay the foundation. In the past three years, it has significantly accelerated the pace of commercial harvesting and tried to achieve greater ambitions.

We believe that whether lululemon can go further depends largely on how high the indicators it sets. If the speed is too fast, it may fall into the crisis of 2013 again.

Recent research shows that although lululemon user net recommendation value (NPS) is much higher than the average Chinese market of 17.6 points [15], it still declined a few years ago.

A truly great brand always takes time to accumulate. As the famous saying of founder Wilson: "Good is the enemy of great." (Excellent is the enemy of great)

References:

1. 《the story of lululemon》，Chip Wilson
2. 《Lululemon's founder says he doesn't agree with the company's 'whole diversity and inclusion thing'》，business insider
3. 《Leadership, Culture, and Transition at lululemon》，Harvard Business Review
4. 《Taking Stock With Teens》, Piper Sandler
5. 《Lululemon's Secret Sauce》，WSJ
6. 《What Really Happened to Lululemon?》，The Motley Fool
7. 《Lululemon Founder Chip Wilson Blames Women's Bodies for Yoga Pant Problems》，abc news
8. 《lululemon continue to slide》，yougov
9. 《When life gives you lululemon》, NYC data science academy
10. 《Alo Yoga, Vuori make inroads with Lululemon shoppers》，Earnest Analytics
11. 《How Lululemon Broke the Mold》，FYI podcast
12. "Exclusive Interview with Flora: What kind of workplace experience is it to participate in lululemon's Chinese business from 0 to 1? 》, ATP Convenience Store
13. 《Brand Tourists: How Non–Core Users Enhance the Brand Image by Eliciting Pride》，SILVIA BELLEZZA &ANAT KEINAN，2014
14. 《My Tinfoil Hat Theory re: lululemon's Sweat Collective Updates & How the Influential Marketing Landscape has Changed》，Athleti Katy
15. "2024 China Customer Recommendation Index SM (C-NPS®) Brand Ranking and Analysis Report", Chnbrand
16. 《Expanding our footprint and realizing our vision for growth》，Calvin McDonald
17. 《How Lululemon plans to help the world feel well again》，Cherry Flava

Author: yolo WeChat official account: Growth black box Growthbox