Lululemon to Alter Holiday Pricing in Nod to Changing Consumer Behavior

We had less than 2 percent of our units on sale or marked down prior to holiday and had about the same, within a percent, post holiday, Lululemon Athletica CEO Christine Day said at the ICR Exchange last week. And so, that premium pricing strategy for the long term in a marketplace that’s full of discounting has, I think, been a very strong thing for our brand and continues to give us that business momentum and strong earnings capability.
Day quickly added, however, that the consumer is changing and we have to change who we are.

Consumers, she noted, have compressed more of their holiday shopping into surges between Thanksgiving and New Years, when they know retailers will offer the deepest discounts. This year, many consumers rushed to Lululemon stores in late December to buy gift cards and then rushed back after Christmas to redeem them during end-of-season sales.

Were up for that game and we have a lot of great things that well be implementing next year to play in that changing consumer world, Day said.

Day identified several missed opportunities over the holidays. First, she said LULU may have lost sales because it had not stocked enough of the lower priced items favored by holiday gift givers. Second, the company was unable to offer gift cards online in time for the holidays. Third, its stores were sometimes overwhelmed.

This year was a very compressed holiday season right up to the end, and we had lines that were 50 to 70 people deep, said Day, noting that some people had to wait up to an hour in stores just to buy a gift card. We actually had to have mall security limit people in and out because of the number of people we had waiting.

LULU had deployed mobile POS terminals at 20 stores to expedite check out and will apply lessons learned from that experiment next season. Some larger stores handled the surges well. In a single day, for instance, the store at the West Edmonton Mall in Alberta generated sales of $250,000, which averages $27,000 an hour.

Despite these glitches, LULU announced Jan. 14 that it was raising its guidance for the fourth quarter. At the ICR Exchange Conference, CFO John Currie disclosed revenues for the fiscal year ending Feb. 3 would reach approximately $1.37 billion, up 36 percent from 2011. Comparable store sales for the year were up in the mid-teens. Operating margins reached 27 percent and EPS will come in around $1.84, up 45 percent from 2011, he forecast. Sales per square foot for the fiscal year are on pace to reach $2,050, making LULU the most productive apparel retailer in North America.

To sustain its growth this year in the U.S., where it now operates 135 stores, LULU will open more stores and invest in an East Coast distribution center. It currently takes up to nine days to restock some Florida stores; a period Day deemed unacceptable.

Mens apparel, which has grown from 8 percent to 15 percent of sales since mid-2011, will also drive growth in 2013. The company recently made an offer to a GMM to run its mens business and will up its sponsorship of male athletes this year. The companys Ivviva banner, which sells active and dancewear to girls, is also poised for rapid growth. The banners 12 U.S. stores average sales of $900 per square foot in 2012.