By Thomas J. Ryan
Coming off a rebound year in 2016, Lululemon plans to accelerate its efforts to engage consumers as it remains on track to reach its five-year plan to double its revenues by 2020.
“What you are going to see us do in 2017 is be a lot louder in how we amplify the message,” said Laurent Potdevin, Lululemon’s CEO, at the ICR Conference in Grande Lakes Orlando, FL. “So don’t expect us to have a spread in Vogue magazine or have a Super Bowl ad. I know we have talked about it; I don’t think we can afford it. But expect us to be really intentional in how we take a lot of our local stories, put them together and have really powerful global stories.”
On the day before the presentation, the yoga-themed retailer slightly lifted its guidance and now expects earnings per share (EPS) will be in the range of 99 cents to $1.01 for the fourth quarter. The previous EPS guidance for the fourth quarter was 96 cents to $1.01. In the year-ago period, Lululemon earned 85 cents.
At the conference, Potdevin noted that this was the third time he attended the annual ICR conference and at his first meeting witnessed “a whole lot of skeptics in the room. It wasn’t a fun time.”
At the time, a “pretty ambitious agenda” was set to return to positive same-store sales, bring back its historically healthy margin rate and revive the brand’s “effortless loyalty that we knew from our guests that we had somewhat neglected.” Growth plans were also set to jump start its men’s wear, international and digital businesses.
Potdevin stated, “Today we are actually in a position, with the strongest management team that the company has ever had, to deliver on all of those promises.”
A more “design-led organization” has found success this past year with the relaunch of its pant wall, the success of its Nulu fabric and the more recent success of its Nulux fabric, designed for higher-intensity cardio workouts. Three years ago, Lululemon’s product pipeline was “very, very dry,” but it now has “a pipeline of innovation that is relatively full with a very clear road map for the next three to five years.”
Different formats have also recently helped address new audiences. Its “co-located” format features bigger stores with a larger men’s assortment and broader women’s one that helps support new categories. At the same time, its “locals” store model is a smaller location that addresses smaller markets. Said Potdevin, “While they are small square footprints, we have amazing digital air cover.”
Regarding growth opportunities, Potdevin described the accessory business, representing 7 to 8 percent of sales currently, as a “tremendous opportunity” with potential to reach 12 percent or 15 percent of revenues. He sees room to be “much stronger” in jackets and outerwear. Added Potdevin, “We have plenty of runway within the current category, within women’s and men’s, but also as we think down the road with new categories.”
E-commerce has the potential to reach between 20 percent of sales as long as the brand focuses on building “channel-agnostic strategies and that we don’t get stuck in trying to drive traffic to either channel.”
International represents a $1 billion opportunity, or 25 percent of the business by 2020. Potdevin said recently opened 2,200-square-foot stores in Shanghai and Beijing are exceeding expectations, although the brand is taking a different approach in China versus the home North America market because of how consumers in the region engage digitally. The Asian market is growing “a little bit faster” than Europe and Potdevin attributes that to the European consumer being more skeptical of North American brands.
But in the second half, Lululemon saw a “ramp up” in its performance in Europe with the benefit of a strong foothold in London. Said Haselden, “We really feel like we will have London really well under control before we sort of spread our wings beyond the U.K.”
Overall, women’s is expected to reach $3 billion in sales by 2020 versus $1 billion for men’s. The North American marketplace is expected to expand to $3 billion with the continued build-out across men’s, digital and new categories.
Stuart Haselden, the company’s CFO and EVP, operations, who also attended the conference, noted that Lululemon’s turnaround came despite “some pretty significant self-inflicted issues,” including a widely covered recall of sheer pants, as well as an overall challenging retail climate over the last year. Said Haselden, “It is a tough space right now for most retailers and we are pleased with, again, the resilience of our business and the momentum that we have in Q4 that will take us into Q1.”
Photo courtesy Lululemon