At its analyst day, Lululemon Athletic announced goals to double sales by 2026 under its “Power of Three ×2 growth” strategy that calls for doubling men’s and digital and quadrupling international business over that timeframe. Calvin McDonald, CEO, said at the event, “The opportunity, obviously, is to keep doing what we’re doing.”
He added, “It’s working. It’s resonating, and we’re so early in that growth potential. And it’s going to lead to doubling the business.”
McDonald noted that Lululemon, in April 2019, released its “double, double quadruple” five-year growth plan with all goals under the plan set to be achieved ahead of time. The overarching goal to hit $6 billion in revenue was achieved in 2021. The goal to double men’s and digital sales was accomplished within two years. The goal to quadruple its international business will be reached by the end of 2022.
At the same time, McDonald noted that double-digit growth has continued across core areas of women’s stores and North America.
Under the growth plan, sales are expected to double from $6.25 billion in 2021 to $12.5 billion by 2026. Men’s digital and international growth is projected to be complemented by low double-digit compound annual growth rates (CAGR) in revenue in women’s and North America over the next five years and a CAGR rate in the mid-teens at stores.
At the projected rates, the men’s business by 2026 would be larger than Lululemon’s women’s business was in 2020, noted McDonald. The digital business by 2026 could be almost the size of its entire business currently. The international business by 2026 is projected to be the size of the North American business in 2020, with China expected to be its second-largest market by 2026.
“We remain early in our growth journey, with our strong product engine, proven ability to create enduring guest relationships, and significant runway in core, existing and new markets,” said McDonald.
The CEO elaborated on four areas expected to drive growth: Product Innovation, Guest Experience, Market Expansion, and Impact: People and Planet.
Product Innovation
“We have significant runway across all of the key levers of how we look at our product strategy, starting with ‘science of feel,’” said McDonald. “It is, and you’ve heard us say it before, how we start our path of innovation. We look at solving the unmet needs of our guests. It’s what drives the relationship with our guests. Product is at the center of that. And as we create product that delivers on the needs that they have, that delivers more guests. It delivers a greater community that unlocks more unmet needs, fuels more product and so on and so forth. So it is endless in terms of the potential that we see in the obsession that our teams create.”
He offered Lululemon’s recent launch into footwear as an example of a category where Lululemon saw an “unmet need” in designing a shoe for women, with the launch receiving “positive feedback and raving reviews.”
McDonald added, “Although it’s a test and learn category for us, we’re excited about how it complements and grows our core assortment.”
From a product standpoint, growth is expected to come from targeting activities, including “core” activities, including yoga, run, training, and new “play” activities such as tennis, golf and hiking.
Said McDonald, “We’ve proven through the growth in the last few years that the brand is more than just yoga. It’s rooted in yoga, but with the product’s versatility and our ability to achieve those unmet needs that guests are engaging in, we’re seeing new guests come in through new activities.”
Growth is expected to come from extending franchises and hero items. Lululemon’s Align collection, for example, has become a billion-dollar franchise as it’s expanded from bottoms to “head to toe” offerings from bras to various tops.
Lululemon also has opportunities to address different “feel states.” For example, another successful franchise is InStill, which McDonald describes as “held-in, a little more compressed through smooth cover” (shown below), versus the “feeling light and free” appeal of Align and is attracting a different customer.
Another success has been Wunder Train, which delivers Lululemon’s “highest sweat” for indoor cardio. The OTM (On The Move) versatile collection has driven the men’s business with a nascent opportunity in women’s.
Extending into categories such as the recently-launched Blissfeel footwear line and through accessories has also been seen as a growth avenue. McDonald noted that pushes into categories such as golf and tennis are expected to lead to consumers becoming bigger purchasers of Lululemon’s core products such as yoga and run.
He attributed a large part of Lululumen’s success in product to its commitment to investing in raw materials.
“Poly does not perform to the same degree as nylon, and nylon costs more,” said McDonald. “So if you don’t have a brand that commands a premium price point and a brand that people will pay for because they know what performs better, then you’re not going to be able to compete because the makeup of the product is just a better performing product.”
Guest Experience
The big news in its customer engagement is the company’s plan to launch a two-tier membership program later this year after a four-store test last year.
“One of the things that we learned from our four-city pilot test was that guests like to sweat with us,” said McDonald. “They liked that we host sweats, they like to sweat with each other and the more they sweat, the more they spend.”
A free membership option gives early access to Lululemon product drops, exclusive items and invitations to in-person community events.
A second option will cost members $39 per month, the same price as an all-access subscription to its at-home fitness platform, Mirror. Current Mirror members will be rolled into this new subscription tier at no charge, the company said, offering workout content from several studios that it partners with, including Rumble, Y7, Pure Barre, and DogPound.
“The vision was always about connection and community with Mirror,” said McDonald.
The membership program is part of a broader goal to drive digital growth by merging physical and digital experiences.
McDonald noted that only about a quarter of Lululemon’s customers shop omnichannel, such as buy-online pick-up in-store. It is looking to leverage technology to bring the in-store experience of working with its 20,000 “educators,” or store employees, and the ability to interact with product at the store level to the online experience.
Said McDonald, “We see this opportunity continuing to move forward through an omni-lens. We can bring our product to life more through digital, knowing the power and the opportunity that we have with that and how we can continue to move that percentage up, knowing that the omni-guest spends more, is more loyal, and comes back more frequently.”
McDonald contends that while other athletic brands are also aggressively expanding with direct-to-consumer (DTC) pushes, Lululemon’s approach stands out because it’s rooted in building relationships with its customers.
Said McDonald, “We get to know you. You get to know us. You’re part of the community. We get that feedback. We encourage that feedback, and we create unmet needs. And the more we understand and know you, the more we can deliver. It’s a very different view around what drives our DTC ecosystem and how it fuels our business.”
Lululemon is also looking to tap its 1,500 local ambassadors to drive community outreach in the physical and digital space. He said, “Moving forward, this is an exciting opportunity. Where we can have a bigger impact, where we can drive more engagement and more loyalty, we know that that drives our LTV (long-term value).”
Market Expansion
Said McDonald about Lululemon’s global growth potential, “We’re only 1 percent of the total addressable market of $650 billion, and that’s within a $3 trillion wellness market.”
Much of the growth will stem from increasing consumer awareness of Lululemon. In the U.S., one of its most mature markets, unaided awareness is still only 25 percent, and it’s notably less known among men. Said McDonald, “We are still a hidden little secret in terms of the brand, the positioning and the incredible product that we have. So our opportunity to drive and change and impact unaided awareness is again another real opportunity to drive and fuel that growth.”
Overseas in markets where Lululemon has entered, unaided awareness is at 15 percent in the U.K. and 7 percent in China. McDonald noted that unaided awareness for many other brands in the active space is 85 percent to 90 percent.
McDonald noted that Lululemon had gained more market share than any other industry brand since 2019, focusing on driving growth across multiple levers that will continue in new markets. McDonald said, “I can cut growth from gender—men, women. I can cut growth from activity. I can cut growth from categories. I can cut growth from channels—stores, digital. I can cut growth from markets. Everything is growing double-digits—all growth drivers. The balance from the largest to the other contributors is significant. So the balanced growth is unique. And as we look in these markets and the opportunities we have, it’s significant.”
New market expansion calls for opening its first stores in Spain, Italy and Thailand in the next 12 months.
In entering markets, McDonald said Lululemon has a “proven formula of leveraging a proprietary what we call the ‘Sweat Index.’ It allows us to look at a market not just look at it in terms of income levels, but what we call ‘Sweat Readiness’” to gauge when is the right time to enter.
“We’ll continue to manage pace as we strengthen the foundation and ensure we have the right culture and the right connections to the community so we can build the business,” said McDonald. “It has served us well in every market we’ve been in, including China.”
Impact: People and Planet
Lululemon added to its Impact Agenda “Power of Three” growth model to include supporting its employees and creating a healthier planet.
A major part of the push is supporting its staff. The retailer continues to expand employee benefits, recently raising the minimum base it pays its employees in North America and adding mental health, mentorship and leadership programs for personal and career development.
McDonald noted that Glassdoor recently recognized the company as one of the top retailers to work for in the U.S., with employee engagement scores over 80 percent.
“We know there’s a fight for talent out there,” said McDonald. “When you have a strong culture that people see themselves being invested in a development opportunity that can have a real impact on their journey, that is your best retention strategy and allows us to hang onto the talent and attract talent and continue to contribute and drive the business because without great talent, we’re not going to be successful.”
Impact investments also include building an equitable and inclusive environment, advancing equity in well-being across communities and sustainability. Across the organization, Lululemon saw a 3 percent increase in diversity in 2021 and 6 percent across its stores. Last year, it made a $75 million investment in the Center for Social Impact.
On sustainability, Lululemon said it is 30 percent towards having 100 percent of its products made from sustainable materials by 2030. It also expects to have end-of-use solutions for all products by 2030. Lululemon is expanding its Like New trade-in and resale program to U.S. stores on April 22.
McDonald said the retailer has committed to reducing its emissions to align with the science-based targets in the Paris Agreement to reach net-zero by 2050 and achieve 100 percent renewable electricity for its North American operation last year.
Long-Term Goals
In addition to doubling men’s and digital and quadrupling international revenues, other financial goals of Lululemon’s Power of Three ×2 growth strategy include:
- Total net revenue CAGR of 15 percent between 2021 and 2026;
- Modest operating expansion annually;
- EPS growth to outpace revenue growth; and
- Annual square footage growth in the low double-digits.
Photos courtesy Lululemon
Lead photo: Scott Fauble crossing the finish line at this year’s Boston Marathon wearing a shirt from Lululemon.
