Robert Korn
3.2.15
Lululemon Case Brief
1.
a. Demographic Segment: The demographic segment is important to the sportswear industry due to different age groups, cultures, and genders demanding different types and price points for their apparel. This is positive for the industry, since businesses can sell to anyone with an active lifestyle.
b. Global Segment: The largest companies in this industry have achieved their size due to their penetration of global markets on multiple continents, suggesting that globalization should be important to every company in this industry. This is neutral to the industry since only large companies are able to globalize.
2.
a. Threat of New Entrants: There is a high threat of new entrants in this industry, due low barriers to entry and market entry being relatively easy for any established clothing company.
b. Bargaining Power of Buyers: Buyers in this industry have high bargaining power due to the large number of products available from all the companies. Buyers can purchase similar quality products at many different price points, meaning that switching costs are low.
c. Industry Attractiveness: This industry is very attractive to incumbents due to its high growth rates in recent years. It is moderately attractive to new entrants due to high growth rates, but many competitors.
3.
a. Nike: Due to its established brand equity and global presence, Nike’s future strategy would likely be to increase the size of its product portfolio through acquisitions. This will be possible because of Nike’s strong cash flows.
b. Adidas: Adidas’ future strategy would likely be to further establish itself in the yoga apparel industry. It currently doesn’t offer many products, but due to its strong finances, Adidas has the ability to invest in itself to create more products.
4.
a. Follow-Up Service: Lululemon has placed a strong emphasis on its service, with its employees focused on providing the customer with products that best match their lifestyle. Lululemon’s service is superior to both Nike and Adidas, since Nike’s domestic strategy is low-price, while Adidas’ strength lies in foreign markets.
b. Marketing: Lululemon’s marketing abilities are neutral to its competitors. Lululemon targets its customers based on needs and has established a strong cult following. Nike appeals to a broader market but competes more on price than on quality. Adidas is similar to Nike in its market penetration but lets the customer decide for themselves what is best to buy.
5.
a. Financial: Lululemon’s P/E ratio is higher that most of its competitors, and the industry average, suggesting that investors are more willing to bet on this company than other established ones. Also, its quarterly revenue growth is far superior to any of its competitors, while its ROE and ROA are still strong despite lower growth recently.
b. Nonfinancial: A strong nonfinancial asset to Lululemon would be its core culture. The company focuses on providing the highest quality product and has an established following due to this. Also, Lululemon’s managers all come from the sports apparel industry, and their knowledge is invaluable to the company.
6.
a. Strengths and Opportunities: Lululemon’s biggest strength is its loyal customers. These customers provide recurring revenues for the company. They will also help to exploit the opportunity of marketing products to younger girls through the ivivva line, since many of the loyal customers are likely parents. The loyal customers also negate the threat of substitute products.
b. Weaknesses and Threats: Lululemon’s biggest weakness is its low market share and the non-availability of financial resources comparable to Nike and Adidas. This will limit the opportunity of growth through acquisition and enhance the threat substitute products due to competitors’ lower prices.
7.
a. Competitive Advantage: Inventory control creates a feeling of scarcity, increases demand
b. Valuable: Lululemon’s high demand doesn’t