Friday, May 14, 2010

Excerpts from Lululemon's Annual Report

Some excerpts from Lululemon's Annual Report.

Description of their market:

"Our primary target customer is a sophisticated and educated woman who understands the importance of an active, healthy lifestyle. She is increasingly tasked with the dual responsibilities of career and family and is constantly challenged to balance her work, life and health. We believe she pursues exercise to achieve physical fitness and inner peace.
As women have continued to embrace a variety of fitness and athletic activities, including yoga, we believe other athletic apparel companies are not effectively addressing their unique style, fit and performance needs. We believe we have been able to help address this void in the marketplace by incorporating style along with comfort and functionality into our products. Although we were founded to address the unique needs of women, we are also successfully designing products for men and athletic female youth who also appreciate the technical rigor and premium quality of our products. We also believe longer-term growth in athletic participation will be reinforced as the aging Baby Boomer generation focuses more on longevity. In addition, we believe consumer purchase decisions are driven by both an actual need for functional products and a desire to create a particular lifestyle perception. As such, we believe the credibility and authenticity of our brand expands our potential market beyond just athletes to those who desire to lead an active, healthy, and balanced life."

Re. Design Process "although we typically bring products from design to market in eight to 10 months, our vertical retail strategy enables us to bring select products to market in as little as one month, thereby allowing us to respond quickly to customer feedback, changing market conditions and apparel trends."

"Introduce New Product Technologies.   We remain focused on developing and offering products that incorporate technology-enhanced fabrics and performance features that differentiate us in the market. Collaborating with leading fabric manufacturers, we have jointly developed and trademarked names for innovative fabrics such as Luon and Silverescent, and natural stretch fabrics using organic elements such as cotton and seaweed. Among our ongoing efforts, we are developing fabrics to provide advanced features such as UV protection and inherent reflectivity. In addition, we will continue to develop differentiated manufacturing techniques that provide greater support, protection, and comfort."

Expand our Product Categories.   We continue to expand our product offerings in complementary existing and new categories such as bags, undergarments and outerwear; 

Ecommerce: In fiscal 2009 we launched our e-commerce website which, along with phone sales, makes up our direct to consumer channel and is included in our other segment. This channel is an increasingly substantial part of our business, representing approximately 4.0% of our revenues in fiscal 2009, compared to 0.5% of our revenues in fiscal 2008. We believe that a direct to consumer channel is convenient for our core consumer and enhances the image of our brand. Our direct to consumer channel makes our product accessible in more markets than from our corporate-owned store and franchise channels alone. We use the channel to build brand awareness, especially in new markets including those outside of North America.

Re. Product Design: "Our product design efforts are led by a team of 14 designers based in Vancouver, British Columbia. Our team is comprised of dedicated athletes and users of our products who embody our design philosophy and dedication to premium quality. While our design team identifies trends based on market research, we primarily use an innovative feedback-based design process through which we proactively seek the input of customers and persons we refer to as our ambassadors. Our ambassadors have become an integral part of our product design process as they test and evaluate our products, providing real-time feedback on performance and functionality. Our design team also hosts meetings each year in many of our markets. In these meetings, local athletes, trainers, yogis and members of the fitness industry discuss our products and provide us with additional feedback and ideas. Members of our design team also regularly work at our stores, which gives them the opportunity to interact with and receive direct feedback from customers. Our design team incorporates all of this input to adjust fit and style, to detect new athletic trends and to identify desirable fabrics.
To ensure that we continue to provide our customers with advanced fabrics, our design team works closely with our suppliers to incorporate innovative fabrics that bring particular specifications to our products. These specifications include characteristics such as stretch ability, capability to wick moisture, color fastness and durability, among others. In addition, to ensure the quality of our fabric and its authenticity, we test our products using a leading testing facility, as well as actual wear tests done on any potential fabric. We also partner with a leading independent inspection, verification, testing and certification company, which conducts a battery of tests before each season on our fabrics, testing for a variety of performance characteristics including pilling, shrinkage, abrasion resistance and colorfastness. We collaborate with leading fabric suppliers to develop fabrics that we ultimately trademark for brand recognition whenever possible.
We typically bring new products from design to market in approximately eight to 10 months; however, our vertical retail structure enables us to bring select new products to market in as little as one month. We believe our lead times are shorter than a typical apparel wholesaler due to our streamlined design and development process as well as the real-time input we receive from our consumers and ambassadors through our corporate-owned store locations. Our process does not involve edits by intermediaries, such as retail buyers or a sales force, and we believe it incorporates a shorter sample process than typical apparel wholesalers. This rapid turnaround time allows us to respond relatively quickly to trends or changing market conditions."

 Re: Competition: "The market for athletic apparel is highly competitive. It includes increasing competition from established companies who are expanding their production and marketing of performance products, as well as from frequent new entrants to the market. We are in direct competition with wholesalers and direct sellers of athletic apparel, such as Nike, Inc., adidas AG, which includes the adidas and Reebok brands, and Under Armour, Inc. We also compete with retailers specifically focused on women’s athletic apparel including Lucy Activewear Inc., The Gap, Inc. (including the Athleta collection), and bebe stores, inc. (including the BEBE SPORT collection)."

This from the Risks section where Lululemon identifies everything that could harm their business:

Here is info about luon and technical fabrics: "...Luon fabric, which is included in many of our products, is supplied to the mills we use by a single manufacturer in Taiwan, and the fibers used in manufacturing Luon fabric are supplied to our Taiwanese manufacturer by a single company."

"The intellectual property rights in the technology, fabrics and processes used to manufacture our products are owned or controlled by our suppliers and are generally not unique to us."

"During fiscal 2009, approximately 5% of our products were produced in Canada, approximately 75% in China, approximately 8% in Southeast Asia and the remainder in the United States, Israel, Peru and Taiwan."

"Our direct to consumer channel, which includes e-commerce, is an increasingly substantial part of our business, representing approximately 4.0% of our revenues in fiscal 2009."

"We rely on our distribution facility in Vancouver, British Columbia and a distribution center located in Renton, Washington operated by a third-party vendor for substantially all of our product distribution. In October 2007, we relocated our Vancouver distribution facility to a new, larger distribution facility. Our contract for the Renton, Washington distribution facility expires in April 2010 and will not be extended. We have entered into a lease and plan to operate a distribution facility in Sumner, Washington beginning in the second quarter of fiscal 2010."

"In addition to our store expansion strategy, we plan to grow our business by improving and expanding our product offerings, which includes introducing new product technologies, increasing the range of athletic activities our products target, growing our men’s and female youth businesses and expanding our accessories, undergarments and outerwear offerings.> Risk: if our expanded product offerings fail to maintain and enhance our distinctive brand identity, our brand image may be diminished and our sales may decrease."

Some of this is interesting. I wonder if they are exploring different fabrics and moving away from luon tops because they may feel their competition has stolen luon's "recipe". If they have, I haven't come across it yet. It could be they are making more tops from luxtreme and light luon because of the warmer US climate. Nineteen of their stores in are in California and I know I find working on in a luon tank very warm except for a couple months out of the year.

The comment about the contract for the distribution warehouse in Washington not being renewed is interesting. I think that is where the GEC ships out of. When I order from the website, my order usually ships the same day but the GEC seemed took an extra day even though I ordered at 8:30 in the morning. 
Excpert from Article on Taiwanese Luon Manufacturer:
A reader sent a link to a June 2008 article about the Taiwanese manufacturer of luon.  Here is the link.

"Lululemon Athletica has become the latest hot name in athletic apparel with its yoga-inspired line that combines style and function. Its profits rose 300 percent in 2007 to US$31 million, earning it a spot in Business Week's list of the 50 fastest growing small companies of 2008.

Behind Lululemon's sales growth lies the hidden force of the Taiwanese textile industry, producing the trendy, comfortable "functional fabrics" used to make the company's apparel. Last year Taiwanese functional fabric manufacturer Hyperbola Textile Co. quietly began supplying Lululemon with cloth for its outdoor athletic wear. [ Is 2007 when they started to offshore ?]

Located in a modern office on Fuxing North Rd. in Taipei, Hyperbola is a small company with only 21 employees that relies on innovation to generate its NT$150 million in annual sales. The company focuses its efforts on the technical side of functional fabrics, including R&D and design, leaving the actual production of the materials to subcontractors. The company's showroom is a veritable bazaar of stylish fabrics with decorative patterns and popular symbols rarely found on functional fabrics in the past.

Lululemon Lab - Anyone Like Their Stuff

Flashdance Tee From Lululemon Lab

Are you all fans of the Lululemon Lab Facebook page? I have to say I think 95% of what they come up with is crap. Schlumpy, shapeless, throwback, retread crap. They recently posted their harem pants where the crotch hung between the knees. Harem pants are over. Designers and stores tried to push them on us and they were on markdown everywhere. 

I think these half shirts from the 80s are the next trend to be pushed on us and I have not spotted it anywhere here in Orange County or in LA. The young people and teenagers here are pretty trendy.  My 10 year old son has been wearing skinny jeans for something like three years now - but I am not seeing the flashback look come into style. They should move the Lab to LA, NY, or even London. I like the idea of making yourself custom Groove pants but they can stuff the shapeless crap.

New Items - Run: With It Crop and Fresh Manifesto V-Neck Burnout

Run: With It Crop Details:

  • A calf length technical crop for run, gym, cycle, and yoga
  • Made with power luxtreme™ feels silky smooth on, and is light weight with high LYCRA® fibre content, and inherent wicking performance to keep you dry and comfortable
  • More relaxed fit through the knee for free range of motion
  • Secure waistband pocket for cards, keys & sport snacks
  • Flat seamed for chafe resistance & comfort
Dang. I'm in trouble now. I thought I had all the luxtreme crops I needed. I've been wishing that lululemon would make a luxtreme crop that was not so compressive all the way down the leg - I don't need it for spin - and here they've gone and done it. This one is looser through the knee. I must try this one on.

Fresh Manifesto V-Neck Burnout.
I like burnout fabrics but I don't care the alphabet-looking manifesto. This tee-shirt would be cute in solid colors, too. It looks like a nice shape.