Lululemon Athletica has enjoyed significant sales growth this year, with substantial implications for the broader health & wellness market—and specialty companies in particular.
Despite operating in the hyper-competitive athletic segment and experiencing no shortage of leadership issues, the company’s sales have exceeded some of the most prominent names in specialty apparel. Lululemon is touting a long-term revenue target of $4 billion by 2020.
Not only that, but the brand has reached its current scale with just 274 stores in the U.S. at the end of the last quarter—a manageable portfolio in the digital era. Its eCommerce growth in Q2 2018 was especially strong, which indicates the company is gaining momentum with a growing omnichannel presence.
To dive further into this topic, let’s take a look at the key lessons from Lululemon’s latest developments, and the implications of these items for disruptive health & wellness companies.
Healthy Margins Are Still Possible in the Era of Amazon & Fast Fashion
Lululemon’s margins are often the envy of its counterparts—both direct and indirect. The company boasts mid-50% gross margins, versus Nike and Under Armour in the mid-40% range and the industry average in the high-30% range.
In some ways, it is only logical that Lululemon’s gross margin profile surpasses those chains that sell everyday clothes. The company carries gear made from technical fabrics—an easier sell for getting customers to pay premium prices than commodity items like t-shirts or cotton underwear.
This bodes well for companies such as Rhone, NOBULL, and ROKA, which offer similar best-in-class apparel and gear. In the case of Rhone, the company remains a pioneer in weaving naturally antimicrobial silver threading into its apparel. It recently unveiled a revolutionary fabric treatment (GoldFusion) that contains real gold particles to improve color fastness, decrease drying time, and increase odor control. It’s no coincidence that NOBULL and ROKA have become viral brands in their respective fields.
In nearly all cases, consumers are willing to pay for quality and performance. Lululemon is no exception.
Health & Wellness Brands Are Taking Share from Core Apparel
Lululemon has persuaded throngs of shoppers to pay $128 for leggings or $58 or sweat-wicking tank tops—in many cases, these purchases are replacing customers’ investment in a pair of jeans or a new shirt. This highlights the extent to which health & wellness is shaping all kinds of purchases. Moving forward, Lululemon will likely take a greater share in international markets and in the men’s category.
Accordingly, it comes as little surprise that many health & wellness apparel brands are starting narrow, but broadening their portfolios as they gain scale.
Initially touted as a “recovery” line, athletes and consumers are wearing these brands’ sharp and functional apparel outside the gym, in lieu of jeans, t-shirts, etc.
Health & wellness apparel can no longer be viewed as a niche offering—and big brands are starting to take notice. Fast fashion brands and traditionally casual clothing companies are racing to expand their offerings and encompass activewear lines.
The Specialty Format Can Still Thrive
Lululemon’s swift rise proves the specialty format is still alive and well. As I’ve written about many of today’s disruptive brands, shoppers appreciate a curated selection—even when Amazon gives them myriad choices. Sometimes, consumers seek convenience in having a brand do the choosing for them. At the very least, they’d like the brand to narrow their options to begin with.
Lululemon and other brands have grown by offering unique products that customers consider well worth their higher price tags. Consumers might be willing to pay full price for goods when they are truly excited by the design, or when they feel confident the apparel isn’t going to pill and shrink after three trips through the dryer.
This has become increasingly prevalent across all facets of the health & wellness sector.
You see, big box gyms are no longer sexy. Instead, consumers are moving away from broad-based gyms and flocking toward offerings like Rumble Boxing. Barry’s Bootcamp and SoulCycle are the first-derivatives of big box gyms, and even they are no longer at the leading edge of fitness. Instead, second- and third-degree derivatives such as The Wall, Flywheel, and others are quickly taking share.
In summary, consumers in this sector are willing to pay a premium for uniqueness and best-in-class offerings, both in apparel and in services and experiences.
Authenticity Is a Great Source of Value
As Lululemon continues to show, value rarely translates to rock-bottom prices. Modern consumers aren’t attracted to fast fashion brands or waiting for retailers like the Gap to send them coupons the way they did previously.
Rather, health & wellness consumers are searching for offerings that are genuine and authentic.
And so it’s no surprise that The Brave Body Project and Sweat with Bec were eagerly recruited as Puma Ambassadors, and that other top fitness professionals have been scooped up by Nike and Reebok. Sterile, big-name athletes are no longer the personalities driving these brands. They’ve been replaced by grassroots practitioners who are driving adoption on the frontlines.
Lululemon has done this exceptionally well, especially with its sponsorship of trainers and wellness founders—including those with whom I’ve worked over the years.
This is in large part because consumers want to use the same gear and wear the same apparel as their trainers and friends at the gym. They can relate to these people much more than they can relate to big-league athletes.
Having a sense of belonging and an expert brand ambassador vouch for quality in the health & wellness sector is much more powerful than the cheapest option available. As the industry becomes increasingly technologized, data capture will help companies personalize their offerings even more, making authenticity, curation, and customization absolutely critical. Next-gen, data-centric, technology-enabled offerings like Aaptiv, Fitplan, and MoveWith will continue to gain traction as consumers look for personalized, holistic, and digitally-native experiences.
In closing, Lululemon’s momentum may come as a concern for incumbent brands. But overall, it should underscore the disruptive potential for newer companies at the leading edge of health & wellness.