Lululemon Athletica – Case Report
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[pic 3][pic 4][pic 5][pic 6][pic 7][pic 8][pic 9][pic 10][pic 11][pic 12][pic 13] Lululemon Athletica – Case report[pic 14][pic 15]Executive SummaryThe purpose of this report is to provide a recommendation that will aid Lululemon in making a strategic decision in order to solve the problems faced by the company. The report contains current issues, industry analysis, competitive analysis, financial analysis, alternatives and a plan of action.When the company was founded by Chip Wilson in 1998, no one could have predicted its astonishing growth during the seven years that followed. By 2009, revenue had reached an outstanding 57%. Lululemon developed a cult-like status in the Yoga industry. The company’s founder had rightly identified a market niche that was underserved-young, healthy women who practiced Yoga. The offering of high-performance yoga apparel and the community feel at Lululemon’s stores gave the company a competitive edge that was envied by competitors.When product quality issues surfaced in 2003 due to see-through Luon yoga pants, Lululemon recalled 17% of its products, causing a loss of $67 million in sales. Some key management personnel left the corporation. In addition, Lululemon faced a number of new competitors who were targeting Lululemon’s core segment of women customers. Lululemon needs to address some major issues: How to fix the product quality issues that resulted in the yoga pants recallHow to restore the company’s brand imageHow to remain competitive in a profitable and growing yoga industryOur recommendations are to:Open new storesSign two celebritiesImplement Six Sigma to ensure that product quality issues do not happen againLululemon has sufficient free cash flow and is able to raise capital if necessary in order to solve the key issues. Our detailed analysis can be reviewed in the pages that follow.Table of ContentsExecutive Summary 0Key Issues 1Material Quality Issues 1Increased Competition Issue 1 1Decline in Business Growth and Financial Performance 2Situational Analysis 2Current Strategy 2Key Success Factors 3PEST Analysis 3Political 3Economical 4Social 4Technological 4Competitive Analysis 4Nike 4Under Armour 5Adidas 5Athela 5Financial KPI (Key Performance Indicator) 5
Decision Criteria 6Alternatives 6Celebrity Endorsement 7Improved Quality Control 8Redefinition of Product Strategy 8Continued Expansion and Status Quo 9Recommendation and Implementation 9Exhibits 11Exhibit 1 SWOT 11Exhibit 2 PEST 11Exhibit 3 Porter’s five forces 12Exhibit 4. Competitors analysis 12Exhibit 5 Financial analysis 13Exhibit 6 Decision Matrix 14Exhibit 7 Options 14Exhibit 8 Six Sigma 15Bibliography 16Key IssuesMaterial Quality IssuesIn 2013, there was a problem with the sheerness of yoga pants in one of their trademarked Luon brand. This incident led to a 17 percent recall of all women’s bottoms sold. The costs for this recall was $67 million. This was roughly the fourth major product quality issue in a year. A Credit Suisse Analyst was quoted as saying that the problem was caused by Lululemon’s focus on bigger buys to keep shelves stocked and as a result, the quality assurance and quality control may have taken a backseat (Star, 2013).Although this issue has caused a significant 17% drop in the revenue, Lululemon still has some competitive advantage. It has an established loyal fitness-conscious female customer base. A survey conducted by Target Research, titled “”Lululemon U.S. Canadian Attitudes & Usage Study” found out that 55% of U.S. Lululemon shoppers between the age of 25-35 still considered Lululemon as their favorite brand. In Canada, 70% of shoppers said the same (The motley fool, 2014). Despite the current turmoil, Lululemon is still a growing, profitable business—one year’s results do not necessarily indicate an overly negative trend.Increased Competition IssueThe company is also confronted with an increase in competition from three new entrants such as Athleta, Lucy and Bebe, who are aiming to capitalize on Lululemon’s success with women’s active wear and fitness apparel. Established athletic companies such Nike, Addidas and Under Armour are also launching their own stylish apparel for fitness conscious women at a price lower or same as Lululemon’s retail price. Full threat analysis can be found in SWOT[1].Brand & Public Relations IssuesLululemon has good marketing and brand-building capabilities to sell their products and have a unique core competence that is focused on yoga and apparel items. When the Luon problem happened, the company did not use an official spokesperson to respond to the media and general public. The response in the media was poorly executed. The founder, Chip Wilson, made inappropriate comments by blaming the incompatibility of the pants to certain female body types (Luzt, 2013).