Blue Ocean Strategy of Kim and Mauborgne

Lululemon Athletica, Inc. Company & Financial Analysis w/ Recommendations

Part 1

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Strategic Performance

Lululemon Athletica, Inc. was founded in 1998 and is headquartered in Vancouver, Canada. Lululemon Athletica operates under the Textile—Apparel Clothing classification in the U.S. and its shares are publicly traded on the Nasdaq under the ticker symbol LULU. The company currently employs approximately 12500 people and has risen back from a 2013 controversy in which the yoga-wear apparel maker was embroiled in a fashion faux pas that threatened to undercut the industry it virtually launched single-handedly. Lululemon’s commitment to athletic gear for women helped it to effectively address the issues it faced with its see-through spandex slip-up and redirect its resources to improving its public relations image, strengthening its brand, and supporting sales through an active marketing strategy that helped keep competitors at bay.

Since shares bottomed at $38.47 in 2014, LULU has more than doubled its value for shareholders, indicating that its strategic performance has validated the faith of supporters of the company and roiled those who thought the firm would crash to zero in the wake of consumer backlash in 2013. Still, Lululemon was never about producing a product that conveyed modesty: instead the organization embraced the concept of pushing the envelope in terms of women’s athletic wear, which was why in 2014, the company was still engineering leggings “designed to fit close to the body without feeling tight”—clothing made of nylon and lycra to give the wearer “a ‘naked’ sensation” (Sherman, 2014). Lululemon even offered a variety of sensations for women to choose from: “Relaxed (away from the body), Naked (close to the body but not restrictive), Held-In (a bit tighter), Hugged (even tighter) and Tight (full compression)” (Sherman, 2014)—and the effect was one that kept consumers coming back to the brand again and again, even after the fallout from the see-through spandex issue that temporarily cost the company substantially in terms of market cap.

The company’s strategic performance has only improved since then in large part thanks to the growing health and yoga-centric movement among men and women all across the U.S. as well as Lululemon’s ability to establish a strong appeal among women consumers of athletic apparel. Lululemon’s designs have all been based on feedback obtained from “the company’s 1,500 ambassadors, testing material efficacy in the lab, and observing customer behaviour in store” (Sherman, 2014). Thus, the organization’s strategy has been to identify what the customer wants and then to give that exactly to them.

Likewise, Lululemon has worked on developing its own brand to enhance its image among women, using motivational quotes “emblazoned on bathroom stalls and hallway walls: things like, ‘Don’t focus on what’s missing, focus on what is’ and ‘Life is like riding a bicycle, in order to keep your balance you must keep moving’” (Sherman, 2014). Lululemon’s progression of economic value is the need of customers at every step of the way and its ability to stay relevant in a highly competitive industry has been based on its capability of differentiating itself by customizing products that enhance both the image and experience of the female consumer of athletic apparel.

Business Model

The company’s founder, Chip Wilson, had fallen in love with yoga after 20 years working in the active-wear industries (Sherman, 2014; Thompson, 2016). His experience of the yoga-wear market led him to see an opportunity to bring a performance-oriented product for women and men to the market. His main marketing tactic was to use word-of-mouth while simultaneously engaging yoga instructors as his brand ambassadors—and the technique worked. The company went public in 2007 and achieved net sales of nearly $2 billion in 2014. While the sheer pants scandal of 2013 was a setback, it did not alter the business model of Lululemon in the least: the company was dedicated to designing a product that was viewed as having spiritual, athletic, and casual appeal for consumers (Sherman, 2014). In other words, the business model was based on a process of differentiation in which the company’s founder looked into the athletic, active-wear markets, saw a gap that he could fill with yoga-centric, yoga-inspired apparel, and market it by essentially getting the yoga Establishment (represented by trendy, young American yoga instructors) to vouch for the brand (Sherman, 2014).

In other words, the business model was based on the Blue Ocean Strategy of Kim and Mauborgne (2005), which explained that in order for a company to succeed all it had to do was to think outside the box, see what competitors were not doing that they should be doing, and then do that. Wilson noticed the oncoming wave of yoga as the next big health trend and rode the wave by creating a business whose sole mission was to cater to the consumers within this market. The model has indeed worked well: By 2017, Lululemon operated 406 stores under the Lululemon and Ivivva brands all over the world: including in the United States, Canada, Australia, the United Kingdom, New Zealand, China, Hong Kong, Singapore, South Korea, Germany, Puerto Rico, and Switzerland (Macro Axis, 2018).

Competitive Advantage

Lululemon Athletica competes with L Brands, Ralph Lauren, Express, American Eagle, and Abercrombie Fit. While Lululemon is an athletic apparel company that, along with its subsidiaries, designs, creates, distributes, and sells athletic apparel and accessories for women, men, and female youth, it does so in a way that is different from its competitors. As Trout and Rivkin (2006) point out, a company must “differentiate or die” and Lululemon has done just that from the very beginning by labeling itself as the one and only authentic yoga-centric brand, with leggings that range in quality and characteristics so as to appeal to the fullest spectrum of feminine moods, tastes, desires, and expressions. No other company has attempted to capture the spirit, essence, and character of the yoga-centric market the way that Lululemon has: the company has virtually become synonymous with yoga pants and while it also offers numerous other accessories and apparel types, this niche has defined the company, which has in essence only made it stronger as the appeal of yoga has grown not only in the U.S. but also around the world thanks to social media sharing of yoga techniques, yoga workouts, yoga videos, and celebrities virtually acting as brand ambassadors by wearing the yoga gear in their workout videos.

Financial Performance

With a current P/E ratio of 44.27 and the stock price at all-time highs ($89.12) as of close on March 29th, 2018 (Yahoo! Finance, 2018), LULU has shaken off its 2013 scandal and shown that market that it is still a leader in the sports clothing for women industry. Total revenue has increased over the last three years—from 1.79 billion in 2015 to 2.06 billion in 2016 to 2.34 billion in 2017. Gross profit has also increased over this same period—from 914 million in 2015 to nearly 1 billion in 2016 to 1.2 billion in 2017. Total net revenue also continues to grow, up from 239 million in 2015 to 303 million in 2017 (Yahoo! Finance, 2018). However, the P/E of 44.27 is still well above the Nasdaq average, which is at 25.21, meaning LULU could be overbought and be on the verge of a correction. With equities currently facing the prospect of entering into a major correction, this could be one reason that investors take pause. Still, like so many other public companies, LULU has engaged in share buybacks to support its current valuation: as Lovelace (2016) has reported, Lululemon’s “board of directors have approved a stock repurchase program for up to $100 million of its common shares.” With the company’s financials doing well, supporting the stock through buybacks may seem counterintuitive and will be addressed in Part 2 of this paper.

Macro Axis (2018) reports that Lululemon Athletica, Inc. is “rated third overall in working capital category among related companies” and that the Canadian company is “currently regarded as the number one stock in current ratio category among related companies” with the “ratio of Working Capital to Current Ratio for Lululemon Athletica Inc at about 139,986,842.”



The company’s strengths are its ability to tap into a niche market before anyone else and establish itself as the leader in that market, acting as the cultural ambassador in a sense of the yoga experience. It has also found great appeal among women who want a range of leggings and other athletic apparel that can express their feelings. The company’s brand is one of its main strong suits and its ability to develop brand loyalty among young women consumers means that it will likely have lifelong consumers who buy from Lululemon all their athletic and yoga gear wear.


The company demonstrated some weakness in the face of its yoga pants recall to address the see-through fabric issue; in the face of this scandal, Lululemon had to demonstrate to the market that its products were not designed to exploit women’s sexuality but rather to enhance it and to make women feel positive about their body image and their health-oriented workouts. The company bounced back from this image problem and re-asserted itself as the go-to brand for yoga practitioners and confident young women who want to embrace their bodies and wear leggings and other materials that allow them to experience a range of comfort levels.


The company has the opportunity to expand its product line and branch off from the yoga-centric business model to include various other aspects of the active-wear lifestyle that consumers like. There is an opportunity to develop its brand across a spectrum of athletic niches and to grow its base of stores across North America especially as more and more retailers have shut down in the face of the juggernaut that is e-commerce. As Lululemon’s core products are associated with yoga, which is practiced at studios, it can offer its products at some of its own studio concepts wherein yoga instructors are employed, classes are given, and the firm’s retail outlet acts as an all-in-one shop for mats, dresses, leggings, classes, and so on.


A threat to the company’s success could come in the way of tariffs that might undermine the company’s supply chain; there could also be a recession that draws money out of the economy and out of niche markets like this one. Competitors also pose a threat if they decide to go after market share in this niche market. Meanwhile, if Lululemon expands or broadens its product line and brand too carelessly it could turn off its care base of consumers who might feel betrayed by a “sell-out” to capitalistic interests if they feel left behind.

Part 2

Strategic Issues and Problems to be Addressed

Lululemon’s strategy so far has worked out well for the company and the only main issue it has really had has been with the founder’s insensitive remarks about women’s body types following the see-through leggings scandal (Thompson, 2016). Otherwise, its strategy to appeal to a niche market that had been ignored or unnoticed by larger retailers has paid off handsomely: Lululemon is seen as the brand representative of this market and young women who want to embrace the yoga lifestyle view Lululemon as the brand to beat. Though there is always a business life cycle that must be taken into account, Lululemon is on track to begin to branch out of the niche market, as sales are beginning to slide (Thompson, 2016), and the company faces the challenge of determining just how to grow to face the coming years’ obstacles. A new generation of young consumers is coming and the company must allow its brand to appeal to them.

Lululemon’s business model also needs to be addressed: by branching out and developing new stores across the U.S. where yoga activities can be combined with retail opportunities, the retailer could enhance its bricks and mortar based stores to be more of the experience that Freedman (2017) recommends retailers adopt in order to stay competitive in the age of e-commerce. E-commerce giants like Amazon are absorbing a lot of consumers’ dollars as more and more shopping is conducted online. For brick and mortar stores, this presents a problem, especially if they do not have an online presence with which to compete against Amazon. Freedman’s (2017) suggestion is that retailers turn their stores into a place where they can offer something that e-commerce business models cannot offer: a unique experience. If online retailers can only offer products at discount rates in order to attract business, brick and mortar retailers must combine product with experience in order to get human beings out of their houses. As sales slump for Lululemon, the company has to consider how to redirect traffic into its stores. And while it recognizes the need to enhance its brand and branch out into offering more products to a wider audience, it should stay true to its core base so that it does not alienate them—and to accomplish this, it could develop stores where the firm hires yoga instructors who come to teach classes in the same location where merchandise and apparel can be sold and purchased. This would make a Lululemon outlet like a one-stop shop destination for individuals wanting to practice yoga while also obtaining the yoga and other athletic gear and apparel they desire.

The issue of the company’s share price should also be addressed: while it is currently at all-time highs thanks to growing revenues and positive outlook as the company seeks to leverage its capital and brand image to develop more loyal followers over the coming years, the equities market is facing turmoil from multiple directions. The threat of tariffs could disrupt supply chains, which could impact sales down the road. The Federal Reserve is set to raise interest rates over the next few coming years, which could cause investors to flee risk assets like stocks in favor of bonds. The business cycle too could be nearing its end and if recession is just around the corner, it means equity valuations, already at record highs stand for a correction or worse a bear market. The company’s purchasing of shares at such a time could be ill-advised and the firm might make better use of its capital by putting share buybacks on hold.


With the stock at all-time high valuations, share buybacks should be put on hiatus until shares can be purchased at lower prices or should the market enter into correction. The company’s stock already sits at a P/E that is well above the average for the Nasdaq and further upwards movement of the share price would result in the stock being overbought, which could potentially draw the attention of shorts looking for an opportunity to leverage and benefit from a correction. Therefore, it is recommended that LULU pause buybacks till a later date when share prices might be purchased at a discount price relative to today’s valuation.

The company should also use social media to enhance its brand image and make itself more popular among the younger generation, which is digitally and technologically knowledgeable. Information channels are wielded and used powerfully by this generation of consumers and a brand that does not utilize social media extensively in its marketing is a brand that will be left behind (Li, Robinson & Oriade, 2017). When the sheer pants debacle hit in 2013, the company’s founder stated, “We’ve got an incredibly loyal customer base. But when we got hit with the sheer pants debacle there was this atomic bomb dropped on the brand and we had no way of amplifying the grassroots. There was no microphone” (Sherman, 2014). The use of social media, however, would have been the perfect microphone that allowed the company to get out in front of the scandal and redirect the frustration of the market, of followers, and of consumers in a meaningful and authentic way. Social media, today, is the go-to microphone for businesses wanting to shape a narrative and control an image and brand, and Lululemon should utilize social media more effectively in order to shape its brand in the coming years.

Lululemon should also grow its base of stores in the U.S. and across the globe by directly challenging the e-commerce juggernaut that is Amazon by offering the one thing that online retailers cannot provide: a unique experience. By uniting its core yoga-centric products alongside yoga studios where classes and training can be offere, Lululemon can unite its followers under one roof: it is a way to turn its humble beginnings into an institutional art form, where the practice of yoga is conducted at the same place where yoga gear can be purchased. Turning Lululemon retail shops into places where a new culture can be experienced by an up and coming generation could give the company the foundation it needs to excel in the coming years.


Lululemon is an athletic apparel company that has women’s fashion and apparel as its core base, but it now sees the opportunity to branch out and grow its brand following a clothing scandal that threatened to undermine the company’s image in 2013. Having successfully survived that scandal, the company has seen growth shoot through the roof and its share price is higher than ever as financials continue to grow. By now focusing on its retail stores and offering consumers a chance to reconnect with the yoga culture that made Lululemon popular in the first place, the company can provide an experience and place to shop for retailers that could help it to secure its position in the market for years to come.



Freedman, D. (2017). Bricks, Mortar—and Experiences. Wall Street Journal. Retrieved from

Kim, W. & Mauborgne, R. (2005). Blue ocean strategy: From theory to practice.

California Management Review, 47(3), 105-121.

Li, S., Robinson, P. & Oriade, A. (2017). Destination marketing: The use of technology

since the millennium. Journal of Destination Marketing & Management, 6(2), 95-102.

Lovelace, B. (2016). Lululemon’s shares jump on earnings outlook boost, stock

buyback program. Retrieved from

Macro Axis. (2018). Lululemon. Retrieved from–fundamentals–Lululemon_Athletica_Inc

Sherman, L. (2016). The rise, stumble and future of Lululemon. Retrieved from

Thompson, A. (2016). Lululemon Athletica, Inc. in 2016: Can the company get back on

track? Case 09.

Trout, J. & Rivkin, S. (2006). Differentiate or die. In The marketing Gurus (ed.

Murray). NY: Penguin.

Yahoo! Finance. (2018). LULU. Retrieved from



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