Finance Essay Example: Lululemon's New Athletics Apparel Line

Published: 2019-10-24
Finance Essay Example: Lululemon's New Athletics Apparel Line
Type of paper:  Essay
Categories:  Company Finance
Pages: 7
Wordcount: 1822 words
16 min read

Lululemon Athletica's business prospects over the past two years appear to be strengthening as the retailer and designer of yoga-inspired products ended the 2015 financial year with unexpected results, which were driven by strength in the various product categories, such as women's pants. According to Dalavagas (2016), the financial statements reveal that the companys margins improved in the final quarter while the brand remained strong in the retailing industry, and the corporations management is trying to capitalize the strength to ensure that it maintains higher earnings and sales. The sales are forecasted to grow significantly, which the company has managed to replicate in the last couple of years.

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Further, with the addition of the new product line featuring men and young men apparels, the financial position will be further improved. Lululemon will be focusing on international expansion and diversification of its core tops and yoga pants in the menswear athletic line. The business opportunity will entail developing a subsidiary that will deal with shorts, pants, and athletic shirts for active males. The athletic line will be made with the signature Lululemon luon fabric that is preshrunk, stretchy and wicks away moisture from the athletes body when they sweat. The lycra ensures that the fabric never stretches or bags out and the nylon provides coverage. Therefore, the apparel line will feature a style that is more body conscious to flatters the male physique. Therefore, the athletic line will aim at providing a sexy and masculine product line.

After venturing into the new athletic line, the sales, profits, and shares are forecasted to improve upon the adoption of the new products that will mainly focus on men and young men. In addition, another question arises as to whether the shares provide a good mechanism for long-term investment given that the company faces competition from established and strong companies, such as Nike and Adidas, at least on the global scene.

1. Section 4: Strengths and Weaknesses

a. Strengths

i. Premium brand affinity

For the current focus on women, the companys target audience is the health-conscious, educated, and high-income individuals (Dalavagas, 2016), which based on the economic point of view, have a disposable income for buying additional products and they have already taken care of the other basic needs, including shelter and food. On the new product line for men and young men, targeting the educated, health-conscious, and educated will provide further brand affinity leading to increased profits. In addition, the enterprises yoga pants along with other comfort wear products dominate the industry, which makes Lululemon strategically placed in the retail market. The products are highly fashionable, which are in most instances made with high-tech and new materials, allowing the company to charge premium prices, but affordable to the clients.

ii. A strong balance sheet

The companys finances are good in shape as the debt is manageable, which allows it to continue repurchasing the shares, thereby enabling it to support share growth. However, with further focusing on men and young men, the balance sheet will further be improved Cash flows, revenues, and profits will follow suit. With its ability to have enough equity, the company can use the finances to diverse in other market segments and new product lines. The company has also maintained a good cash flow generation, which guarantees increased profits and revenues.

iii. Leverage on increasing awareness of global fitness

Every year there is an increasing number of people, both men and women, who are becoming fitness-conscious and have leveraged on athletics as one of the avenues to remain fit. Therefore, Lululemon is forecasted to grow as with the increase of global athleticism as the need for casual wear is increasing both in the gym, as well as a casual wear while doing errands in town. In addition, there has been an overall casualization in the global scene making Lululemon garments acceptable almost everywhere. As such, the new business product line will be essential in capturing men in the global apparel and sporting garments

iv. New exciting products

The company is always involved in making new products to satisfy new customer needs, such as VitaSea, fit and style garments, as well as incorporating new materials, such as Luon (Dalavagas, 2016). This maintains customer loyalty, and thus, increasing profits, as well as attracting prospective customers. The new products that will feature men, will offer the market with an exciting product line, which will be helpful in ensuring that the company captures the whole range of customers globally.

b. Weaknesses

i. Brand perception

Since Lululemon has only majored with yoga products, and there has been a perception that the company is a yoga brand, a good image, especially for the women yoga enthusiasts (Dalavagas, 2016). As such, the company has only marginal success when it comes to expanding to other demographics, which affects the new product line negatively. Therefore, it would be difficult to achieve the goal of making it a mens line to achieve the same levels of success when it comes to womens line.

ii. Low sales of menswear due to stiff competition

Currently, menswear only make a contribution of 16% of the total sales and the stiff coopetition from Nike and Under Armour makes it difficult for Lululemon to expand to the mens product category (Dalavagas, 2016). As such, the company is currently struggling to establish its menswear products into the market. Thus, the business venture to the new product category will be difficult to achieve the desired financial targets.

iii. High Prices

Even though Lululemons products are affordable, they are highly priced compared to those of Nike and Under Armour, which makes the company lose out to competitors, especially for low-income earners. Therefore, the company has to look for strategies to bring down its prices. As already mentioned, the company will price the new products cheaper compared to competitors, and thus, it will make the company acquire lower-than-expected profits.

iv. Recent adverse publicity associated with the store and product design

According to OConnor (2013), the company has faced negative publicity from revealing women products and design. On the new design for men and young men, the negative image might destroy sales due to a poor brand image. As such, it will not be easy for the company to build a positive brand image for the new products, which might affect the sales negatively.

2A: People

i. Capabilities

Strength: Experienced personnel in manufacturing the products. Since the company has already hired, trained, and retained staff experienced in fabricating menswear products, they can be used in manufacturing products in the new product line.

Weakness: Delays in training new staff. Since the new product line demands additional personnel, they may be inexperienced and could take time to train them, and thus, may delay how fast the new product line venture can be successful.

ii. Knowledge

Strength: Knowledgeable employees. The company has managed to retain experienced employees, which will be important in fabricating the new product line.

Weakness: Inadequate employees for the new product line. The new business venture requires additional employees, which the company is yet to hire and train.

2B: Products

i. Competitive advantage

Strength: Focusses health-conscious and sportspersons. There has been an increase of global health-consciousness, hence more customers.

Weakness: Focusses more on womenswear compared to menswear. This might present the company with problems when it comes to selling menswear.

ii. Speed of Delivery.

Strength: Fast speed. The company has a vertical retail strategy with a consistent low inventory base.

Weakness: Inconsistent supply and demand forces. These may hinder the company from manufacturing enough products to suit the market demand, and thus, lead to unwanted delays.

2C: Company

i. Reputation

Strength: The company is associated with yoga products and customer satisfaction. As a yoga-branded entity, Lululemon has created a loyal customer base for its products.

Weakness: Negative Publicity. The company has received negative publicity in the past based on the revealing nature of the design and materials used (O'Connor, 2014). This might affect negatively on the new product line.

ii. Responsiveness

Strength: It incorporates customer feedback in the design of products.

Weakness: It usually takes time before new feedback is incorporated in product.

Section Five: Core Competencies Continue your paper by

3. Core Competencies: Identification of Core Competencies

Core competency, as Prahalad and Hamel (2003) assert, is the collective learning in an organizational context, especially on how to coordinate and integrate production skills and technology. The core competencies of Lululemon define its advantages and capabilities that distinguish it from competitors. They enable the company to compete favorably in the athletic apparels. The competencies lie in the Lululemons fundamental values, which are developing functionally superior athletic apparels, leading a balanced life, as well as operating with integrity. Firstly, one of its main core competencies is product and design quality, which is in line with Koguts (2001) assertion that a core competency should be able to make the best responses to opportunities in the market. Lululemon makes its products based on the best luon fabrics, which enables the company to manufacture trendy and quality products that have led to prominence, customer loyalty, and brand recognition among its customers. The entity also works closely with its suppliers, which ensures that the products are of unmatched quality and do not compromise the quality, and if in case there is undesired quality, immediate action is taken for rectification.

Secondly, the company has a strong relationship with customers. It has managed to build loyal customers and with their strong relationship, the company is sure to maintain them. Besides, the corporation welcomes and is attentive to customer feedback to develop and maintain the best apparel brand. As such, the strong brand helps Lululemon to retain and gain more customers, which enables it to gain more market share, an important factor to gain profits amid the stiff competition. In effect, this translates to high sales volume in the stores.

Thirdly, the companys core competencies also include a unique and effective corporate culture. As Simoneaux and Stroud (2014) articulate, a strong corporate culture is vital for any firm to success, and Lululemon has managed to enforce this. At Lululemon, the culture encompasses health conscious customers and a heavily trained personnel that are deeply involved in the brand owing to their healthy lifestyles and a strong culture that advocates fitness. The culture is paramount in transforming its customers to loyal ones and motivating its staff. In addition, it also facilitates the customers to flock the stores and buy the clothes and also allows them to shop online, which creates convenience to the clients.

4. Duplicability

Non-duplicable practices and business models ensure that a business enjoys a sustained business success (Matzler et al., 2013). Each of these core competencies is not easily duplicable by the competition, and thus, they enable Lululemon to enjoy a competitive edge. The product and design quality are high, and the company has already registered for intellectual rights with the suppliers. In effect, this ensures that the products are unique, and thus, the designs are rare. Besides, the product specialization allows the company to fabricate one-of...

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