1

Lululemon Athletica, Inc.

Market Research Project #1Group 8

Members:Alexa BeauclaireBrookelle BolfLizz Denning

Amanda Sather

2

Table of Contents

Executive Summary………………………………………………………………………….....3

Brand.............................................................................................................................................3

Brand History...............................................................................................................................3

Customer Profile..........................................................................................................................4

Sales Review .................................................................................................................................5

SWOT……....................................................................................................................................5

Data Collection .............................................................................................................................6

Problem Definition…………………………………………………………………………........7

Problem Selection…………………………………………………………………………...…...8

Theme Definitions………………………………………………………………………….…8-13

Conclusion………………………………………………………………………………………14

References....................................................................................................................................15

3

Executive Summary

Lululemon Athletica Inc. is a premium athletic clothing company for active lifestyle consumers. In 2013, the company faced a quality issue causing more problems to occur throughout the brand, including negative CEO comments, stock drops, and unjustifiable prices. Research through social media comments have revealed that consumers have noticed these problems. Lululemon had a strong following, but competitors have been taking their ideas and sales to their advantage because of the negative cloud around Lulu.

Brand

Lululemon has two statements that they started their company with, one is their original intent and the other is the company's mission statement. Their statement of original intent states, "Elevating the world from mediocrity to greatness.” Their mission statement is, "creating components for people to live longer, healthier, fun lives."

Lululemon has an extremely loyal customer following. Customers that purchase from Lululemon say that the company makes them feel healthy and want to live a more fit lifestyle. They also follow the company due to their good quality and ethical standards. Lululemon portrays their brand as a lifestyle. They promote healthy and fit living and provide access to tools to help people live this lifestyle. Lululemon provides yoga classes to the community to keep the active lifestyle brand alive. Yoga instructors come from Lululemon to teach yoga classes to communities. One of the most recognizable yoga classes that Lululemon has brought to the community is in Ottawa, Canada. People come once a week and a Lululemon yoga instructor teaches yoga to the community on parliament hill. Lululemon also closes down stores and has their customers bring yoga mats to have a class in the store. Lululemon does not do a lot of advertising. Their success comes from word of mouth and experience with the brand. Lululemon uses a blog on their website to continue to promote the Lululemon lifestyle. On this blog they have healthy recipes, yoga and exercise videos, as well as DIY tutorials. They have festivals that they host to promote this lifestyle.They use social media such as Twitter, Facebook, Instagram, blogs, and their app to continue to promote and sell this lifestyle.

Brand History

Chip Wilson founded Lululemon Athletica in 1998. Chip spent 20 years in the surf, skate, and snowboard business. He took an interest in yoga after taking a class in Vancouver and found the experience exhilarating. The company’s unique name, Lululemon, was chosen out of 20 different names in a survey of 100 people. His idea behind Lululemon was to have a community hub that people can learn about yoga, cycling, and living a healthy lifestyle. Chip also believed in the importance of a healthy mental state. Ideally, Chip wanted to focus all of these topics as well as the products he was selling, but the stores got too busy to do both. The focus of the company switched to educating Lululemon staff so well they could positively influence family, friends and the customers. When Chip began designing the clothes, he deemed cotton inappropriate for an athletic fabric. Cotton clothing was used as a sweat absorber for exercise such as yoga. Chip started a design studio for technical fabrics that became a yoga studio at night

4

to pay for the rent. Though the company was founded in 1998, the first store was not opened until November 2000 on the Kitsilano beach of Vancouver BC.

In Lululemon’s company manifesto, they like to express to customers how passionate they are about learning and living a healthy lifestyle. “We are passionate about sweating every day and we want the world to know it. Breathing deeply, drinking water and getting outside also top the list of things we can’t live without.” The manifesto represents what they stand for as a company and can give an insight to why Chip began Lululemon to begin with.

Today, Advent International owns Lululemon after Chip Wilson sold half of his 27.7% stake in Lululemon for $845 million dollars. Mr. Wilson was asked to step down from his position on the board as of December 2013. He had been known for commenting on touchy matters such as a comment to Bloomberg TV about how his clothes was piling because it was worn by the wrong body type. Since new board members have been added the brand has focused on positive body image and trying to bring up the stocks since the fall after an incident with see through yoga pants.

Customer Profile

Lululemon Athletica’s target market is typically women between the ages of 24 and 34. Recently, Lululemon has become more appealing to even younger women starting at the age of 18 and also now appealing to men. Their target market usually includes individuals with middle to high income to spend on merchandise. Lululemon markets to people with an active lifestyle, specifically people interested in yoga. The merchandise is appealing to those who value fashion trends/designs and want to look good while they are working out. However, not all people who shop at Lululemon are into fitness. The clothing has become something customers find suitable

5

to wear in their everyday lives, not just while working out. Lululemon’s main market is in the US and their stores are primarily found in shopping malls.

Sales Review

Lululemon Athletica Inc. (LULU) has been struggling to raise sales since January of 2014 (Reuters, 2014). Although the yoga market is flourishing, Lululemon’s customers have not been flocking to them as much as usual. Their customer base is rather wealthy, which concerns the company that it must be just their brand struggling rather than an industry struggle (Reuters, 2014). The graph below illustrates the drop off in stock prices from mid-January, when the company saw their first major dip in stocks.

LULU has not made a comeback in stock prices since then, fluctuating in the higher $30s (MSN Money, 2014), leaving them at $43.73, according to the Associated Press in early September (2014). Yoga pants are seen to be the new “jeans” and LULU is still not seeing a rise in profits. Since their mishap with the popular “groove” pants, the conversion of browsers to shoppers has been a struggle. Consumers are making more purchases at competing stores. Lululemon says they are revamping and attempting to hit that trendy market to create more sales in the stores. Online sales haven’t been suffering, but this is only a small percentage of overall sales (Halzack, 2014).

SWOT Analysis

Lululemon has many strengths and opportunities, as well as weaknesses and threats. Some of their strengths include superior quality and status, loyalty, and a community of health. Consumers become entranced in the brand and becoming one with wellness and Lulu.The trendy designs keep the customers interested and up to date with fashion. A few weaknesses in the company are high prices, few locations, and diminishing quality. The company should capitalize on their expected high quality by taking it up a notch from their current fabric. This is a huge opportunity for them since their sheer problem has caused a major dilemma for the company. More opportunities for the company would be expanding the market to other states they aren’t in, like North Dakota, lower their prices to captivate a wider audience, and create a children’s line to

6

create interest early in life. For a state like North Dakota, the market is booming, creating more opportunities for sales and valuable customers. Their threats are already in markets they haven’t tapped into yet, like a children’s line and other states. Their competition, negative customer conversations, and substitutions are their threats as well. Although there are few, they are dangerous for the company and growth. In order for Lululemon to succeed in the yoga lifestyle market, the company must exploit their strengths and depreciate their threats. Below is a SWOT table illustrating the components of the analysis.

Strengths:Premium QualityStatusBrand LoyaltyTrendy DesignPromote HealthCustomer Service

Weakness:PricesNot Many LocationsPant QualityReputation

Opportunities:Location ExpansionLarge MarketIncrease QualityLower PricesChildren’s Line

Threats:Competition (Nike, VSX, Athleta, Under Armour, etc.)Customer conversationProduct Substitution

Data Collection

Twitter and TweetdeckTwitter and Tweetdeck was used to target specific tweets on the web. Specific hashtags

that were used are: Lululemon see through, Lululemon price, Lululemon weight, Lululemon stocks. We found Twitter to be very user friendly for research. Tweetdeck was useful, but it seemed to be easier to just browse through searched tweets on Twitter. Since Twitter is a little less formal, many of the tweets are explicit and opinionated, which makes it interesting trying to incorporate such strong opinions into a research document style.

FacebookFacebook was used to look through Facebook comments that customers posted on

Lululemon’s status updates and pictures. Methods we used to filter through comments included searching key words or phrases containing words such as: stocks, price, expensive, Chip, see-through, skinny/fat, and quality. We found that the types of people who comment on Lululemon’s Facebook updates either extremely like or extremely dislike the company. Later in the report you will see some comments from customers have strong opinions about the company and the problems they are facing. One thing to note is that Lululemon is really good about replying to customer comments on Facebook. This is good public relations for the company.

Reddit Reddit is a very useful social media tool. It allows people to type in certain keywords to

look for comments and opinions from people in the form of chat forums. We used keywords

7

such as: Lululemon, big, price, quality. There were many comments that weren't helpful but it is a good site to use to gauge an opinion on certain topics.

YoutubeYoutube is an easy way for people to express opinions to reach a high volume of people

in a short amount of time. It is very common for popular videos to go “viral”. Some of the videos we analyzed for Lululemon had as many as almost 900,000 viewers. The searches used on Youtube were “Lululemon”, “Lululemon Yoga” and “Lululemon Stocks”. Youtube was helpful in finding some specific videos for each of our themes of quality, price, CEO comments, and stocks. Youtube also gives you a more enhanced view of an opinion as opposed to reading just words. The video shows emotions and pictures for viewers to relate to. In the case of Lululemon, the videos often show the quality of the sheer pants.

Social MentionSocial Mention is a site that uses a search to pull up a topic on various different social

media sites such as Facebook, Twitter, etc. and give detailed statistics about the topic. When using the analytical site Social Mention searching “Lululemon”, we found that the company has a 31% chance to be talked about on social media. The calculation is gathered by mentions of Lululemon in the last 24 hours divided by the total possible mentions. The sentiment ration from Social Mention is 7:1. This is found by the number of generally positive Lululemon mentions to the number of generally negative Lululemon ratios. The sentiment is divided out into groups would be 108 positive comments, 214 neutral comments, and 15 negative comments. The sentiment ratio is very good. The positive and neutral comments highly outweigh the negative comments which speaks very highly of the brand image. With an average of mention one every 26 seconds, Lululemon has a high reach of 50%. The reach is determined by the number of unique authors mentioning Lululemon divided by the total number of mentions. This was helpful in finding exact statistics on the Lululemon. It is hard to find exact statistics from each social media site but Social Mention allows you to do so.

In the tables below displaying the social media comments, Reddit comments are displayed in the first row, then YouTube in the next row, Facebook comments, and Twitter following.

Problem Definition

Lululemon Athletica Inc’s image has significantly declined since 2013 when the sheer yoga pant mishap exploded in the media. Since then, prices of the pants have not changed and the original pants have been recalled. The overall quality of the pants is not comparable to the consistent price. Once the quality problem occurred, there was a snowball effect into issues with prices, stocks, and negative CEO comments. They are still currently working on improving the image and the quality of the clothes.

8

Problem Selection

The company has a variety of problems to work on but the research performed will focus on improving the brand image and quality of the products. With these changes it should be inevitable to see increases in the stock prices and company sales. Lululemon’s social media comments will be the basis of the incurring primary research.

Theme Definition

Lululemon's quality of products has decreased.

" took risk in purchasing these... So sad that this once high quality brand is now so cheaply made....There is no comparison between my old lulu's and the new ones....

come on Lulu" --Pinterest

" I got a pair of wunder unders....and they are totally sheer. I've only been buying Lululemon for about 2 years but the things I got 2 years ago were much better than they are now" -- Reddit ( lyzzi3)

https://www.youtube.com/watch?v=Y1Nej2RkTAE

9

/_\ Druu (@Druufucious) tweeted at 8:29 AM on Thu, Oct 02, 2014:Just walked by a woman with completely see through pants. (Leggings?) Lululemon strikes again!

Lululemon’s customer following sees a strong brand with high quality yoga and lifestyle apparel. In the past few years, the company has exploded all over the United States, originating in Vancouver, British Columbia. In the past year and a half, the quality has appeared to decrease significantly, causing an outrage in their customer base. Many of the comments found on social media are negative, and correlate positively with our theme that the quality has decreased since loyal customers have bought the pants years ago compared to a recent pant purchase. Although the web is clouded with negative comments and reviews, Lululemon has not been neglecting them. The Facebook post above demonstrates knowledge and empathy for the customer who was not impressed with her purchase. It has become very evident why Lululemon would lower their quality and maintain high prices: for a higher profit margin. This only worked as a short-term profit plan, because now their customers have been exposed to the skewed perspective Lululemon has undertaken.

Transparent and sheerness have been the adjectives to describe the “wunder under” pants. Women and men noticed the flaw and have capitalized on it through the web. Not only is this a quality problem, women have received grief for wearing such transparent clothing without additional layers. The tweet above describes a male’s thought of the sheerness; @Druufucious is aware of the brand and the defect surrounding the popular legging. The YouTube video featured also mentions how the pants “emphasize” the female body, just in an unconventional way due to the sheerness. In response to negative comments, customers have turned to other brands to fulfill their yoga lifestyle needs. Lululemon has found lower sales in their company, and other brands becoming substitutes for their once sought-after brand image.

Lululemon's are too expensive

" Lululemon's quality is pretty bad these days, definitely not worth the price point.Zella Is highly regarded lately." --Reddit (Paleswedishkoala)

" Even when it was good, their yoga pants and leggings were overpriced for the quality." --Reddit (Passeriformes)

https://www.youtube.com/watch?v=GRTir5x0wBU

10

jay (@novajanee) tweeted at 2:24 AM on Mon, Oct 06, 2014:I don't understand how Lululemon yoga pants are see-through. You cost 120$, you better behave.

When customers pay one hundred dollars or more for a single pair of yoga pants, they are expecting the absolute best. When analyzing the social media relating to the price of the merchandise, there was a common theme. Lululemons clothing is too expensive. Even if the pants are of excellent quality, there are substitutes for Lululemon that are just as nice for a third of the price. Most customers in the market for yoga pants know that there are cheaper options available, like Danielle Sanda from Facebook. Yoga pants and athletic clothing can be found through a variety of retailers such are Target, Walmart, Scheels and many more. When buying Lululemon clothing, it often comes down to the status. Lululemon is a high end athletic clothing store that has a high volume of brand loyal customers. The little Lululemon symbol on the clothing is about more about status and not quality, though the quality can be an added bonus. Someone that cares what they wear to the gym would rather be seen in Lululemon than a brand like Walmart. When it comes down to it, yoga pants are athletic clothing. Athletic clothing is easily ruined just because your activity level in the clothing is very high. Like awesomerj03 said on Youtube, “I’ve seen people running in yoga pants and its very possible to destroy them if you fall. There goes your stupid $100 yoga pants ruined and all that money down the drain”. Most customers use Lululemons clothing for more than just yoga. One wrong step while running or walking and your precious one hundred dollars yoga pants are ruined. The clothing is nice quality for athletic clothing, but it is not invincible.

11

Founder Chip Wilson’s outrageous remarks blaming women’s thighs for the yoga pant product failure

After the sheer yoga pants incident, Chip Wilson, Lululemon’s founder made a controversial comment: “Frankly, some women’s bodies just actually don’t work for (wearing Lululemon pants)... it’s really about the rubbing through the thighs, how much pressure is there over a period of time, how much they use it” (Austin, June 2014) Although he did address the issue with an apology video, these remarks caused women to express their frustration with the company all over social media. It started with women hating Chip for his comments and transitioned to blaming the whole company for being “against bigger women” because the company only makes clothing up to size 10 or 12 and they charge extra money for sports bras larger than a C cup. Danielle from Facebook said, “It’s a slap in the face to non-teeny customers” and according to our social media research, a lot of other women feel the same way.

" Lululemon's make great products but it is a notoriously snobby company. They don't make products above a women's 10-12, which alienates a lot of customers." -- Reddit (Mama todae)

12

https://www.youtube.com/watch?v=PcCAJqOXeIM

Chad B (@Chad_Boyle) tweeted at 3:22 PM on Thu, Apr 04, 2013:At lulu lemon, girls should have to pay their weight in dollars for yoga pants. I'm sure this would discourage those big girls

13

Since the problems have come to light, their following has decreased.

14

" normal reaction to CEO being fired" -- Reddit (Apnitricknet)

https://www.youtube.com/watch?v=Kikf_sqdPFk

The Yoga Blog (@TheYogaBlog) tweeted at 7:25 PM on Wed, Oct 08, 2014:Lululemon CEO Steps Down, Stocks Drop %15 http://t.co/G9Z8jhzp7R#News #PopCulture

After the whole see through pants debacle occurred at Lululemon, the company went through some changes. Lululemon's CEO stepped down and the company lost a large amount of sales and profit from the experience. The company also had a 15% decrease in stock price, due to the aftermath of the see through pants, and questionable comments by the co-founder. After this decrease occurred, more stock was bought and the company didn't suffer for long.

Lululemon is currently back at the level they were at when this problem occurred. Their stocks have regained power in the stock market. Slowly they are rebuilding to their previous brand image. Their customers have remained loyal and they continue to grow their customer base

Conclusion

Evidence through social media has shown how much consumers can communicate about Lululemon without the company’s consent. This makes a large impact on a brand image and has had long-term negative effects. As Lululemon Athletica Inc. attempts to get their image back in order, they must create a trust with their consumers again. This task includes fixing their problems with quality, corporate comments, and unjustifiable prices. To dig deeper into the issue, customers should be interviewed and surveyed to uncover the true thoughts of Lululemon.

15

In conclusion, this brand’s image is still rebuilding after a tumultuous year and a half in the media spotlight.

References"A Slow Start to September Continues for Wall St." The New York Times. The New York

Times, 11 Sept. 2014. Web. 15 Oct. 2014.

"Advanced Chart for LULU - MSN Money." MSN. N.p., n.d. Web. 15 Oct. 2014.

Austin, Ian. "Lululemon Founder Chip Wilson Paying the Price for Saying Yoga Pants 'don't Work' for Some Women's Bodies." Www.theprovince.com. N.p., 22 June 2014. Web. 15 Oct. 2014.

Egan, Matt. "Danger! American Apparel, Lululemon Impale." CNN Wire. CNNMoney, 24 June 2014. Web. 15 Oct. 2014.

Facebook. N.p., n.d. Web. 15 Oct. 2014.

Lianne, George. "How Lululemon Lost Its Balance." Maclean's, 18 Feb. 2008. Web. 15 Oct. 2014.

"Lululemon Athletica: Our Company History." Our History. Lululemon, n.d. Web. 15 Oct. 2014. <http:// Lululemon .com/about/history >.

"Lululemon: Webcasts, Events & Presentations." N.p., n.d. Web. 15 Oct. 2014. <http://investor. Lululemon .com/events.cfm >.

Munarriz, Rick. "Lululemon Shapes Up Its Financial Results."DailyFinance.com. Investor Center, 12 Sept. 14. Web. 14 Oct. 2014.

Peterson, Hayley. "Lululemon's Pants Aren't Worth That Much More Than The Competition." Business Insider. Business Insider, Inc, 24 Sept. 2014. Web. 15 Oct. 2014.

"Reddit Is a Website about Everything." Reddit: The Front Page of the Internet. N.p., n.d. Web. 13 Oct. 2014

Reuters. "Lululemon Stock Tumbles As Company Cuts Outlook On Disappointing Sales." The Huffington Post. TheHuffingtonPost.com, 13 Jan. 2014. Web. 15 Oct. 2014

Steigrad, Alexandra. "Lululemon's 67M Mishap." WWD: Women's Wear Daily. N.p., 22 Mar. 2013. Web. 15 Oct. 2014.

Twitter. N.p., n.d. Web. 15 Oct. 2014.

16

"Yoga Pants Are the New Jeans. Â So Why Aren't Lululemon's Sales Soaring?" Washington Post. The Washington Post, n.d. Web. 15 Oct. 2014.

YouTube. YouTube, n.d. Web. 9 Oct. 2014. <http://www.youtube.com/>.