Is Lululemon Losing Ground in the Athleisure Market?

Current market share trends for Lululemon

Lululemon is facing challenges in maintaining its market share, highlighted by a significant stock drop following the pause of its Breezethrough yoga wear sales. Despite positive brand funnel metrics, analysts have lowered price targets due to concerns over financial performance, indicating a need for improved brand awareness and product acceptance.

"On July 25, 2024, Bloomberg reported before the market opened that Lululemon had decided to temporarily halt sales of the Breezethrough yoga wear "to make any adjustments necessary to deliver the best possible product experience." On this news, Lululemon's stock price fell $24.74 per share, or 9.09%, to close at $247.32 per share on July 25, 2024, on unusually heavy trading volume." --- (LULU, press release, 2024/08/13)

"And while we have experienced positive increases across our brand funnel metrics in the market, there is still substantial opportunity to drive unaided brand awareness introducing lululemon to new gas segments." --- (LULU, earning call, 2024/Q2)

"If you are a shareholder who suffered a loss, click here to participate. On July 25, 2024, multiple analysts lowered their Lululemon price targets due to concerns about the Company's financial performance, specifically regarding its recently-launched Breezethrough line." --- (LULU, press release, 2024/07/25)

"trading volume. Then, on July 25, 2024, before the market opened, Bloomberg reported that a Lululemon spokesperson told the agency that the Company "made the decision to pause on sales [of the Breezethrough yoga wear] for now to make any adjustments necessary to deliver the best possible product experience."" --- (LULU, press release, 2024/09/11)

"Our unaided brand awareness is only in the low-30s. Using our unique approach, which combines local engagement, community activations, and larger scale brand campaigns, we continue to have a significant runway to introduce new guests to lululemon and drive them to our stores and e-commerce sites." --- (LULU, earning call, 2024/Q1)

Competitive landscape in the athleisure market

Lululemon maintains a strong position in the athleisure market, noting no significant changes in promotional intensity or competitive dynamics. However, competitors like Under Armour express concerns over softer consumer demand and increased competition, indicating a challenging landscape for all players involved.

"And I would say from a competitive landscape, we continue to see strong business on our side." --- (LULU, earning call, 2024/Q1)

"As you look at the competitive landscape now, you're putting aside some of these promotions, do you still see that clear lane for the Under Armour brand when Under Armour was performing well or has competition changed that lane?" --- (UA, earning call, 2024/Q4)

"And you also talked about there not being any structural differences in the U.S. market, but curious how you'd characterize the competitive landscape near term in 1Q relative to what you saw in the second-half of '23?" --- (LULU, earning call, 2024/Q1)

"The first is sector-specific. We're expecting lower wholesale revenue due to retailer cautiousness amid softer consumer demand in an intensely competitive environment." --- (UA, earning call, 2024/Q2)

"Calvin McDonald: Yes, Paul. In terms of the competitive landscape, the second part I'll address first, have not seen anything dramatically different from a promotional intensity perspective." --- (LULU, earning call, 2024/Q1)

Shifts in consumer preferences for athleisure

Shifts in consumer preferences for athleisure are evident, with notable declines in brick-and-mortar traffic, particularly in Greater China. Competitors like Nike are adapting by reallocating resources and adjusting strategies to align with evolving consumer behaviors, indicating a dynamic market landscape that Lululemon must navigate.

"Third, we experience meaningful shifts in consumer traffic in key markets, particularly in Greater China, where brick-and-mortar traffic declined as much as double digits versus the prior year." --- (NKE, earning call, 2024/Q4)

"Last, we are managing expenses tightly through this product cycle transition, while reallocating resources to maximize consumer impact." --- (NKE, earning call, 2024/Q4)

"And as the curve comes down, it doesn't happen in a moment. It happens naturally over time as consumers react to supply coming out of the marketplace." --- (NKE, earning call, 2024/Q4)

"And so, over time, our channel mix should be driven by consumer being -- at the consumer at the right time and given shopping occasion. And so, we think it'll settle out in a consumer-friendly way." --- (NKE, earning call, 2024/Q4)

"And while this is challenging, and it's going to be challenging over the next couple of quarters, our history has demonstrated that when we take action and we do it aggressively, and we get behind the things that are new, and we build marketing and storytelling around it, we move the consumer fairly quickly to a new place." --- (NKE, earning call, 2024/Q4)

Financial performance comparison with competitors

Lululemon shows growth, particularly in Mainland China, but competitors like Nike and Under Armour are also performing well, with Nike focusing on innovation to capture market share and Under Armour boasting over $5 billion in revenue. Gap Inc. reports a 3% increase in comparable sales, indicating strong competition.

"The continued strength in our performance is giving us the confidence to reaffirm our revenue and SG&A outlook for fiscal 2024 and raise our outlook for gross margin and operating income growth compared to our prior outlook." --- (GPS, earning call, 2024/Q2)

"And we see opportunity in the performance dimensions in particular to come strong with a strong pipeline of innovation to come back and to take market share." --- (NKE, earning call, 2024/Q4)

"From my vantage point, we've got a lot going for us as an authentic on-field performance brand with more than $5 billion in revenue." --- (UA, earning call, 2024/Q4)

"And we see that in the performance of this quarter with fantastic growth in Mainland China, strong growth in the rest of the world, how the brand is continuing to grow, continuing to acquire guests and resonate and the uniqueness of our product." --- (LULU, earning call, 2024/Q1)

"with comparable sales up 3% as well. Due to the 53rd week in fiscal 2023, in order to maintain consistency, Comparable sales for the first quarter of fiscal 2024 are compared to the 13 weeks ended May 6, 2023 by brand." --- (GPS, earning call, 2024/Q1)

Brand loyalty and strategic initiatives

Lululemon is focusing on strategic organizational changes to enhance growth and product innovation, aiming to strengthen brand loyalty through deeper consumer connections and new product introductions. The integration of teams under strong leadership is expected to streamline decision-making and improve brand presence in the competitive athleisure market.

"The strategic organizational changes are intended to support the company's near- and long-term growth plans, accelerate product innovation, and further enable its go-to-market strategies." --- (LULU, press release, 2024/05/21)

"These initiatives, along with proactive moves to reduce discounting and promotions and a reduction in SKUs, gives us great confidence in our ability to improve ASPs and gross margin in the years ahead." --- (UA, earning call, 2024/Q4)

"Our strategy is to achieve long-term revenue growth by creating innovative, "must-have" products, building deep personal consumer connections with our brands and delivering compelling consumer experiences through digital platforms and at retail." --- (NKE, sec filing, 2024/Q3)

"And under Nikki's proven leadership, the merchant and the brand teams will be more fully integrated, which will streamline decision-making and ensure we show up powerfully and consistently for our guests across all markets." --- (LULU, earning call, 2024/Q1)

"unaided brand awareness. And we know that the strength of bringing in the newness will be the biggest lever for us, and we'll continue to increase that throughout the back half of this year and into next." --- (LULU, earning call, 2024/Q2)

Economic conditions impacting athleisure spending

Economic conditions, including inflation and higher interest rates, are significantly impacting consumer purchasing behaviors in the athleisure market, leading to decreased demand for Lululemon's products. This uncertainty poses risks to revenue growth and overall profitability for the company.

"2024 FORM 10-K 30 CURRENT ECONOMIC CONDITIONS AND OTHER FACTORS IMPACTING OUR BUSINESS The operating environment could remain volatile in fiscal 2025 as the risk remains that these factors, among others, could have a material adverse impact on our future revenue growth as well as overall profitability." --- (NKE, sec filing, 2024/Q4)

"Consumer purchasing behaviors and their propensity to spend in our sector have been impacted by uncertain economic conditions including inflation, higher interest rates, and other factors, which has adversely impacted consumer demand for our products." --- (LULU, sec filing, 2024/Q2)

"The operating environment could remain volatile in the fourth quarter of fiscal 2024, and the risk exists that the worsening of macroeconomic conditions could have a material adverse impact on our revenue growth as well as overall profitability." --- (NKE, sec filing, 2024/Q3)

"Consumer purchasing behaviors and their propensity to spend in our sector have been impacted by uncertain economic conditions including inflation, higher interest rates, and other factors." --- (LULU, sec filing, 2024/Q1)

Emerging trends in athleisure innovation

Emerging trends in athleisure innovation highlight Lululemon's commitment to new leggings technology, while competitors like Nike emphasize consistent innovation and performance advancements. Both companies are focused on leveraging innovation to enhance consumer appeal and drive sustainable growth in the athleisure market.

"And so, we view our job to be able to deliver season in, season out, strong innovations, also the ability to scale those innovations over time, both to delight consumers and also bring us to healthy and sustainable growth." --- (NKE, earning call, 2024/Q4)

"We have some exciting new innovation coming in our leggings, in particular in the next few weeks." --- (LULU, earning call, 2024/Q1)

"And then I guess just at a bigger picture, we could see the lab is back at work bringing out new technologies on the performance side, but maybe walk us through how you can use innovation and performance and how you can create the halo for lifestyle, which is really just more cyclical product." --- (NKE, earning call, 2024/Q4)