Open the door to any yoga studio today and you will be sure to be greeted by the universally known, “Om” symbol of Lululemon apparel. In just 13 years, Lululemon apparel has not only taken over yoga apparel, but the women’s athletic apparel market. This corporate powerhouse (IPO 2007) is able to provide both their customers and employees the unique feel of a grassroots, community store.

Lululemon currently operates 211 retail stores, located in North America, Australia, New Zealand, China, Germany, Netherlands, Singapore and the United Kingdom.


Lululemon has taken over the women’s athletic apparel market, becoming more popular among women and girls than Nike, Adidas and Under Armor. The company has experienced great financial and economic growth, however during their short journey they have also experienced a number of internal issues, primarily surrounding quality control


  • Reputation for higher quality material than competitors.
  • Sleek, stylish design.
  • Great financial growth: past 5 years, the company has tripled is annual revenue.
  • Retail store growth: expected to expand more within international countries.
  • Expansion into menswear market.
  • Low advertising costs due to grass-roots methods.
  • Expected expansion of even more product lines.


  • Quality control issues.
  • Adjustment of focus from quality to profits.
  • Severely high prices.
  • Lack of apparel retail experience from CEO.

Quality control has been the biggest problem that Lululemon has faced over their short lifetime thus far. In the past there have been complaints and recalls due to; bleeding colors, reusable bags containing lead, and swim suits becoming see-through when wet. However, none have been as detrimental as the most recent problem that Lululemon was faced with. In a Press Release published on March 18, 2013, it was announced that 17% of Lululemon’s stock – and the brands most popular, $98 yoga pants – did not meet the quality specifications that Lululemon required. These “high quality” pants were actually see-through upon the wearer bending over. The stock price of Lululemon (LULU) had dropped to $62.35 just four days after this announcement. ($70.47 Mar 14). Additionally, the company reduced their forecasted sales from an 11% increase to a 5-8%, in direct response to the recall. They also estimated that Q1 shares would be reduced by 11-12 cents per share, and 25-27 cents for the year.

Lululemon responded to this issue in the manner that was most appropriate for this situation, they offered full refunds or exchanges to all pants that users felt were lacking the superior quality they were so proud of offering.

The issue of see-through yoga pants is not a problem that has only plagued Lululemon. Many Under Armor and even Nike yoga pants are see-through when the user bends over, but Lululemon’s reputation and emphasis on quality is what led to the attention surrounding the problem.


At a time when the nation was experiencing a severe recession, Lululemon was not only successful, but continued to show great financial and store growth. While many retailers were faced with the need to cut back on production and cut prices due to consumer behavior – Lululemon did the opposite. In 2012, Lululemon was ranked #6 in Fortune’s Fastest Growing Companies list; over 3 years the company increased revenue 45%, increased profit 81% and total return was 109%.

For many years Lululemon was the only provider of such high quality yoga apparel. However, with the expansion and growth of other brands, competitors are beginning to creep up on the company who seems to have monopolistic power. Some of these brands, including Gap and Old Navy have begun to focus on offering yoga and athletic apparel that is stylish, less expensive, and giving the quality of Lululemon a run for it’s money. Lululemon will always have the prestige associated with the brand, however with the quality issues it has faced combined with the growth of low cost competitors, the company should not increase prices any time soon – they may also look to begin offering some, less expensive products.


Year ended February 3, 2013:

  • Profits rose 34% to $762.8 Million
  • Revenue up 37% to $1.4 Billion

LULU Price to Earning Ratio (May 22): 43.34 S&P 500 PE Ratio (May 22): 19.35

  • The high P/E ratio of Lululemon suggests that investors are expecting earnings growth in the future to be high. This is more than double the P/E ratio of the S&P 500.

Historical Stock Prices:

  • IPO: $14.00 (Jul 27)
  • All-time low: $2.25 (Mar 2009)
  • All-time high: $82.27 (May 21)


Quality Control: Although Lululemon has the reputation of offering higher quality apparel, with recent quality issues, the company must make sure to not forego quality for profits. The company will not be able to hold their customer base and increase growth if the quality of the clothing decreases. Instead of decreasing quality to decrease costs, the company should focus on increasing profit by continuing to offer customers the highest quality clothes in the most unique environment.

Price: Lululemon has been able to raise prices over the past few years – now offering yoga pants for $98 and jackets for upwards of $120. With the emergence of more competitors Lululemon must not increase prices for the time being. The company should also explore options of offering some lower-cost products in their stores. Growth: Lululemon has exhibited great growth, and I think that more expansion within Australia and New Zealand, especially, will help the company increase revenues and profits. Lululemon currently operated 14 stores in Australia and only 1 in New Zealand. I expect that expanding in these two markets and within their other international markets will benefit the company. Management Adjustments: CEO Christine Day has witnessed all of the quality control issues that Lululemon has faced over the recent years. As CEO, Day needs to take more accountability in regards to these issues and take actions to prior so as to prevent these problems from taking place. Immediately after the emergence of the pants lacking quality in March 2013, Product Chief, Sheree Waterson left the company. However, she is not solely responsible for this issue and I recommend that the Board of Directors of Lululemon re-evaluate the management team and structure within the company.


Although the company faced a decrease in stock price in March, due to the recall of their most popular pant, Lululemon is posting their highest stock price yet. Shareholders who have held Lululemon stock for more than a year, have already experienced great increases in stock value. I recommend shareholders to hold Lululemon stock for at least another six months. If the company announces revenues severely below projected goals, I would recommend selling before the year end, Feb 3, when annual financials will be announced that take into account the quality control issue. However, I would not recommend buying Lululemon stock at this time. I think that with the increase of competition, the stock price will not continue to grow as fast as it has over the past few years. I think there is high probability of the stock plateauing.


Lululemon has been a successful and unique company that has learned how to offer an expensive, high quality product that attracts women of both high and middle class markets across the United States and Canada. As long as the company focuses on keeping quality high, and pricing aggressively, I believe the company will continue to succeed and improve.


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