1. Why is Lululemon struggling lately? Mainly because the spending power of the middle class is shrinking, and more competitors are squeezing into the yoga apparel market.
2. Can its fabric and tailoring technology be its moat against competitors? Not really. Lululemon's core technologies are actually in the hands of others!
3. Will Lululemon's once-loyal fans—middle-class women—still boost its sales? It’s going to be tough. The brand's core positioning as "yoga, women, high-end" is getting unclear.
Lululemon's Stock Is Down 52% YTD
Back in 2022, Lululemon surpassed Adidas with a market cap of $37.4 billion, becoming the world's second-largest sports brand, only behind Nike. By 2023, its market cap soared past $60 billion—equivalent to nearly two Adidases, two Antas, or ten Li-Nings—making it the most likely brand to challenge Nike's top spot.
In 2024, from the beginning of the year, Lululemon's stock price plummeted by over 52%, making it the worst-performing stock in the S&P 500. Mainly because people are worried that the company's growth in its core markets is slowing down.
Why is Lululemon struggling now?
In Q1 2024, Lululemon achieved revenue of $2.21 billion, but its growth rate slowed from 24% last year to 10%. Revenue in its largest market, North America, is still growing, but at a much slower pace—from 17% last year to just 3% this year.
On a macroeconomic level, two main reasons are behind the slowdown in North American sales:
1️⃣ After the pandemic, U.S. consumers are cutting back on sportswear spending and redirecting their funds towards offline services.
2️⃣ The declining spending power of the American middle class is also a major factor in the sales drop. With inflation rising in the U.S., many consumers are turning to cheaper brands to cut back on non-essential expenses.
Competitors are Popping Up, Taking Lululemon's Market Share
Beyond the macroeconomic factors, the yoga apparel segment that Lululemon dominates is seeing more and more competitors. Major brands like Nike and Adidas are launching their own yoga collections in response to Lululemon's rapid growth.
But it's not just the big players. Newer yoga brands like Alo Yoga and Vuori have become formidable competitors in the athleisure market.
These two brands are even setting up shop right next to Lululemon stores. Data shows that about 90% of Vuori's U.S. stores and 84% of Alo's stores are within 0.5 miles of a Lululemon store. They are now Lululemon's biggest threats in North America.
The Brand's Positioning Is Getting Unclear.
The brand’s positioning as “yoga, women, high-end” is becoming unclear.
1️⃣ Reason 1: High-end Positioning No Longer High-end
With the emergence of strong competitors, Lululemon has been forced to offer discounts. When Lululemon starts discounting, its stock price also starts to discount...
Lululemon’s recent discounts have become more frequent and more significant.
However, these discounts also erode Lulu’s brand value. Discount promotions are causing Lululemon to tear off its “Hermès of yoga” label. It was that "out of reach" feeling, combined with community-based marketing, that made middle-class women obsessively buy Lululemon. But now, that feeling is fading away.
⬆️Lululemon held a “We Made Too Much” clearance sale to offload unsold inventory.
2️⃣Reason 2: Expanding into All Categories Blurs Positioning
In search of a second growth curve, Lululemon attempted to expand its product range and tap into the men’s market.
Diversifying the product line is likely to blur Lululemon’s professional yoga image, potentially reducing the brand to a generic label and eventually leading it down the path of decline.
Historically, many dominant brands in niche markets have declined due to diversification—Under Armour is a prime example. Under Armour once relied on QUICK-DRY clothing to carve out a niche, at one point surpassing Adidas to become the second-largest sportswear company after Nike. But later, as it tried to enter the women’s and casual wear markets, its efforts to appeal to the mass market were largely unsuccessful, and its market value dropped by 80% from its peak.
In a way, Lululemon and Under Armour represent similar companies. They found opportunity in a highly competitive market, quickly growing into leaders in their niches. But when the market demanded higher profitability, they began to pursue all-around development.
However, reality is harsh. After stepping out of its comfort zone of yoga, Lululemon faced a tougher, more competitive world. In the mass sports market, it lacks the brand recognition of Nike and Adidas and the cost-effectiveness of Anta and Li-Ning.
Many analysts have recently expressed pessimism about Lululemon, reflecting widespread concerns about the company’s ability to innovate and maintain a competitive edge.
Barclays even downgraded Lululemon’s stock rating, emphasizing the need for investors to pay attention to the increasingly fierce competitive environment.
Created by Wendy
I would argue that its a lack of employer compensation rather than inflation that is impacting the middle class.