Introduction
Lululemon Athletica, Inc. is a leading designer as well as retailer of top-end yoga and sports apparel. The company was established by Chip Wilson in 1998 in Vancouver and has been operating mostly in New Zealand, Australia, and North America. Wilson created Lululemon Athletica, Inc. to address the unique preferences as well as needs of women, but later the management decided to increase its market target. As a result, the company started designing and retailing yoga and athletic apparel for the female youths and men. The company reaches out its potential customers through instructors and yoga studios. It is important to note that Lululemon Athletica, Inc. has continued to grow significantly since its establishment thanks to effective leadership. Nonetheless, in spite of its substantial growth, Lululemon Athletica is experiencing some pertinent issues, which the management have to address so as to prevent it from incurring losses. For this reason, the present paper analyzes these issues and recommends the courses of action that the company’s management ought to implement.
Issues Facing the Company
The major issues that the company’s management needs to address include the rising competition and the problem underperforming store locations. As a matter of fact, the competition in the sports apparel industry is very fierce and continues rising. As a result, this presents a big threat to Lululemon Athletica, Inc. Among the leading companies that Lululemon Athletica competes with include Adidas, Under Armour, and Nike. These competitors continuously position themselves to gain a greater market share as reported in the case. Nike, which is a leading competitor, has an internationally recognized brand name. As reported in the case study, Nike is one of the leading sellers of sports clothing and footwear. It is well established and, thus, presents high competition to Lululemon Athletic. Adidas is also a great threat as it is present in almost all the countries. As reported in the case, this company sold products in almost every nation. Under Armour is a new company in the sports apparel industry but also a high threat to Lululemon Athletica just like Adidas and Nike. Lululemon Athletica also competes with specialty department store retailers, for example, Lucy, Athlete, Nordstrom, and the Gap, among others. Lululemon Athletica, Inc.’s management also needs to address the problem of underperforming store locations. In essence, this problem has already led to the closure of some stores as reported in the case.
Analysis and Evaluation
The competitive position, as well as strength of Lululemon Athletica, can be understood well by analyzing the five forces, which shape competition in the sports apparel industry. In other words, porter’s five forces can help the company understand the strength of its current competitive position and choose the appropriate strategies to implement so as to overcome the competition. These forces include:
Supplier power
The suppliers’ bargaining power in the sports apparel industry is low since they are numerous. Several suppliers supply the materials such as cotton and rubber that Lululemon Athletic, Inc. and other players use to manufacture their products. In essence, the company controls its suppliers due to their low bargaining power. For instance, in the case study, it is reported that the company took great care to make sure that its manufacturing suppliers shared its commitment to ethical business conduct as well as quality.
Threat of new entry
The threat of new entry in the sports apparel industry is moderate. The new companies can enter this industry but cannot be a high threat to Lululemon Athletica. In fact, the new entrants cannot have the power to weaken Lululemon Athletica’s position in the industry. Lululemon and other players in the industry enjoy economies of scale and, as a consequence, the new entrants are not a high threat.
Buyer power
According to Hill & Jones (2011), the purchasers are most powerful when a corporation relies on them for business. The buyers’ bargaining power in the sports apparel industry is very high since the companies depend on them. The buyers can easily switch to the products of Lululemon Athletica’s competitors such as Nike and Adidas. In essence, the consumer’s switching costs are low.
Threat of substitutes
The threat of substitutes in the athletic apparel industry is low as there are no several substitutes for athletic apparel and footwear. For this reason, Lululemon Athletica’s products do not face high competition from the substitute products.
Competitive rivalry
According to Porter (2008), the capability and a high number of competitors cause high competitive rivalry in the industry. In essence, the competitive rivalry in the athletic apparel industry is very high because of several competitors who are capable. As reported in the case, the leading competitors always position themselves in an attempt to appeal to a greater market share. Besides, it is reported that the competitive rivalry among the rival brands is vigorous. As already mentioned, the leading competitors for Lululemon Athletic are the Adidas group, Nike, Inc., and Under Armour. The consumer’s switching costs are low, meaning that it is easier for the consumers to switch to the products offered by Lululemon Athletica’s competitors.
As reported in the case, the company’s management closed the underperforming stores after undertaking the continuing evaluations. In particular, it is reported that Lululemon Athletica, Inc.’s management closed one store in California in 2009 as well as a British Columbia corporate-owned ivivva Athletica store and an Australian corporate owned Lululemon Athletica store in 2010. It is, thus, important for the company’s management to investigate the factors facilitating the underperformance in some of its store locations and take the necessary action. Ideally, doing this will help them prevent the further closure of more stores. Lululemon Athletica’s problem of underperforming stores can be attributed to the increasing competition and buyer’s low switching costs.
Action Plan and Recommendations
In an attempt to overcome the rising competition from both the top and small players in the industry as well as prevent the closure of additional stores due to the problem of underperformance, Lululemon Athletica, Inc. can implement the strategies as below described.
Have the highest level of customer service
Abraham (2010) reports that studies have revealed that the cost of attracting a new client is more than that of retaining a current one. The company should, thus, improve its customer service to attract new customers and retain its current ones. As already mentioned, the customers in the sports apparel industry can easily switch to the products offered by Lululemon Athletica’s competitors. For this reason, the company ought to enhance its customer service so as to retain them and attract new ones. The Bible tells us to love our neighbors as we love ourselves. The company’s management should improve the customer service by applying this biblical principle. They should encourage their employees to put themselves in the shoes of their customers and treat them the way they would like to be treated themselves. In essence, this will facilitate the improvement in the customer service and prevent the company’s customers from switching to the products offered by the competitors. Besides, the improvement in the customer service will help the company remain on the top of the competition and prevent the further closure of its stores.
Best-cost provider strategy
Peterson (2013) claims that Lululemon Company charges about 30 US dollar more for its yoga pants than Gap Inc. since it knows that ladies will pay. The high prices can be attributed to the problems of store underperformance in Lululemon Athletica as well as the high competition the company faces from the competitors. Consequently, the company ought to provide the customers with more value for their money by utilizing a best-cost provider strategy. Particularly, the company should reduce the prices for its products by keeping its costs lower than those of its business rivals. Apart from lowering the prices for its products, the company should ensure that their quality is high. From the Bible, we read about a virtuous woman who recognizes that her merchandise is of good quality. The company should, thus, apply this principle to ensure that its products are of high-quality.
References
Porter, M. E. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review
Abraham, C. (2010). Parents as partners–customers. Texas Child Care, 2.
Hill, C., & Jones, G. (2011). Essentials of strategic management. Cengage Learning.
Peterson, H. (2013, October 29). Why Lululemon's Pants Are More Expensive Than Athleta's - Business Insider. Retrieved from http://www.businessinsider.com/why-lululemons-pants-are-more-expensive-than-athletas-2013-10
