In recent years, the retail market has been sluggish, but there are exceptions. Thanks to the global fitness craze - you may be one of the participants - the growth of sportswear is quite good.
But the fastest and brightest among them is not Adidas, or Nike, which has a market value of up to 140 billion 200 million dollars or 55 billion 100 million dollars.
It's lululemon. The well-known brand of yoga clothing products has grown rapidly since 2018. Although it has a gap with Nike and Adi, it has become the third place in the field of sports footwear. Market capitalization has gone against the professional sports brand Under Armour (Andemar), up to 27 billion 100 million US dollars.
In this year, Q2, Lululemon delivered 21% of the rapid growth (North American market), far more than Nike and Adidas. In the international market, the growth of lululemon is also strong, the European market has gained 35% growth, and the Asia Pacific region has reached 33%, thanks to the strong promotion of China's 68% market, lululemon will expand in China next year.
Lululemon has the highest Ping efficiency in the clothing retailing industry. Its annual sales volume is up to $17 thousand per square meter, which ranks fourth in the US retail industry, behind apple, Murphy America (petrol station), Tiffany (Tiffany), Under Armour and Nike, which are not as high as 1/3.
In China's first tier cities, if you are a female Yoga enthusiast, you must be no stranger to lululemon; if you are a male sports enthusiast, then you will become the target customer of lululemon. Initially, lululemon was founded by Chip Wilson Wilson in 1998 in Vancouver, Canada, which mainly produces high-end Yoga suits. The price of these Yoga suits is priced at US $100 at the beginning of 1998.
However, if it is only located in the high-end niche market, it can not become the world's market value of third of sports shoes and clothing company. What is worth exploring is why lululemon can grow up from the cracks in the sports apparel market controlled by Nike and Adidas.
In addition, after listing on NASDAQ in 2007, lululemon was not smooth sailing. A large scale recall was caused by improper remarks, product quality and design problems of management "discriminating against women", and the market value was shrunk seriously, or even on the verge of bankruptcy.
But by 2018, lululemon has been growing faster than its peers, creating an investment myth of ten times (1100%) in ten years. Since the beginning of 2018, lululemon has increased by 160%.
Why is that?
Lululemon stock price drives event factors. Source: Southwest Securities
The clothing supply chain has been developing for hundreds of years, but it is very perfect. It is very difficult to get a long standing place to rely on technological breakthroughs. Because either Nike or Adidas, they have more capital and R & D resources, and subdivision of brand innovation on products is easy to imitate.
And the giants also have a comprehensive global sales channel, which can reduce costs through large-scale procurement, and no price war can be achieved. At this point, if we want to grow up in the cracks, we must have the core competence beyond the product innovation. Therefore, we believe that the core barrier of lululemon's rise is successful marketing, which in turn brings bargaining power, which is worth learning from all subdivision brands.
At the beginning of the establishment of lululemon, yoga clothes generally had such problems as poor comfort, poor perspiration, and lack of close fitting. The new fabrics of lululemon solved these problems. Girls could wear "naked pants feeling", and very self-cultivation, highlighting the curve of legs and hips, suddenly burst red.
Unlike most brands, most brands focused on sports performance and lack of fashion sense. Besides wearing comfortable and self-cultivation, lululemon also changed the problem of single tone of sports pants, and integrated all kinds of colors and patterns, making the use scene not only the gym, but also made many girls who did not practise Yoga pay attention to this brand.
But as mentioned above, if lululemon stops here, it will probably only be a flash in the net. In order to enhance consumer loyalty and raise the brand premium, lululemon abandoned Nike and Adidas's top sports celebrity endorsement, but chose to build "waist KOL".
Lululemon launched the famous campaign ambassador program. The ambassadors are divided into three categories: "elite ambassadors", "shop ambassadors" and "Yoga ambassadors". Each ambassador's information can be publicly inquired in the official website, including personal home page, hometown, specialty, hobby, etc., giving each Ambassador full resources and exposure. When lululemon expands to new cities, it will contact the best local fitness instructors or yoga teachers, provide them with free clothing, and put up posters in the store, while enhancing the popularity of lululemon, it will also increase the influence of teachers. By the end of 2018, lululemon had more than 1400 ambassadors in the world, and they led a high quality fans who love sports and pursue healthy life.
Lululemon abandoned Nike and Adidas's top sports celebrity endorsements, but chose to build "waist KOL" and set up a "sports ambassador" plan.
Based on such a community network, lululemon has launched various activities to establish an emotional connection between ambassadors and consumers, consumers and brands, and lululemon has also become an advocate of lifestyle. For example, in Manhattan Bryant Park, lululemon hosts two yoga classes every week, hundreds of people each time, and free yoga experience in stores.
This year, lululemon has launched a larger expansion. In July, Lincoln Park, Chicago, opened the world's largest experiential store. Besides selling products, it also provided yoga rooms, meditation rooms, cafes and dining bars, providing 6-10 courses per day for consumers. In addition, Q3 lululemon hosted the eighth Sea Wheeze half marathon in Vancouver, Canada.
"The SeaWheeze half marathon is a powerful example of how we can build lasting emotional connections with consumers, not just the buying and selling relationship of commodities," he said. CEO Calvin Mcdonald said at this year's Q2 earnings call conference.
Lululemon outdoor Yoga Course
On the other hand, due to the fashion design of lululemon and the popularity of many movie stars in the United States, many female stars are wearing lululemon products when they are on the street. In recent years, lululemon has considered developing the Chinese market vigorously. Andy, the protagonist of the head TV drama "Ode to joy", has been wearing lululemon in the play, which has attracted the attention of many Chinese female consumers.
Compared with lululemon Under Armour (Andemar) established in the same period, UA takes muscle and fitness as its brand concept, but more just sells products and lacks deep binding with consumers. After experiencing the rapid growth of early stage, UA was deeply anxious with the competition between Nike and Adidas, and the problem of distribution channel went wrong. The myth of growth was shattered after 2015.
I almost died in the quality of products.
Lululemon has missed the golden development period of yoga industry, and because of the improper remarks of executives, it has almost become a target of public criticism. These setbacks are fatal to new brands.
According to orient securities data, the number of yoga enthusiasts in the United States increased from 15 million 800 thousand in 2008 to 20 million 400 thousand in 2012, and then increased to 36 million 700 thousand in 2016, 2 times faster than in 2012. Correspondingly, in 2016, the Yoga market in the United States had exceeded 16 billion dollars, indicating that the golden development period of yoga was from 2008 to 2016.
However, in 2013 and 2015, lululemon encountered two major product quality problems, which greatly affected the growth of revenue and profit in subsequent years, and led to management turbulence.
According to orient securities analysis, lululemon launched the new yoga pants in 2013, but because of its too thin fabric, it exposes the privacy problem and is forced to recall products on a large scale. This resulted in the delayed delivery of new products in the autumn of 2013, and the revenue loss was as high as 67 million US dollars.
What is more serious is that the founder of lululemon, Wilson, is out of date. "The company's recalled yoga pants are transparent, not because of quality problems, but because the wearers are too fat, so they are not fit for lululemon wear." Wilson was forced to resign from the board in 2014 because of suspected discrimination against women. CEO and chief product officer both quit.
Taking this incident as a starting point, lululemon fell into a 5 year difficult period. In 2013, its revenue and profit growth rate dropped to 16.1% and 3.3% respectively. In 2014, the profit growth rate dropped to -14.5%.
Two years later, in 2015, lululemon was exposed to 20 potential hooded jackets and jacket potential safety problems. The elastic hat made of elastomeric material was used to cause 7 facial and ocular injuries. To this end, the company once again made a large-scale recall and replaced the lace with inelastic material, and 318 thousand jackets were recovered in the United States and Canada. Once again, this event led to the resignation of chief product officer, inventory backlog and brand reputation.
From the bottom of lululemon, we can see that for emerging brands, we must grasp the balance between innovation and problem in product design and supply chain. When the situation of innovation is excessive, it is very important to brake and adjust strategy in time.
Lululemon launched the supply chain transformation plan after 2015. According to orient securities analysis, lululemon products and fabric suppliers at the end of 2014 were 30 and 57, respectively, and expanded to 65 and 44 by the end of 2018. The introduction of new partners promoted the direct healthy competition of suppliers, while cutting costs and improving the quality of products. Lululemon even changed the procurement process from the previous unified purchase to the product life cycle and improved the turnover rate of goods. In 2017, lululemon also made the first step to invest abroad, and invested in the Canadian riding apparel brand 7mesh. The two sides will cooperate in fabric research and development.
The effect of supply chain reform is obvious, so that capital market has not abandoned lululemon and ushered in valuation restoration. The gross profit margin of the company has bottomed out at its lowest point in 2015 and rebounded to a higher level in 2018. 48.39%
In addition, lululemon has tried a Ivivva, a sportswear brand Ivivva, but sold poorly so that it was forced to shut down in the year of 2017. The loss of business also led to better cash flow for the company. Lululemon management admits that closing Ivivva is not due to the overall environmental pressure of the retail end, but because Ivivva can not be built into a brand worth billions of dollars.
Ivivva is a typical example of the failure of the retail industry to expand its brand. Huatai Securities Analysis, Ivivva for children, but children's clothes are usually parents to go to the store to buy for them, which leads to lululemon strong community marketing failure, emotional connection loss will weaken the brand premium. Although girls have a certain demand for sportswear, the demand level is not enough to support the expensive direct store network. The market of lululemon $44-78 pricing is too narrow.
For lululemon's stock price skyrocketing, Orient Securities believes that after the acceleration of the popularity of Yoga itself, the performance of lululemon after 2018 is only the "normal" growth rate that has been restored to the leading edge. Suppose investors invested $100 in stock in early 2013, and only made a profit of $8 in early 2018. On the contrary, if you invest in competitors, such as Nike, UA or Adidas, you can make a profit of more than 100 dollars.
Therefore, the investment cycle will be lengthened. Lululemon's share price increase in 2018 can be regarded as a "remedial" for the downturn in the past. Although the company has been in a difficult period for 5 years or so, its brand strength in the field of yoga clothing is still strong. The chain tied by many KOL is a strong moat, and other sports apparel giants can not weaken the market position of lululemon.
New battlefields of emerging brands: multi category and China
The Yoga wear market has set up a market value of lululemon US $27 billion. This cake is so tempting that other brands will definitely intervene. In 2017, Nike began to focus on women's tights. In the thousands of stores, sports women's wear monopoly areas were set up. Under Armour started from men, but also began developing sportswear for women, and even Victoria's Secret (Vitoria secret) also increased sports bra and Yoga Pants products.
Lululemon holding the chain of intimacy with consumers, it is difficult for new inbound players to win immediately, but the competition is becoming more and more intense and can not wait for death. Lululemon has also launched an active attack - the whole category, cutting into sports leisure men's wear and sports peripheral products.
At Q2's earnings call conference, lululemon no longer positioned itself as "Yoga inspired athletic apparel" as a "sports brand inspired by healthy lifestyles" (healthy lifestyle inspired athletic apparel), serving all the fitness people who liked the campaign. This shows that the company will expand its product category for a long time. At the beginning of the development of men's clothing, lululemon launched the Anti-Ball Crushing trousers. It is a sports pants that prevent the crotch from being too tight to protect the male's private parts, and can be worn in sports or daily life.
In addition, lululemon has opened a separate male yoga class and launched a new menswear series (office, commuter and Tourism) in Q1 this year, which is made of a stretch fabric and has a wider wear scene.
Today, men's clothing accounts for 21% of lululemon's total revenue. Management expects that the average annual compound growth rate of the business will reach 20% in the 5 years, that is, doubling in 5 years.
In addition to men's wear, lululemon is still trying to enter new markets, including personal care products and footwear. In October 2018, lululemon tried to sell water free shampoo, deodorant, toner and lip balm at some stores. Dongfang securities predicts that personal care products are expected to raise the gross profit margin of lululemon, because the cosmetic industry itself has higher gross profit margins, such as L'OCCITANE, Estee Lauder, L'OREAL and other mainstream brands. The average gross profit margin in 2018 is 73.7%, which is significantly higher than the gross margin level of lululemon 55.2%.
Another main source of growth comes from overseas markets. Lululemon currently accounts for 11% of international sales penetration, while sales of other global brands (such as Nike) account for 50% or higher. The trend towards lululemon of the whole category still has great potential in this regard.
In 2014, lululemon began to deploy the Asia Pacific market from Singapore, followed by Hongkong, Korea, mainland China and Taiwan. China is playing an increasingly important role. For example, in terms of men's and women's clothing, if the geographical location is divided, North America's revenue will increase by 21%, Europe's growth by 35%, and Asia Pacific region's growth by 33%, of which China's growth is 68%, and that of China's electricity business has increased by 70%.
Drawing on the lessons of many early retailers' blind expansion, lululemon was more cautious about the Chinese market. First, they began to test the local market from the flagship store. In 2015, the flagship store was opened on Tmall, and a year later, the store opened.
Nowadays, for many consumers in the first tier cities, a lululemon yoga pants and a Dyson hair dryer are also a sign of lifestyle. The retail price of Lululemon yoga pants in China is as high as 800-1000 RMB, much higher than that of Nike and Under Armour.
How does this kind of consumer cognition come into being in China? Lululemon has almost copied its classic way in the United States when it entered China. Before it formally opened, it set up an experiential display shop, mainly used to launch activities and yoga courses, and set up a "sports ambassador" system to obtain seed customers and initial brand penetration.
For example, before opening its first official store in China, lululemon opened 3 display shops in Shanghai and Beijing respectively. When local demand was strong enough, they began to invest in formal stores and create ambassadors and communities at all levels. Lululemon held many outdoor Yoga activities in Beijing's the Imperial Palace, Xi'an wild goose pagoda and Shanghai Oriental Pearl.
At present, the sales performance of single stores in China can reach 15000 US dollars per square meter, which is close to 16727 US dollars in the North American market. To meet the needs of the Chinese market, management plans to add more than 40% of the store area every year in the next five years.
The secret of Lululemon's access to ultra-high pricing power is worth learning from all emerging brands. When a country / region consumptive level rises, this brand of enthusiastic vitality will have a good upward trend. In the past 3 years, lululemon has been one of the fast growing stories in the retail industry, because it has created the "athletica" trend (sports and leisure).
High vitality community marketing has made lululemon lose too much market share during product problems and management turbulence. After 2016, it improved its performance through supply chain reform, and regained its footing, and broke out in 2018. After the high market base in North America, lululemon began to move towards multi category, develop men's clothing and personal care, and seek incremental overseas.
However, the biggest challenge before lululemon is that the men's sports market is already full of players, from Nike, Adidas to Under Armour, and outdoor brands such as birds, Columbia and North Face. Lululemon's brand positioning is still feminine. It can be seen from the name Lulu lemon that this is quite different from UA's brand related to muscles, and lululemon's pricing is obviously higher than that of its competitors, which may limit the uplink space.
J.P.Morgan set the target price of lululemon at the end of 2020 to US $230, based on 34 times of EPS in fiscal 2021 (earnings per share), equal to 1.75 times PEG (P / E ratio relative profit growth rate).
The sports fashion trend is cyclical. Whoever can grasp the trend of the trend will get the bonus of growth. Initially, Adidas (Adidas) and Puma (Puma) monopolized the two giants, and Nike (Nike) emerged as a leader in the field of sports shoes. Reebok (Reebok) caught the female aerobic fitness crowd surpassing Nike, then became the first in the global sports shoes market, but ultimately lost the advantage of technological innovation because of product problems. In this process, Puma and other old brands declined.
The change of global sports brand market share. Source: CITIC Securities Research Division
Today, although Nike's 2018 annual revenue is still 12 times that of lululemon, lululemon's growth momentum is good, and it has risen to third of market value. The super high pricing power and user loyalty make Nike and Adidas not take lightly.
Source: 36 krypton Author: Liu Yiming