In Lululemon’s fourth-quarter earnings call on Tuesday, buried within talk about the company’s record profits of $6 billion in annual revenue, CEO Calvin McDonald briefly touched on price hikes coming to the activewear powerhouse.
The company is planning conservative price hikes beginning in the second quarter of 2022, initially only impacting around 10% of the total catalog. McDonald said more price increases will likely come in future quarters.
“We are taking modest selective price increases over the year,” McDonald said on the call. “This will help offset some of the pressure we’re seeing on average unit cost.”
McDonald emphasized several times on the call that the price increases would be minimal. The exact details of which products will see prices increases and by how much will be announced later this year. He said that Lululemon will also offset costs by pulling back on discounting and focusing its assortment on core seasonless product — it currently makes up 45% of all sales and is less costly to ship due to economies of scale.
“We are constantly looking at multiple factors — such as the value of innovation and our range within our product categories, as well as in the marketplace — and making sure that the performance of our apparel is always at a higher index than our pricing is relative to competitive options in the marketplace,” McDonald said. “So we are taking selective action, but it’s not a drastic move.”
Price hikes have been inevitable across the industry in the last year. The ongoing catastrophic disruption to global supply chains has forced brands to raise prices. Smaller brands like Girlfriend Collective, Dagne Dover and Hill House Home, as well as large conglomerates like Capri Holdings, have all raised prices this year.
But price hikes hit brands differently. A company whose main appeal is dirt-cheap products will feel every additional cent in a way that a luxury brand will not. The customer of the latter is already accustomed to money-is-no-object spending,
“Luxury and mid-price brands offer more than the product,” said Juliana Prather, CMO of retail software company Edited. “They offer an experience and a name that people are willing to pay for. They have more price elasticity because they have an added value beyond just the product.”
Lululemon is in an in-between area, in terms of price. While known for being expensive, it doesn’t quite break into luxury athleisure. A $120 pair of Lululemon leggings isn’t quite the same value proposition as a $1,200 pair of Prada’s Linea Rossa leggings, for example. This puts the brand, as Prather puts it, in a less price-elastic category.
Luluemon is doing whatever it can to avoid drastic price increases. In addition to lowering discounting and focusing on the core product, McDonald said it bought 49% more inventory this year than last year to get ahead of future supply chain disruptions. It has also moved much of its shipping to air freight. McDonald said he expects switching to air freight will increase expenses in the immediate future but will end up saving money by the end of 2022 and help further avoid more price hikes.