Yesterday, Lululemon shared its fourth quarter earnings, indicating slowed growth that concerned some investors and pointed to a possible shift in the athleisure market.
While revenue rose 12 percent to $790 million in the fourth quarter (compared to $704 million during the same period the year before), it still fell short of Wall Street expectations, leading to a 20 percent drop in stock on Thursday. Analysts noted that while Lululemon performed well during the holiday shopping season, sales dropped significantly in the aftermath.
In an investors call, Lululemon CEO Laurent Potdevin attributed the slowed growth to “an assortment lacking color,” referring to a product roster of plain and dull styles that failed to entice consumers. However, he noted that the company is still on pace to double sales to $4 billion by 2020.
Its performance mirrors ongoing trends in the athletic apparel category: Brands like Nike and Under Armour have experienced similar slumps, and multi-brand establishments like Sports Authority have shuttered altogether. It’s also indicative of the increased competition within the expanding athleisure market. According to data from Edited, at the end of last year, the best-selling leggings were dominated by brands like Adidas by Stella McCartney and Zara, rather than Lululemon.
“Lululemon is now coming up against tougher comparatives which will make growth more challenging,” Neil Saunders, managing director of GlobalData Retail, said in a statement. “It will have to contend with the saturation of a slowing athleisure market.”
Despite what may appear to be a blip, William Susman, analyst at Treadstone Investors, said he doesn’t foresee this deterring the company, as brand loyalty is still strong. “Slower growth is still growth,” he said. “Everyone is gunning for them.”
Lululemon has also succeeded in not falling into the trap of extreme discounting, Bloomberg noted. Customers are still willing to shell out $100 on leggings, and so the company has been able to increase prices incrementally without losing its consumer base.
Michelle Watson, founder of upscale athleisure company Michi, doesn’t anticipate that Lululemon will lose its footing, but said competition continues to be a factor amid the influx of companies offering athleisure for a variety of needs and functions.
“I think their customer has changed over the years,” she said. “The fashion-forward customer is finding a lot of styles elsewhere. [At Lululemon], it’s the same old stuff every time you go in; it’s nothing really new.”
Gabrielle Porcaro, senior fashion and marketing editor at Women’s Health, said the evolution of the health and wellness space is leading women to try new things, which increasingly may mean brands other than Lululemon.
“As women have become more knowledgeable about the fitness market, and now that there are sites like Bandier and Carbon 38 to introduce them to brands at similar prices points, women could be trying out new things,” she said. “They also could be experimenting beyond basic black and trying brands that offer increasingly fashion-forward, flashy and risk-taking prints and colors.”
Watson said in order to bolster growth, Lululemon will need to focus on new offerings that still appeal to its brand identity and shopper demographic.
“It seemed like they were the only player for a long period of time,” Watson said. “When Lululemon came out, I thought they were extremely innovative. They weren’t necessarily fashion-focused, but innovative in a different way. Now it’s going to take honing into what the customer wants next, not just imitating other brands and chasing trends. It’s important to focus on your brand DNA and really build from there.”
Photo courtesy of Lululemon