Lululemon Testing China Entry

on October 18 2013 | in Retail | by | with No Comments

Lululemon

Lululemon Athletica Inc, the yoga apparel and equipment store based in Vancouver, is looking to grow. Despite inventory and supply chain problems earlier this year, the brand hopes to revitalize its image and is looking overseas for further growth, according to Reuters. The natural next step for the trendy niche brand would be expansion into Asia.

Some experts think that Lulu’s strategy has been relatively methodical and correct, and that the time is ripe for a move into China. The brand has found success without a lot of cost by planting a showroom – a pared down version of a retail outlet – in its test cities, offering fewer products and shopping hours. There is currently one set up in Hong Kong’s Soho district. While shoppers there say they are ready for a full-size store, Lulu has had difficulty finding just the right location to fit its needs and image.

The brand’s toned-down presence – instead of advertising, they opt for grassroots events and word-of-mouth publicity – feels like an organic extension of its product lines. Lulu’s items are often limited edition, meaning the brand can try out certain types of apparel and gear (like tennis or swimming) with minimal risk. “They definitely operate a scarcity model, meaning more demand than supply, so that when you go into a store, you know you should buy it, because of the fear of it not being there the next time around,” said Camilo Lyon, an analyst with Canaccord Genuity.

Matthew Crabbe, Asia-Pacific research director at Mintel International Group, cautions that cachet may not be enough to maintain a strong presence in the Chinese market. He said the country is “awash with foreign niche brands … so they’ve got to plan for maintaining their longevity and not just be a flash in the pan. If you look at the major sports brands in China, they’ve all had problems at some stage.”

Even so, Lulu’s price-to-earnings ratio is strong, about twice the median of its peers. “The growth is positioned to be sustained for many, many, many years. The room to grow justifies what you might consider a premium,” said Wendy Trevisani, co-manager of Thornburg International Value Fund.

Lulu operates 226 stores in Canada, the United States, Australia and New Zealand. In addition to two boutiques in Hong Kong, Lulu hopes to open full-fledged stores there, as well as in London.


photo credit: tiger mask

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