How Lululemon Athletica Beat Nike By Creating A New Category

How did Lululemon go from one tiny yoga studio to becoming the official brunch uniform of women everywhere? Read on to learn about the impressive growth story of Lululemon.

The Retail Experience

Founder Chip Wilson had 18 years of retail experience prior to Lululemon, as he'd previously built a surfing and snowboarding apparel company- Westbeach back in 1979.

The company was relatively successful in the early days; mostly because of the market in Japan. The sub-brand Homeless did particularly well (Chip believed it was because of the letter L in the brand's name, which is a clear sign of American brand authenticity to the Japanese.)

But it was struggling nonetheless, Chip decided to sell the company for $15 million from which he was able to keep $1M. That was the basis of Lululemon.

“In Westbeach I made 2 million in two small vertical retail stores and I lost a million dollars on this global wholesale business. If I can deliver through vertical business at a price women will buy in volume."

Since the founder has had experience in snowboarding, skateboarding, and niche fitness apparel, he did not only learn from previous mistakes in the field but also gained access to journalists in the same field. Being one of the first in the field gave him the permission to become a sort of a de-facto person in all things related to surf, ski, skateboard, and yoga business.

Key takeaway #1

Healthy cash flow will give you the freedom to source the best materials and develop a relationship with distributors who will respect deadlines.

📹 Want to dive deeper? In our podcast episode, Miriam Lesa unpacks Lululemon's unique journey to success, exploring their strategic category creation, customer-centric culture, and brand community-building efforts.

Emerging Trend

Business meetings with cigars and steak dinners have been replaced by 45-minute cycling classes at spin class, as Jason Kelly describes in his book Sweat Equity.

To think about it, how much are you spending each month to break a sweat? It used to be a $20 gym membership or putting on high school shorts and going out for a run or a game of pickup basketball.

The professional segment started to embrace the premium fitness classes as the place of business development. And if you pay $34 per spinning class or yoga sesh with the potential strategic partner you better change your business suit to professional athletic apparel.

Keith Ferrazzi, author of Never Eat Alone, a book about networking, suggests taking business partners with you to create a stronger bond and close more deals. Yoga joined the trend of high-priced fitness memberships with upper-class clientele. 

Members preferred smaller fitness classes with dynamic instructors because they felt more significant - as a part of the tribe. Once you start being a SoulCycle member, a Yoga practitioner, or a CrossFit firebreather, you also need to dress the part.

The Yoga industry has been growing steadily and hit 16 billion worldwide in 2021.

Building the product quality

It’s almost redundant to talk about the quality of the product since this is always the prerequisite for any company to move forward. At Lululemon, they went all-in on the design and the quality that resonates with their target persona (chapter 5).

The product line

• Design - Shannon Wilson (Chip’s wife) and Chip were both coming from the apparel design background. Chip was adamant about having stitches on all the right areas. He doesn’t hide the fact that yoga pants are intentionally designed to be as comfortable and as flattering to the female body curves.

• ‍The Tech - Primary function of performance and fit has been achieved by the construction of the garment which hugs and promotes performance. Lululemon's’ apparel includes reversible, brushed, and textured fabric with a water repellent finish and Silverescent tech.‍
• Materials - to add a special flair and solidify the brand, big brands “invent” their own technology. Lululemon calls itself a technical apparel company. That’s why Lulu yoga pants are made from engineered fabric (Luon™, Luxtreme™, Nulu™, Nulox™) depending on the compression level and the intention of the garment (run, train, or yoga practice).

These names aren’t just an easy way to differentiate from the competition but they also carry unique features.

Luon is 86 percent nylon and 14 percent lycra. VitaSea fabric is made from SeaCell. SeaCell is a yarn made from seaweed and blended with spandex and cotton. VitaSea allows for an ultra-soft fabric that holds its shape and stays soft after many washes. This can be found in the company’s t-shirts and light layers. Silverescent is an odor-stopping fabric technology. The X-Static technology is woven into Silverescent fabric bonds 99.9% pure silver into the surface of each fiber.

• R&D - besides having the internal designers and innovators working on the designs and fabric options, Lululemon innovates through customer feedback and their retail staff. Some Lululemon stores have a blackboard where customers can leave suggestions or share them with the staff. The store managers translate the gathered qualitative info back to Lululemon’s HQ in Vancouver. There are no focus groups or website data collecting. This (conscious) lack of data collection works great for Lululemon in product innovation: however, it hurts them a little on the e-commerce shop (more on that in part 2).
• Price - the quality justifies a high price tag, the target profile, and creates a healthy margin for expansion. Just like Apple, Tesla, and other premium products on the price matrix (high quality, high pricing), Lululemon products don’t typically have discounts. As that would be detrimental to the brand image.
• The practicality of it - As much as it is frowned upon (especially for men) to wear sweatpants as streetwear, Lululemon yoga pants doubled the activewear as streetwear, thanks to the design aspects of the product. The new trend was born - athleisure - more on that in the Law of Category chapter)

The incredible part about Lululemon is that they have done such an incredible job with the product, they really don't need to over-advertise the brand. — Robyn Young

Key takeaway #3
Your product has to both appear and be of quality and design. Make the perceived value be an actual value.

Nailing The Niche

In the book, 22 Immutable Laws of Marketing, the law of category states: “If you can’t be first in a category, set up a new category where you can be first."

Example: What’s the name of the third person to fly over the Atlantic Ocean solo? You probably don’t know. Yet you do. It’s Amelia Earhart. But she isn’t known for that. She is known as the first woman to do so.

Lululemon completely embodied the law of category. They stepped into the emerging trend of premium athletic apparel and targeted it directly at the yoga industry.

They picked a narrow field and focused on the target persona of middle to upper-class women who appreciate comfort and designer clothing.

If they’d just become another athletic apparel they would have to compete against Under Armour, Nike, and Adidas, which would be waging a losing battle. The Law of Duality from the same source says that in the long run, every market becomes a two-horse race (e.g. Pepsi and Coke or Samsung and Apple).

Lululemon yoga pants became an iconic piece of clothing of the fitness economy. In its utility and ubiquity, sleek and expensive epitomizes how fitness has shifted from Old Navy practical running shorts to a piece of apparel that tells the person and the observer who we are.

Key takeaway #4

Find a unique angle only your product provides. Be the first one in your niche.

The Cultural Shift & Target Profiles

While it seems like the founder, Chip Wilson was just at the right place at the right time, he actually used demographic data to predict the ripe environment for his idea to grow.

According to TedX’s talk, Chip expected a gap in the market that would serve his company in the talent section as well as in the customer audience.

Ocean and Duke- Lululemon’s customer personas

Many companies identify and create a profile of a perfect client. To embed it into the marketing heads, this illusionary person has a name. In Lululemon’s, these muses are Ocean and Duke.

Ocean is a smart 32-year-old woman, who is well-traveled, athletically fit with her own condo, and just about to be married. In the NY article, Wilson explains the observations in yoga classes. As he looked around the mostly female yoga class, he noticed that women wanted well-fitting athletic clothing that was also easy on the eyes. In his opinion, there will be a market segment of women that fits a specific target persona.

Are they hitting their customer persona audiences?

Absolutely — one quick insight from the demographics section of their websites tells us the majority of visitors are coming from 25 - 34 years old women.

Key takeaway #5

Know exactly who your customer is. The more detailed the better.

Happy Employees

Happy employees definitely help with the growth of your business and the representation of your brand. Lululemon takes special care of their talent. In the retail section, they pay over 30% of the local rate. The higher wages also mean less turnover and progression up the chain of command.

These are mostly younger, educated women straight out of college.

Every “educator” is asked to write multiple-year goals and share them publicly. Chip Wilson is also known to be a big proponent of the Landmark Forum program — a self-help personal development program that is supposed to help with the growth of your integrity and leadership capabilities.

On the HR end, Chip created an environment for women who can grow the company with their skillset, resourcefulness, and grit while still having a family life and time off for maternity leave. Since retail workers are usually underpaid (especially women) he decided to pay them much better so the workers would have a financial incentive to come back and continue working for Lululemon.

For all those reasons, Lululemon was is in the top 10 Best Places to Work in 2018 according to Glassdoor.

Key takeaway #6

Keep your staff happy.

Brand Image

In retail, a brand is of the utmost importance. We’ve already mentioned that people buy the identity more than just a product. There’s a problem with branding since there are so many intangibles connected with the term.

Once the company knows what it stands for - its values, what its audience cares for, and who they are, the decisions will come naturally. It sets the tone of how the company behaves, what is its voice.

According to Scott Kraft (CMO of Menlo), the brands start with brand pillars, which serve as a foundation of the company — the core values. We all know what MVP stands for — a product that with just enough features to satisfy initial pain points for core clients. But there’s an idea about MVB — minimum viable branding.

The key components of MVB are Audience needs and functional needs are the products’ domain. Real branding starts with the emotional benefits - the fuzzy area where we are touching our audience. Then you have the personality which determines how the customers are going to perceive you.

The difficult part is that the emotion, personality, promise, and vision are intangible. Lots of companies just pulled the nice adjective from thin air and put them on the about page. As you are going to find out, Lululemon took branding extremely seriously.

And it paid off better than anyone could have imagined.

What are the brand pillars?

What are the 3 attributes that the company couldn’t exist without? If you’d have to choose what three adjectives describes your company the most - what would they be?

For example, if we put together: American, Free, and Badass a brand like Harley-Davidson comes to mind.

Lululemon branding breakdown and personality

Lululemon is a brand that triggers an emotional impact. The point of branding is to bring people to the point of making somebody feel.

When you’re wearing Lululemon you will feel more beautiful, protective, cared for.

• Branding Pillars: Quality, Fun, Empowerment
• Top Audience: Women who do Yoga. Narrower Audience: Successful Women in their Early 30’s Doing Yoga who need gear designed for modern practice
• Emotional benefits - Feeling Vibrant, Sexy, and Balanced

All those components combined lead to Lululemon’s personality: A Cheerleader of the New “modern” Yogi

Lululemon built an amazing brand. Their customers are proud to show off their product on social media. They strut on the walkways with the company’s branded shopping bag with the manifesto printed on it.

Key takeaway #7

Spend time to develop your own MVB. Decide what are your pillars of branding, your top customer audience, their top 3 needs, and top 3 emotional benefits.

The Customer Experience

If there’s something we have learned from the companies that made their name for customer service is that it solves two major problems

First, It creates a foundation for the company culture. If ridiculously good customer service becomes a keystone habit in the company, it starts pulling all other positive elements in the big picture.

And second, it starts the word-of-mouth effect among customers. Best customer-faced salespeople establish personal relations first.

Finally, they lighten the mood and really take the time to get to know the potential client. Once the solid foundation is established, only then they move into the sales section.

Lululemon, as is expected for their incredible focus on company culture, translated that into customer service. Shopping at Lulu’s is an experience. The customers are asked by their first name before they go into the changing cabins. The retail salesperson (referred to as ‘educator’ in Lulu’s naming convention) scribbles the name on a tiny whiteboard and proceeds to address the customer by their first name.

For the whole procedure of the sale (customer success journey), the customers are called by their first name by the entire retail staff.

Consider the product they are selling. There are cheaper alternatives. But one of the core values at Lululemon is to feel significant. Hence the first-name basis, hence asking about the needs.

Sometimes they turn the entire store into a free yoga studio. These social pop-up events start building even more positive connections to the brand. What was that one class-based fitness craze that has been growing like crazy in the last 10 years? Oh yes, CrossFit.

The Lululemon's In-Store Yoga Class led by one of the brand ambassadors. | source: DrapersOnline

Combined with the quality of a product and having a sense of being in the premium circle the experience becomes addicting.

Since every store has only limited stock of products (thus creating a sense of limitation).

Key takeaway #8

Go out of your way to create a meaningful personal shopping experience.

The Ambassador Program

Adidas is paying millions of dollars to dress the biggest icons in the sport. Crossfit athletes and UFC fighters are wrapped in Reebok from head to toe and Nike puts on track spikes on every track athlete in the Summer Olympics.

There’s a clear necessity of putting an influencer, an icon, or an archetype of an avatar in front of people. These are usually charismatic celebrities in sports, entertainment, and even business.

When you target a narrow niche, especially in a hyper-local environment you have to take the local stars and put them on the pedestal. This strategy worked out great because it works in symbiosis. The local yoga and fitness coaches got exposed in the store, got free high-quality products to wear, and started growing their business. In return, they have to put in a number of hours inside the Lululemon retail stores and run free yoga classes and represent the brand.

Since Lululemon's has such a large reputation, the ambassadors are getting a significant surge in business. Some of the trainers and coaches are trying hard to become ambassadors.

Key takeaway #9

Identify the leaders of the community you are serving. Recruiting them by making them look better.

Social Marketing

If you would have to pick a social media channel and your audience are women interested in fitness and design aged between 25 and 35, what would you pick?

That’s right, Pinterest is known to have a massive female audience and Lulu is making a killing on it.

While it’s arguably a tough channel for selling, it does well for branding and inevitably serves as one of the touchpoints that leads to a sale.

2+ million followers on Pinterest - a social media with strong women audience base.

However, even though those numbers look fabulous, it works mostly in branding perspective. Hence the photos are high quality, professional, and highlighting the design features — perfect for saving them in a lookbook for the next Lululemon haul.

Unfortunately, they are not utilizing it as much as they could (more on that in the second part). This might be the result of Wilson’s persistence in an ethereal, transcendental conviction on branding alone and abstinence for numbers and data. His replacement Laurent Potdevin (ex-top of Burton Snowboards) incorporated a more data-driven approach which resulted in increased sales and better social media presence. But there are still opportunities.

Facebook and Tumblr are also doing okay, however, nothing too earth-shaking. The one thing that works really well though, is the symbiosis with the ambassador program. Each ambassador has its own social circle of influence which extends to the online reach.

The Instagram control center

Instagram proves as one of the biggest opportunities. The social media channel has just reached 1.074 billion monthly users and is great for branding and impulsive decisions.

Their account is filled with live events, motivational sayings, and no sales posts whatsoever. Those product-pushing posts are now a part of the stories section where people are more inclined to impulsive purchases.

With a 3.7m Instagram follower base, Lululemon developed multiple destinations where the brand followers can turn to.

Over 3 million Followers on Lululemon's Instagram account. 

• The Spotify soundtrack. Goal: Brand affiliation
  The keyword 'lululemon' in Spotify and Apple Music leads to Lululemon created a playlist for various workouts.

Goal: Brand affiliation

• The Desktop Instagram Dashboard
  With a click on the explore Lululemon, the Instagram desktop app will curate and duplicate the content of the original post wall into CTA funnels for each image. This is the service Lululemon is using for each post — Curalate. This is a regular Instagram post on desktop and mobile:

And this is the post with Curalate add-on with CTAs that lead to the online shop:

Upgraded Instagram with software that leads to online purchases

Goal: Multiple — Brand Experience and sales through events and residual word-of-mouth points from attendees

• The Instagram stories. There's more to the brand than just clothes. Lululemon developed a wholesome lifestyle catered towards modern yoga :

Fuel - Light nutritional recipes 

Discover - Upcoming trends

What We Love- In-house weekly news of new product arrivals

Visio+Goals- Motivational, goal-setting stories

Travel- Travel tips and styles mixed with travel destination's inspirational imagery

Workouts - Yoga sessions, HIIT classes, movement

What's New- New products

IGTV - On the Instagram mobile app you will also find the newly launched IGTV section where Lululemon's shows off longer 20 minutes Yoga flows

Key takeaway #10 

If you’re using Social Media in your marketing strategy then use the one that has your target profile base

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