Lululemon: Industry and Competitive Analysis of Porter's Five Forces (2023)

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The comprehensive strategic and qualitative analysis of Lululemon's competitive advantage in a competitive apparel industry using Porter's Five Forces model.

Lululemon (NASDAQ: LULU) is an athletic apparel company that sells apparel for yoga, running, and fitness activities. Originally known for women's yoga clothing, the brand has evolved into men's, casual and lifestyle brands.

The stock is listed on the Nasdaq stock exchange and has a market capitalization of $42 billion. The company has annual sales of $3.9 billion with year-over-year growth of 18%.

The enterpriseis generating strong yields during the pandemicfollowing recent expansion into men's, digital and international markets. The popularity has increased as more people work from home and choose more comfortable and stylish clothes than formal wear.

The strategy has put the brand in direct competition with Nike, Adidas and Under Armour. Therefore, it is vital for managers, investors, employees and customers to understand industry intensity, competitive advantage and long-term profitability.

The best framework for evaluating a company's competitive advantage is Porter's Five Forces industry and competitive analysis. The following is a summary of Lululemon's framework and competitive advantage analysis.

WHAT IS PORTER'S FIVE FORCES INDUSTRY AND COMPETITION ANALYSIS?

Porter's Five Forces Industry and Competitive Analysis is a qualitative business analysis designed to assess competitive advantage and long-term profitability. The main objectives are to determine the level of competition, evaluate strengths and weaknesses and determine the company's strategy.

Michael Porter developed the framework in 1980 while he was a professor at Harvard Business School. He published the strategy in a book entitled "Competitive Strategy: Techniques for Analyzing Industries and Competitors".

Michael Porter identified the five forces that shape every market and industry in the world. The five forces model analyzes the intensity of competition, attractiveness and long-term profitability.

LULULEMON: PORTER'S FIVE FORCES INDUSTRY AND COMPETITION ANALYSIS

The framework provides a qualitative and comprehensive strategic analysis to assess competitive analysis beyond the current competition. Porter's Five Forces model will help the brand establish a strategic position and aCompetitive advantage.

#1 – NEW ENTRY THREAT

The barrier to entry for the textile and clothing industry is low. Many brands offer similar yoga and exercise products, such as Sweaty Betty, Athleta, Patagonia, and Fabletics. Big brands like Nike, Under Armour, Puma and Adidas are also taking advantage of the trend and saturating the market.

However, Lululemon is the pioneer of the athleisure brand and the company has a long history of developing innovative products. Lululemon operates an innovation center called Whitespace in Vancouver and New York City to create a new value proposition for customers and develop effective barriers to protect its competitive advantage[1].

How Lululemon raises the barrier to entry and lowers the risk of new entry:

• Innovation is at the heart of Lululemon's strategy for creating brand and product differentiation.
• Innovative products increase the brand loyalty of existing customers
• Novel products give new customers a reason to buy the Lululemon brand.
• Diversification is key to conquer a new market segment and expand the brand beyond women.
• Online sales are an important strategy to create a new revenue stream in the digital economy.
• The acquisition of Mirror helped Lululemon enter the fitness equipment market and compete directly with Peloton and Fight Camp.
• Casual wear and footwear are the next frontiers to boost the Lululemon brand's competitive advantage.

#2 – SUPPLIERS’ BARGAINING POWER

The bargaining power of suppliers is high because Lululemon does not operate a manufacturing facility. Lululemon sources raw materials from 65 suppliers, and 30% of Lululemon products are made from proprietary Luon fabric sourced from a single supplier[2].

Lululemon manufactures its products from 35 companies across Asia, China and North America. This is an important strategy as the fashion industry is highly seasonal and needs to react quickly to new trends.

How Lululemon Lowers Supplier Bargaining Power:

• Lululemon is on track to diversify material source and manufacturing facility to reduce supplier bargaining power.
• Horizontal integration is a better strategy as the apparel industry is highly seasonal and does not require capital costs.
• An efficient supply chain is crucial to minimize costs, increase quality and improve delivery speed.
• Leveraging the Lululemon brand is key to securing suppliers and making them dependent on Lululemon orders.

#3 – BUYER BARGAINING POWER

Bargaining power of buyers is low as Lululemon sells at a premium price. Lululemon's strategy of targeting the high-end market has proven successful in maintaining its competitive advantage.

The strong brand association with the luxury sports market creates a sustainable competitive advantage. It attracts new buyers who want to be perceived as part of an exclusive social community.

How Lululemon Lowers Buyers' Bargaining Power:

• Diversifying into the casual lifestyle market allows Lululemon to maintain premium pricing and reduce buyer bargaining power.
• Expanding into an online store secures revenue during a pandemic and maintains a premium price.
• Rapid innovation creates strong differentiation from competitors, keeps the brand fresh and recruits loyal customers.

#4 – PARTS THREAT

The threat of substitutes for the Lululemon brand is high. The big sports brand produces similar products, and new startups are saturating the market. The most important source of competitive advantage is brand loyalty.

Lululemon has a solid and loyal customer base. The company has many followers creating a unique community for the health and fitness market. Lululemon is transforming the after-hours store into a yoga studio to maintain strong communities and offer a service that goes beyond apparel products.

How Lululemon lowers the threat of substitutes:

• Lululemon is on the right track to offer more services instead of just being product-centric.
• Yoga classes, a strong social media presence, and dedicated Lululemon stores are a source of competitive advantage.
• Lululemon does not sell its products in stores that are not operated by the company. This strategy creates scarcity and makes Lululemon an exclusive high-end product. It creates high demand and allows the company to charge premium prices.

#5 – INDUSTRY RIVALRY AMONG COMPETITORS

The rivalry between the existing players is intense. Competitors use pricing strategy to lower price, gain market share and reduce overall profitability.

The competitive athleisure market is becoming a real threat for Lululemon, which operates in the high-end segment of the market. The economic downturn will discourage customers from choosing cheaper brands.

How Lululemon lowers the intensity of the industry and competition:

• Differentiation in product, location, price and advertising are the foundation of Lululemon's competitive advantage in an intense industry.
• Competitors are conquering lower-end markets, but it will take a lot of time and investment to penetrate Lululemon's market share.
• Innovation, R&D, and intellectual property are the building blocks of Lululemon's competitive advantage.
• Supply chain, horizontal integration and continuous improvement will reduce unit costs to provide a buffer during a market downturn.
• A strong social media presence, community, support and online marketing increases brand equity.

IMPACT OF PORTER'S FIVE FORCES INDUSTRY AND COMPETITIVE ANALYSIS ON LULULEMON

Lululemon has a low barrier to entry, high bargaining power of suppliers, low bargaining power of buyers, high threat from substitutes, and intense rivalry.

However, Lululemon has strong differentiation and innovation to survive in intense industry competition. Lululemon is beginning to erode the market share of the big brands in the athleisure and lifestyle segment.

Lululemon has a strong, sustainable competitive advantagebecause the company is set up as an agile organization. The company can spot a disruptive trend in the apparel industry and manage to venture into new opportunities.

CONTINUE READING: Tesla: Industry and Competitive Analysis of Porter's Five Forces

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