Lululemon Faces Slow Growth Amid Rising Competition

By Savyata Mishra

Lululemon (NASDAQ:LULU) is confronting its slowest quarterly growth in over four years, raising concerns among Wall Street about its ability to adapt to competing athleisure brands.

Revenue Expectations

The company forecasts nearly a 7% rise in revenue to $2.36 billion for the third quarter ending in October, which is a stark contrast to the nearly 19% growth seen in the same quarter last year.

Stock Performance

Lululemon's shares have dropped 33% this year, and the company will announce its results after the market closes on Thursday.

Competition from Newer Brands

The upscale Canadian brand, known for yoga pants and joggers, is losing traction to newer competitors like Alo Yoga and Vuori. These brands frequently update their inventory, appealing more to younger consumers.

Celebrity Influence

High-profile figures such as Kendall Jenner and Taylor Swift have been seen wearing activewear from Alo Yoga and Vuori instead of Lululemon, further impacting its market presence.

Market Analysis

Elizabeth Lafontaine of Placer.ai noted that newer brands are leading visitation growth in established markets like California in 2024.

Gap's Athleta Returns to Growth

Gap-owned Athleta has also seen growth, buoyed by a trendier product lineup and social media exposure. This contrasts with Lululemon's struggles in North America, attributed to product missteps and limited size availability.

Product Deficiencies

In August, Lululemon reduced its 2024 sales and profit forecasts due to issues in its women’s apparel segment. In July, it removed the recently launched $98 “Breezethrough” leggings from shelves after customer complaints about their design.

Industry Positioning

Ward Kampf from Northwood Retail explained the challenges Lululemon faces in maintaining growth as a large, established brand. Newer competitors are strategically opening stores near Lululemon outlets, with Vuori and Alo operating stores very close to Lululemon's.

Store Count and Market Expansion

As of January 28, 2024, Lululemon had around 370 stores in the U.S., while Alo and Vuori have over 100 stores combined in close proximity.

Challenges Ahead

Analysts believe Lululemon may have maximized its core market but is struggling to find growth in expanded categories. Despite launching new products, including flannel shirts and a Disney-themed collection, sales have not seen significant growth.

Customer Base

Lululemon primarily targets middle- to upper-income fitness enthusiasts engaged in activities like yoga, running, and gym workouts. However, the push to attract new customers might risk alienating their core clientele.