Customer Experience Case Study: What got Lululemon here won't drive them forward.....

Sweet and Sour lessons in Brand Building

As part of regular series on customer experience (CX) assessment, this month we're casting our CX eyes over Lululemon.

First the background. Lululemon is a 17 year old US/Canadian athletic brand, targeting yoga-loving women, and increasingly men and kids too. Its success and growth has been well documented, and has three stand out commercial facts:

1. Stellar retail sales per sq ft of nearly $2000 that only Apple and Tiffanys can beat
2. Impressive bottom line margins that wowed investors…..at first at least.
3. A die hard fan base, that worships the brand, its stores and products alike

And the Lululemon customer experience was an integral part of all three of these. But the brand has struggled out of recovery mode for 3 years now, after a product quality scare that wiped $2bn off the stock valuation.

If you ever doubted the link between customer experience and commercial value, read on!

Retail Sales Formula

Part of the secret of the store formula was that they didn't just sell product. They provided community, using yoga as the main hook. Every store holds regular events around its neighbourhood such as "Run, Yoga, Breathe, Laugh" (RYBL) which showcases local instructors and actively engages people in the brand.

These make the store environment a place to inspire shoppers, a magnet to feeling good around like-minded people, rather than simply a way to buy cool gear.

In retail performance language, this kind of activity drives store visit frequency and dwell time, which directly links to sales. Combine that with a smart use of outdoor space and slick in-store merchandising and you get a chance of those super-high sales per sq ft results (think on that, Nike).

Operational Standards

Bottom line profit figures were impressive at first too, but they came at a cost. Lululemon didn't develop its inventory systems or product sourcing management in line with its growing customer base, resulting in slipping quality standards. Complaints started to arise around colour bleeds, and swimwear that turned rather revealing when wet.

It culminated in a huge backlash in 2013 against its signature black yoga pants that became see-through when worn. The storm only intensified when store customers returning items were asked to evidence the fault by "putting on the pants and bending over" [Ed: unbelievable but yes, true]. Eventually, with the fabric representing some 17 per cent of total inventory, a massive stock withdrawal programme was put in place, dumping $67m of product and $17m of profit.

Worse than that, consumer brand faith and investor confidence was shaken, as the negative PR hit the media.

Lululemon has since tried to recover its commitment to product quality, plus fix the medium term weaknesses in its inventory, commerce and management team. Fast forward by 3 years and its fashionable, slightly less tech products have helped lift Lululemon's quarterly sales to up around $700m, with CEO Laurent Potdevin sticking to its five-year plan pledge to double its revenue and profitability by 2020. The potential of international expansion and growth in its menswear business could yet see it achieve its goals.

Brand Community

From the start, Lululemon built its brand on behaviours that it felt reflected what consumers wanted. Unlike most of the sports apparel industry of its day, Lululemon did not settle for making womenswear clothing that was essentially just smaller sized items in pastel colours (so-called "shrink and pink"). Instead, it took its lead from hi-tech running and ski manufacturing, selling breathable fabrics with seamless stitching.

It highlighted TTS (true to size) information, showing where certain lines needed up or downsizing to get a perfect fit, as well as extra supportive bras and long length hoodies. The principle was to help customers find style and comfort for close-fit technical clothing, even if you didn't have a Hollywood body shape. Oh, and don't forget that signature bag to take your goodies home in, helping to remind the neighbourhood that you're part of the cool cache around here.

In return, customers started supporting the brand and each other, to help fix its limitations. For instance, if you want a Lululemon product from an outlet store or in an area that the company didn't ship to, fellow fans or "Lulu Angels" would go and buy them for you, and mail it to you. And thanks to a strong social media presence, Lululemon die hards took to self-presentation of their latest gear on YouTube, Facebook and countless blogs, effectively driving positive sentiment through Google search and potential new customers as a result.

Our Takeout:

Yoga retail competitors have been around for years, but have never acquired the following of Lululemon. Its CX combination is powerful - premium product style and detailing, set in a community store environment that prides itself on activity and conversation success as much as sales. Leading the charge to compete is lookalike Athleta (owned by Gap) which has been rapidly expanding its store base. Like Lululemon, Athleta puts emphasis on community and in-store events, but with the added muscle and resources to expand quickly and offer similar clothing at lower prices. Other hot brands like Under Armour and Victoria's Secret also have Lulu's consumer target in their sights, but still find it hard to command that winning 'athleisure' mix of style, cut and performance. Even though Lululemon dropped the ball on fabric, its die-hard fans have so far been forgiving. But that won't achieve its growth targets, hence the need to reach out overseas and into other consumer segments.

Most of all, our assessment is that momentum in brand retailing is crucial - Lulu has had a great growth run for over a decade. But in trying to add new product categories and international markets, it tripped up on just how important solid infrastructure was in order to keep the brand love alive. We sense that now the lid has been lifted on challenger brands, those once-loyal shoppers may share their wallet a little wider, so putting pressure on sales. Nevertheless, gift-ability remains a trump card for Lululemon - something that remains strong in the US market and where none of the other brands have quite the cache and feel-good factor. We have less confidence in their recent foray into selling limited-edition beer, perhaps aimed at maintaining its edgy, cool brand status in the summer season.

Is there an experience-based brand you'd like us to run our CX assessment eyes over - perhaps your competitors or even you own? Contact us at info@customerfaithful.com

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Further Reading: Stellar retail sales per sq ft of nearly $2000 that only Apple and Tiffanys can beat

Photo courtesy of Lululemon and Tiger Mask - http://flic.kr/p/trPK- http://flic.kr/p/8gKPZY