Over the past five-year period, Lululemon (LULU 5.20%) has seen its stock price rise 433%. That's far better than the S&P 500's 80% total return during the same time. The booming retailer has found remarkable success in an extremely competitive industry.
Selling high-quality products that are in huge demand with customers has certainly boosted the popular athletic apparel company. But there's another important, under-the-radar factor that has helped Lululemon. Let's take a closer look.
Image source: Getty Images.
Lululemon is building a community of avid supporters
Lululemon's marketing strategy is unique and very effective. While its larger rival, Nike (NKE 4.74%), spends heavily on expensive celebrity and athlete endorsements, Lululemon has taken a grass-roots, community-driven approach.
This entails building a network of ambassadors to promote the brand. The company has 47 global ambassadors who are elite athletes themselves, but are probably not household names. And then there are 1,240 store ambassadors, who are social and fitness community influencers, in the markets where Lululemon has a physical presence. These store ambassadors host meet-ups at Lululemon stores, for things like yoga classes and other events.
In return, ambassadors gain priority access to new Lululemon products and ongoing support that can help them grow their individual businesses. Furthermore, some get the opportunity to be a part of the company's design process, testing out new apparel and providing feedback. It's a mutually beneficial relationship that seems to be working.
Lululemon knows that it can't play the same game as Nike, which spent $854 million (or 7.9% of revenue) on brand and marketing in its last fiscal quarter (ended Feb. 28). Instead, Lululemon is going for a genuine and authentic approach to building its brand. Those ambassadors truly like and support Lululemon, and this enthusiasm can shine throughout the 574 current stores the business has.
While I certainly enjoy seeing a Nike commercial starring LeBron James or Tiger Woods, I know they're getting paid more than tens of millions of dollars to promote the brand. Lululemon's creative brand-building strategy is a more affordable option. While the company doesn't explicitly break out its marketing expenses, I'm fairly certain it's lower as a percentage of sales than Nike. When's the last time you saw a Lululemon commercial on TV?
Add an active network of engaged ambassadors to the mix, who constantly show support for Lululemon at a personal level, and the odds of remaining sustainably relevant to consumers are stacked in the business' favor.
Lululemon's success can't be denied
Lululemon's past success proves that this differentiated approach has worked tremendously, even more impressive given Nike's stranglehold on the entire sports apparel market. Over the past five fiscal years, Lululemon's revenue and profit have increased 174% and 221%, respectively. And its operating margin has expanded from 18.3% to 22% during that time.
The brand has proven to be incredibly strong, too. In its latest fiscal quarter (ended Jan. 30), Lululemon's gross margin of 58.1% was higher than Nike's gross margin of 46.6% during its most recent fiscal quarter (ended Feb. 28). And this isn't a one-time occurrence, as the its greater profitability has been a consistent trend over the past decade. What's more, Lululemon's impressive gross margin is higher than luxury brands like Apple, Ferrari, and RH.
Management's new five-year outlook expects continued success. By 2026, they expect annual sales to double to $12.5 billion, supported by a doubling of the men's segment, a doubling of digital revenue, and a quadrupling of international sales. If history is any indication, the business likely won't have any problem achieving these goals.
In the cutthroat retail and apparel industry, Lululemon has utilized an inventive marketing campaign that will continue propelling it to new heights.
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