Lululemon Is Hotter Than Ever: Should the Brand Make a Bigger Play for Shoes?

Lululemon is riding high.

The yoga-inspired clothing retailer has taken a chunk of the athletic apparel market, posting a stellar fourth-quarter earnings performance and seeing its stock shoot up more than 80 percent over the past year. For the full year of 2018, the company recorded a gain of 24 percent in revenues to $3.3 billion.

With a solid footing in athletic apparel, perhaps the natural question centers around whether or not Lululemon will tackle the next frontier — footwear. In August 2017, the brand made its first play in the shoe sector, teaming up with sneaker label APL (Athletic Propulsion Labs) to produce an assortment of men’s and women’s trainers available in select stores across the country.

But outside of that collaboration, Lululemon has yet to dip its toes (no pun intended) into the shoe business — a move that Canaccord Genuity analyst Camilo Lyon said is unlikely to happen in the near future.

“I certainly think that Lululemon is strong enough and has brand equity with its core consumer to delve into footwear, but just because it can, I don’t think they necessarily will,” he said. “Footwear is a tough business. It has lower margins, requires a new design skill set and would require a whole new partnership with a different manufacturer.”

Nevertheless, just this month, a report by Canaccord Genuity revealed just how swiftly the brand’s perception is influencing shoppers. The investment banking firm’s athletic apparel survey, released last week, showed Lululemon currying more favor among a broader base of women, particularly those between 25 and 34 years old — surpassing sportswear giant Adidas to rank a close second behind competitor Nike. (Unlike Lululemon, both brands are major footwear players.)

And it’s not just female millennial consumers who are drawn to the brand. Market research firm YouGov also noted the increasing popularity of the Vancouver, Canada-based chain among 18- to 49-year-old men, with 13 percent of male respondents saying they’re open to shopping at Lululemon, compared with 5 percent in January 2016.

Still, despite its undeniable buzz, Lulemon’s potential exploration of shoes would undoubtedly bring up the logistical challenges of design, sourcing and manufacturing. The brand may also struggle to find relevance in a market already saturated with prominent names including Nike, Adidas and Puma.

Susquehanna International Group analyst Sam Poser, meanwhile, emphasized the difficulty of expanding from apparel into footwear, versus the other way around.

“For Lulu to make shoes and only have their own distribution for them would be a very high-cost proposition, and they’d have to make things that are better than Nike or Adidas,” he said. “It isn’t their core competency … There are opportunities to drive incremental growth through [footwear], but I think it would dilute who they are as a brand.”

Instead, analysts expect Lululemon to expand into lifestyle. The brand has already released a 20-piece collaboration with trendy indoor cycling company SoulCycle and intends to launch this spring a self-care line of deodorants, dry shampoo, moisturizers and more. Additionally, it has been testing out a paid membership program for loyal customers, with perks including complimentary clothing and a monthly class, as well as free express shipping.

“What I’m noticing more of is their expansion outside of athleticwear,” Lyon explained. “That’s far more of a tangential and sensible avenue to go down versus owning a footwear business.”

It also remains to be seen whether Lululemon plans to enter into more partnerships with shoe brands, which may allow the company to further experiment with footwear. “I think they’re more likely to do special partnerships on a limited basis to create excitement and get people waiting for the next one, but also have them really incorporate Lululemon’s ethos as a brand,” Poser said.

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