Shares of Lululemon Athletica—founded in 1998 and based out of Vancouver—dropped 4% on 9th September 2011. This was despite a 40% increase in its sales and 76% increase in its profits in the second quarter. It is expected that high labour and material costs will put pressure on Lululemon’s profit margin in the third quarter; however, Lululemon has no plans to pass on the increased costs to its consumers. Lululemon adopts the “scarcity model” for its stores to increase consumer demand—this has led its sales per square foot to far exceed those of its competitors like Roots, Gap, and Target.
1. Do you think maintaining their price will help Lululemon? How?
2. Which strategies can Lululemon adopt to differentiate itself from its close rivals like Roots, Gap and Target?
Source: H. Shaw, “Lululemon dips despite solid sales”, Financial Post (Retrievable online at: http://business.financialpost.com/2011/09/09/lululemon-dips-despite-solid-sales/)