Analysis of Lululemon Athletica: Porter’s Five Forces Insights

Assignment #1 Analysis of “Lululemon Athletica” using Porter’s Five Forces. Centennial College INTL 706- Global Business Strategy Mr. Denton Dewar May 27, 2024

Analysis of “Lululemon Athletica” using Porter’s Five Forces. 1. Threat of new entrants: (Medium) Due to a number of factors, Lululemon faces a moderate threat from new competitors in the athletic apparel market. In terms of production capacity and distribution networks, the industry has few entry barriers; however, building a strong brand presence necessitates a substantial investment in marketing (Lululemon Athletica Inc. (May 24,2024)) and product development. Lululemon's emphasis on quality, innovation, and the customer experience, it is difficult for new competitors to compete. But the growth of e-commerce platforms has made it easier for smaller brands to enter the market, which could lead to more competition in specialized markets. Notwithstanding the danger, Lululemon's well-known brand and large consumer base reduce this risk to a moderate extent. The market is sizable and expanding, and consumers are placing a higher value on wellness and health. Nonetheless, Lululemon's robust brand recognition, devoted customers, large investment in R&D, and significant physical and online retail presence make it difficult for newcomers to compete. 2. Threat of substitutes (Low to Medium) Lululemon's impressive growth has drawn attention from major sportswear brands like Nike and Adidas, encroaching on a market that Lululemon once dominated. As competition heats up,

Lululemon is branching out into new product lines and expanding into different regions to broaden its customer base ( Jacksonville, 2013 ). The athletic apparel market offers a wide array of alternatives. Consumers can choose from premium brands like Nike, Under Armour, and Adidas, as well as more affordable options such as H&M, Forever 21, and private-label retailers like Walmart and Target. This high availability of substitutes means that dissatisfied customers can easily switch to other brands, increasing pressure on Lululemon. Lululemon differentiates itself through its focus on quality, innovation, and community engagement, such as in-store yoga classes and events ( Lululemon, 2019 ). This differentiation helps it stand out, reduces direct price competition, and allows Lululemon to attract and retain a dedicated customer base. While Lululemon's target market often values the brand’s quality and performance over price, economic downturns may lead even loyal customers to switch to more affordable options. 3. Bargaining power of suppliers: Low Lululemon Athletica enjoys a low bargaining power of suppliers due to several strategic factors. One primary reason is the company's diverse supplier base. Lululemon sources its materials from numerous suppliers around the world, which significantly reduces its reliance on any single supplier. This widespread sourcing strategy helps the company avoid potential disruptions and maintain a steady supply of raw materials. By not depending on one or a few suppliers,

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Lululemon can negotiate better terms and prices, as it can easily switch to alternative suppliers if necessary. Another key factor contributing to the low bargaining power of suppliers is the nature of the materials used in Lululemon's products. The primary materials, such as synthetic fibers and fabrics, are widely available and can be sourced from multiple producers. This common availability means that Lululemon is not constrained by a limited number of specialized suppliers. Additionally, Lululemon's efforts in building strong relationships with key suppliers enable closer collaboration and potential vertical integration. This means that Lululemon can work more directly with suppliers to control costs and ensure high-quality standards, further diminishing the suppliers' power. According to Lululemon's annual report (2022), the company actively diversifies its supplier base to mitigate risks associated with supplier dependency and to maintain a competitive edge in the market. 4. Bargaining power of Buyers: Medium The bargaining power of buyers for Lululemon Athletica is considered medium, influenced by a balance of customer loyalty and price sensitivity. Lululemon has developed a strong, loyal customer base that highly values the brand's commitment to quality, style, and performance. This loyalty reduces buyers' power because these dedicated customers are less likely to switch to competing brands, even if prices are slightly higher. The brand's strong reputation and the perceived value of its products mean that many customers are willing to pay a premium for Lululemon apparel, which gives the company a degree of pricing power.

However, price sensitivity still plays a significant role in the bargaining power of buyers. While Lululemon has a loyal customer base, not all customers are willing or able to pay the higher prices for its products. If Lululemon raises prices too much, it risks losing these price-sensitive customers to competitors like Nike, Adidas, or Under Armour, which offer similar products at potentially lower prices. Moreover, the athletic apparel market is saturated with various alternatives, making it easier for customers to find substitutes if they feel that Lululemon's prices are unjustifiably high. A survey by Statista (2023) highlights that while Lululemon enjoys high customer loyalty due to the quality and value of its products, price sensitivity remains a significant factor, balancing the overall bargaining power of buyers. 5. Rivalry Among Existing Competitors: High Intensity among firms operating in the athletic apparels industry is considered high in this factor. This rating has been made based on several factors that are as follows: Intense Competition Intense competition is expected in the market since the established apparel usually fights for market share. Nike, Adidas, Under Armour, and Gap will be deemed main competitors because their products are within the same specialization category as the Lululemon products. Nike and Adidas : These two giants are global leaders in the sportswear industry, offering a wide range of athletic apparel and footwear. Nike’s extensive product range, emphasis on performance and innovation, and its subsidiaries make it a formidable competitor to Lululemon in the athletic apparel and footwear market. One of the key ways in which Adidas

competes with Lululemon is through its brand recognition and market presence. Adidas has a robust global presence and a loyal customer base, allowing it to rival Lululemon’s market share effectively. (Pereira,2024) Under Armour and Gap’s Athleta : Under Armour: Specializes in performance apparel and competes in the same market segment as Lululemon. Athleta directly competes with Lululemon in women’s athletic wear, with a focus on yoga apparel and active wear. (Cuofano ,2024). Low Buyer Switching Costs The threat of buyers switching from using athletic apparel of one brand to another is relatively easy, meaning that buyers can readily switch to using another brand or product if they are confronted with an improved brand or a better deal in apparel. This makes intensity of competition high because brands engage in several activities to capture the hearts of consumers through product differentiation, promotion, and pricing strategies. Price Sensitivity : Some customers are very sensitive to changes in prices and there will always be a consumer who will choose another brand if there is perceived value. This is especially so in the present generation which is characterized with high levels of competition in the market, where there are variations in small and closely related brands within the market that produce products that are not very different from each other in the sense that only minor differences can be found in the design and technology of the product being produced.

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Brand Loyalty : Thus, even though Lululemon has high rates of customers’ loyalty the industry is so overcrowded that companies must invest much effort to maintain such loyalty that is based on the pillars like quality performance, customer service, and active participation. Market Saturation The market share of athletic apparel is highly competitive, with many brands’ products resembling each other. This saturation indicates that they need to set new ideas and develop products that are unique in the market. Thus, it is obvious that differentiation by means of innovation and quality is essential for Lululemon that can help the company to stand out within such a competitive environment. Product Differentiation: Lululemon utilizes a broad differentiation strategy because its target market is broad and its product line is varied, it stresses product innovation, and its community-based marketing and retail experience sustain its differentiation from competitors. Lululemon’s competitive strategy is broad differentiation due to the company expanding its target market and product line. (123helpme, 2024). Community Engagement: Local people’s endorsement through community-based marketing such as endorsees, events within stores contributes to developing customer loyalty and improving on the extent of differentiation.

Refere nces 1. Lululemon Athletica Inc. (May 24,2024) , (LULU) Guru Stock Analysis, . https://www.gurufocus.com/stock/LULU/summary 2. Jacksonville (2013 Sep 26) Profile of Lululemon Athletica: A Specialist in Stylish Fitness Apparel. Entertainment Close - Up http://ra.ocls.ca/ra/login.aspx? inst=centennial&url=https://www.proquest.com/wire-feeds/research-markets-adds- report-profile-lululemon/docview/1436318845/se-2

3. Lululemon (2019). lululemon Takes Steps to Bring the World Together Through Run. https://corporate.lululemon.com/media/our-stories/2019/lululemon-takes-steps-to- bring-the-world-together-through-run 4. Pereira, D. (2024, February 7). Top 10 Lululemon Competitors and Alternatives (2024). https://businessmodelanalyst.com/lululemon-competitors-alternatives/ 5. Cuofano, G. (2024, January 29). Lululemon Competitors. https://fourweekmba.com/lululemon-competitors/ 6. 123Helpme. (2024). Competitive Strategy of Lululemon. https://www.123helpme.com/essay/Competitive-Strategy-Of-Lululemon-536286/ 7.

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