Lululemon Athletica unveiled a new five-year plan at its investor meeting in New York on April 24, which calls for among other things a fourfold increase in international revenues, the development of a footwear range and strong growth in the men's category, which could represent half of total sales in due course compared with 20 percent at present. Dubbed “The Power of Three,” it relies on three growth pillars consisting of product innovation, “omni-guest experiences” like Lululemon's loyalty program, and market expansion.
The management said that its recent success on international markets demonstrates that its products and philosophy translates across cultures and geographies and presents considerable growth potential for the brand. The brand's expansion across China, as well as the Asia-Pacific and EMEA regions, will be continued. The company also believes that considerable growth potential remains in both the U.S. and Canada, where it plans to leverage its agile store formats, digital experience and community connections.
In particular, Lululemon is now looking to expand its digital reach this year by launching local websites in Japan, France and Germany. China is also a target. It said it will accelerate the pace of new store openings and will continue to build upon the strength it already has in its digital channel, as it sees a pathway for this segment to represent 50 percent of its business in the years to come.
As previously reported, the management recently announced that one of its executive vice presidents, Stuart Haselden, will now oversee the international business, in addition to continuing to serve as chief operating officer. He joined Lululemon four years ago after working at Saks Inc. and as chief financial officer and executive vice president of J. Crew.
Overall, Lululemon is targeting revenue growth in the low teens over the next five years. The men's business is expected to double by 2023, while revenues from women's products are projected to grow by low double-digit rates annually. The annual capital expenditure budget will range from 6 to 8 percent of revenues to support store openings and renovations, as well as building out digital infrastructure. Supply chain initiatives will be aimed at incremental improvements in speed and sourcing efficiencies, as well as accommodating sourcing for new categories.
At the conference, the management pointed out that the basis for growth will be the core product line and organic growth by rounding out its assortment and developing products in existing categories. It suggested that the core business can entirely support the five-year projections, and expects incremental growth beyond that from several new categories, but it had little to say at this stage about the development of the footwear category.
Regarding product innovation, Lululemon said its strategy revolves around meeting the athlete's specific fabric needs for each sport or activity. The coming years will see new fabrics coming out, as well as additional collaborations with more fashion designers.
The company says its philosophy is to be the experiential brand that will help people living the “sweatlife” grow and connect. Sweatlife is seen as a combination of physical health through exercise and mental health, and the importance of connecting to like-minded people online, in-store and at events. The concept will be implemented at a new 20,000-square-foot experiential store that will be opening in Lincoln Park in Chicago next July.
Overall brick-and-mortar revenues are expected to grow by low double digits, while digital is forecast to more than double over the next five years. Regarding e-commerce, Lululemon will focus on the core experience and scalability, adding more product detail and streamlining the checkout process. It wants to expand the online assortment, offering more colors and sizes, as well as online exclusives.
Presented by the company's new chief executive, Calvin McDonald, who comes from Sephora, the new business plan comes after the company delivered one of its strongest years yet in 2018, with broad-based strength across the business. Revenues rose by 24 percent to $3,288 million, while net earnings surged by 87 percent to $483.8 million.
This will make it very easy for Lululemon to reach next year the sales target of $4 billion that had been set by the previous management in 2016. Investors feel that a turnover of $6 billion to $6.5 billion would be within reach by 2023.
The company said it achieved three of the financial targets it had set for 2020 two years ahead of schedule in terms of gross margins, operating margins and e-commerce penetration of 26 percent, thanks to investments made during the last three years in the supply chain, technologies and innovation.
On the other hand, with sales outside North America accounting for only 11 percent of sales, the company is running behind a previous goal of 20 to 25 percent by 2020. McDonald has already announced plans to open between 25 and 30 new stores abroad this year. International sales are now expected to grow at a compound average annual rate of 30 percent through 2023, by which time all the geographies should be profitable.