Once unique, Lululemon faces rivals on all sides

Fri Dec 7, 2012 6:09pm EST
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By Allison Martell

TORONTO (Reuters) - When Lululemon Athletica Inc opened its first U.S. shop in 2003, its form-fitting yoga pants, free classes and Pacific Northwest vibe were a revelation to its new American customers. They had never seen another retailer like it.

But time has caught up with the Vancouver-based retailer. Lululemon, closely watched by investors because of its meteoric rise, now faces a cluster of competitors whose stores and products bear a striking resemblance to its own.

Montreal-based Lolë, Gap Inc's Athleta and others are expanding aggressively in the United States. They could threaten Lulu's stellar growth and robust brand, especially by competing on price.

Conversely, Lulu could reap more growth from the expanding market for premium fitness wear, building on its 10 years of dominance in North America and its aggressive push into European and Asian markets.

Lululemon shareholders have had a very good run so far. The stock is up more than seven-fold since its 2007 debut and fitness-minded women have developed a fierce loyalty to the brand. Lululemon says it offers superior quality and if sales and earnings growth are any guide, customers agree.

According to research firm Retail Sails, Lulu is one of the most productive U.S. retail chains, lagging only Apple Inc and Tiffany & Co in sales per square foot.

The gravy train may not last forever. On Thursday, Lulu forecast a sharp slowdown in sales at its established stores in the crucial fourth quarter. The company said November got off to a slow start because of "consumer distractions that negatively impacted many retailers" and a glitch with its promotional emails through the Thanksgiving weekend.

The copycats can, however, be viewed as a positive development for Lulu, suggesting the niche it defined is not a passing fad. Chic, feminine apparel specifically designed for yoga and other fitness activities has entered the fashion mainstream.   Continued...

A Buddha shrine sits at the entrance of Lululemon Athletic, a yoga clothing store, as a woman shops with her dog in San Francisco, California, in this March 31, 2006 file photo. REUTERS/Kimberly White/Files