By Manoj Raheja
“Lululemon Athletica Inc. can get away with charging $100 for yoga pants and $48 for sports bras because it is a highly valued brand with a reputation for quality products and innovation — and management won’t sacrifice that to satisfy the Street’s demand for continued blockbuster sales growth.”
The basic gist of the story is that despite beating analyst’s predictions of 1st quarter results, the street reacted poorly, and sent shares down 9%. Part of the reason is because Lululemon is said to be leaving sales on the table by not keeping up with demand, instead balancing carrying inventory with the need to invest in high quality new products. They fired back “Lululemon sells high-value, high-margin garments, not quick-turn, high-volume T-shirts. We don’t want to be buying in bulk just to meet demand, because then we will lose what makes us special.”
While I’m sure the behind-the-scenes story is more complex than the overview I’ve given you…here’s what makes it cool. At SW+A we’re often talking about great brands, and discussing what makes them great. One definition is that all great brands deliver on a promise of future expectations. Let’s use Costco as an example. If I go into a Costco – my “expectation” as a customer is that I’m going to find a great deal; A good quality product at a low price. I also expect to find new great deals every time I walk into the store (supported by their treasure hunt strategy where upwards of 20% of their product assortment is on rotation). They are known in the industry to be shrewd negotiators in order to fulfill your expectation of getting a good deal (while also making a little money for themselves).
Similarly, Lululemon has built up an expectation for its customers. One where you can find high quality lifestyle apparel that delivers on functionality and design.
So what about your brand? What is your brand promise, and what lengths do you go to keep it? While again I recognize that there is more to this story than I’ve shared – Lululemon still provides us with a great example of sticking to their promise. And as for a 9% drop in share – don’t feel too badly for them – they were also just named Canada’s fastest growing most valuable brand by Interbrand. Sounds like a promise worth keeping to me…and that’s why it’s cool…