In a major win for the world of offline retail, Lululemon posted quarterly numbers that beat expectations and enabled the company to raise their guidance for 2019. Lululemon rode a strong brand, beloved products, and a unique ability to own a specific market segment to impressive revenue and same-store sales growth in early 2019.
We dove into their location analytics to see if the foot traffic data matched the performance and whether that success has sustained into Q2.
Lululemon’s revenue jump was reflected in foot traffic as well, where the brand saw traffic increases throughout Q1 and into Q2. In fact, analyzing foot traffic compared to the baseline for the first five months of 2019 saw three times in Q2 where the metric came in 100% or more above the 2019 baseline.
This speaks to the unique ability of the brand to drive consistent interest and self-produced peaks whether they align with Easter, Mother’s Day or Memorial Day. It also indicates the continuation of the positive momentum the brand created in Q1.
The quarter's success was so impressive that it provided further support to the company's aggressive expansion plan. But as with any retail brand, there is a unique risk in periods of growth - primarily the creation of long term inefficiencies. This can be a more serious risk for a brand that has a city-centric growth approach where much of the initial expansion is focused around areas of existing strength. Taking a look at Lululemon’s store locator shows a heavy focus on major cities - with expansion happening in those cities and the surrounding areas.
While a strategy of this kind makes sense - there are lots of people in cities, and there is a proven demand - it also puts companies at risk of cannibalization. And there are indications in several cities that this specific issue may be rearing its head for Lululemon.
Lululemon's Cannibalization Risk
For example, analyzing two locations in Austin, Texas shows a significant degree of overlap between the two sites. This doesn’t mean that either store isn’t performing, but does indicate a likelihood that either single location would be able to effectively serve the wider audience.
A similar challenge can be seen in three Chicago area stores where an analysis of customer overlap shows that there is a tremendous cannibalization risk for a store in Fashion Outlets Way.
It is possible that these specific sites are able to create the optimal and complementary location makeup for Lululemon to maximize revenue in the area. However, an ongoing strategy that doesn’t effectively maximize a specific location leaves opportunities on the table and increases the risk of ultimate store closings and relocations.
New ‘Agile’ Approach
Interestingly, Lululemon’s answer may be found in the new agile approach to store locations they announced in April. The use of different types of locations - defined by their size, permanence and experiential focus - could help the brand optimize their store mix. Taking the same Chicago example, while there is a strong element of cannibalization, each store has a specific strength that could be leveraged within the new model.
Analyzing the same three locations, one property sees an average visit duration that is 22% more than the other sites. This could point to a powerful capacity to create a more experiential location with a heavier focus on events and classes in the site already driving longer customer visits.
A second location sees a unique distribution of visits that drives customers to the store earlier in the mornings, compared to the other two sites.
From optimizing staffing to building a mix of stores that help serve a particular area to its fullest, there is a powerful potential to avail the wider spread of stores as a single path to serving a given location - especially one as big as Chicago.
Can Agility Overcome Cannibalization?
One of the biggest challenges that major brands have faced in expanding offline retail is determining how to effectively grow without hurting existing sites. While Lululemon shows no signs of slowing its powerful market takeover, the company will still need to grapple with this issue.
Whether Lululemon emphasizes spreading out stores to more effectively cover key regions, or leverages their agile approach to address a wider market with differentiated store types, much of Lululemon’s expansion success will rest on its ability to optimize their property mix.