Industry Analysis The performance-based yoga industry is generally favorable for Lululemon. The PESTEL analysis will help explain certain aspects of the external environment. The main influence that the political environment has on Lululemon is with respect to trade in textiles, in particular insomuch as trade policy can affect the ability of Lululemon to acquire goods from its suppliers around the world, and whatever tariffs and trade barriers the company might face in doing so. In general, the company faces the same political environment as its main competitors, which means that changes in the environment are unlikely to convey strong advantage or disadvantage to any industry player. The political environment is otherwise not a major factor.

The economic environment in 2016 is generally favorable. The economies of both the US and Canada are improving, basically putting more people in the company's target market, which skews towards those with higher levels of disposable income. The company's prolonged period of growth after its early years has corresponded with a prolonged period of economic growth.

The social environment is favorable for Lululemon. More people are taking an interest in fitness, and yoga in particular is quite popular. The company's holistic approach to health is viewed favorably by the target market. There are indications that the same social environment exists in some other markets, providing opportunity for expansion, and that it will continue to persist. Indeed, a generally aging population provides ample opportunity as people start to take greater interest in health and well-being as they age. The downside to the social environment is that the company's target market generally has high standards, so the recent issues (i.e. with Chip Wilson's comments) are sure to damage the brand.

The technological environment is generally favorable. Fabric technology has improved significantly over the years, first providing Lululemon with great fabrics on which to build its business. Now, the company is a leader and can choose from among the best fabrics or develop its own in order to deliver higher-performance clothes than its competitors. Online retail has also evolved significantly, providing Lululemon with an excellent channel for sales. The development of content marketing in recent years has presented the company an opportunity to extend its online B2C sales as well by reaching more consumers in more places, and leveraging its strong brand recognition to win their business.

The environment is not generally a major issue for Lululemon, though it must remain conscious of the environmental impacts of its products (e.g. dyes) as any negative environmental performance will resonate strongly and poorly with the company's target market. The legal environment is another area where the company should not have any problems, but any problems would negatively impact the brand.

Five Forces

Porter's Five Forces framework provides a tool by which to examine the profit potential of an industry. The market for yoga clothing in particular is generally a favorable one, especially for a leading player like Lululemon. The five forces are the bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants, the threat of substitution and the intensity of rivalry.

The bargaining power of buyers is generally medium. In this industry, there exist several competitors, but most are specialists like Lululemon. The ability of Lululemon to differentiate itself from more mainstream athletic apparel brands is critical to maintaining separation and reducing the propensity to shop around. If consumers are less willing to shop around, such as because of the strength of lululemon's brand and their loyalty to it, then the company has greater pricing power. That it targets relatively affluent consumers who are less price sensitive for things that they really want helps reduce their bargaining power. But in theory at least one can obtain cheaper yoga clothes relatively easily, and it is the role of lululemon's marketing to convince the market to waive its bargaining power.

The bargaining power of suppliers is generally low. The fabrics used in apparel are typically commodities, and as such there are many producers, but only so many major buyers. Lululemon, as a major player in yoga...

That the company knows it has strong bargaining power over buyers as well means that it has some flexibility when dealing with suppliers, too, to become a customer of choice, which will enhance its bargaining power in the long run.
The threat of new entrants is high. There are many apparel designers in this world. While yoga is a relatively new and growing category, there are also many large athletic apparel suppliers. Should those suppliers (i.e. Nike, Adidas, etc.) see the yoga market as worthwhile, they have the means to enter this market. Key to fending off powerful new entrants is maintaining the exclusivity of this market, but even that will not fend off new entrants who start as yoga companies. The reality is that there is only so much a designer can do in the context of yoga wear and fabric, and this limited capacity to differentiate combined with low economies of scale is likely to entice new entrants.

The threat of substitutes is reasonably low. The point of Lululemon from the very beginning was that traditional athletic clothing was a poor substitute for clothing that was expressly built for yoga. Thus, consumers who buy Lululemon or are even in the company's target market are unlikely to avail themselves of substitutes. Rivals, yes, but substitutes, no.

The intensity of rivalry is not yet high, but it is trending in that direction. First, lululemon's success has attracted new entrants, of varying degrees of power, and with different models. While the company enjoys a unique and strong position in the market, rivals will emerge to challenge it. It should be expected that rivalries will be intense for a period as the market starts to develop. There is definitely risk that new entrants will grow supply capacity to a point where it will exceed demand, at least in the short run, and that this might even be happening already. If Lululemon lacks a singular direct rival, it nevertheless has umpteen competitors nipping at different corners of its business. Overall, this creates an environment that is generally positive The company's ability to exert bargaining power over both buyers and suppliers has served as a buffer against increasing competition, but it is not unreasonable to predict that bigger competitive challenges are yet to come.

Change

New competitors are the major driving forces in the industry. Lululemon's success has attracted rivals, and there is risk of short-run overcapacity that will drive prices down. The company will need to find new revenues in other product lines to make up for the bits and pieces that rivals take out of its yoga business. This industry restructuring is probably the biggest force for change at present, though any economic downturn could definitely threaten a company that charges premium prices for goods that can be fairly easily obtained from another brand for less.

Key Success Factors

As in any fashion industry, one of the major key success factors is design. Fashion tastes change, and a brand can fall out of fashion fairly quickly. Lululemon's positioning is such that its designers must strike a balance between the classic and the innovative, and being able to do this consistently is a key success factor in this industry.

Another key success factor for Lululemon is marketing. Any company that sells its products at a premium to what other companies are selling equivalent goods for must find ways to create strong brand associations, brand loyalty and brand value in order to justify the higher prices. The most successful companies do this consistently – their brand value never wavers. As a consequence, Lululemon must rely on being able to continually reach existing and new customers, and to create a brand relationship with their target market. Given its need for expansion – either geographically, to men, through aviva, or whatever initiative comes next, lululemon's marketing needs to be particularly strong.

Distribution is the third major key success factor in the yoga apparel industry. Having a great product is the first step, and marketing is definitely critical, but once you've created desire you need to make it easy for people to buy. With Lululemon, there is the right amount of exclusivity…