b-LULU-ooming business!

In chapters 14 and 15, Barney expands upon mergers as well as the strategic benefits of international growth.  In Lululemon’s recent 10-K, the company discusses the importance of international markets to “gain access to new customers for current products” (Barney 420).  However, the company focuses on syncing its competitive advantage with its expansion strategies:

“We are focused on accelerating our international expansion. During fiscal 2014 we opened corporate-owned stores for the first time in the United Kingdom and Singapore and opened showrooms for the first time in China. We will continue to utilize a community-based approach to building brand awareness and guest loyalty in new countries but will look to do so over a shorter period of time than previously, so that we can accelerate our international growth.”

Lululemon Athletica Inc. (2014). 10-K. Retrieved from http://www.bloomberg.com/research/stocks/financials/secfilings.asp?ticker=LULU

Chapter 13 - "Anti-Stink" Alliance

“A strategic alliance exists whenever two or more independent organziations cooperate in the development, manufacture, or sale of products or service” (Barney 363).  Lululemon and Noble Biomaterials, Inc. teamed up a year and a half ago to engage in a nonequity alliance, where “cooperating firms agree to work together …but do not take equity positions in each other or form an indentent organizational unit to manage their cooperative efforts” (Barney 363).  Noble Biomaterials produces X-Static ®, an antimicrobial, odor-resistance fabric.

“lululemon has worked with Noble for nearly a decade to differentiate our products and we welcome the opportunity to solidify this partnership,” said Christine Day, CEO of lululemon. “This unique opportunity allows us to continue to innovate our technical product with X-STATIC®, which has helped lululemon set the industry standard by using the most powerful silver fabric technology to create our Silverescent fabrics, and secure our leadership position in the “anti-stink” athletic apparel market.”

http://investor.lululemon.com/releasedetail.cfm?releaseid=790499

Chapter Twelve delves into corporate diversification and the competitive advantages that can be gained through firm organizational changes.  Interestingly enough, I began this blog with lots of discussion on the founder, Chip Wilson.  However, after a “high-profile feud with company directors,” Wilson resigned from the company last month (http://business.financialpost.com/2015/02/02/lululemon-athletica-founder-chip-wilson-resigns-from-board-of-directors/).

The current structure of the organization (depicted below), has five officers (internal) and eleven directors (ten external).  While Potdevin, the CEO, serves on the board, he does not serve in the chairman capacity.  This helps “ensure the independent monitoring required to resolve agency conflicts in the modern diversified corporation” (Barney 343).

 

http://investor.lululemon.com/management.cfm

Luluemon has three subcommittees, with board members spread amongst said committees, to further this diversification (see below).

http://investor.lululemon.com/committees.cfm

Diversification?

Chapter 11 delves into the economic benefits of diversification strategies.  Lululemon can be described as having a limited (or non-existent?) diversification.  Lulu’s website states “We make technical athletic apparel for yoga, running, dancing, and most other sweaty pursuits.”  Yes, the fabrics differ and the patterns can be slightly different.  But all in all.  Lulu running pants are quite similar to Lulu cycling pants.  The same demographic is targeted in each of the lines and the company’s reach can be somewhat limited.

But is this necessary a bad thing?  Nope!  As a substitute for diversification, “a firm may decide to simply grow and develop each of its business separately.  In this sense, a firm that successfully implements a cost leadership strategy or a product differentiation strategy in a single business can obtain the same cost or customer willingness-to-pay advantages it could have obtained by exploiting economies of scope but without developing cross-business relations” (Barney 325).

Essentially: Lulu is not Adidas.  It is not trying to serve a wide variety of markets.  Instead, it focuses on its niche.  Because of its excellence in this niche, Lulu can charge $118 for a pair of running pants.  And plenty of the narrow demographic will continue to purchase!

“The number of stages in the value chain in a product’s or service’s value chain in which a particular firm engages defines that firm’s level of vertical integration” (Barney 272).   Lululemon has a strong vertical integration strategy acting as “an entity that controls everything from manufacturing to the store experience” (http://nymag.com/shopping/features/58082/index2.html).

By selling products direct to consumers only at Lululemon branded stores or through the website (contrast this with the ability to purchase other brands, such as Nike, Adidas and Lucy at a variety of retailers), Lululemon leverages forward vertical integration (https://sites.google.com/site/mngt255tina/organization-planning/strategies).  Similarly, the use of only designated factories and ingrained global distribution strategies yield strong backward integration for the brand.

Lululemon is able to demand a higher price than some of its competitors by leveraging the quality differential.  However, its vertical integration styles may help balance some of the costs it incurs on the firm level.

In Lululemon’s latest 10-K, it’s vertical integration strategy is cited SIX TIMES, further proving the firm’s perception of the value of it to the company as a whole.

“We believe our vertical retail strategy allows us to interact more directly with, and gain feedback from, our customers, whom we call guests, while providing us with greater control of our brand.”

http://investor.lululemon.com/secfiling.cfm?filingID=1397187-14-21

coLULUsion

Chapter 9 delves into collusive strategies, illegal ways in which “several firms in an industry cooperate to reduce industry competitiveness and raise prices above the fully competitive level” (Barney 246).

 

While Lululemon has not been accused of this, Nike’s takeover of Umbro, a rival athletic apparel supplier, in 2007 was questioned as possible collusion.  Despite the large market share that resulted from the transaction, the merger was ruled legal (http://www.wired-gov.net/wg/wg-news-1.nsf/0/1FEB32C065494417802573D20053FEFD?OpenDocument).

There are a large number of firms in the active wear apparel industry.  Because there is such a product and cost heterogeneity amongst the brands (i.e. Lulu vs. Reebok), the industry doesn't necessarily foster collusive transactions (Barney 260).