Lululemon Poised For Digital Growth Despite Economic Climate

The athletics retailer is entering the 2020 fiscal year with $1 billion of cash behind them.

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Need to Know

  • Lululemon will rely on digital sales during the COVID-19 crisis, enters 2020 with over $1 billion in cash to support them 
  • Last quarter, digital sales contributed 33% of total revenue
  • The athletic brand is committed to paying its staff while retail stores are closed.

Analysis

While the COVID-19 crisis has caused many companies around the world to adjust their business practices, or even close doors altogether, Lululemon is pushing ahead with its growth plan, citing a 41% increase in digital sales last quarter. 

In Lululemon’s fourth quarter, which ended February 2, 2020, the athletics retailer closed with a $1.4 billion revenue. “We had fantastic momentum coming into the current situation,” said CEO Calvin McDonald. “And there is nothing that I believe will fundamentally change our ability to regain that momentum.”

In February 2020, Lululemon temporarily closed all of its stores in Mainland China. All but one has since reopened. Today, all of their retail locations in North America, Europe, Malaysia, New Zealand remain temporarily closed, meaning the brand is highly dependent on digital sales in the coming months. 

Last quarter, e-commerce “contributed approximately $464 million to [the] top line, or 33% of total revenue”, said Lululemon’s CFO PJ Guido in an earnings call

And though the sales trends have “changed dramatically” worldwide amid the COVID-19 crisis, Guido affirms, “our digital business has remained strong throughout, driven by traffic and improving conversion that is a direct result of the investments we have made in our digital platform.” 

The brand is optimistic moving into the 2020 fiscal year in the middle of the global pandemic. Said Guido, “We currently hold over $1 billion of cash on the balance sheet and have no long-term debt. We also have a $400 million revolving credit facility which has 3 years left in maturity.” 

Given the uncertainty of the next few months, Lululemon continues to pursue its omnichannel digital marketing strategy. The brand is still investing in social media initiatives and virtual events, like online workouts and mindful writing exercises, with the hopes that continuing to build and support their community will also help grow online sales. 

Lululemon joins a number of other retailers pursuing new ways to engage with their community and continue to drive sales. 

Under Armour has launched a Healthy at Home fitness challenge for their fans, a part of which means the athletics brand will donate $1 million worth of money and products to support the Good Sports organization and $1 million to Feeding America to help support hunger relief efforts as a result of current school closures and quarantines. Under Armour is offering free shipping and returns on all orders. 

Another popular Canadian brand, Aritzia, is also offering free shipping on all orders for the next 30 days. All profits during this time will go to support the company’s staff and their families. 

Lululemon is also committed to paying their staff while doors on their stores are closed. 

“Although we do not know exactly when the current situation will pass, what we do know is that our stores will reopen,” said McDonald.

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