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04/30/19

Past Issues

The business of fitness and wellness.

Lululemon Looks to the Future

 

Back in Issue No. 12, The Evolution of Athleisure, we looked at the established players and new entrants shaping the future of activewear. As Nike makes a play for women’s and yoga, Athleta is paying dividends for Gap, and upstarts like Outdoor Voices are working to build a cult-like following, lululemon is looking to distance itself from the pack. Now, after a few years of less-than-stellar results, lululemon’s stock is soaring and the company is feeling confident about what comes next.

Coming off of strong growth in 2018, the company’s stock is up 81.1% in a year’s time, outperforming the industry’s growth of 19.4%. Riding this momentum, lululemon met with investors and analysts last week, laying out the company’s Power of Three strategic plan for accelerated growth over the next five years. The plan, which focuses on product innovation, omni-channel guest experience, and international expansion, aims to double sales across men’s and digital categories while quadrupling international sales by 2023. 

Unpacking their plan further, we see that product innovation comes in a few forms, including some brand new offerings. In a move that garnered a lot of attention, lululemon announced that they’d be introducing their own footwear, with CEO Calvin McDonald noting that the company has tested the footwear waters and was able to identify a “whitespace” in the market. While he didn’t add much beyond that, except to say the line wouldn’t be on the market “anytime soon”, here’s what we do know...

In August of 2017, lululemon introduced a collaboration with LA-based sneaker company Athletic Propulsion Labs, offering the young company’s shoes, which cost upwards of $200/pair, in select stores across the US. And the result? Apparently, lululemon liked what they saw because, according to McDonald, “The [customer] resonates with us selling footwear.” He added, “We believe we’ve identified an opportunity… unique to us, and unique within the marketplace.” 

Given the fact that small sneaker brands like Allbirds are growing faster than the overall market, and with online clothier Everlane introducing shoes, this could be an opportune time for lululemon’s foray into footwear. However, it’s not their only ambition — and it won’t be the first to drop. 

Coming this spring, lululemon will introduce a line of self-care products to include deodorant, dry shampoo, lip balm, and a facial moisturizer. Of note here, prior to joining lululemon as CEO, Calvin McDonald served as a top executive at Sephora. By leveraging McDonald’s experience, the company could tap into the $90B US personal care market without deviating from its core offerings. 

lululemon is also eyeing massive growth in men’s, e-commerce, and international markets. In 2018, menswear only accounted for 21% of lululemon’s business, with women’s making up 70%. But the company believes they can double its men’s sales by 2023, pushing the category over $1B in annual revenue. On the e-commerce side, 26.1% of last year’s sales came online, generating $858.25M. Like men’s, lululemon is looking to double digital sales over the next five years, which would amount to $1.7B. There’s also a clear opportunity for lululemon outside North America, where the company hopes to do more than $1B of international sales by 2020. 

Finally, in an effort to bolster their core strengths, lululemon is doubling down on the customer experience. From a new loyalty program and in-store pickup to events and new store formats, the company wants to be “a fully experiential brand” that creates opportunities for people to “sweat, grow, and connect”. Its new store concept set to open in Chicago is foreshadowing of what that experience will look like. The massive 25,000-square-foot concept will include a yoga studio, meditation space, juice bar, and community space. 

With the athleisure market estimated to reach $567B by 2024, competition will be fierce. Although lululemon has posted impressive results with $3.3B in revenue during the last fiscal year, Nike did $36.4B in 2018. According to Euromonitor, Nike holds 18.3% of the US sportswear market (which includes apparel and footwear), followed by Adidas at 6%, Under Armour at 4.1%, Skechers at 2.6%, and lululemon with 1.9% as of the end of 2018. 

But, for lululemon, the question isn’t “can they beat Nike?” but “how big can they get?”. And at the moment, they’re well on their way to surpassing their $4B revenue goal for 2020, with some analysts suggesting sales could reach $6.5B by 2023. As CEO Calvin McDonald concluded, “We are a 20-year-old brand that is showing the best days are still ahead of us.”

Headlines & Happenings

⛰️ The Great Outdoors  

From retail to beer, millennials have become the scapegoat for “killing” slumping industries. But on the contrary, they’re actually the driving force behind a camping boom.

“Representing 38% of the US outdoor consumer population, Millennials spend more time outside and more money on outdoor products than the average outdoor consumer…”
Outdoor Industry Association

According to the 2019 North America Camping Report, more than 78.8M households camped at least once in 2018. And millennials, the largest demographic, accounting for 41% of folks roughing it — an increase of seven percentage points since 2014. 

More interesting than the statistics, though, is this: While spending time outdoors has been shown to reduce stress and contribute to emotional and physical health, it’s largely absent from today’s wellness conversation — the dialogue that centers on self-care, CBD, the keto diet, and the Peloton of ‘X’. Considering the fact that the US outdoor recreation market totaled $887B in consumer spending for 2017, “the outdoors” could be the next frontier co-opted by the wellness economy.

🚗 Omni-channel

CBD sparkling water brand Recess is now available for delivery via Uber Eats in NYC. At first glance, the move might seem like a pure convenience play (what can’t you get delivered these days?), but Recess CEO Ben Witte revealed the real motive — distribution. 

“We look at Recess’ launch on Uber Eats as another distribution channel for the brand… [this] was the logical next step in our plans for a true omni-channel distribution model… We also believe that a retail presence across every channel (online, retail, on-demand, etc.) is where the consumer world is going.”
– Ben Witte, Recess CEO

In addition to using Uber Eats to get Recess in the hands of consumers faster, it’s also a marketing and customer acquisition channel for the beverage brand that’s seeking to differentiate itself from other CBD-infused drinks and wellness elixirs.

🚀 Lift Off

In a bit of Fitt-related news, our new local discovery platform is live. While Fitt Insider is our industry-focused vertical, the Fitt website and iOS app make up our consumer-facing platform for discovering fitness studios, healthy restaurants, outdoor adventures, and upcoming events in 28 cities across the US, Canada, and the UK. 

Now, users can watch and read stories, locate nearby places, explore topics, and find upcoming events. Soon, we’ll be integrating fitness class registration, food ordering, event booking, and more. That’s in addition to adding new cities, with Miami, Las Vegas, Honolulu, and Sydney, Australia next in the pipeline. 

As part of the new platform, we also unveiled Fitt For Brands — our custom-built ad network and creative services designed to connect brands to our growing community of health-minded consumers. Check it out. We hope you like what you see.

💰 Money Moves

 

Tyson Foods sold off its 6.5% stake in Beyond Meat ahead of the plant-based protein company’s IPO. According to Axios, tensions ratcheted up when Tyson—who had previously invested $23M into Beyond Meat—announced they could begin making their own plant-based burger. This news, coupled with the fact the Beyond Meat no longer wanted Tyson’s rep to attend board meetings, were contributing factors in the sale.

Read More: The Fake Meat Startups Disrupting The Global Meat Industry

Gymshark, a UK-based activewear brand, is said to be closing in on a new round of funding that values the company at more than $650M (£500M). Of note, the company is reported to have passed on name-brand investors, including private equity giants Bain Capital and KKR, in favor of smaller investment funds. The deal is expected to be made public soon.

HUM Nutrition, makers of vitamins touting beauty and well-being benefits, raised $15M Series B led by Sonoma Brands with participation from CircleUp, Imaginary Ventures, and Strand Equity.

Read More: DTC Vitamins: Instagram, Amazon, And The End Of GNC

Shiok Meats raised $4.6M in seed funding for its cell-based crustacean meats — think shrimp, crab, and lobster.

Clara Foods, a startup using cellular agriculture to develop animal-free proteins, closed a Series B funding round led by ingredients corporation Ingredion. Sources close to the deal say the company was raising $40M.

milk + honey, a Texas-based spa and beauty brand, raised an undisclosed amount of funding from Emil Capital Partners, Keller Capital, and Tim Ferriss.

Unilever Ventures has invested in Australian “clean” skin care brand Dr Roebuck's. Terms were not disclosed.

Foodtech accelerator Food-X selected eight startups to participate in its Cohort 9 class. Kafina Energy, Mushroom Cups, Paragon Flavors, Mindwell, Simply Good Jars, Sweetie Pie Organics, Vaartani, and Voix will receive $120K along with resources and office space in return for a small equity stake.

Hapi Drinks, makers of sugar-free flavored waters for kids, was awarded a $100K grant from PepsiCo’s North American Nutrition Greenhouse accelerator program.

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