Lululemon Athletica's Yorkville location in Toronto.Moe Doiron/The Globe and Mail
Just in time for the holiday season, Lululemon has introduced a "stink-free" line of black fitted yoga fashions that touts the silver in its yarn as being able to squelch odour-causing bacteria.
Lululemon executives talked about the new line, while announcing a near-doubling of earnings in the company's third quarter, far outpacing expectations.
Fast-rising profits have underpinned Lululemon's soaring share price, which shot up 14 per cent on Thursday, bringing the total return over the past year to nearly 130 per cent on Nasdaq.
But with the shares trading at about 30 times 2011 estimates, according to BMO Nesbitt Burns analyst John D. Morris, "we believe expectations are high and find it difficult to justify a higher valuation."
Still, the Silverescent products, as the yoga-wear retailer dubs the new line, are starting to take off, and provide a clue to why the Vancouver-based chain stays ahead of the game.
"It's a very technical quality of the garment that you can't find at too many other places," Howard Tubin, a retail analyst at RBC Dominion Securities, said in an interview.
"The customer says, 'This is pretty nice looking … plus it has anti-stink technology. I'm going to be able to jog 10 miles and then go grab a coffee and not stink the place up.' That's pretty appealing. And it's pretty unique."
Lululemon has a knack of marrying fashion and technology to produce new lines of apparel that respond to customer demand, in this instance women who want to work out and then run errands without having to shower and change outfits because of bad odour.
Amid the high expectations around Lululemon, executives sprint to spot customers' needs by keeping in close touch with them through free yoga classes and focus groups. They hire staff who are themselves active, taking company-paid classes in everything from Pilates to hip-hop dance, and then offering their own feedback on products.
'Room to Improve'
But Lululemon's quest to feed its customers' growing appetite for all things fashionably athletic has got it into trouble in the past. Two years ago, it was forced to pull its claims that its seaweed-infused clothes had health benefits after federal competition officials found the retailer had not backed its statements. And the retailer still runs out of popular sizes as it races to upgrade its inventory systems.
Now the 12-year-old retailer is betting that it can win more business by developing products that have clear benefits and don't bend the rules - and by having them in stock when consumers want them.
"We're always listening and watching and seeing what the trends are," Christine Day, chief executive officer of Lululemon, said in an interview. "But we're still not growing inventory at the pace of sales. For us, that will eventually become a sales constraint. … We still have definitely room to continue to improve our inventory position, particularly online.
As for infusing silver in garments' yarns, "it's a proven technology," she said. And it responds to customers' demand for non-smelly, multifunctional athletic clothing, she added.
The Silver Lining
For Lululemon, the silver lining is higher profit margins because the Silverescent clothing is priced at even higher rates than those of its classic high-cost styles. For example, a regular scoop neck tank top costs $52 while the silver version goes for $78.
Lululemon is finding other ways to profit from evolving customer needs. It has rapidly expanded into running wear, which now makes up 20 per cent of overall sales, while stepping up its men's clothing, which accounts for 10 to 12 per cent of sales. Its third-quarter e-commerce sales jumped 200 per cent and each cyberpurchase is "slightly higher" than the ones in-store, analysts were told.
But yoga wear remains at its core. This year, it shifted more of its yoga wear to lighter-weight pieces for the growing number of consumers participating in "hot yoga," which builds up a sweat in high temperatures. It's finding other opportunities to stock premium-priced products, including a limited-edition Scuba hoodie with white faux fur and removable sleeves so that it turns into a vest. "Grab it quickly if you see one," Ms. Day said, because they are selling fast.