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Lululemon’s hurdle: Handling all those customers

Lululemon Athletica Inc. wrestles with snags that rivals can only envy.

In its peak holiday season, some of its premium yoga-wear stores were so packed that it had to call security guards to limit the flow of shoppers. It couldn't replenish some of its outlets fast enough, leaving some sought-after products out of stock.

While retailers like to draw big crowds, they risk losing customers to rivals if they can't manage the load. For Vancouver-based Lululemon, which is about to embark on a major expansion abroad beyond its more than 200 stores – mainly in North America – getting the retail basics running smoothly is crucial.

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On Thursday, when Lululemon releases its fourth-quarter results, chief executive officer Christine Day might shed more light on how she will handle the myriad of challenges of a fast-growing company, including balancing burgeoning demand with a crush of shoppers and evolving distribution systems.

"Part of the hiccup in [the fourth quarter] was due to the lopsided holiday season, which compressed shopping into only a few weeks, making it tough for the company to meet demand at some stores," said John Morris, retail analyst at BMO Capital Markets.

"Management has already identified opportunities for the next holiday in gifting and ways to handle peak demand."

Ms. Day has said that Lululemon's test of handheld checkouts has gone well in 15 of its 20 stores that ran the pilot, providing lessons on how to expand the use of handheld devices across the chain. It didn't have the systems in place to permit shoppers to purchase and download gift cards online – something it plans for the 2013 holiday period, she said in January.

The merchant grappled with some other "misses" in the quarter, such as some gift-giving items whose prices were too high even for an upscale retailer like Lululemon. But despite an increasing array of discounts in the retail market, its premium pricing strategy "has, I think, been a very strong thing for our brand and continues to give us that business momentum and strong earnings capability," she said.

Another stumble in the holiday season was assigning new managers to stores. "The second-year managers can really rock it, and so making sure that we have that pipeline of people and that stability as we grow is also really crucial."

Lululemon's top-volume stores, such as the one at West Edmonton Mall – which rang up $250,000 in just one day – can cope with peaks but outlets at the next level down are just building their distribution muscle, she said.

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It takes nine days to replenish stock at some of its stores in Florida, for instance, "so the out-of-stock levels are unacceptable," she said. The chain's plan to invest in an East Coast distribution centre will be critical to handling the volumes, she added.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More


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