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The Globe and Mail

Lululemon’s global expansion takes local routes

A woman walks past a Lululemon outlet in downtown Toronto, Feb. 6, 2014.

Fred Lum/The Globe and Mail

Lululemon Athletica Inc. is paving the way for an accelerated international expansion as its new leader looks to pump up the business and patch up its merchandise and image problems.

Laurent Potdevin, who took over as chief executive officer on Jan. 20, said he will hire local experts, rather than long-time Lululemon staff, as he takes the yoga wear retailer into Europe and Asia, in a bid to move more quickly amid slowing North American sales gains.

"It's a pretty big shift from our prior strategy, when we sent people who were very well versed in the Lululemon culture," Mr. Potdevin said in an interview on Thursday. "The shift in mindset that we're executing now is to really build, mostly in Asia and Europe, very deep, relevant market expertise" with local players.

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Lululemon has been slowly expanding into new markets over the past five years, first by setting up temporary stores – called showrooms – to test markets, taking its time to hire staff and find the right real estate for permanent stores. Now, Mr. Laurent is signalling he wants to put his foot on the gas pedal as traffic decelerates at its core North American outlets and sales gains slide.

Investors seemed pleased with the new direction, pushing the stock up 6.2 per cent to $51.20 (U.S.), its best gain in 11 months. Although the retailer's outlook for next year is lower than analysts expected, it beat its reduced forecast for the fourth quarter of 2013.

"Commentary from [Mr. Potdevin] regarding the Lululemon brand and its prospects for growth are being well received by the market," said Howard Tubin, a retail analyst at RBC Capital Markets. The new leader had a "solid showing," added John Morris, an analyst at BMO Capital Markets.

As the company prepares to open its first London flagship next week, it continues to grapple with several high-profile stumbles. A year ago, it took a big hit when it had to pull its signature black women's yoga pants because they were too see-through. Its founder Chip Wilson offended some customers by suggesting they may be too big to wear the chain's clothing. He resigned, although is still on the board of directors; CEO Christine Day also stepped down.

Mr. Potdevin said the company has learned lessons from it experiences and is moving forward "with confidence and humility." On the international front, he is applying lessons he learned as president of TOMS Shoes and, before that, at snowboard specialist Burton. He said he plans to extend Lululemon's key products to new regions, but develop about 10 to 20 per cent of the merchandise specifically for local areas.

As well, he sees the need to expand beyond Lululemon's core products to seasonal and different styles. He said when he was with Burton in the early years of snowboarding, it produced mainly black pants and black bindings, but as the brand evolved, it moved into more colourful styles.

"When a global iconic brand has a staple product, it needs to evolve to more seasonal offerings to re-engage that customer more often," he said. Lululemon is now at that "inflection point."

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And global retailers have to become more flexible when it comes to looking for store locations in new regions abroad, Mr. Potdevin said.

In Hong Kong, for example, where rents are extremely high, Lululemon has operated small showrooms for about five years but hasn't found suitable space for a permanent store. Lululemon may have to adjust its plans to local situations in order to speed up growth, Mr. Potdevin said. "Hong Kong is not going to adapt to Lululemon," he said. "Lululemon is going to adapt to Hong Kong."

The retailer reported its fourth-quarter profit stayed relatively flat at $109.7-million (U.S.) or 75 cents a diluted share, compared with $109.4-million or 75 cents a share a year earlier. Revenue increased 7 per cent to $521-million while same-store sales fell 2 per cent but rose 4 per cent when combined with e-commerce; the company expects those sales at outlets open a year or more – a key retail measure – to, combined, pick up "in the low to mid-single digits" in 2014.

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