A small Canadian yoga wear retailer has an ambitious plan to conquer the hyper-competitive U.S. retail market as arch-rival Lululemon Athletica Inc. continues to recover from a series of gaffes.
Montreal-based Lole, which in some ways looks like a smaller version of upscale Lululemon – even the names are similar – will open a flagship store in the prominent Soho district of New York this spring as a springboard for expansion to the U.S.
On Wednesday, Lole, which started as a wholesaler and branched into retail in 2010, will announce it is financing its plans partly through an investment from several high-profile backers. They include Quebec's Desmarais family, members of the Hermes luxury fashion dynasty in France and the Simon family, which founded the largest U.S. shopping centre landlord. The group is buying a majority stake in parent company Coalision Inc. from private equity firm Kilmer Capital Partners, whose interest is dropping from 70 per cent to 20 per cent.
The retailer's parent's long-term target is to increase revenues, which are expected to hit $105-million this year, to $1-billion or more annually over the next several years, Bernard Mariette, chief executive officer of Coalision, said.
The Lole expansion comes as Vancouver-based Lululemon, which generated $1.6-billion in sales last year, struggles from missteps that saw it recall its signature black women's yoga pants because they were too see-through.
"It's good timing," Mr. Mariette, the former CEO of snowboard and surf specialist Quiksilver, said in an interview. "Every movement in the competition is an opportunity."
Industry numbers also suggest the timing is good. In Canada, sales in the athletic pants market – a top category for these players – jumped 16 per cent last year to about $500-million from 2012, according to researcher NPD Group. Sales of clothing over all grew by just 1 per cent to a little over $20-billion, its data show.
Sandy Silva, director of client development at NPD, said yoga pants are becoming an "everyday staple" with high margins for their makers. Lululemon's gross margins are more than 50 per cent of revenues.
Lululemon, under a new CEO, is pushing ahead with its own global expansion, adding casual wear and other new categories and ramping up its men's and girls' offerings. But it is also dealing with image problems after founder Chip Wilson suggested the sheer pants problem was tied to some customers not having appropriate bodies to squeeze into slim-fitting Lululemon clothing. He will step down as chairman this year, but remain on the board of directors.
Mr. Wilson and Mr. Mariette have been friends since their days working in the snowboard industry more than a decade ago, each heading different companies.
Today they've moved on to another fast-growing sector – yoga wear – which Lululemon was instrumental in developing. But it has seen a proliferation of profit-hungry competitors, including Lole. "It's like you're playing tennis and your opponent is a bit tired," Mr. Mariette said. "It gives you an opportunity."
Lole, whose yoga pants cost about $95, doesn't spend on traditional advertising, similar to its bigger competitor. Instead, the company offers free yoga or zumba classes, or other community events, to attract customers. Five of its stores even have showers, which cost up to $40,000 to install, Mr. Mariette said. Also like Lululemon, Lole's clothing is meant to be versatile, worn at yoga classes, out to restaurants or picking up children at school.
"We hope we're slightly different and slightly better than everybody else," he said. "I'm not upset if everybody does the same."
Lole differs from Lululemon in that it is a wholesaler, selling its line to retailers such as Nordstrom Inc., which will open its first store in Canada this fall, and Sporting Life. About 80 per cent of its parent's sales are tied to its wholesale business, although that proportion is expected to fall to 55 per cent over time, he said. The company operates 30 retail outlets, some in Europe and one in Santa Barbara, Calif., and has plans for 50 more over the next five years.
He envisions Lole's retail future not just in traditional stores but on the Internet. While 7 to 8 per cent of its current revenue is e-commerce, it expects to double that or more in the next few years.
That's where Simon Equity Partners, the private investment arm of Simon Property Group, the largest U.S. mall owner, can help – navigating the cutthroat U.S. real estate market. "Young companies building retail businesses can make big financial mistakes either by choosing the wrong real estate location or making a poor real estate deal," Todd Steel, managing partner of Simon Equity, said. "We can be a part of helping them avoid that."