Lululemon Athletica Inc. reported a surge in its ecommerce business for its fiscal Q2 ended Aug. 2 as quarantined consumers flocked to comfy apparel like yoga pants. In a conference call Tuesday to discuss its quarterly earnings, CEO Calvin McDonald said he is “cautiously optimistic” about the second half of the year.
In an echo of retailers such as Gap Inc. (No. 23 in the 2020 Digital Commerce 360 Top 1000) and Nike Inc. (No. 24), lululemon (No. 55) said direct-to-consumer revenue, which is mostly ecommerce, rose 155% in the quarter. The retailer also said web traffic and conversions increased more than 90% and 45%, respectively, year over year. Lululemon has bolstered its online offerings with free online workouts and one-on-one video chats with sales associates.
Direct-to-consumer revenue, as it has for many store chains, buffered sagging store sales. Company-operated store net revenue was $287.2 million, a decrease of 51% compared to the second quarter of fiscal 2019. Total net revenue increased slightly, growing 2%, the company says. Direct-to-consumer net revenue represented 61.4% of total net revenue compared with 24.6% for the second quarter of fiscal 2019
Lululemon still isn’t offering a formal forecast for 2020, given ongoing pandemic-related uncertainty and consumer upheaval. McDonald said the company is “pleased with our overall business results” in the period while citing an “uncertain environment.”
After missing analysts’ forecasts for sales and profit in the previous quarter, the latest results suggest the retailer is now capitalizing on the embrace of comfy clothes by consumers who are working from home. While it’s mostly known for its yoga pants and exercise outfits, lululemon has been expanding into casual clothes fit for travel and work.
Prioritizing ecommerce investments
“Similar to quarter one, we have seen a healthy mix of new guests, existing ecommerce guests and historically retail-only guests now shopping with us online,” McDonald said on an earnings call transcript obtained from Seeking Alpha.
To meet increasing ecommerce demand, the retailer has prioritized digital investments it planned to roll out over the next two years, including site enhancements, omnichannel functionality and fulfillment capabilities. “These… were on our roadmap for the next two years and given our ecommerce business has currently accelerated beyond our expectations we [are prioritizing] and pulling forward these investments,” he said
Specifically, it has launched curbside in addition to buy online pick up in store, the latter of which it already offered. Lululemon also launched a virtual waitlist technology that notifies consumers via text when it’s their turn to enter the store. “In the month of August alone, we had nearly 400,000 individual guests utilizing our virtual waitlist across nearly 280 locations,” McDonald said.
It also has been ramping up the training of employees in these omnichannel capabilities, as well as offering personal virtual shopping and concierge appointments with what it calls “digital educators” who video chat with consumers to help them shop online.
The retailer, which hosts a Sweat Life community hub that enables consumers to access workout videos from trained lululemon ambassadors, says many of its trained instructors have been posting live streams of workouts on lululemon’s social media channels. As part of its new membership program—which it is testing in Edmonton, Alberta, Canada; Chicago; Denver, Colorado; and soon in Toronto—consumers striving to stay at home can access more online content. That program costs $168 a year and offers gear, access to special classes and events, digital workshops and more.
- Direct-to-consumer revenue, which is mostly ecommerce revenue, increased 155% to $554.3 million.
- Direct-to-consumer net revenue represented 61.4% of total net revenue compared with 24.6% for the second quarter of fiscal 2019.
- Net revenue increased slightly, growing 2% to $902.9 million, compared with $883.4 million in the second quarter of fiscal 2019.
- Net income of $86.8 million, down from $125.0 million a year earlier. Expenses in Q2 included store capital for new locations, relocations and renovations, as well technology investments in digital, analytics and supply chain.
For its fiscal first half, Lululemon reports:
- Net revenue of $1.55 billion, down 7.2% from $1.67 billion a year earlier.
- Net income of $115.43 million, down from $221.6 million a year earlier.
Venturing into larger sizes
The retailer, once criticized for body-shaming, now says it plans to sell larger sizes—a move to increase its customer base and move away from the founder’s vision of making apparel for only a narrow part of the overall population.
The maker of yoga pants and sports bras will expand its selection up to size 20, McDonald said on the earnings call. Currently, the sizing chart for the company goes up to 14 for most products.
The announcement is significant for the company, given its history on the issue. Lululemon founder Chip Wilson resigned as chairman in 2013 weeks after an interview on Bloomberg Television in which he said lululemon’s pants “don’t work for some women’s bodies.” He apologized a week later. The company was also forced to recall some pants for being too sheer.
Companies that cater to stereotypes of female beauty have increasingly come under fire in recent years, causing apparel makers to expand their offerings to more inclusive sizes.
Lululemon will begin selling the larger sizes later this month, starting with its core styles and by the end of 2021 will offer the additional sizes for the majority of women’s products, McDonald said. He added it is “an important step forward” for the company.
Lululemon isn’t alone in capitalizing on consumers gravitating towards athleisure clothing that is designed for both fitness and comfort as they stay and workout at home because of the coronavirus.
Within the Digital Commerce 360 Top 1000, 250 merchants sell apparel. Within this group, 23 retailers primarily sell athleisure. Those 23 merchants collectively grew online sales 19.1% year over year in 2019, which is faster than the Top 1000 apparel retailers’ online collective growth of 13.7%. Digital Commerce 360 estimates that for the 23 merchants that focus on athleisure apparel, their total web sales in 2019 generated 19.5% of the online apparel sales of the Top 1000. This means that even though these retailers only represent 9% of Top 1000 apparel merchants, they generated nearly one-fifth of apparel sales.
Percentage changes may not align exactly with dollar figures due to rounding.