Lululemon might be in for a strong 2016.
But Lululemon might not be in trouble at all.
Analysts at Wells Fargo Security have highlighted three improvements that Lululemon that will help the brand’s business.
Lululemon isn’t going anywhere just yet.
1. Improved design
It’s no secret that Lululemon has suffered from some design flaws.
Even though this transgression occurred years ago, people still make fun of it; in the fall, Fabletics released a video taking direct aim at Lululemon’s transparent pants.
New creative director Lee Holman should help this arena.
“And with Lee coming on as Creative Director his first area of focus is clearly do deliver the same type of innovation both from a fabric, styling and construction standpoint that we have with the pant. So that is a very substantial opportunity for growth for us as you think about spring/summer 2016 and beyond,” CEO Laurent Potdevin said on a recent earnings call.
2. Improved production
Wells Fargo says that Lululemon has made efforts to improve its production processes.
The brand has discussed this, as well.
On a recent earnings call, CFO Stuart Haseldon said that the brand was “improving our demand planning being able to look forward and have a more reliable estimate of our production requirements that we can take to our suppliers to deliver more consistent production requirements, reducing the amount of cancellations that we’ve seen and as well late stage change orders.”
This is crucial; in 2015, many customers complained that prices were jacked up too high, and Wells Fargo says this is in part because of delays, cancellations, and the fact that Lululemon still had to pay the companies that provided their fabrics.
“This coupled with other raw material waste (due to the lack of coordination between different departments within the supply chain) led to significant increases in product costs,” Wells Fargo wrote in a research note.
Fortunately, Lululemon has also been focusing on improving the supply chain — in fact, that’s a heavy focus for the brand.
3. A better supply chain
On a recent earnings call, Potdevin said the company had a “laser focus on a more streamlined supply chain.”
Wells Fargo claims in a research note that Lululemon’s former supply chain resulted in an “inventory management [that] was subpar,” resulting in ample inventory, and therefore, tons of markdowns. Wells Fargo believes that this updated system “should allow for tighter inventory management going forward,” and therefore it should help the brand avoid such sharp discounts.
But ultimately, Wells Fargo believes that despite any problems that have troubled Lululemon over the past few years, the company has something going for it.
“Put simply, [Lululemon] is one of the strong brands in the growth athleticwear category,” the firm wrote in a research note.
Despite the competition, Lululemon is still going strong — and with improvements in place, the brand could soar even more in 2016.
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