Should Lululemon sweat inflation? – RetailWire

June 06, 2022

Lululemon said it is seeing increased input costs on raw materials, labor and especially air freight, but is wary of price increases to mitigate the impact on margins.

Management expects modest price increases for only about 10% of Lululemon’s assortment this year. Some prices were lifted in the first quarter without any sign of customer resistance and more are expected.

“We are implementing select price increases and have seen no negative impact on our sales volume,” Calvin McDonald, CEO, said last week during Lululemon’s first quarter. conference call.

“However,” he added, “unlike many industry players, we do not use promotional pricing as leverage to drive sales. Therefore, we are very intentional with our pricing strategies and “We are monitoring customer response accordingly. That said, I remain cautious about raising prices during this time of uncertainty, and we will continue to monitor and maintain a measured approach to this strategy.”

Pricing decisions consider the value of brand innovation and the competitive landscape.

Many chains have expanded their sportswear assortments in recent years. Lululemon’s prices are slightly higher than its competitors, Nike and Athleta, and more than triple the prices at Target and Walmart.

Lululemon’s first trimester results arrived easily ahead of company expectations, prompting the retailer to raise its full-year guidance. Revenue jumped 32% year-over-year and 27% on a three-year compound annual growth rate (CAGR) basis, with earnings improving at a similar pace.

The profit gains came despite a decline in product margins of 370 basis points year-over-year due to investments in air cargo to offset supply chain delays. Markdowns were more or less stable compared to last year.

Inventory was up 74% year over year, also reflecting airfreight costs as well as inventory in transit and lean inventory levels from a year ago. On a three-year CAGR basis, inventory unit growth increased by 36%, which is more in line with expected growth over the next few quarters.

Recent quarterly reports from Nordstrom, Ralph Lauren, Canada Goose, Chanel and Burberry indicated that high-income customers are not yet changing their buying behaviors due to inflationary pressures on the degree of low-income households.

DISCUSSION QUESTIONS: Are inflationary pressures more or less of a risk for Lululemon than for most other retailers? What advice would you have for Lululemon regarding pricing in an inflationary and potentially more promotional market over the next few quarters?

Braintrust

“The company has to be very careful and intentional about where it raises retail prices and where it holds the line.”

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Edward N. Arrington