Can Lululemon Please BOTH Customers and Shareholders?

Lululemon (NASDAQ:LULU) knows what its customers want.  And falling share prices have not changed this.

Today, the Canadian retailer of yoga-inspired athletic apparel reported that sales improved 15 percent over last year, proving woman have not abandoned Lululemon for cheaper knockoffs yet.

But Gap (NYSE:GPS) is not content to let Lululemon hold onto to the industry’s most loyal customers.  The customers who are willing to pay high prices for the brand’s blend of fashion and comfort.  In the United States, the sale of women’s athletic clothing has become a $30.5 billion dollar industry, according to market researcher NPD Group. A trend that, in the eyes of many market researchers, is solely due to the success of Lululemon.

In an attempt to steal from its customer base, Gap has placed its newer stores in close proximity to Lululemon’s location, and more importantly has begun copying its business strategy.

According to Bloomberg, Gap’s Athleta has taken to sponsoring yoga classes and training staff to make garment recommendations tailored to customer’s athletic activities in a method similar to Lululemon.

Competition has also come from Nordstrom’s (NYSE:JWN) line of yoga-ware and from Calvin Klein (NYSE:PVH), who Lululemon is currently suing for patent infringement.

Rivals frequently undercut Lululemon’s prices; while Lululemon sells yoga pants for $98, San Francisco-based Gap’s Athleta brand sells a comparable pair for $59.

But what makes Lululemon so popular?  Self-proclaimed “Lululemon Addict,” Carolyn Beauchesne, whose similarly titled blog draws 50,000 unique views per month, cites the clothes as having a more forgiving fit and the company’s “tricky strategy for merchandise” as the reason for its success.  The brand regularly releases items in new colors or patterns, only to retire them when they sell out, creating a big incentive for people to shop regularly.

CEO of Lululemon, Christine Day believes the company’s clothing innovation is key to staying ahead of competitors.  “While others may try to mimic parts of our business,” she said in this morning’s earnings conference call, “it is impossible to copy a personality.”

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