Analyzing Lululemon's Q1 2020 earnings presents the roadmap for DTC success
1/ High Gross Margins
2/ Owned Sales Channel Distribution
3/ Sales Channel Agnostic
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1/ High Gross Margins
2/ Owned Sales Channel Distribution
3/ Sales Channel Agnostic
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1a/ High Gross Margins
Lululemon logged a 51.3% Gross Profit Margin in Q1 2020 versus 53.9% in 2019
On the surface, this looks worrisome, but they unpacked the deltas:
Rent/Depreciation: -330bp (unavoidable)
eCom Shift: -110bp
Currency: -20bp
Product Margin: +180bp
Lululemon logged a 51.3% Gross Profit Margin in Q1 2020 versus 53.9% in 2019
On the surface, this looks worrisome, but they unpacked the deltas:
Rent/Depreciation: -330bp (unavoidable)
eCom Shift: -110bp
Currency: -20bp
Product Margin: +180bp
1b/ There are two takeaways from the Gross Profit Margin breakout:
1/ eCom is a drag on profitability relative to retail
2/ Lululemon is a product-driven company and ENGINEERS margin opportunity into their products through innovation and superior merchandising. DO THIS ALWAYS
1/ eCom is a drag on profitability relative to retail
2/ Lululemon is a product-driven company and ENGINEERS margin opportunity into their products through innovation and superior merchandising. DO THIS ALWAYS
2/ Owned Channel Distribution:
Lululemon product is sold exclusively on their site (54%) and through company-owned stores (46%)
This allows them to carry a higher share of their already impressive Gross Product Margin % to their bottom line while protecting the brand integrity
Lululemon product is sold exclusively on their site (54%) and through company-owned stores (46%)
This allows them to carry a higher share of their already impressive Gross Product Margin % to their bottom line while protecting the brand integrity
3a/ Sales Channel Agnostic:
Lululemon built their sales foundation through an impressive ground-game via local ambassadors and retail stores, but they've quickly evolved as an eCom force
Q4 '19 digital sales were +41%, which set the stage for them to step up to +68% in Q1 '20
Lululemon built their sales foundation through an impressive ground-game via local ambassadors and retail stores, but they've quickly evolved as an eCom force
Q4 '19 digital sales were +41%, which set the stage for them to step up to +68% in Q1 '20
3b/ The ability to float customers between channels has long been an under-represented but critical strategy for DTC brands. As with any of DTC strategy, favor fluidity. Always be prepared to meet the customer on their terms, and never try to manipulate these terms
4/ Roll-Up
The aggregate of strategies and tactics that lead to strong execution amidst a challenging retail environment, allowed Lululemon to turn a PROFIT ($32.8M), which will be extraordinarily rare in the public Brand sector, and even more so for private brands in Q1 2020
The aggregate of strategies and tactics that lead to strong execution amidst a challenging retail environment, allowed Lululemon to turn a PROFIT ($32.8M), which will be extraordinarily rare in the public Brand sector, and even more so for private brands in Q1 2020
5/ Takeaways
1/ Product Innovation + Brand creates pricing power which yields Gross Margin leverage. KEY TAKEAWAY
2/ Owning all sales channels provides control over the drop off between Product Margin and Gross Profit
3/ Build strength into every channel and be agnostic
1/ Product Innovation + Brand creates pricing power which yields Gross Margin leverage. KEY TAKEAWAY
2/ Owning all sales channels provides control over the drop off between Product Margin and Gross Profit
3/ Build strength into every channel and be agnostic
