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How E-Commerce Could Drive Lululemon Athletica’s Future Sales

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Analyzing Lululemon Athletica’s (LULU) online performance

Lululemon Athletica’s (LULU) direct-to-consumer (or DTC) revenue consists mostly of online sales. It rose 26.7% to $83.6 million in 1Q16. DTC revenue now contributes almost 19.7% of the company’s sales, compared to 17.2% a year ago. LULU’s web revenue benefitted from higher traffic and from poor weather in 1Q. Also, the company found it easier to move inventory through e-commerce sales rather than through stores as a result of the West Coast Ports slowdown.[1. According to comments by Stuart Haselden, CFO of Lululemon Athletica]

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New website

According to CEO Laurent Potdevin, LULU’s all set to unveil its new and redesigned online platform later this year. The enhanced e-commerce site will feature a larger product assortment, more product information, and newer omnichannel features. The site will also provide personalized product recommendations and facilitate a more optimized checkout process across internet devices, including mobile devices. The first phase of the website is expected to come online just prior to the holiday season.

Competitive advantage

Social media and digital products are key growth drivers for sportswear brands. According to a report by L2, Instagram could make it easier for brands to drive sales through online channels. Instagram may soon facilitate “shoppable” ads.

Nike (NKE) is the leading sportswear brand with over 15.4 million Instagram followers, followed by Adidas (ADDYY) with over 4.1 million. Vans from VF Corporation (VFC) came in third with ~2.8 million followers. LULU, at number eight, had just about 0.9 million followers as of May 2015. More importantly, Lululemon’s brand following is growing strongly.

The online channel is arguably a more vital growth driver for LULU than its peers Nike (NKE) and Adidas (ADDYY) (ADS.DE). Respectively, these competitors derived 3.9% and 2.9% of their sales from the web in their last fiscal years.

Nike is part of the portfolio holdings in the iShares MSCI ACWI ETF (ACWI). ACWI invests 0.3% of its holdings in Nike and 7.2% of its holdings in the consumer discretionary sector.

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