case study2

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COMPETITION IN ATHLETIC APPAREL

Competition in the market for athletic and fitness apparel was fierce.

Companies competed principally on product quality, performance

features, innovation, fit and style, distribution capabilities, brand image and recognition, and price. Rivalry among competing brands was global, vigorous, and

involved both established companies who were expanding their production and

marketing of performance products and recent entrants attracted by the growth

opportunities.

lululemon competed with wholesalers and direct sellers of premium performance athletic apparel made of high-tech fabrics, most especially Nike, The adidas Group

AG (which marketed athletic and sports apparel under its adidas and Reebok

brands), and Under Armour. Nike had a powerful and well-known global brand name, an extensive and diverse line of athletic and sports apparel, and 2019 global

sales of $39.1 billion ($15.9 billion in North America). Nike’s sales outside of

North America accounted for just over 57 percent of its worldwide revenues in fiscal 2019. Not only was Nike the world’s largest seller of athletic footwear (its

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footwear sales exceeded $26 billion in fiscal 2019), but it was also the world’s

largest sports apparel brand, with 2019 sales of $11.6 billion. Sales of Nike products to women totaled $7.4 billion in 2019. The company had selling

arrangements with independent distributors and licensees in over 190 countries; its

retail account base for sports apparel in the United States included a mix of sporting goods stores, athletic specialty stores, department stores, and tennis and

golf shops, plus it had a network of factory outlet stores (217 in the United States

and 648 across the rest of the world) and Nike and NIKETOWN retail stores (29 in the United States and 57 in the rest of the world). Nike also had a strong online

sales presence with websites in 46 countries; in fiscal year 2019, its Nike Direct

revenues were $5.0 billion in North America and $7.1 billion worldwide.

The adidas Group, with its adidas and Reebok brands, was a global company headquartered in Germany that had worldwide sales of €23.6 billion ($26.0

billion) in 2019. Worldwide sports apparel revenues for the company were €9.0

billion ($9.9 billion) in 2019; its product lines consisted of high-tech performance garments for a wide variety of sports and fitness activities, as well as recreational

sportswear. The adidas Group sold products in virtually every country of the world.

In 2019, its extensive product offerings were marketed through third-party retailers (sporting goods chains, department stores, independent sporting goods retailer

buying groups, lifestyle retailing chains, and Internet retailers), 2,500 company-

owned adidas and Reebok retail stores, 15,000 franchised stores, and through the

company’s e-commerce websites at www.adidas.com and www.reebok.com.

Under Armour, an up-and-coming designer and marketer of performance sports apparel, had total sales of $5.3 billion in 2019, of which $3.58 billion was in

apparel. Like lululemon, Under Armour’s apparel products were made entirely of

technically-advanced, high performance fabrics and were designed to be aesthetically appealing, as well as highly functional and comfortable. Under

Armour regularly upgraded its products as next-generation fabrics with better

performance characteristics became available. Under Armour’s product line included apparel for men, women, and children. Under Armour’s sales in North

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America unexpectedly plateaued at $4.0 in 2016, then dropped to $3.8 billion in

2017, $3.74 billion in 2018, and $3.66 billion in 2019. The company reported net losses $48.3 million in 2017 and $46.3 million in 2018. While roughly 70 percent of

Under Armour’s sales revenues in 2019 were in North America, the company’s

revenues were growing in the other regions of the world where its products were sold, particularly in the EMEA (Europe-Middle East-Africa) region and the Asia-

Pacific region. The majority of Under Armour’s sales were made through wholesale

channels, including sporting goods stores, independent and specialty retailers, department stores, institutional athletic departments, and sports leagues and

teams. However, the company also operated 169 factory outlet stores and 19 Brand

House stores in North America and 104 factory outlet stores and 96 Brand House stores in international locations as of January 2020. Under Armour had direct-to-

consumer sales of about $1.8 billion annually at its e-commerce website, www.under

armour.com.

Nike, The adidas Group, and Under Armour all aggressively marketed and promoted their high-performance apparel products to women and men and

spent heavily to grow consumer awareness of their brands and build brand loyalty.

All three sponsored numerous athletic events, provided uniforms and equipment with their logos to collegiate and professional sports teams, and paid millions of

dollars annually to numerous high-profile male and female athletes to endorse their

products. Like lululemon, they designed their own products but outsourced the

production of their garments to contract manufacturers.

New Entrants into the Sports and Fitness Apparel Market for Women. Retailers responded to the growing market for women’s sports and fitness apparel by

introducing brands and product lines to compete in this segment. Entrants into this

segment of the apparel market included The Gap, Nordstrom, and Victoria’s Secret.

The Gap had total sales of $16.4 billion in 2019 and was the owner/operator of

three well-known retail chains: The Gap, Banana Republic, and Old Navy. Product

offerings at the 1,033 worldwide Gap-branded stores included a GapFit collection

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of fitness and lifestyle products for women. In 2008, The Gap spent $150 million to

acquire Athleta, whose product line consisted of yoga, running, skiing, snowboarding, and surfing apparel that was sold online and through catalogs, and

proceeded to turn it into a retail chain to compete head-on against lululemon in the

market for comfortable, fashionable, high-performance women’s apparel for workouts, sports, physically-active recreational activities, and leisure wear. Going

into 2020, Athleta had grown to 190 retail stores in North America Athleta stores

open at least 12 months had sales growth of 16 percent, 9 percent, and 5 percent in 2017, 2018, and 2019, respectively. The Gap planned to continue opening Athleta

stores in 2020 and beyond. In addition to its retail stores, Athleta collected

substantial revenues from sales at its e-commerce website www.athleta.gap.com.

Athleta also had a social media website, www.athleta.net/chi, that connected women

with interests in sports and fitness, nutrition and health, tutorials and training

plans, and travel and adventure.

Athleta’s expanding product line included swimwear, tops, bras, jackets, sweaters, pants, tights, shorts, tee shirt dresses, performance footwear, sneakers, sandals,

bags, headwear, and gear. Items were colorful, stylish, and functional. As of May

2020, Athleta offered 391 different items under “activity” line of products at its e- commerce website. Athleta apparel items were typically available in sizes XXS, XS,

S, M, L, XL, and plus sizes 1X and 2X. Athleta utilized well-known women athletes

and local fitness instructors to serve as brand ambassadors by posting blogs on

Athleta’s website, teaching classes at local stores, and testing Athleta garments. In 2016, Athleta introduced Athleta Girl, which introduced fashion and accessories

for younger women. In 2019, Athleta announced a partnership with decorated

track and field athlete Allyson Felix.

A number of other national and regional retailers of women’s apparel, seeking to capitalize on growing sales of activewear made of high-tech fabrics, were marketing

one or more brands of fitness apparel suitable for yoga, running, gym exercise, and

leisure activities. A few were selling these items under their own labels. For example, Nordstrom, a nationally-respected department store retailer, was

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merchandising its own Zella line of attire for yoga, cross-training, workouts,

swimming, and “beyond the workout;” many of the initial products in the Zella collection were designed by a former member of lululemon’s design team. Zella-

branded products were offered in regular sizes (XXS, XS, S, M, L, XL, and XXL)

and plus sizes (1X, 2X, and 3X). Nordstrom was also marketing several other brands of activewear for women, men, and juniors, including Nike, Under Armour,

Patagonia, Reebok, and Adidas. In 2019, Nordstrom’s activewear offerings could be

purchased at 136 Nordstrom full-line department stores (typically 140,000 to 250,000 square-feet in size) and 242 Nordstrom Rack stores (typically 30,000 to

50,000 square-feet in size) in 36 states, at Nordstrom’s website

(www.nordstrom.com), and at the Nordstrom Rack website, www.nordstromrack.com.

Victoria’s Secret also marketed its own line of women’s fitness apparel under the Sport label. As of May 2020, Victoria’s Secret offered 118 separate Sport

brand items on the company’s e-commerce website, www.victoriassecret.com.

Offerings included sports bras, bottoms, yoga pants, sweatshirts, and hoodies.

Typically, the items in the Athleta, GapFit, Zella, and Sport collections were priced

10 percent to 25 percent below similar kinds of lululemon products. Likewise, Nike, Under Armour, adidas, and Reebok apparel items were usually less expensive

than comparable lululemon-branded items.