Lululemon Athletica and Sustainability

Introduction

Lululemon Athletica was founded in Vancouver, Canada, in 1998 and has since grown to be an industry leader in the athletic wear and athleisure space. Chip Wilson, the founder of Lululemon, started the company as a hybrid model, where the first store served as a design studio during the day and a yoga studio by night. Since then, Lululemon has become a global brand and leader in the athletic apparel space (“About Us”). 

Background

Lululemon is based out of Canada and has over 500 stores worldwide, with 370 in North America. Though the brand offers in-store purchases, it follows an omnichannel business model, offering customers the opportunity to shop in person, online via mobile device, through the app, or on the computer (Rastello, 2020).

Lululemon, which had its Initial Public Offering (IPO) on the NASDAQ in 2007, has maintained a relatively healthy financial position. The company increased its net revenue to $4.4 billion in 2020, equating to about a 10% rise from the previous year. Interestingly, throughout 2020 and the COVID-19 pandemic, Luluemon stores suffered, as the operated store’s net revenue decreased to $1.7 billion, which equates to about a 34% decrease compared to the previous year. The overall gross profit increased 11% to 2.5 billion, which suggests that throughout the pandemic, their online sales were up, which helped increase the net revenue for the company despite harsh market conditions (Financial Information, Lululemon). The current price per share for Lululemon (listed as LULU on the NASDAQ) is $403.63, which is a 15.97% increase year-to-date (Lululemon, CNN Business). 

Supply Chain Sustainability Issues

The fashion industry faces constant issues regarding sustainability issues within the supply chain. As one of the most polluting industries globally, fashion supply chains have  “significant  negative environmental and social implications, including air and water pollution and exploitation of human resources, especially where production is outsourced to lower labor cost countries (Shen, 2017).” As such, it is the responsibility of global organizations to take active steps to reduce the carbon footprint that the industry leaves on the planet. Lululemon has taken a strong stance on the topic of sustainability, and their website states the company’s position, that “A responsible supply chain starts with us and the decisions we make. We source our products and fabrics from 26 countries around the world, including the U.S.A. In 2020, we’re partnering with 55 active cut-and-sew facilities, and all of these facilities are regularly assessed (“Responsible Supply Chain”).” 

The ‘Responsible Supply Chain’ page on the website goes into significant detail regarding the company’s best practices in terms of supply chain and sustainability management. One of the most unique aspects is Lululemon’s ‘Vendor Code of Ethics (VCoE),’ which the company developed to hold itself to a standard of sustainability. The Lululemon Vendor Code of Ethics helps to outline their commitment to respecting human and labor rights and creating safe working conditions for workers within the Lululemon supply chain. Luluemon requires that all suppliers and their subcontractors adhere to the VCoE. The company’s sustainability team and third-party experts routinely use the VCoE to conduct facilities assessments worldwide (Vendor Code of Ethics, Lululemon).

Implementation of Sustainability Practices

Since its inception, Lululemon has been committed to sustainability practices and has maintained a position as an industry leader in this respect (“Sustainability”). One of the more recent developments in the company’s sustainability practices is that in October of 2020, they unveiled plans first to expand the size of products sold and second to implement a pledge to have all materials made from sustainable fabrics. Initially met with some backlash, CEO Calvin McDonald ensured that this was not a marketing ploy but a part of Lulumon’s culture. McDonald has committed to providing annual updates and establishing timelines regarding this sustainability pledge to demonstrate that this is not just something the company ‘says’ it will do, but instead an actual practice that will be implemented. McDonald announced that 75% of materials would be sustainable by 2025 and 100% by 2030 (Wahba, 2020).  

Since implementing this plan, Lululemon has made significant strides in the first year. In August of this year, the company announced that they will be partnering with Genomatica for future products. Genomatica uses plant-based nylon in its products, which in accordance with Lululemon’s sustainability plan, will reduce the effects of non-recyclable fabric. Lululemon will be utilizing this plant-based fiber to replace some conventional nylon that is often used in their workout apparel (Lieber, 2021).

This year, Lululemon has unveiled two new sustainability programs: Like New and Earth Dye. Like New, a re-commerce program will allow Lululemon customers to turn in gently used products in exchange for an e-gift card. This initiative is two-pronged in the sense of sustainability (BusinessWire, 2021). First, by giving an e-gift card, Lululemon keeps everything digital and, in turn, does not add to the company’s carbon footprint by giving out physical cards that cannot be recycled. Second, and more importantly, this plan allows for a closed-loop process for products. Gently used products that are returned are cleaned and then repurposed to reduce additional carbon emissions from production. Though this initiative launched as a pilot program in only Texas and California, Lululemon has now expanded this program online. In addition, 100% of the profits from these programs are being used for sustainability practices within the company. 

The second program that Lululemon announced in May, ‘Earth Dye,’ included limited edition products made from natural dyes from oranges, beets, and palmetto trees (BusinessWire, 2021). Though this is only a short-term project, it sets a precedent for limited edition apparel in the future.

Strategy, Tactics, Goals

Lululemon has a long-standing sustainability practice that has continued to grow throughout the years. According to Lululemon’s website, their goal in terms of sustainability is “to evaluate the world by realizing the potential within every one of us (“Sustainability”).” The company has created an ‘Impact Agenda,’ which details and outlines the company’s goals as they continue to perfect sustainability measures to make the world a better place for everyone. Lululemon’s sustainability page details that the organization uses a three-pronged strategy which is organized into three pillars. The overarching strategies are to “be human, be well, and be planet (“Sustainability”).” Through these strategies, Lululemon has implemented specific tactics. 

Through the ‘Be Human’ strategy, Lululemon has implemented tactics heated towards equality and inclusion. Their responsible supply chain plan falls under this strategy, and tactics include a Vendor Code of Ethics and upholding supply chains to a high international standard. They also focus on equal pay by updating gender pay figures on their website and reviewing all findings to be addressed every year (“Equal Pay”). The ‘Be Human’ strategy focuses on mental, physical, and social wellbeing. One of their most successful tactics has been the Lululemon Centre for Social Impact, which invests in local communities through philanthropy and advocacy (“Lululemon Centre for Social Impact”). The final strategy, ‘Be Planet,’ focuses on avoiding environmental harm and a commitment to restoring the planet. Perhaps the most successful tactic thus far has been the commitment to move all products to be made from entirely sustainable fibers and materials. With overarching goals in place for this tactic, Lululemon is on track to be using 100% sustainable materials for their products by 2030. 

Stakeholder and General Public Communication

Throughout the implementation of Lululemon’s sustainability changes, they have done an impeccable job of effectively communicating with both stakeholders and the general public to keep them up to date and well-informed. Typically, Lululemon announces new programs and initiatives for sustainability through press releases, which ancillary outlets then write about. For stakeholders, Lululemon sends quarterly updates and has yearly shareholder meetings to discuss financial and social implications for the previous year and for the coming year. For both stakeholders and the general public, the Lululemon website holds a bevy of information, including financial reports and detailed sustainability reports, to effectively educate and communicate to those interested in their practices. 

Impact

Lululemon has steadily grown from a financial standpoint since 2019. Despite the COVID-19 pandemic, Lululemon’s sales and net profit have increased, as has their price per share. In October of 2019, the stock was valued at about $205 per share (average for the month), whereas now it comfortably sits at about $417 per share (Wall Street Journal). To look at a specific example of how sustainability practices have impacted the growth of the stock, a comparison of prices before and after the announcement of the ‘Like New’ initiative demonstrates the impact. The announcement was made on April 20, 2021 (Salpini 2021); the previous day’s stock price was $322.27; on the day of the announcement, it actually dropped down to $316.29; however, the next day, the stock price rose again, to $326.68, and finally, on April 23, 2021, hit $340.98 (Wall Street Journal). Market conditions outside of Lululemon’s control certainly impact the stock price. Still, its growth after the announcement and subsequent growth throughout the rest of the year demonstrates that people have positively responded to sustainability efforts. 

Lululemon’s financial records demonstrate growth, partially due to sustainability efforts and despite a global pandemic. The net revenue of Lululemon in 2019 was $3.3 billion, and in 2020 increased to $4.4 billion (Yahoo Finance). As of Q1 2021, Lululemon has a gross revenue of $700.3 million. The company is on track to exceed the previous year’s net profit. 

Conclusion

Throughout investigation of the Lululemon website, it is apparent that the company has a strong interest in sustainability. Aside from an entire page dedicated to responsible supply chain practices, their overarching sustainability page details best practices that they have implemented in order to ensure that Lululemon takes significant steps to reduce their own carbon footprint.

Lululemon is undoubtedly a leader in the industry when it comes to sustainable practices, and implementing programs such as ‘Like New’ not only helps to mitigate the environmental impact of creating apparel but also sets a good precedent for similar companies. One of the biggest areas of opportunity within Lululemon is to continue their limited-edition drops. The ‘Earth Dye’ project was incentivizing to customers because it was a limited drop, but it also promoted sustainable practices. Including two or three of these drops per year will encourage growth in sales while also promoting and introducing environmentally friendly apparel. Additionally, Lululemon could benefit from partnerships with celebrities, athletes, or influencers. Though the company does this sporadically, having a brand ambassador each quarter to promote a limited edition drop and to unveil new sustainability plans would likely gain more attention from the general public.

As Lululemon continues to grow, both physically in terms of stores but also financially, the company has more opportunities to implement sustainable practices and reach their intended goals. If Lululemon continues to follow the trajectory the company is on, their sales will exceed $5 billion, and the garments will be completely sustainable within a decade, setting a strong precedent for other brands to follow and, in turn, helping to maintain a healthy planet.