Lululemon is a Canadian athletic apparel retailer specializing in yoga-inspired wear. Lululemon is constantly trying to innovate its product lines with new fabrics, new styles, and new colour palettes. Supply chain digitization is a trend that is meaningful to Lululemon as a large part of their value add to customers is being able to stay on top of and respond to new trends while offering these new trends quickly across all retail locations and online. Any issues or lag with its supply chain can directly impact the company’s performance. This was seen in 2015 when delays and cancellations in Lululemon’s supply chain resulted in significant costs for unused fabrics and other raw material waste. Many in the investment community believed this was one of the causes of raised retail prices that caused many customer complaints. 1
Another reason for the importance of supply chain digitization is that Lululemon does not manufacture any of its products or raw materials; relying completely on their suppliers. They also have a very fragmented supplier group with its top 5 suppliers making 63% of its products.2 Additionally, products materials are sourced from 22 countries around the world, adding to the complexity. 3 As seen in the Beer Challenge, without vertical integration, it is difficult to manage the flow of goods across all these different parties. This is particularly a challenge when these goods require very quick turn-arounds to ensure the selection remains relevant (high demand products are restocked and production of low demand products are stopped).
Better supply chain management will be crucial, especially since Amazon has recently entered the athletic apparel space with two private label brands. In order to compete with Amazon, Lululemon will need to ensure it trendy athletic wear is available and delivered on-demand to its consumers. 4
Lululemon has made significant efforts towards improving supply chain management. It recognizes that in order to ensure adequate inventory supply, it must forecast consumer demand by product. Inventory levels in excess of demand can cause write-downs that has and will continue to affect its margin. 2
In order to manage supply chain and inventory issues, Lululemon rolled out and is improving RFID technologies across 300 North American stores. Lululemon sees inventory accuracy as crucial to its goal of delivering the optimal consumer experience. They are now able to report real-time inventory across all stores. It was initially piloted in 2013 and rolled out through 2015 and 2016. All products are tagged at the distribution center and then each product’s location is tracked to the time it is purchase. This helps store employees see what is in the backroom versus on the floor and order additional inventory. It also enables customers to order online and pick up in store. This not only ensures the right products are available for purchase, it also limits production of low demand products. This is important for Lululemon as it tries to strictly limit discounting. A credit Suisse study of over 3,800 Lululemon SKUs on the website, found that full-price and in-stock positions improved in early 2017. 5,6
In the medium term, Lululemon wants to take the digitization of their supply chain further in order to introduce greater flexibility into their supply chain. They are looking to use data on consumer preferences and trends to better stage the development of products to respond more rapidly. One of the ways to they plan to do this is to stage the fabric development process in order to receive inputs on style and colour during the process and use these inputs to navigate the path the fabric takes after development has already been initiated. 8
In the medium term, I believe Lululemon should be taking actions to more greatly empower the parties upstream in their supply chain. At this point, the flow of information goes from the consumer through the retailer to the distributor to the manufacturer. Most of the technology advancements made have been to receive better data throughout the process so that the orders to the manufacturers can be more reflective of consumer needs. This still creates a significant delay in the chain to fill these orders. If the manufacturers were able to access, interpret, and directly make decisions based on consumer data, the time to deliver the goods will further decrease. This will then be an integrated supply chain ecosystem. 9 Lululemon will be able to react and adequately stock current trends while limiting discounting by having a quicker feedback cycle.
- Should Lululemon try to consolidate their many global manufacturing partners to facilitate the digitization and communication across supply chain parties?
- Will Just-in-Time manufacturing ever be a viable option for an apparel retailer (can an individual consumer order trigger the manufacturing of the good)?
- Business insider, “Lululemon changes in 2016”, http://www.businessinsider.com/lululemon-changes-in-2016-2016-1, accessed November 2017
- Lululemon 10-K, http://investor.lululemon.com/financials.cfm, accessed November 2017
- Lululemon, “Responsible Supply Chain” https://info.lululemon.com/sustainability/responsible-supply-chain, accessed November 2017
- Barrie, Leonie, “Amazon private label push to shake up sportswear?” Just Style, 19 October 2017, accessed through Factiva November 2017
- Dow Jones Industrial News “ Investors’ Soapbox: Lululemon, Coach: Doing What’s Right for Retail”, 23 October 2017, accessed through Factiva November 2017
- Marketwired, Lululemon, DICK’s Sporting Goods, PetSmart and Johnston & Murphy Recognized as Innovative Industry Leaders”, 11 January 2017, accessed through Factiva November 2017
- Event Brief of Q1 2017 Lululemon Athletica Inc Earnings Call, accessed through Factiva November 2017
- Wright, Beth, “Lululemon switches supply chain focus to speed” Just Style, 3 September 2017, accessed through Factiva November 2017
- Schrauf, S. and P. Berttram, Industry 4.0: How Digitization Makes the Supply Chain More Efficient, Agile, and Customer Focused, PWC Strategy& (2016)