is aggressively going after Lululemon with its Athleta brand. Athleta is opening new stores near existing Lululemon locations, benefiting from its traffic and undercutting Lululemon products in price. In addition to that, Athleta is copying Lululemon´s marketing strategy by hooking up with yoga instructors and sponsoring all kinds of classes and similar activities.
has also launched its line of yoga athletic wear called Zella. The company has reportedly hired a Lululemon alum to be in charge of product design, and Zella products are in fact quite similar to those of Lululemon, at least as far as the eye can tell. Nordstrom (NYSE:JWN) caters the same affluent clientele as Lululemon Athletica inc. (NASDAQ:LULU), but Zella products are more affordable. Besides, Zella also comes in plus and kid sizes, which gives it a more family oriented image.
If we are talking about athletic wear, NIKE, Inc. (NYSE:NKE) cannot be left out from the discussion. The company is the undisputed industry leader on a global scale, and it has a geographic reach and marketing budget well above Lululemon Athletica inc. (NASDAQ:LULU). Nike has its own line of yoga apparel, and in November it launched the Nike Studio Wrap, a footwear product targeted at women who favor studio workouts like yoga.
Lululemon seems to be feeling the pressure: performance is still quite strong, but growth seems to be clearly decelerating. Same-store sales growth fell from a much higher 25% in the first quarter of 2012 to 7% annually in the first quarter of this year. Production problems may explain part of this slowdown in growth, but increased competition and business maturation are also important factors to consider.
Lululemon Athletica inc. (NASDAQ:LULU) is still the high-end leader, and the company has a lot of room for international expansion, but the company seems to be entering a phase of slowing growth rates and increased competitive challenges, so investors need to closely monitor management´s ability to deal with this transition. Unfortunately, we don´t know who will be Lululemon´s CEO over this important period.
Maybe the recent weakness in the stock will turn out to be a huge buying opportunity, or perhaps management turmoil is a sign of deeper problems in a business going through a challenging phase. The point is that there is not enough visibility to make a comfortable decision at this point in time, so staying on the sideline is probably the smart thing to do.
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they’ll handsomely reward those investors who understand the landscape.
Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica (NASDAQ:LULU) and Nike. The Motley Fool owns shares of Nike.
The article This Company Has a Visibility Problem originally appeared on Fool.com.
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