In August, we wrote about the launch of Lululemon’s largest global campaign, “Feel.”
At the time, we explored the importance of such a campaign, and we’re largely rerunning that below. But first, an update: this week, Lululemon released its Q4 2021 and full year 2021 earnings.
In short, they crushed.
2021 revenue increased 42% YoY, with their DTC business growing 22% and their company-owned stores growing 70% (keep in mind many stores were closed in 2020) with improved gross margins of 57.7%.
(To put this growth in perspective, consumer spending in 2021 increased 14% YoY.)
Q4 numbers were equally impressive, and, if you were to compare them to competitors in the athleisure market they’re growing as fast or faster than a number of key competitors (Athleta, Under Armour are the two non-Nike brands that come to mind).
In a highly competitive, growing market, this is impressive. Which brings us back to our exploration of that global campaign in August:
From Ad Age:
By focusing on feelings, rather than performance, Lululemon is trying to distinguish itself from the overcrowded activewear market. Rival brands’ campaigns often showcase intense training and challenging workouts. In contrast, the Lululemon push is more of a purposefully thoughtful look at wellness in general.
The retailer is riding a wave of popularity that accelerated during the pandemic as consumers under lockdown bought more activewear online. For its most recent quarter, Lululemon reported a 88% rise in net revenue to $1.2 billion. Its direct-to-consumer business increased 55% to $545.1 million.
Yet its rivals are also on the upswing. For example, Under Armour recently exceeded analyst expectations by reporting revenue of $1.4 billion, a 91% rise over the year-earlier period. Under Armour formerly worked with Droga5 but has lately been relying on its in-house studio. Gap Inc.'s Athleta brand, which solely targets female customers, recently hit $1 billion in sales and grew 16% in 2020.
Lululemon’s new campaign, then, is likely as much about retention as it is about acquisition. And this cuts in two ways:
First, as Ad Age points out, the entire athleisure category is growing. COVID and the WFH wear trend helped push an already rapidly growing category. It benefits Lululemon to help keep these buyers in the category.
Second, it hits directly at why a not-so-small portion of customers customers bought athleisure in the first place—a reason other than workout gear. A brand association with more holistic wellbeing may benefit Lululemon as being more attractive to those who buy athleisure to feel better, but maybe not “perform” better.
Viewed through this lens, the campaign is a ready-made case study in retention, especially for DTC CPG brands: a growing category, an influx of customers, a need to reinforce value proposition and brand distinction after the first purchase.
This is how you do it.
For most CPG brands, though, this is a gap: Save for email, the idea of marketing to existing customers is actually a foreign concept to most brands. And that’s to say nothing of customers who subscribe to a product and, therefore, are near universally suppressed from those campaigns.
For brands who operate in this fashion, it ends up forcing them to bank on behavioral loyalty—a risky bet given the circumstances.
From a previous discussion about loyalty, we wrote:
When we hear “loyalty,” we often hear about it in vein of Apple, say, or even Peloton. But what does that mean? And is it actually practical for a CPG brand to aim for loyalty in the same way Apple does?
If you were to attempt an answer at those questions, you might start with further defining loyalty into at least two types:
Attitudinal. Loyalty driven by a customer’s brand preference. Usually rooted in emotion.
Behavioral. Loyalty driven by a customer’s actions. Rooted in repetitive behaviors (i.e., repeat purchases).
While neither type of loyalty is better than the other, banking solely on behavioral loyalty is inherently risky for a brand who only sells DTC—and riskier yet for those focused growing via subscription.
When loyalty is based on a product being “good enough not to switch,” any reason to switch can kill that loyalty. And it doesn’t even need to be product-related: Product arrive late? Hard to reorder? Can’t figure out how to pause a subscription?
In a DTC/subscription world, the product is linked to the logistics, because the logistics is the distribution strategy. Your customer can’t go to the store around the corner and pick it up.
If you’re going to rely on behavioral loyalty, the product needs to be so good that it begins to build attitudinal loyalty. That’s incredibly hard to do.
So hard, in fact, that even Lululemon isn’t trying to do that.