Lululemon Athletica E-Commerce Sales Jump 200% in Third Quarter

A 200% increase in Q3 e-commerce sales is only the most dramatic sign of Lululemon Athletica's seriousness about the online channel. The retailer is planning an upgrade of its e-commerce platform in the first quarter of 2011, and will be streamlining cross-channel inventory transfers to address out-of-stock issues. The company has also embarked on a search for an executive to head its e-commerce operations.

"E-commerce sales were up over 200% from the third quarter of 2009," said Lululemon Athletica CEO Christine Day during a recent conference call discussing the company's financial results. "We improved our inventory position to support sales in the back half of the third quarter, which allowed e-commerce to jump closer to a natural level for this early stage business. And since our site carries and sells a larger mix of technical product and has proportionately fewer markdowns than do our stores, e-commerce also added to our gross margin and operating margin in the quarter.

"We believe that we are just scratching the surface in e-commerce and that a level of 10% of sales is achievable in the short to medium term," Day added.

The yoga-inspired athletic apparel company had a strong third quarter overall, with net revenue increasing 56% to $175.8 million, up from $112.9 million in Q3 of 2009. Comparable store sales increased 29%. E-commerce sales increased by $9.2 million during the quarter, which ended October 31. Revenues from the entire direct-to-consumer channel (which includes both online and phone sales) totaled $14 million or 7.9% of total revenue, compared to $4.6 million or 4.1% of total revenue for the same period in 2009.

"The average transaction is slightly higher on e-commerce," compared to store transactions, according to John Currie, CFO. "In terms of product mix, we tend to sell more of our core technical product online, I think because e-commerce people are discovering the brand and establishing their wardrobe as opposed to adding to their wardrobe."

Currie also explained the supply chain changes that will improve the company's in-stock positions for e-commerce. In the U.S., e-commerce had been held as separate inventory in a third-party distribution center, and as a result "more so in Q2 than Q3 you saw stockouts online because we really couldn't shift inventory between channels very easily," he said. "That will be addressed as we shift to more of an in-house e-commerce model," which will occur in Q1 of 2011. "The inventory for e-commerce, although we'll buy it separately, will be held within the same DC as our inventory for store fulfillments so transfer between channels will become easier."

The customer-facing side of online sales will also improve with the adoption of a new e-commerce platform planned for the first quarter of 2011. The retailer is also commencing a search for an executive to head its e-commerce operations. "We want to bring in somebody with some global experience in that position," said Day.

Currently, e-commerce is just one item on a busy plate for Lululemon Athletica's new CIO Kathryn Henry, who was appointed last month. Other priorities include risk management, business intelligence, and an information system for human resources.

"The other big project we have underway is our PLM [product lifecycle management] project, which is really critical to vendor management in the supply chain and really tracking everything from our fabric manufacturing forecasting base, tying that together so that we can get even more efficient in our supply chain," said Day.
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