Lululemon Outlines Digital Initiatives

Athletic appearal company Lululemon Athletica Inc. announced a 12% decline in profit for the third quarter. The disappointing earnings were in large part due to inventory problems that have plagued the company since January when it identified 1.1 million units of excess items as a result of delayed deliveries. While management had previously outlined a plan to clear 400,000 of those goods through warehouse sales and discount specials, the company still expects these inventory problems to carry over into Q1 of next year.
Lululemon is trying to solve the problem through changes in both supply chain management and digital capabilities. To lower their inventory, the company announced it will have to increase markdowns. In order to counteract the hit these discounts will have on margins, the chain is now looking more into less expensive shipping methods, such as sea freight over air transport.  In an earnings call, CFO Stuart Haselden listed a number of other initiatives to bolster margins as the company continues to readjust its inventory levels, such as an intense focus on demand planning to reduce cancellations and late stage change orders.
Digital EVP Miguel Almeida outlined a number of digital initiatives the company is also taking in order to drive higher sales numbers. He stated that RFID technology is now in every Lululemon store in North America, which will allow the company to learn more about consumer preferences and enhance product testing in-store. Almeida also hopes that the beacons will enable Lululemon to provide a more customized browsing experience.
In-store pickup is also a principal focus for Almeida. Consumers are increasingly asking Lululemon for a “buy online, pickup in-store” program as other retailers, such as DSW and Walmart, are expanding on similar initiatives. In the earnings call, Almeida said, “On the buy online and pick up in store, it’s one of our critical initiatives to improve the guest experience across channels, something that our guest have been telling us that they really want to see from us.” Such strategic investments will likely drive e-commerce growth, which was a critical component of Lululemon’s sales last quarter. Online revenue saw a sizeable increase over the last year. Digital sales grew by 16% this past quarter and made up 19% of total sales.
Almeida also highlighted a redesign of the company’s website that the chain plans to launch in the first quarter of next year. Almeida pointed out that consumers are still seeing a disconnect in some of Lululemon’s branding. He sees the new website as the perfect chance to make the overall customer experience more cohesive and enjoyable. “We're investing significantly in building our CRM [customer relationship management] and analytics capability and the new website will allow us to really deliver contextually relevant experiences to our guests that bring the story telling of our product and brands into the digital space and then we'll connect those guests back with our stores as well…” he said.
While curtailing shipping costs and enhancing the digital customer experience is sure to help, Lululemon executives certainly have a tough road ahead. Their inventory supply problem is not yet behind them. Amidst its supply-chain and digital initiatives, the company also reported a 56% increase inventory compared to a year ago. 
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