Increased Athletic Apparel Competition Has Lululemon Sweating

Even as the pandemic wanes, consumers aren’t giving up their comfortable clothes, leading many brands to double down on athletic apparel offerings and putting the heat on longtime women’s athleisure queen Lululemon.

In the past several weeks, Gap Inc.’s Athleta launched a new wellness platform, just a year after Lululemon acquired in-home fitness company Mirror. Meanwhile, Victoria’s Secret started a new collection of athleticwear, part of the retailer’s rebirth after years of faltering, and Kate Hudson-backed Fabletics reportedly began preparing for a $5 billion initial public offering,

And earlier this week, footwear company Wolverine Worldwide acquired U.K.-based direct-to-consumer (D2C) athletic apparel brand Sweaty Betty for $410 million in cash. Wolverine also owns Keds, Sperry, Stride Rite, Merrell and Saucony, among other brands.

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“Sweaty Betty kind of comes with the complete package,” Wolverine CEO Blake Krueger told analysts on a conference call. “Vertically integrated, proven store design and financial impact, 70 percent of their business is eComm and they have tremendous digital assets. And most importantly, their product flow is on a D2C basis, a continuous flow of product to their stores.” Krueger added that over 80 percent of Sweaty Betty’s business comes through D2C channels, with a “significant majority” being digital and eCommerce.

Perhaps most concerning for Lululemon is Sweaty Betty’s plans to accelerate the opening of brick-and-mortar stores in the U.S. Across the pond, the brand has leaned into turning its 60-plus stores into an experience for consumers, something that’s increasingly important as the physical becomes an extension of digital.

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Sweaty Betty previously had 12 locations in the U.S., but high operating costs combined with COVID-19 forced those stores to close. Sweaty Betty also has a partnership with Nordstrom that was launched in 2018.

To be sure, Lululemon’s $55 billion market capitalization is a force to be reckoned with, especially with its own D2C sales accounting for over half its revenue in 2020. In the company’s first quarter, which ended May 2, the Vancouver-based retailer generated $1.2 billion in sales, marking an 88 percent increase in revenues — including 50 percent growth in eCommerce, with 45 percent penetration of its D2C business.

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What Sweaty Betty has going for it, though — at least from the rose-colored perspective of Wolverine executives — is its product variety. Kreuger said Sweaty Betty goes beyond just yoga to include ski, swim, biking and other athletic apparel in myriad colors and patterns.

“They’ve evolved their product to be beyond just performance activewear to be more lifestyle, which we think nails the way the trends are moving,” the CEO said.

Growing Comfortably

Even before the pandemic, Kreuger noted, athleisure had become more popular, and the pandemic only accelerated that demand.

“This is an area that’s poised for continued accelerated growth,” he said, noting that the total addressable global activewear market represents over $200 billion in revenue and is currently growing in the mid to high single digits.

Earlier this year, Lululemon CEO Calvin McDonald also told analysts and investors that the pandemic has only accelerated and accentuated trends that have caused athleisure to grow in the last several years.

“For example, people wanting to live an active and healthy lifestyle, combined with the growth in demand for technical athletic apparel that performs, and finally, the innate need to feel part of a community and to share a human connection with one another,” McDonald said.