Lululemon Athletica (LULU, Financial) has seen remarkable growth in China, expanding from about 10 stores in 2018 to over 130 stores and achieving $1 billion in sales. Despite global economic challenges, China is set to become the company's second-largest market after the U.S. This expansion occurs at a time when many Western luxury brands are reevaluating their China strategies due to spending slowdowns post-COVID-19.
In contrast to challenges in North America, where competition and inflation have dampened demand leading to a downward revision of annual sales forecasts, Lululemon's sales in China grew by 40% in the first two quarters of the year. The company has also introduced more expensive products, with prices in China being roughly 20% higher than in the U.S. according to HSBC estimates, China will comprise a fifth of Lululemon's global sales by 2026.
The company's success in China is underscored by its adaptability, tailoring products like the Hike series for local trends, and introducing capsule collections for Chinese cultural events. A notable 35% of sales come from China-specific products. This strategic localization has positioned Lululemon as a leading niche brand among foreign sportswear companies in China, surpassing many larger competitors.
Despite a 30% drop in its stock price this year, Lululemon has surpassed other global brands, becoming the third-largest international sportswear brand in China. The company's success is partly driven by a shift in Chinese consumer habits towards health and wellness, a category viewed as the new luxury, influencing consumer preferences for brands like Lululemon.
Lululemon's expansion into China's mainstream market, including efforts to capture lower-tier cities, poses challenges. It faces competition from domestic giants like Anta Sports and Li-Ning, along with cheaper local brands offering high-quality knockoffs. However, Lululemon leverages its diverse product range, which now spans beyond yoga wear to include attire for multiple occasions, tapping into an unmet demand for versatile apparel.
The brand's male-focused products are showing growth, capturing interest from new demographics, and addressing perceptions of being a predominantly female brand. Campaigns focusing on overall well-being are helping expand its appeal.
