lululemon athletica

 

Search our investment portfolio



lululemon athletica is the story of the international development of a Canadian yoga-apparel retailer into one of the fastest-growing athletic clothing brands in the world.

At the time of Advent’s investment in December 2005, lululemon was selling high-end yoga apparel in 40 stores, predominantly in Canada. During Advent’s ownership, the company developed into a worldwide athletic- and yoga-apparel retailer with more than 120 stores across Canada, the U.S., Australia and Japan. lululemon debuted on Nasdaq in July 2007, and its stock price reached $47.37 by year end, earning it recognition from BusinessWeek as one of the best-performing IPOs in 2007.

Advent International’s partnership with the company is a classic example of how we can support management in achieving their goals of international expansion and product growth.

Building a strong foundation

Advent initially targeted the performance-apparel sector in 2002 based on our research of increasing healthy living trends and rising consumer disposable income. After learning about lululemon at a convention in 2004, one of our associates cold-called the company and began to track its progress. About six months later, lululemon informed us that it was looking to raise capital. We immediately mobilized resources to position ourselves to be competitive in the process.

“When I got to the point with lululemon where we needed assistance at a higher level and Advent came in, the first thing I saw was the quality of people they brought to the table and their knowledge of what it was to be a bigger company,” said Chip Wilson, founder of lululemon.

“When I got to the point with lululemon where we needed assistance at a higher level and Advent came in, the first thing I saw was the quality of people they brought to the table and their knowledge of what it was to be a bigger company.”
Chip Wilson, founder, lululemon athletica
Wilson stepped into the role of chairman and chief product designer, and Advent helped add key senior managers to establish a foundation for future growth and success. Wilson had created a great formula—combining an innovative product, memorable guest experience, grassroots marketing and unique retail stores—but a management team needed to be built to scale the opportunity and enable lululemon to reach its full potential. With our guidance, new executives were hired from top-notch companies such as Abercrombie & Fitch, J. Crew, Nike and Reebok to fill out the management team, including a new CFO, operations executives, finance, HR and supply-chain positions. The aim was to continue delivering on profitable revenue growth while ensuring that the unique attributes of culture and differentiation grew too.

International growth

The next step was to figure out how to accelerate lululemon's growth. “lululemon was a tremendously successful retailer in Canada at the time of our investment, yet it was just beginning to enter the U.S. market,” said Steven Collins, a managing director in Advent’s Boston office. “We assisted the company in recruiting key executives to help it as it expanded across the border.”

“Advent has a lot of experience in the U.S. retail space. Their knowledge about leases, financial models and specific market penetration, and the conversations we had with them about infrastructure were valuable in helping us make as few mistakes as possible in this aggressive expansion. They provided resources and access to tools and talent that otherwise would have taken us years to build in-house. They added value every step of the way.” 

Chip Wilson, founder, lululemon athletica


The lululemon team decided growth would come from two areas: geographic expansion and product expansion. Using our global network, we helped the company identify key cities to expand into, including San Francisco, Los Angeles, Colorado, Chicago, New York, Portland and Boston in the U.S.; Brisbane, Melbourne, Perth and Sydney in Australia; and Aichi and Tokyo in Japan. We also assisted the company in formalizing a real-estate selection process and building out its financial and IT systems.

“Advent has a lot of experience in the U.S. retail space,” said Wilson. “Their knowledge about leases, financial models and specific market penetration, and the conversations we had with them about infrastructure were valuable in helping us make as few mistakes as possible in this aggressive expansion. They provided resources and access to tools and talent that otherwise would have taken us years to build in-house. They added value every step of the way.”

The push for growth paid off. Sales increased 50% in each U.S. store from 2005 to 2006, while sales per square foot reached $1,100, second only to long-time leader Coach. In the second quarter of 2007, prior to the company’s IPO, total sales grew 81% over the year-earlier period and same-store sales rose 30%. By this time, lululemon had nearly doubled its store network and was on track to reach 80 stores by the end of 2007.

Product expansion

In tandem with geographic growth, lululemon also focused on expanding its product line. Founded in 1998 in response to the increased participation of women in athletics, the company offered a comprehensive line of yoga apparel. But Advent and management saw a bigger picture. The women’s sports-apparel industry as a whole was growing rapidly and by 2005 was a $15 billion market, 25% larger than men’s active wear.

Lululemon added more sports apparel to its line to reach a wider range of customers, while never compromising its core goal of delivering high-quality premium athletic apparel that incorporates technically advanced materials, innovative functional features and style. 

With impressive double-digit growth in this segment and a product designed with women in mind, lululemon was well-positioned to extend its clothing line into women’s fitness more broadly. The company had already built considerable brand equity in the yoga-apparel segment, which itself was expanding quickly. The number of yoga participants in the U.S. jumped more than fivefold from 3 million in 2000 to 16.5 million in 2005. Lululemon added more sports apparel to its line to reach a wider range of customers, while never compromising its core goal of delivering high-quality premium athletic apparel that incorporates technically advanced materials, innovative functional features and style.

The company’s focus on women differentiated the business and positioned it to address a void in the burgeoning market for women’s athletic apparel. The brand’s high quality was reinforced by selective distribution through yoga studios and fitness clubs, which Advent believed were the most influential within the fitness communities of their respective markets. Lululemon’s retail concept was based on a community-centric philosophy, designed to offer customers an inviting and educational experience.

Successful IPO

With a proven business model, outstanding management and strong financial performance, lululemon was an excellent candidate for an IPO. The company went public on Nasdaq in July 2007 and was the third-best-performing flotation of 177 IPOs in the U.S. that year.* We sold a portion of our holdings at the IPO, divested additional shares in 2008 and completed our exit from the business in June 2009. In the four years we were an investor, lululemon more than tripled its store base from 40 stores mainly in Canada to 124 stores across Canada, the U.S., Australia and Japan for the full year 2009.

In the four years Advent was an investor, lululemon more than tripled its store base from 40 stores mainly in Canada to 124 stores across Canada, the U.S., Australia and Japan for the full year 2009. 

“Advent has been fortunate to be a part of the lululemon story,” said Collins. “Today, the company is one of the freshest and most authentic lifestyle brands focused on the athletic apparel space anywhere in the world.”

* Source: Thomson Financial – IPOs of stock in the U.S. in 2007, after-market performance through Dec. 31, 2007.

 

Language


 

Related Investments


Contact


Steven Collins

Managing Director, Advent International Corporation, Boston
T: +1 617 951 9400

David Mussafer

Managing Partner and Co-Chairman of Executive Committee, Advent International Corporation, Boston
T: +1 617 951 9400