Lululemon (LULU) stock once seemed like it couldn’t be stopped. Boy, how things have changed.
The departure of Lululemon CEO Christine Day in early June didn’t just send the stock off a cliff, but also began chatter about the company’s future — namely, how it can keep growing.
Brian Sozzi of Belus Capital Advisors, for one, thinks the answer lies in men’s clothing. As he told Yahoo Finance’s Jeff Macke earlier this week:
“They need to figure out some way to get into the men’s business and it’s not putting men’s product in the back of the store.”
It’s a logical conclusion for a company that focuses mostly on women’s yoga apparel, but also sheds light on the company’s problem: not just how to grow, but how to grow and appeal to more shoppers without diluting its brand.
See, while the current focus at Lululemon is limiting, it’s also distinguishing. People who shop at Lululemon don’t just do so because of the quality. They do so because it makes them part of the club — a club of skinny, well-off women who either do yoga, go running or like skin-tight pants.
That’s by design, as evident by the fact that Lululemon has no desire to offer yoga pants for the big-boned. It’s what the brand is built on.
And that makes expanding its offerings a risky proposition.
I’ve made the same case for Francesca’s (FRAN) — the boutique-style retailer that’s expanding at a rapid-fire pace. Taking a store that sets itself apart thanks to limited quantities and shoving it in every strip mall there is seems a little backwards, if you ask me.
Or look at JCPenney (JCP): The company’s struggle with sales is a prime example of how difficult it is to change the perception of consumers … and how dangerous it can be when you mess with your core customer base.
With that in mind, Lululemon doesn’t — or at least shouldn’t — desire the same scope as male-centric destinations like Nike (NKE) and Under Armour (UA).
There’s a middle ground there, of course, but finding it will be anything but easy.
And then there’s the other big problem Lululemon is already facing: Increased competition. LULU was a first-mover on the yoga trend, but companies from Gap (GPS) to Target (TGT) offer cheaper alternatives, all while it remains to be seen whether or not the practice’s popularity is temporary.
The bottom line: That’s a whole lot of question marks for an overvalued, chief-less company that’s struggling to grow.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.