One Positive Trend at Lululemon: Online Sales

The company’s Web sales are growing fast. Why that’s a good sign.

| More on:
The Motley Fool

By Christine Conway

When Lululemon (TSX:LLL, Nasdaq: LULU) reported its second-quarter performance, the growth of one segment of its business stood out to me. Direct-to-consumer revenue increased 39% as compared to the second quarter of 2012. In fact, the increase in e-commerce is a trend that has been going strong for a number of years.

Quarter Direct-to-Consumer Revenue Percentage of Total Revenue Increase Over Previous Year’s Q2
Q2 2013 $49.4 million 14.3% 39%
Q2 2012 $35.4 million 12.5% 91%
Q2 2011 $18.6 million 8.8% 93%

While the irony of sitting at home on your couch purchasing yoga/athletics apparel is not lost, Lululemon’s online business is flourishing. So much so that it’s needed to build a new facility. In the second quarter, pen was put to paper to build a new distribution centre.

The new centre
The distribution centre, Lululemon’s second in the U.S., will be located in Columbus, Ohio. The location was chosen to provide two-day delivery service for online purchases. The facility will be well-stocked to supply new product and replenish to the company’s stores in North America, which means less delay getting stock on the floor.

Of course, the real estate, inventory, and new systems (purchase order management and new warehouse management system) required an upfront investment. Management has forecasted estimated total capital expenditures to be between $100-$110 million for fiscal 2013 — a company-wide figure that includes not just the centre but new stores, renovations to existing stores, IT projects, and more. But by exiting Q2 with $610.3 million in cash and cash equivalents, Lululemon’s pocketbook is more than able to handle its expansion plans.

An online community
Lululemon is trying to strengthen its online presence through its new online community called “Hey Lululemon.” It was launched this quarter.

The site is designed like an online forum, where anyone can sign up and post comments and questions to Lululemon designers, developers, and other staff. The site is organized by category so that feedback can be given on men’s and women’s products as well as accessories and anything else that comes to mind.

Lululemon is using it as a tool to foster a greater level of trust and loyalty among its customers by making its team available and providing a safe place for feedback, both good and bad. It’s a smart strategy — customers will be more likely to voice their concerns and remain loyal if someone is listening and resolves their issues when they are dissatisfied. Users will also get exclusive behind-the scenes updates.

Final thoughts
As we’ve seen, the e-commerce portion of Lululemon’s business has gained steam over the last few years. From the new distribution centre to the online community, Lululemon’s focus on expanding its e-commerce division should create better-satisfied customers and put emphasis on a segment of its business that has lower overhead costs, and as a result, higher profit margins.

Motley Fool Canada’s top 2 stock ideas
Our senior investment analyst will unveil his top two stock ideas for new money now on Oct. 1. And YOU can be one of the select few investors to find out first — just click here to reserve your invitation.

Christine Conway does not hold shares in any of the above mentioned companies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

close-up photo of investor Warren Buffett
Stocks for Beginners

New to Investing? Here’s 1 of Warren Buffett’s Most Important Quotes

As market uncertainty continues to intensify, here's some advice from the Oracle of Omaha to help you navigate this environment.

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

Want Easy Passive Income? Go With These 3 Canadian Dividend All-Stars

Are you looking for easy passive income? Here are three Canadian dividend all-stars.

Read more »

Man data analyze

3 of the Top-Growing Stocks on Earth

Canadians desperate for growth in a shaky market may want to look to growing stocks like Cardinal Health Inc. (NYSE:CAH).

Read more »

Nickel ore is mined from the ground.
Metals and Mining Stocks

Offset Market Volatility With a Shiny Investment

Looking to offset market volatility with a shiny investment you can hold for the long-term? Here’s a precious option to…

Read more »

grow dividends
Tech Stocks

BlackBerry (TSX:BB) Stock: The Best Buy for Your RRSP

BlackBerry stock is still falling after its quarterly result, despite a 28% revenue increase in its Internet of Things segment.

Read more »

green energy
Dividend Stocks

These Monthly Dividend Payers Could Carry Your Portfolio for Years

Building a portfolio takes years. Without further ado, invest in these monthly dividend payers and start earning.

Read more »

value for money
Tech Stocks

Stocks at a 50-80% Discount: Where to Invest $1,000 Right Now

These top TSX stocks are available at huge discounts and have the potential to easily double from the current levels…

Read more »

grow money, wealth build
Dividend Stocks

3 TSX Stocks to Make the Perfect Passive Income Portfolio

If you're an investor who wants to set it and forget it, these three TSX stocks are ideal for your…

Read more »