How Lululemon’s $150 Yoga Pants Became Surprise Hit in Slowing China

When China managing director San Yan Ng first started at Lululemon Athletica Inc. in 2018, the yogawear maker had just about 10 local stores and was still trying to figure out how to operate on e-commerce platforms. This year, it has more than 130 outlets and hit $1 billion in Chinese sales for the first time, with the country on track to become its second-biggest market after the US.

China is an unlikely place for a premium Western label to be looking for growth as consumers pull back amid a post-Covid economic slowdown. The retreat has battered the world’s retail giants, from LVMH to Starbucks Corp., leading some to rethink their China strategies.

Lululemon isn’t just defying the downturn, it seems to be operating in a different China. Not only did sales in the first two quarters of the year grow 40 percent, it’s selling more expensive items, at overall pricing that’s 20 percent higher than in the US. As its competitors consider scaling back in China, most of Lululemon’s store openings this year were in the mainland. By 2026, HSBC estimates that the country will account for a fifth of total sales of nearly $13 billion globally, which will make Lululemon more reliant on China than Apple Inc., Nike Inc. or Starbucks Corp. currently are.

Its success in China contrasts sharply with a slowdown in North America. The company cut its full-year sales forecast in August as rivals took market share and persistent inflation curbed demand. Its stock has declined more than 30 percent so far this year, compared to a 25 percent gain for the Nasdaq 100 index.

But halfway around the world, Lululemon is on a tear. It has become the third-largest foreign sports apparel brand in China, Morgan Stanley said last month. It’s the leader among niche athleisure labels — including outdoor gear maker Arc’teryx, footwear company Hoka and ski wear label Descente â€” whose stores on Alibaba Group Holding Ltd.’s dominant platform Tmall posted roughly 15 percent to 40 percent growth in the 12 months through September, data from analytics firm Hangzhou Zhiyi Technology show. Its $600 jackets and $150 yoga pants are flying off shelves even in a landscape packed with cheaper local brands hawking “dupes” of the company’s clothes for a third of the price.

Niche Sports Go Big

These brands are the primary beneficiaries of a deeper shift among Chinese shoppers away from ostentation and conspicuous consumption driven by regulatory crackdowns, a collapsing property market and deep anxiety wrought by punishing Covid rules. The pandemic’s work-from-home legacy has also ushered in an era of loose, comfy silhouettes that’s boosting athleisure brands everywhere.

Social media accounts that once flaunted $5,000 handbags and five-star resorts are now boasting workout routines and meditation mantras.

“Health and wellness are the new luxury categories in China,” said Jessica Gleeson, Shanghai-based CEO of retail consultancy BrighterBeauty. Even the financial capital, once a hub of cutting-edge office fashion, is becoming “a city of sneakers and athleisure.”

No other brand is capitalising off these favourable tailwinds better than Lululemon, with its playbook offering a glimpse of how Western brands can still succeed in China. Lululemon has localised its offerings quickly — doubling down on products catering to local interests — and taken advantage of the fact that Chinese consumers have fewer fixed ideas than North American shoppers about whom and what its clothing can be for.

“Lululemon has been building its China business city by city, gym by gym,” said Rogier Bikker, managing director of advertising agency Monks Greater China, which works with sportswear companies. “They are at the top of their curve in China. And now they need to try to sustain it.”

In a three-hour meeting with analysts the company flew to Shanghai last month, chief executive officer Calvin McDonald and his lieutenants described how the strategy of tailoring items for the local market has paid off. Up to 35 percent of China sales come from products tailored to the Chinese market, managing director Ng told Bloomberg.

Those include the Hike collection, created to meet China’s post-Covid hiking and outdoor activity boom, along with mainland-only capsule collections for China’s Lunar New Year and Qixi Festival, its Valentine’s Day. An Asia Fit line is sold regionally to fit leaner, smaller bodies.

Lululemon Edges Towards Higher Price Bands

China is expected to be a margin driver for Lululemon going forward — with prices there about 20 percent higher compared to the US — according to HSBC consumer research analyst Akshay Gupta, who was on the Shanghai tour.

Nearly half of the top 30 outdoor sports brands on Tmall and sister site Taobao have seen their average product price increase over the past year, according to analytics firm Moojing, defying the slump that’s hit retail sectors from luxury to footwear. Amer Sports Inc.’s Greater China revenue growth exceeded 60 percent during the country’s Golden Week holiday last month, driven by accelerating sales at Arc’teryx, ski boot brand Salomon and tennis racket maker Wilson — all, like Lululemon, considered must-haves among China’s middle class. Roger Federer-backed sneaker company On Holding AG said second-quarter revenue grew 74 percent in Asia-Pacific, fuelled by China and Japan.

Underscoring Lululemon’s resilience to Chinese consumers’ new frugality, products priced at more than 1,000 yuan ($140) accounted for more than 40 percent of its Tmall sales in September, compared with just 10 percent the same month three years ago.

A spokesperson for Lululemon in China said the company doesn’t break out sales by regional channels.

Navigating ‘Dupes’

Lululemon’s China presence is relatively young, and it’s just now starting to compete with the much larger sportswear giants who’ve been in the mainland for years. As it grows more mass-market, it will face not just international predecessors like Nike but local giants Anta Sports Products Ltd. and Li-Ning Co., which have wide followings among Chinese customers loyal to domestic brands.

Efforts to pivot from a mainstay for the urban elite to the mainstream — with ambitions to penetrate lower-tier cities in China’s hinterland — risks diluting its image and inciting more competition from local makers of dupes, known in Chinese as “pingti,” that are already producing high-quality replicas of everything from Nike running shoes to Ralph Lauren Corp. polo shirts.

Yogawear suppliers working for pingti labels told Bloomberg they’ve been working furiously to replicate Lululemon’s high-tech fabrics, which have generally proved too time-consuming to learn or pricey to copy. But they remain at the top of their “must-duplicate” lists, they said — and the increasing number of cheaper alternative labels proliferating in China are also willing to try. After all, a previous generation of Western retailers — from LVMH to Starbucks — also once flew high in the country, before losing part of the market to local rivals.

“As with all other multi-national retailers whose global headquarters are still key decision makers, Lululemon may find it hard to stay as agile as local Chinese brands,’’ said Christine Tsui, founder of the Lengyun Fashion Community, an industry organisation for China’s apparel sector. Lululemon “was born with yoga, succeeds with yoga products, and may very likely be constrained to a yoga image. It’s rooted in its DNA, and very hard to change.”

Beyond Asanas

Products on offer in China now go far beyond yogawear, from gear for golf and tennis to lightweight trousers nice enough for the office. Yoga products accounted for just 32 percent of total sales in September on Lululemon’s Tmall store, down from more than 50 percent the same month in 2021, Zhiyi data show. For most of this year they accounted for less than 40 percent of the company’s total Tmall sales, versus 2021, when 50 percent or 60 percent was common.

In China, “versatility is a key unmet need in the market, with more than 30 percent of consumers saying they are dissatisfied with products that cannot be worn for different occasions,” Ng said, citing the company’s China wellness report.

Menswear has become a significant growth driver, appealing to Chinese men who might once have seen Lululemon as mostly for women, and ad campaigns now focus on wellbeing for everyone. This year the company launched its first men’s shoe in the mainland. Pop-ups used to penetrate cities without physical stores have included a showcase of men’s outerwear in Harbin.

Martin Chen first tried on Lululemon’s ABC Trousers last year when his wife, a longtime fan of the brand’s yoga tights, tossed a pair of the casual men’s pants in her online cart. The Beijing resident, who works in finance, quickly became a regular buyer of menswear items like sweat-wicking polo shirts, helpful for hiding stains as he walks from the train to the office in summer.

“The brand is a happy surprise for me,” said Chen, 38. But the company has work to do if it wants to convince Chinese men it’s a dual-gender label, he added: “When many of my male friends hear ‘Lululemon,’ they still say ‘no way — that’s a brand for girls.’”

Shanghai white-collar worker Mila Li, 33, said she was willing to splash out more for Lululemon because it’s better made than its rivals.

“The prices are too expensive, but so far I can’t find any cheaper options that offer enough support for sports,” she said. “Only when wearing the best pants am I motivated to exercise.”

By Bloomberg News