Saturday, March 24, 2012

The Genius of Lululemon

I want to pass along an interesting article about the yoga inspired retailer Lululemon. The article, published in the Wall Street Journal, raised questions on behalf of Wall Street investors about whether Lulu's would ultimately maximize profits with their unconventional tactics.

I learned from the article that they don't operate like other retailers. The retailer trusts their product and brand enough to use focus groups, record website hits or even past purchases of customers with customer-relationship management software.

According to their Chief Executive Christine Day, "big data gives you a false sense of security."

Rather than use software, Day and Lulu's employees use actual humans to build relationships with customers. They spend hours everyday listening to customers and using their feedback to tweak the products and shopping experience. In addition, in-store chalk boards provide a way for customers to relay messages to management and employees fold the clothes on the sales floor so they can overhear what customers are saying.

Lulu also gets it right on a macro level. Unlike most retailers, they don't overbuild, they don't hurt their brand with discounting and they purposefully stock less than demand to keep the products flying out of the store at full price.

This strategy has lead to record sales. In the past three recession-plagued years, Lulu has seen sales rise 30% or more from the year before in nine fiscal quarters. Also, Lulu is making other retailers envious with an astonishing $1,800 in sales per square foot- which is more than three times that of luxury goods leader Neiman Marcus in 2011.

Despite such inarguable success, the marketing experts on Wall Street are concerned that Lululemon is missing out on sales because it doesn't stock enough items.

They should just stick to stocks. Thankfully, this is one retailer smart enough to realize that scarcity has a little something to do with why they've sold.

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