The share price of publicly traded Lululemon (LULU) is on the rise and the Yoga-inspired sportswear retailer attributes at least some of its success to increasing value among its most loyal customers.
Building on a surge that began earlier this year, the stock hit $185.76 on July 12, 2019 and has continued to climb with a closing price of $203.14 on September 6. Stifel analyst Jim Duffy confirmed a Buy rating on the shares in July, boosting his price target by $19 to $238. As part of his report, the bullish analyst said that as the company expands its loyalty program, it should see a sizable boost in revenue from its most loyal customers.
At an investor meeting in April, Lululemon announced a Five-Year growth initiative based on its “Power of Three” strategic plan to drive product innovation, create integrated omni-guest experiences, and to expand deeper in key markets around the world.
Lululemon has been promoting community for many years as its stores host Yoga and other fitness classes along with fitness related events for charity. The Power of Three strategic plan reinforced the importance of building Lululemon’s reputation as an experiential brand further leveraging its reputation as a “destination” retailer through new product categories and offerings, including its “Practice” Membership program.
“Practice” was piloted in Edmonton late in 2018 and steadily expanded to other markets. The program test is evidence not only of the importance of customer-centric strategies to drive profits for retailers, but also that 2019 is turning out to be the year of the Paid Membership program. Wise Marketer hosted a webinar last month with Clarus Commerce where we explored the topic of Premium Loyalty in depth.
Practice is structured as a fee-based Membership program. For an annual fee of C$128 (about $96 USD) Members received a free pair of pants or shorts along with free expedited shipping and the ability to attend curated workout classes at store locations.
Was the program worth it for consumers?
This analysis certainly validated the value for members based on benefits in Lululemon’s Austin store.
But was the value given away too much?
Promotion, even mention, of Lululemon Practice is nowhere to be found on the company’s website and after some digging, we found an announcement that the program has been capped, at least for the moment. It’s not clear if Lululemon is discontinuing the program or assessing results and tinkering with benefits before releasing an updated version. Time will tell.
On the future of the program, Phil Rubin, CEO rDialogue commented “A brand like Lululemon can certainly command a premium and given its pricing discipline, a fee-based proposition can work. The challenge is not to be overly aggressive in terms of how much financial value it provides relative to the fee and what members will likely spend. Will they spend enough to pay back the free stuff, even if there is only an opportunity cost associated with the free class each month? Given the pause in rolling out the program, perhaps Lululemon is rethinking the richness of its program. I’d suggest one free class a quarter versus one per month as a starting point.”
Testing a membership program makes sense for Lululemon and other brands with the potential to create “Cult Loyalty”. Passionate fans of the brand will easily self-assess their personal patronage of the Lululemon brand to justify an annual fee if the benefits make sense. Going beyond the ability to determine the “breakeven” on the program fee, we bet that most members hope the program will deliver further for them on the company’s brand promise to improve their lives through style, fitness, wellness, and mindful and healthy pursuits.