The well-known brand Lululemon Athletica (LULU.US) has attracted attention in the Chinese market. In 2018, when the China General Manager San Yan Ng started at Lululemon Athletica (LULU.US), the yoga outfits manufacturer had only about 10 local stores and was still figuring out how to operate on e-commerce platforms. This year, the company has over 130 stores in China, reaching sales of 1 billion US dollars for the first time, positioning China to become the second-largest market after the USA.

As consumers cut back on spending during the economic slowdown post COVID-19 pandemic, China is unlikely to be the place where Western luxury brands seek growth. From LVMH to Starbucks, various global retail giants have been affected, leading some companies to reconsider their strategies in China.

Lululemon is not only facing economic challenges but also a different market in China. Sales in the first two quarters of this year not only increased by 40%, but also the items sold are more expensive, priced 20% higher on average compared to the USA. While competitors consider scaling back in the Chinese market, most of the stores Lululemon opened this year are in mainland China. HSBC estimates that by 2026, China will account for one-fifth of Lululemon's nearly 13 billion US dollars of global sales, making Lululemon more dependent on China compared to Apple, Nike, or Starbucks.

Its success in China contrasts sharply with the slowdown in North America. Due to competitors seizing market share and sustained inflation suppressing demand, the company lowered its full-year sales expectations in August. The company's stock price has fallen by over 30% this year, while the Nasdaq 100 Index has risen by 25% during the same period.

On the other side of the globe, Lululemon is thriving. Morgan Stanley stated last month that it has become the third-largest foreign sportswear brand in China. Lululemon leads in niche sportswear brands like outdoor equipment manufacturer Arc’teryx, footwear company Hoka, and ski apparel brand Descente. Data from Hangzhou Zhiyi Technology analysis company shows that in the 12 months ending in September, the brand's store sales on Alibaba's main platform Tmall increased by approximately 15% to 40%. Jackets priced at 600 US dollars and yoga pants at 150 US dollars from Lululemon sell well in the market, even among cheaper domestic brands selling knockoff clothing at one-third the price.

Expanding niche sports into a larger market.

These brands benefit from a deeper shift among Chinese consumers away from conspicuous consumption, driven by deep-seated anxieties brought about by regulatory crackdowns, real estate market crashes, and COVID restrictions. Social media accounts once flaunting $5,000 handbags and five-star resorts now boast fitness plans and meditation mantras. The work-from-home habits sparked by the COVID pandemic have also ushered in a more relaxed and comfortable era, driving the development of sports and leisure brands worldwide.

BrighterBeauty, a retail consulting company's CEO Jessica Gleeson stated in Shanghai: "Health and wellness are china's new luxury category." Even the former financial capital that was at the forefront of office fashion is turning into the "city of sneakers and athleisure wear."

No brand is better at leveraging these favorable factors than Lululemon, whose strategy offers insights into how Western brands succeed in China. Lululemon rapidly localized its products, doubled its investment in products that cater to local consumer interests, and capitalized on the unique characteristics of chinese consumers, who do not have fixed ideas about the use of their clothing compared to North American consumers.

Monks Greater China's managing director Rogier Bikker said, "Lululemon has been building its business in China city by city, gym by gym,"They are at the peak in China. Now they need to work hard to maintain this position."

Last month, the company flew to Shanghai for a three-hour meeting with analysts, where CEO Calvin McDonald and his deputies described how the strategy of tailoring products for the local market has been effective. General manager Ng stated that up to 35% of china's sales come from products tailored for the chinese market.

This includes the Hike series designed for the hiking and outdoor activity trend in China after the epidemic, as well as the capsule series designed for the Chinese Lunar New Year and Qixi Festival (Chinese Valentine's Day). In addition, the asian Fit series is sold in the region to accommodate leaner, smaller body sizes.

HSBC's consumer research analyst Akshay Gupta said, with prices about 20% higher than in the USA, China is expected to become a future source of profit for Lululemon.

Data from analysis company Moojing shows that nearly half of the top 30 outdoor sports brands on Tmall and Taobao have seen an average price increase in the past year, while the luxury goods and footwear retail industry have slumped. During China's Golden Week holiday, Amer Sports Inc.'s revenue in Greater China grew by over 60%, largely driven by brands such as Arc’teryx, Salomon ski boots, and tennis racket manufacturer Wilson. These brands, like Lululemon, are seen as essential products for china's middle class. On Holding AG, a sports shoe company supported by Roger Federer, reported a 74% increase in second-quarter revenue in the Asia-Pacific region, driven by China and Japan.

In September, products priced above 1,000 yuan (about $140) accounted for more than 40% of its sales on Tmall, compared to just 10% three years ago, highlighting Lululemon's adaptability to new consumer trends in China.

The spokesperson of lululemon in China stated that the company did not report sales data by regional channels.

The impact of "pingti"

Lululemon has entered the Chinese market relatively recently, just starting to compete with much larger sportswear giants who have been in mainland China for many years. As it develops into the mass market, it not only faces predecessors like Nike internationally, but also local giants such as Anta Sports Products Ltd. and Li-Ning Co., who have a wide following among loyal Chinese consumers devoted to local brands.

Efforts to shift focus from urban elites to the mainstream market and ambitiously penetrate China's mainland lower-tier cities may weaken its image and trigger more competition from similar Chinese manufacturers who have been producing high-quality replicas known as "pingti," ranging from Nike running shoes to Ralph Lauren polo shirts.

Yoga apparel suppliers working for the pingti brand have been striving to replicate lululemon's high-tech fabrics, which are often too time-consuming or costly to imitate. However, they state that these brands are still at the top of the "must replicate" list, with more and more cheaper alternative brands willing to try. After all, previous generations of Western retailers like LVMH to Starbucks had thrived in China before being overtaken by local competitors.

"Like all other multinational retailers, their global headquarters remain the key decision-makers, lululemon may find it difficult to stay as agile as Chinese local brands," said Christine Tsui, founder of Lengyun Fashion Community in China. Tsui mentioned that lululemon was born with yoga, succeeded with yoga products, and is likely constrained by its yoga image. It is deeply rooted in its DNA, making it difficult to change.

More than just yoga

Today, the products sold in China go far beyond yoga wear, from golf and tennis equipment to lightweight trousers suitable for office wear. Data shows that in September, yoga products accounted for only 32% of total sales at lululemon's Tmall store, down from over 50% in the same month in 2021. For most of this year, they represented less than 40% of the company's total Tmall sales, compared to 50% or 60% in 2021.

Peking quotes the company's Chinese health report as saying that in China, "versatility is a key unmet need in the market, with over 30% of consumers expressing dissatisfaction with products that cannot be worn in different occasions".

Men's wear has become an important growth engine, attracting Chinese men who were previously thought to be mainly targeted by Lululemon, while the current advertising campaigns focus on everyone's happiness. This year, the company launched its first men's shoes in mainland China. Previously, the brand conducted 'pop-ups' in cities without physical stores, showcasing men's outerwear in Harbin.

Last year, Martin Chen tried on Lululemon's ABC Trousers for the first time when his wife, a loyal fan of the brand's yoga leggings, threw a pair of these casual men's trousers into her online shopping cart. This Beijing resident, who works in the finance industry, quickly became a frequent buyer of sweat-wicking polo shirts and other men's wear. In the summer, the sweat-wicking polo shirt can help him cover up stains as he walks from the train to the office.

38-year-old Chen said, "this brand is a pleasant surprise for me," but also mentioned that if the company wants Chinese men to believe it is a brand for both genders, there is still a lot of work to be done. He added, "Many of my male friends, when they hear 'Lululemon,' still say, 'Impossible, that's a women's brand.'"

33-year-old Shanghai white-collar Mila Li said she is willing to spend more money on Lululemon because it does better than its competitors. She said, "The price is too high, but so far, I haven't found any cheaper options that can provide enough support for sports activities. Only by wearing the best pants, can I feel motivated to exercise."