Lululemon keeps its prices high, and it's a brilliant business move
- Lululemon keeps discounting to a minimum.
- Analysts say this is why the brand has been successful, as its customers are not hooked on discounts and are more likely to pay full price.
- Heavy discounting eats into profit margins and can create a tricky cycle for retailers.
Lululemon keeps discounting to a minimum, and analysts say this is why the brand has been able to find success.
On hearing the news of the company's impressive first-quarter results on Thursday, GlobalData Retail's Neil Saunders outlined in a note to investors why the brand has been successful.
"Lululemon's price integrity is another reason for its outperformance," he wrote on Thursday. "Promotional periods notwithstanding, products are not discounted, and customers know they must pay the full price if they want the product."
Shoppers can expect to pay north of $98 for a pair of Lululemon yoga pants and between $48 and $98 for a sports bra.
Heavy discounting is one of the biggest issues plaguing the retail industry at present. Stores are increasingly leaning on promotions as a way to bring customers in the door, and while this certainly may work in the short term, it ultimately makes it harder to convince customers to pay full price in the long term.
Gap is one of the biggest offenders of this strategy, as it rarely sells its clothing at full price. One of its sister brands, Athleta, which is a direct competitor of Lululemon, is also guilty of this. While the sales are not as frequent and widespread as they are at Gap, many of its items are on sale.
To scale back on discounting, some brands have cut inventory levels to prevent them from having items left over, which are vulnerable to markdowns.
These markdowns can also destroy a brand's image and make its products seem less desirable. Michael Kors, Ralph Lauren, and Coach have all publicly come out and said this, which is why they are pulling inventory out of some department stores where their items can end up in the clearance racks.
Lululemon is able to prevent this from happening as its products are available exclusively in its own stores and online platform, Saunders said.
This means there is no risk of Lululemon items creeping their way into the clearance racks of department stores or ending up in the off-price channel. The brand stays desirable and exclusive, and ultimately, customers are prepared to pay full price.
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