How Lululemon Fell Out of Fashion

Farewell to figure-hugging leggings; baggy is in.

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Lululemon Athletica, a brand famous for flogging leggings for over US$100 (S$129) apiece, has long been in vogue among investors as well as fashionistas.

Over the past decade the "athleisure" firm has reported operating margins of 15 per cent to 25 per cent, well ahead of rivals, in part owing to the vast share of sales it makes directly to customers. Its sales per square foot of shop space have reached around US$1,500 a year, also far outstripping other retailers.

Lululemon's stretchy trousers and chic sweatshirts have married comfort and fashion for a new breed of home workers who wanted to look sharp but relaxed on conference calls.

Fashion, however, is famously fickle. Analysts were already expecting more bad news before second quarter results were revealed. This would add to the woes revealed for the three-month period to May 4, when Lululemon reported declining sales in the Americas, its most important region. It has already cut earnings guidance for the full year and its shares have fallen by 45 per cent since January.

What is going wrong for the king of athleisure?

After the brand was established in Vancouver at the turn of the millennium, Lululemon quickly became the cool kid of sports retail, offering an alternative to Adidas and Nike, the industry's behemoths.