Lululemon increasing markdowns at ‘alarming rates’ as momentum fades

Lululemon is facing increasing challenges as it ramps up markdown activity and shifts its merchandise strategy to attract younger consumers, according to Jefferies analysts. Recent store visits revealed widespread markdowns across core categories and inconsistent pricing on identical items, signaling struggles with product sell-through. The company is also moving away from its traditional yoga-focused offerings by introducing bolder colors and logo-centric designs to appeal to a younger demographic. However, this approach raises concerns about potential impacts on profit margins, especially amid declining U.S. sales, weakening mall traffic, and fading momentum in China. Jefferies warns that elevated markdowns and rising costs could further pressure earnings and gross margins if current trends persist, highlighting ongoing risks to the company’s financial health. 

Despite its emphasis on expanding brick-and-mortar presence with plans for numerous new stores, Lululemon’s U.S. market performance has stalled, with recent revenue and comparable store sales mainly driven by international growth. The brand is also facing increased competition from peers like Vuori and Athleta, which are outperforming Lululemon in both digital and physical store traffic, partly due to more appealing displays. In response to these challenges, Lululemon is raising prices and restructuring its workforce, including layoffs, while continuing to focus on product innovation, such as the new No Line Align leggings. However, Jefferies remains skeptical about the impact of these new products, citing limited rollout and questioning whether they will be enough to reverse the brand’s current decline. 

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Lululemon increasing markdowns at ‘alarming rates’ as momentum fades | Retail Dive