Lululemon plans to step up its technology and omnichannel efforts as its physical stores in North America and Europe remain closed due to the COVID-19 pandemic.
The lesson from Lululemon is that a crisis can bolster innovation in digital operations--especially if your balance sheet is in good shape. For instance, Lululemon plans to use closed stores due to COVID-19 as ship from store locations to fulfil e-commerce orders. While Lululemon's e-commerce operations won't completely replace physical sales they will put the retailer in a better position to bounce back.
The athletic apparel company reported better-than-expected fourth quarter results and a 41% digital channel sales bump. For the quarter, e-commerce contributed $464 million in revenue, or 33% of total sales.
CFO Patrick Guido on Lululemon's fourth quarter earnings conference call outlined store closures and the hit to its current first quarter even as stores in China reopen. Guido said:
All of our stores in Europe and North America have been closed since March 16, and our current plans call for these stores to remain closed until April 5. And our DCs (distribution centers) are up and running with the exception of our facility in Sumner, Washington, which has been closed in line with temporary local restrictions. This DC does not fulfill a significant number of e-commerce orders, and the closure has not had a material impact on our business. The vast majority of our stores in China and most of Asia are currently operating and showing improved performance each week since reopening. Through the second week of March, our North American store comps remained strong and in line with Q4 trend, driven by consistent traffic and great execution by our store teams. In addition, our digital business has remained strong throughout driven by traffic and improving conversion that is a direct result of the investments we have made in our digital platform.
What makes Lululemon different from many retailers is that it has strong liquidity including $1 billion in cash and no long-term debt. Lululemon's Guido said the company has modeled several different COVID-19 scenarios and thinks it has the ability to adapt. Lululemon can also tap a $400 revolving credit facility.
Lululemon is also vertically integrated so it controls its supply chain, relationship with vendors and customers.
CEO Calvin McDonald said the company is curbing expenses as well as some store remodeling. However, Lululemon is investing more in technology as well as its omnichannel tools. "Now is the time to not stop building for the future while recognizing we need to sort of pause on some in order to maintain others," said McDonald, who added that the company is looking at the rebound in its China operations to inform scenarios for North America and Europe.
McDonald said Lululemon's digital business will be critical to setting up the company's rebound.
"Since closing, our digital business has picked up, but it's obviously not recovering all the volume loss from our store networks being closed, but we have seen our online business accelerate in terms of growth. But obviously, it cannot pick up the entire demand. So it is responding well, and we've adjusted our digital marketing initiatives," he said.
McDonald said Lululemon is working on its fall and winter buys now but can manage its inventory even though physical stores are closed. "We're less dependent on the need to flush out inventory. With our technology with the use of RFID, we can access product at any point across our network, not just DCs, but at our stores as well from ship from store. Online, our plan is to turn on ship from store from our stores, although they will not be open to the public," he said.