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How Lululemon Is Planning to Regain Its Footing in 2014

Lululemon CEO Laurent Potdevin says the company is focusing on international expansion and building out seasonal products this year.
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After reporting flat fourth quarter sales Thursday morning, bad product runs and PR missteps, Lululemon fell behind in 2013, at a time when it really couldn't afford to. The fashion-forward athletic space is increasingly fractured, with competitors like H&M and Fabletics vying for a bigger slice of the market. Potdevin is keenly aware of this.

"We are not the only brand in town, and while we created this category and lead it, we understand that our guests have choice," he says.

To that end, Lululemon is approaching 2014 with "humility" -- a word that came up numerous times throughout the call -- and focusing on product design, which is what established the company as the forerunner in the market in the first place.

With a sell-through rate four times higher than anticipated, seasonal products did particularly well for Lululemon in 2013, indicating that consumers want more freshness in the brand's offerings. Chief Product Officer Tara Poseley says that inventory was "very clean" for seasonal products and that customers have been buying up everything that the company has put out. On the flip side, there was excess inventory in the core collection, although bringing down monthly orders should help fix that.

The Lululemon team says that the offerings will contribute to lower profit margins in 2014, partly owing to the fact that seasonal collections are more expensive to produce than the core range. Then there's the investment in international expansion, which will be a big push this year.

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Lululemon is unveiling its first store in London next week, with a second one slated to open by the end of 2014. Potdevin says that there is "clear evidence of demand in Europe and Asia," and the team is currently onboarding a general manager for Asia who "knows the market, knows how to adapt it, knows what's unique to it."

The company isn't planning to enter any markets without building deep local knowledge of it first. Potdevin plans to enter certain regions through partnerships, particularly in areas that are too complex or in which Lululemon doesn't have the scale for a direct presence yet. Take the Middle East, for example.

Lululemon shoppers should expect to see more capsule collections in the next year. Although Poseley wouldn't say too much about the nature of them, she did note that she's a "huge believer and advocate of the capsule" and that the team will continue to use it to test new concepts. Men's, too, is going to see more of a push, with an expanded presence in Lululemon's Miami, Vancouver and Santa Monica stores.

While Lululemon's new management has clearly taken the time to reflect on last year's mistakes, it's moving past that in 2014.

Says Potdevin: "We're going to look forward rather than over our shoulder."