Lululemon's online sales are slowing (LULU)

BII

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Athletic apparel retailer Lululemon experienced a slowdown in online sales growth during Q2 2016.

The company attributed this to an online warehouse sale that it ran during Q2 of last year, which made for a tough comparison. But the company faces particularly intense competition as athleisure becomes a more popular trend, and it's been heavily focused on its digital efforts to engage customers. 

Lululemon posted strong growth overall during Q2 2016:

• Total revenue surged for Lululemon: Revenue for Lululemon during Q2 2016 totaled nearly $515 million, marking 14% year-over-year (YoY) growth.
• But e-commerce sales sputtered: Online revenue grew just 6% to $87 million. Historically, the company's online growth rate hovers around the mid-teens, and even reaches the high 20s during the holiday season in Q4.
• Extenuating factors contributed to this low online growth rate: During Q2 2015, Lululemon ran a warehouse sale for its online shoppers with massive price reductions, which resulted in 30% YoY growth. This means that 2016's second quarter was up against heavy competition from the company's strong performance a year ago. Not including the impact of the warehouse sale, Lululemon reports that online revenue would have increased 16% YoY during Q2 2016.

Lululemon is focusing on its customer relationship management (CRM) strategies to engage shoppers and drive up sales. The company now logs over half of its guests in its CRM database to learn more about the way they shop and why.

As a result, it began testing a ship-from-store program to fulfill e-commerce orders from existing brick-and-mortars. CEO Laurent Podevin noted on the earnings call that ship-from-store is especially important to help optimize its inventory across physical and digital channels. As the company continues its digital efforts, CRM will play a bigger role in informing strategy decisions beyond fulfillment.

In addition to CRM, Lululemon rolled out Apple Pay capabilities across its physical and digital stores. At Apple's Worldwide Developers Conference in June, Lululemon was one of the first retailers to adopt the payment method across all of its shopping channels. Implementing mobile wallet options heightens payment security for shoppers.

But more notably, this payment option removes friction from the online checkout process. In fact, about 46% of US shoppers abandon their online shopping cart at the payment stage. This is due to lengthy forms, which are particularly hard to read on a mobile device. Apple Pay could help Lululemon grow online sales further, while maintaining its spot as a top resource for workout gear. 

But Lululemon faces heavy competition in the athletic industry, as the athleisure trend maintains popularity. "Athleisure," which refers to people wearing athletic clothes in nongym settings, like at the office or while shopping, has consumers spending more on athletic gear online. Its popularity has given rise to e-commerce pureplays that offer similar clothing at lower prices. As a result, traditional retailers are suffering. For example, Sports Authority filed for bankruptcy in early March 2016 and put itself up for auction the next month. And in December 2015, Lululemon had to cut its full-year revenue forecast by $20 million.

As Lululemon continues to focus on digital, it should begin to roll out tools like loyalty programs and exclusive media content that features prominent sports industry members. This could help drive up customer engagement and keep its existing shoppers loyal.

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