Lululemon Athletica Is Getting Into Resale. Why an Analyst Says It’s a Brilliant Move.
Lululemon announced a new resale program.
David Paul Morris/Bloomberg
On Earth Day, it’s common for companies to make pledges to improve their environmental policies. Yet with sustainable investing becoming increasingly important for many investors, environmental practices are taking on greater prominence.
That is especially true for retail, given fast fashion’s negative impacts on water use and concerns about overseas labor practices. Lululemon Athletica is tackling the issue by entering the clothing resale market.
Earlier this week, Lululemon Athletica (ticker: LULU) announced its own sustainability initiatives, set to launch next month. The company will introduce an Earth Dye capsule of products made with environmentally-friendly dyes, and pilot a “Like New” resale program in more than 80 stores across California and Texas.
The program will allow shoppers to trade in Lululemon products in exchange for a Lululemon gift card, with the gently used items coming online for sale in June via recommerce company Thrive. Lululemon plans to use all of the proceeds to reinvest in sustainability initiatives.
While traditional retailers may not be often associated with clothing resale, the category has come a long way from secondhand and thrift stores that dominated the market in years past, as Barron’s has noted. New online models and the ability to focus on higher-end merchandise has created more demand, and the rapid growth of re-commerce has drawn entrants attracted to both the profit and sustainability angles. Reseller ThredUp (TDUP) jumped 43% on its first day of trading last month.
MKM Partners’ Roxanne Meyer reiterated a Buy rating and $388 price target on Lululemon following the news. The company “is among the first to incorporate a recommerce strategy into its business model, and will thus serve as a role model for other retailers who will likely watch closely,” she writes.
The analyst is enthusiastic about the model, calling it a “brilliant strategy for driving new customer and sales growth.” Not only does it position Lululemon well with sustainability-minded investors and consumers, but it will also attract new customers for whom the company’s premium price points on new clothing are too high. Plus, data show there is already high demand for Lululemon products in the resale market. Existing customers who trade in their own clothing will likely be enticed to shop more.
Lululemon stock rose 2.9% to $335.98 in recent trading. The shares have fallen 3.5% year to date after rising nearly 59% in the past year.
Write to Teresa Rivas at [email protected]
