Introduction

This report is an analysis of the Lululemon’s case study. The report brings into perspective the strategic management issues affecting Lululemon’s and proposes effective strategies the organization should implement through 2015 to make the organizations competitive in the industry. The finding of the analysis helps the CEO and the management team to develop operational and marketing plans for 2015, especially targeting survival and reputation. Various strategic management aspects are covered ranging from strategic planning, and resource management. An analysis of the organizational environmental audit is consulted using various tools including PEST, SWOT, and Porters five forces.

Lululemon athletic Inc. is a young-inspired athletic apparel and accessories manufacturer and retailer. The company was founded in 1998 by Dennis Chip Wilson in Vancouver Canada. Nine years after its launch, it had owned 81 franchised stores internationally (Erin, 2010). This growth was enormous indicating that the company had put in place best strategies to remain competitive in the industry.

TASK 1

1. Identify the business plan and strategy used by Lululemon and evaluate its relevance to its vision and mission statements in light of the current issues faced.

 

Strategic planning is critical for the success of an organization in the current dynamic business environment. Organizations should evaluate their performance through various strategic management processes to determine their position in the market. This would help them to set up various strategies to be able to compete profitably in their industry. Thus, planning and strategy development stands at the centre of the organizational success in the industry (Pearce, & Robinson, 2010). Strategic planning helps the organization to determine its current position, where it is going the next year or more years, how it is going to get there, and how it will evaluate or measure if it has reached there (Giligan, and Wilson, 2004). Thus, a strategic plan is entirely based on the whole organization unlike the business plan that focuses on one product, or service.

To successfully achieve the mission of damage control due to the issues emanating from its product integrity, marketing and strategy, the management of Lululemon should engage in the process of strategic planning to remove unproductive initiates and focus on important factors that would enable the organizations to move ahead. For instance, the company’s focus on social responsibility and becoming environmentally conscious can help restore its reputation and survival in the local market in Canada and other parts of the world. In addition, the strategic plan acts as a framework for the organization’s budgeting, customer service, and course of action. The strategic plan helps the organization to understand its customers and the target markets. Thus, the organization can make long-term decisions for the organization. Finally, strategic marketing plan helps the organization to allocate resources effectively towards desired marketing goals to minimize wasting costs and time (Mankins, & Steele, 2005).

The management uses various models and approaches during strategic planning because the way, a strategic plan is developed depends on the nature of the organization, the size of the organization, the complexity of the organization’s business environment and the level or expertise of the strategic planners (Mankins, & Steele, 2005). Some of the models that are used to develop the strategic plan include, goal based, issues based, and organic. A goal based planning model is the most common strategy that is used when developing a strategic plan for the organization. In this case, Lululemon management should employ issue based strategic planning. Thus, the focus should be on the issues affecting the company and how they can use effective strategy to achieve its mission, goals or objectives (Pearce, & Robinson, 2010). In short, the strategic plan for an organization is developed based on the goals, values and objectives that the organization wants to achieve within a stipulated time. The following is a summary of the strategy used by Lululemon

• Designing functional fashions

The business plan and strategy employed by Lululemon is focused on making the organization successful in the market. The organization embarked on designing functional fashions through innovative process and fabric. The company has put style, beauty, and design at the heart of its business products. The production of quality products meets the customers’ demands. Lululemon fabrics are unique and with special features unlike the competitors. They have fabrics that absorb sweat or neutralize odour and including tiny pockets on running shots are some of the innovative features the customers want. Thus, supplying the market with the customers need is an effective strategy for the company.

• Listening to customer feedback

Listening to customer feedback is another strategy the company has employed in the marketplace. Lululemon has provided a big blackboard in every retail store with that gives the customers the change to comment on how they feel about design. They can provide their thoughts and what improvements they need to be included to make them enjoy their products. This gives the customers an active say in the direction of the business and this helps keep them.

• Having an online Global strategy:

Apart from having the physical stores, Lululemon has a website where it advertises its products that they ship to over 65 countries. This strategy helps the company to ship products to countries or markets outside the USA. Lululemon understand that globalization is shrinking the world and provided a platform to reach customers in other regions of the world.

• Setting High Prices

Lululemon has not considered the fact that when there is stiff competition, it is important to employ competitive pricing strategy.  However, the company can sell up to $98 for T-shirt that is three times the price of its competitors and yet the customers feel comfortable to buy the products. In addition, the Average price for Lululemon pants is $99USD, bra is $48 USD, Tank is $52 USD, and Jacket is $98 (Erin, 2010). The pricing of its apparel and accessories is strategic whereby they reduce the price by a dollar or two to attract the customers. This helps the company to generate higher profit margins and thus it is able to pay for premium locations in the market and invests in opening more retail stores internationally. Lululemon is able to sell at premium prices because its brand promises the customer tangible benefits and the customers feel valued. Also, people often link price with quality, thus setting high prices signify quality products. This strategy is

• Innovation strategy

The company was very innovative and it took the advantage of the innovative materials to produce its products. It made use of Luon, a moisture wicking fabric to manufacture pants, shorts, tanks and bras. Another innovative products involved silverscent that was made from silver yarn designed to eliminate bacteria and remove odour from the fabric.

• Acting as a niche player:

The company uses this strategy to grow its market at robust rates. However, as the competition increases, the company employs aggressive strategies with its pricing and marketing to remain competitive.

 

The relevance of strategy to its vision and mission statements

Lululemon uses an effective strategy to remain competitive in the industry.  However, during strategic planning, the management must orient the business plan and strategy with the company values, mission and vision. This management action can be referred to as organic strategic planning. It begins by articulating the company values and vision and those strategies are developed to achieve the vision while focusing on the values (White, & Bruton, 2010).

The company’s mission at its inception was to create components for people to live longer, healthier, and more fun lives. This mission was based on the company culture and values that are based on quality product, integrity, balance, entrepreneurship, greatness and fun, and innovation. These core values were the guiding principles in its strategic planning process. The strategy is relevant to its mission and values because the company embarked on developing quality and innovative products aimed at providing athletes and yogis with an argue for physical activity. Moreover, the company has effective and convincing strategic planning ideas whereby the company encourages the target customers that athletic induced endorphins gives them power to make better decisions, helps them to be at peace, and offsets stress (Aaker, 2008).

Moreover, the brand targeting messages was psychologically provoking, so that the target customers could not afford not to go for the product and try its quality due to positioning messages that were provided. While executing its business plan and strategy, the company remained focused on its values and mission statement. Thus, Lululemon declared that its social responsibility is the backbone of its operations on its corporate website. Lululemon felt responsible for all its stakeholders, including the customers, suppliers, stockholders, vendors, and the environment, which prompted it to offer quality products. The company corporate social responsibility was reinforced on its website. Thus, the company was well positioned and it gave back to the society the best it could avoid ethical issues that could affect its reputation and ruin its market.  The company focuses on furthering its mission of creating components for people to live longer, healthier and more fun lives (Erin, 2010).

Despite the company strategy to staying focused on its mission and values, the company has faced serious product integrity issues, marketing plan and strategy. The company products are questionable because they do not deliver to the customer the value its promises. Furthermore, the marketing and strategy the company employed in its website. The company grassroots marketing strategy that communicated the benefits of the product to the  customers  was questioned because research found that they VitaSea product did not  exist in the  Lululemon products and it could not deliver any of the  benefits promised by Lululemon company. As a result, the company was advised to remove all the tags from  that contains unsubstantiated  therapeutic and performance  claims of VistSea technology from all stores, and remove all the references  to the Vista technology from its website and any advertising in stores. And to review its marketing strategies to ensure they comply with the relevant legal requirements.

Product integrity, marketing and strategy issues notwithstanding, the company should focus on its mission and values of providing the customers with the correct information. While the company did its own research to justify their product integrity, it should go an extra mile to explain to its customers about the issues concerning the therapeutic benefits of some of its fabrics. Despite the changes in the external environments that threaten the business, the organization should continue with the leadership style developed by Chip was “run and let it be run” this philosophy to promote the culture of autonomy and accountability among the employees (Aaker, 2008).

 

1. Identify their goals and value processes with reference to ethical, cultural, environmental, and social and business objectives and evaluate how the current issue impacts these and the business

The goals of Lululemon are to provide quality products to its customers. The company became popular for its well fitting black workout pants. However, it also sold workout bras, and tanks, shorts, Capri pants, T-shirts, sweatshirts, jackets, and several other pieces of apparel for men and women.  Apart from apparel, the company manufactures and sells yoga accessories such as water bottles, head gear, yoga mat and accessories, and yoga gym bags. The company believed that these products would enhance its mission of continually providing the customers with components that help them live longer, healthier, and more fun lives. However, the current issue challenging the integrity of its products, and marketing strategy affects negatively on the reputation of the above product offering.

Lululemon values its social responsibility and presents it as the backbone of its operations on its corporate website. Lululemon believes that it has a responsibility to fulfil for its entire stakeholder.  It should act ethically to ensure its customers, suppliers, stockholders and vendors are all satisfied with its products and service. Thus, the company was well positioned and it gave back to the society the best it could avoid ethical issues that could affect its reputation and ruin its market.  The company focuses on furthering its mission of creating components for people to live longer, healthier and more fun lives (Erin, 2010).

Another goal for the company is incorporating sustainability into the overall strategy. The company focuses on social responsibility and named it the community legacy.  The major focus for the company that was a community legacy related included sourcing and manufacturing, efficiency and waste reduction, and green building and spaces. This goal has not been greatly impacted by the current issues facing the company and it should continue pursuing it in the future. Sourcing and manufacturing was built on 3 year strategy focused on working with suppliers that that shares Lululemon’s values and vision, as well as its workplace code of conduct. The company was concerned with working with people who only were conscious with the environment. The suppliers had to meet certain environmental requirements. Thus, despite the strategic drift, the company should still focus on this strategy to enhance its reputation.

1. Evaluate efficiencies in resource allocation in relation to current organizational objectives, Strategies and goals

The company is capable of using its intangible and tangible resources to achieve the current objectives and goals. The intangible resources are the company resources that cannot be copied by other companies such as brand name, technology, innovative employees, and effective leadership while tangible resources are physical in nature (White, & Bruton, 2010).  Effective allocation of the resources would see the company achieve its long-term and short term goals. Lululemon’s  current business objectives include removing  all the current VitaSea  merchandize, re-educating the store employees and ambassadors about change in the VitaSea product claims, and redesigning  new label and manufacture all new VitaSea products with a new claimless label. Therefore, the company is in its critical moments because of the change in the external environment. Therefore, the marketing management must put in place strategies to ensure efficient utilization of both financial and human resources to achieve the current organizational goals and objectives. The company should focus its marketing on convincing the customers that the integrity of their products is still intact and streamline its marketing strategies with the legal requirements (White, & Bruton, 2010)

Efficiency and waste reduction is one of the initiatives and overall strategy for lululemon. The company aimed at providing innovative products and processes to reduce environmental pollution. The Company embarked on the strategy of constant innovation of design, packaging and shipping processes (Giligan, and Wilson, 2004). These processes were scrutinized frequently to determine the best possible way of reducing environmental pollution.  The company is efficient in allocating both financial and human resources for the growth of the market environment and achieving the organizational goals. In 2007, the company performed well and its assets doubled since 48,498745 at the beginning of 2007 to 97,906, 418 by the end of the 2007 fiscal year. Net revenue increased by 45.8% (Erin, 2010). Some of the revenues were invested by the company in opening more distribution stores. And spend a considerable amount in engaging in aggressive expansion strategy focused on development of the Canadian and US markets (Trott, 2008).

Lululemn organizational resources include financial, physical, human, technological, and reputational. The organization is now using the technology resources to promote its brand through social media and its website. The website provides information about the company’s corporate social responsibility. Through technology and creative and skilled employees, the company continues to provide innovative fabric designs that outmatches the competitors (Trott, 2008). Furthermore, the company registered high revenues, making it to be financially stable and it can invest more financial resources to market its products/ Moreover, the intangible resources, such as the  brand name will help the company to achieve its  business objectives.

Therefore, the combination of tangible and intangible resources as well as the company capabilities helps the company to develop distinctive competencies. The distinctive competences help to place the company in a position above its competitors (Trott, 2008). For example, lululemon’s distinctive competence lies on the company’s innovative products and accessories. Furthermore, the visionary leadership provided by the CEO Robert Meers with the help of other managers has the potential of helping Lululemon to control reputational damage. For instance, effective company leadership countered the New York article and the research that claimed that the therapeutic benefits promised by the Lululemon products were false with an independent research that upheld that the benefits were consistent with research (Erin, 2010). Also, the leadership organized a press conference to counter the claims that the product integrity was in question. Robert Meers insisted that innovation and integrity were at the heart of Lululemon. The company focuses on innovative and technical designs to continually bring cutting edge products to the market place.

TASK 2

1. Strategic analysis of Lululemon environment

Major changes taking place in the micro and micro environments

Although the company has experienced rapid growth in the past years, the company is currently repositioning its strategies to improve on its image that is damaged due to the company’s apparels and marketing strategies (Lu, 2010). The company is therefore expanding the domestic and international stores, using new and innovative technologies and widening the range of its products. This section provides market audit for the company using various marketing audit tools.

 

SWOT Analysis

Strength ·         The company has the advantage of continuously producing sport design for both the men and the women (Lu, 2010). This makes it to have a wide consumer base. ·          The company strategy of linking up with the established fashion designers in the industry enable  the company to not only produce new product design but to meet attract new customers. ·          With store in 140 different locations, the company has the competitive advantage of accessibility to customers. ·          The company has about 3000 employees. ·          The company invests a lot of resources in advertising hence increasing its visibility in the market.

Weakness The apparels of the company have very little penetration   of the customers despite having very quality products.   The company has less brand recall compared to other companies in the sector.

Opportunities ·         There is an expected increase in demand for sporting apparels in many parts of the world (Lu, 2010).  This is because many societies are adopting healthier lifestyles and are taking to exercising. ·          Many women, both young and old are becoming active.    In addition, many among the high and middle social classes will be in high demand for fashionable sports apparels. ·          With globalizations and penetration of technology, the international apparel companies are finding it easier to reach the new customers in the emerging economies.

Threats ·         The sports apparel industry is highly fragmented.     The industry has many brands competing for the same market. As a result of the saturation, the companies turn to prices, competition that is done by the basic discount brands and high end fashion brands. ·           The companies in the fashion apparel industry face the threat of constantly changing the fashion trends (Lu, 2010). This makes companies who have invested in a particular fashion sometime to fail from recouping the returns. ·           The economic constraint in many parts of the globe makes even the high end consumers to be sensitive about the prices. This creates a threat of reduction of profits.

 

 Macro analysis: PESTEL Analysis

Political factors  

The company currently has more than two hundred stores located throughout the United State, Canada, Europe, Australia, Asia and New Zealand.   The government of all these countries must develop and implement economic policies that would foster growth. Although Lululemon has been helped by US policies, it is affected by things tax regulation and international competitiveness of these environments (Lu, 2010).  The company has to comply with the policy regulation in the countries where it operates.  The increase in the minimum wage in countries like China and Asia, where Lululemon is manufacturing its clothing leads to increase in the manufacturing cost for the companies.

Economic factors

The economic recession was one of the biggest threats faced by the company.   It resulted in more spending going to the family.  The continuous economic struggles in countries in Europe have impacted negatively on the Lululemon international expansion. During the hard economic period the customers become more sensitive to pricing (Baitenova, Smikova & Mutaliyeva, 2013). The retailers are therefore required to develop more differentiated products to maintain the high end consumers and the customers affected by the economic recession.

 Socio- cultural factors

The market for the sportswear has been increased by the rising interest of people towards healthy living culture. The number of the people in the North America taking Yoga has increased significantly (Moran, 2013). The aging population is an increasing market for the sports apparels products.   This is an addition of the youth market that present increasing growth for the companies in the industry to tap into.

Technological factors

The introduction of the online shopping provides a unique experience for the shoppers who can access some trendy clothing they need in real time.    This has opened a new front for the clothing retailers to reach a wider market. In addition, the companies can use the social media not only to advertise and increase the brand awareness for the products but also to get feedback from customers.  The advancement of technological has added possible source of competitive advantage for the companies.

Environmental factor

In addition, the customers are increasingly getting concerned with the process of producing the products they consume (Baitenova, Smikova & Mutaliyeva, 2013).  They are making ethical decisions in their purchases and will therefore refuse to buy the products that contribute to environmental destructions, are manufactured tough child labour or  are exploiting cheap labour from the third world.

 The micro-environment Using Porter’s Five Forces

Porter’s five forces are used to analyse the industry in which the organization is operating. The five forces determine the industry profitability hence its competitiveness. The forces include the bargaining power of suppliers, bargaining power of buyers, threat of substitute products, threat of new entrants, and rivalry among the competitors (Porter, 2008).

Bargaining power of the suppliers

There is a low bargaining power of the suppliers since many suppliers and designers are competing to provide their products to the clothing retailers.

Bargaining power of the buyer:

The customers have very high bargaining power due to low switching cost to different retailers. The clothing company has to satisfy the needs of the customer to retain them.

Threat of new entrants:

This is moderate because while it is difficult to enter the high end fashion industry due to the large capital requirement (Baitenova, Smikova & Mutaliyeva, 2013). The outsourcing of all the manufacturing process overseas makes reduces the capital cost. The internet also has made it easy for new entrants who do not need to have distribution channels in all locations.

Rivalry competition:

The sportswear industry is a very competitive field. There is because the buyers are very demanding and there is low differentiation for the products.

Threats of substitute products:

This threat is low due to the fact that there are few substitute products for the sports apparel clothing.

Importance of stakeholder relations and asses the impacts of current supplier’s related issues in the stakeholder relations and strategic business planning

The stakeholder relations are important to   the company has it helped in the governance and accountability process. Some of the important stakeholders include company’s shareholders, suppliers of the company, customer’s employees, the community in which the company is located and industry regulators (Park, Wilding, & Chung, 2014). Stakeholder relations   become important in organizations as a result of board governance failure that occurred in Evron, Tyco and Worldcom. Organizations have been required to pay attention to important stakeholders as their satisfaction with the company’s operations is critical for the company’s success in the highly competitive sports clothing industry. The company Lululemon should be careful to define all the stakeholders as it is the first process of including the stakeholders in the process of the decision making. The stakeholders can include the groups that have the power to affect the company’s processes (Costa & Menichini, 2013). While the core stakeholders are very visible and impacts the company’s corporate decisions, the   fridge stakeholders are remote groups that are may be currently be disinterested by the company operation.

Just like in other apparel industry, most raw materials for sportswear apparels have to travel from various parts of the world before reaching the store where they are bought by customers. The supply chain   in the apparel includes the harvesting, manufacturing and transportation process. Some of the issues that have impacted the sportswear apparel supply chain are the company use of products made by child or forced labour. Some of the concerns in the supply chain include the policies of the company in regard to the code of conduct of suppliers, subcontracting policies   and involvement with relevant government bodies and international organizations to combat child labour among suppliers (White, & Bruton, 2010).

The planning of the company supply process should be based on transparency and traceability.   This is important in ensuring that the company understands   the entire supply chain and if the company provides all the critical information of the supply chain to the customers and the public as a whole (Costa & Menichini, 2013). Another important element in the supply planning is the incorporation of monitoring, training and evaluation. This process enables the company to measure the adequacy of the companies monitoring of the supply chain to ensure that the suppliers comply with the company’s code of ethics concerning  the use of child or forced labour.  In addition, the company has to cater for all aspects of workers’ rights.  The company has to deliberately develop programs for supporting the rights of its workers.  The company should provide workers with the opportunity and freedom to organize themselves and demand for improvement of the working condition (Costa & Menichini, 2013).  Although most companies try to monitor the working conditions of the apparel factories, many companies do not check the early phases of the production supply. This gives room to these supplies have risk of labour abuse.

TASK 3

1. Risks facing Lululemon and future challenges affecting strategic business management and planning of the organization

Sustainability at the corporate requires that the activities of an organization should strike a balance between making maximum profit and economic development with social responsibilities and preservation of the environment (Matos & Silvestre, 2013). Sustainability and risk management is part of the holistic business management that that also include the socioeconomic factors, environmental and corporate risk factors. It is imperative for business operations to integrate the risk management of the sustainability operations so as to minimize losses, but also take advantage of the new business opportunities. This may include development of new design, introducing new products or just using technologies that either improve the sustainability of the organization or enable it to do business using a new improved model.

One of the risks faced by Lululemon as a company with its manufacturing base in China and Asia due to lower wages is many.  Countries like US have managed to industrialize very quickly to overtake even USA as an industrial powerhouse (Cooper, 2014).   As a result of the economic growth, these countries have improved the living standard by doubling the GDP per capita over a period of ten years. The new challenges currently being experienced by these countries like slow economic growth, the rise of wages and cost of living has a direct impact on slowing down the manufacturing industries.

Why many years ago apparel companies would be fast to deny any responsibility to the workers in the supply chain in a foreign country (Merk, 2009). In the present age, reporting of any mistreatment of workers   in the supply chain can negatively impact of the credibility and image of the company. Although many companies in the apparel industry have well written policies against modern day slavery, preservation of the environment and promotion of fair employment policies, but many are still accused of not using the standard information to correct the grievances of the workers in their supply chain. Such practices, if not corrected in time can spoil the image of a company.

The apparel industry is one of the manufacturing industries that are subject of slow growth. About 50% of the apparel sold in the USA is manufactured abroad. While this is expected to increase in the near future, the retailer’s profit margin is expected to reduce.  The second challenge is the enlargement   large retailer’s operations (Cooper, 2014).  Companies like Wal-Mart, Target and Costco are reshaping the apparel industry by combing their efforts and lowering the cost of production. The efficiency of these large retail chains is increasing the bargaining power of the consumers. The consumers are therefore piling up pressure on fashion and luxury retailers to lower the prices. The risks faced by the organization include:

• Economic risks- Lululemon Company faced this risk due to the difficult economic times that most countries are in. In addition, the current market requires that a company includes ecological costs to the other internal cost of manufacturing and transporting the products to the market (Merk, 2009). The company also needs to be ready to provide responses to the both predictable events like poor quality of products or unpredictable occurrence like disaster in one of its factories in China or Asia.
• Like all the corporations, Lululemon is driven by a desire to improve on its profit margin.  However, the company cannot make sustainable profits without having a sustainable program in place.    The company will be operating at a greater risk when its it driven by profit along since a boycott of the company’s goods and services due to social or environmental issue result in great damage to the company.
• The Lululemon Company is currently facing the risk of bad reputation reduction of the brands.  The products integrity and marketing strategies of the company are being questioned by the customers (Merk, 2009).  Concentration on the sustainable performance   is important in improving the company’s reputation. This would lead to increased sale and productivity. The company has been known to completely shun the print and media advertising, preferring to use carefully selected ambassadors in different categories.
• Environmental risks:  companies in the apparel industry face the risk of by bypassing the environmental impact of   the production process especially in the early stages of production. The consumers have become very conscious of the environmental and social impact of the products they consume (Cooper, 2014). It is not only required that the production process have little impact on the environment, but also not harm the workers and communities that live near the plant. Social risks faced by the company are brought about by the lack of principles or structures that provide opportunities for the stakeholders to participate in all activities in the organizations.  In addition, the company faces operational risks that are brought by inefficiencies in the organization structures.  The organization needs to   have a system for measuring all the activities and outputs.
• The Lululemon is also facing the threat of operational interference by outsiders.  This is because a company that ignores sustainability concerns result in not only the distrust of the customers, but also being subjected to more regulatory scrutiny.  Public distrust of large companies like Lululemon has been on the increase in the recent years.  This leads to the negative reaction of customers (Merk, 2009). The regulation body’s attention on the company is costly to the company since the company employees are forced to take time to respond to the regulatory demands.  The result is that the senior corporate management are distracted from the core mandate of the company.

1. Apply strategies and techniques to mitigate such risks in the future.

Companies are developing and implementing sustainability and risk management in different ways. For Lululemon Company, the sustainable risk management strategies need to address not only the strategic and operational requirements but also governance and collaborative requirements. Implementation of sustainability program is very important in the mitigations of risks (Anner, 2012).  It involves establishing a system that ensures the well being of the ecosystem, product and people. A company with an effective sustainability provide the all the stakeholders like shareholders, community, customers and employees’ values through sustainable profits.

The risk was considered traditionally being considered from the negative side only as causing losses. There is, however a positive side of risks as they are part of business processes.  The desire to take risks sometimes results in the organizations making profits.

Some of the strategies that can be applied to mitigate risk in future include:

Development of brand strength enables the company will have sustainable performance for a given period.  This can only be done by ensuring that the processes within the company are efficient (Matos, & Silvestre, 2013).

Lululemon Company needs to develop competitive and quality apparels that would have advantages in the marketplace.  The company can spur innovation by having sustainability in the design and development of the apparel.  Such a mechanism will ensure that customers have quality products. The combination of the well thought out product design and market analysis process makes the company to address   the rising customer needs and concerns and produce apparels that will compete favourably in the industry. In addition, the Lululemon Company can effectively boost its productivity by applying many aspects of sustainability. This is because it does not only boost the business efficiency and profits, but also assists the company to reduce   the material and energy that is used in the production process.  Consequently, this process contributes to the reduction of the toxic chemicals that are released to the environment; contribute to the company producing durable products.  Production efficiency also increases the recyclability of the products and use of the renewable resources (Collier, 2003).

Control of the supply chain by the use of good policies is very critical for the apparel company like Lululemon having sustainable supply chain operations.  It’s the current day, it is critical that the management is able to protect the rights of the workers in the supply chain and have system that protect its process of being connected to human abused like forced labour and child abuse.  The Lululemon Company needs to establish a code of conduct that provides to the suppliers what the company expects from them. This would include the environmental practices, the quality of the products that they supply and the rights of the workers (Matos, & Silvestre, 2013).

Strategic performance strategies are very required by the company to determine the sustainability of the company going into the future.  Strategic analysis, therefore involves the process   used by management to make decisions with regard to the products, customer tastes and preferences, geographical markets to be served and the scope of their operations. This process enables the organization to develop strategies for its global operations. This enables the company to respond effectively to the rapid changing business regulation and tax laws in the countries that it operates in. It is imperative that the Lululemon Company stays on top of such development in the supply, licensing agreements and manufacturing of the apparels.   Strategic operations will also enable the company to be able to change according to the needs and tastes of the customers. For the company to have a competitive advantage, it needs to produce apparels that take into consideration the changing needs of the customers (Erin, 2010).

TASK 4

1. Lululemon’s financial position and performance using financial ratios

To understand the financial performance of the company, an analysis of the company financial rations is used. Lululemon performed well in the market registering higher profits and revenues in the year 2007. Understanding the company financial performance is essential because it helps the management to develop proper strategies and allocate the resource effectively to ensure the company remains competitive in the industry. Several financial rations including the liquidity, profitability, investment, and efficiency, ratios can be analysed and interpreted to determine the company financial performance.

 Interpretation of Financial Ratios

 Current Ratio

 The current ratio fall under the category of liquidity ration. The ration measures the ability of the company meeting its current liabilities using the available current assets (Brigham & Houston, 2013). The ratio indicates the company’s cash flow in the future. It is calculated by dividing total current assets by total current liabilities. From the financial statements provided on the company website, the current ration in 2008 was 2.73 while that of 2007 was 1.52.  In both years the ratio was above one indicating that the company liquidity was positive. The company is performing well financially because it can meet its short term liabilities without suffering financial constraints in the short term. The ratio of 2008 is higher than that of 2007 because the company had more liquid cash in 2008. A ratio more than 2 means that the company has more liquid cash that needs to be invested in the business.

 Return on equity

This ratio is obtained from the division of the net income from the shareholders’ equity. Thus, it is expressed as a percentage. It is the measure of the income earned per shareholder’s equity as a percentage (Bajkowski, 2013).  The ratio helps the management to measure the company’s profitability by assessing the amount of revenue gained from shareholder’s investment in the company. ROE for Lululemon in 2007 was 41.02 while that of 2008 was 40.16. The ratios show that the company is doing well because they are high. However, in 2008, the company did not perform very well because the returns to the investors were less compared to 2007. The company should strive to increase this ration every year.

 Return on assets

The ratio measures the profitability of the company relative to its assets. It is found by dividing net income by the total assets. The ratio represents the number of cents earned per dollar of assets. In 2008, the company registers ROA of 26.91 and that of 2007 was 0. High ROA indicates that the company is generating profits and it is doing well financially. Thus, in 2008, the company performed through effective investment of the shareholders’ assets, unlike 2007 when it recorded zero returns on the assets invested (Brigham, & Houston, 2013).

Quick ratio

This ratio measures the company’s short term liquidity. It is calculated by:  Quick ratio= (cash + Accounts Receivables+ short term marketable securities) / (current liabilities). The ration is the most effective in measuring the company’s liquidity (Collier, 2003). When the quick ration is high, then the company’s financial health is good and the company is able to settle short-term financial obligations. Organizations prefer a ratio of 1 and above, as this indicates that the company has no issues with liquidity (Bajkowski, 2013).  In 2008 Lululemon had a quick ratio of 1.61 and in2007 a ratio of 0.57.  From the ratios, the company’s liquidity was better in 2008 than 2007 and this could be attributed to the company’s market expansion that increased its revenues.

 Inventory Turnover

Inventory turnover is an efficiency ratio that measures how the company manages its inventory. The ratio compares the costs of goods sold by the average inventory in a given period. The ratio is important for an organization because it measures the company’s performance based on stock purchasing and sales. Inventory Turnover ratio= cost of goods sold/ Average inventory (Bajkowski, 2013). A ratio of 8.9 in 2008 against a ratio of 0 in 2007 indicates that the company performed well in 2008 than 2007. In 2007, the company overspent on buying too much inventory and wasted resources by stocking non-selling inventory. This implies that in 2007, the liquidity of the company’s inventory was poor compared to 2008 (Erin, 2010).

Receivable turnover

This is another efficiency ratio that indicated how the company uses its assets. The ratio helps the management to measure the effectiveness of extending credit and collecting debts (Bajkowski, 2013). The ratio is given by dividing net credit sales by average account receivables (Arnold, 2013). A ratio of 81.07 in 2008 against a ratio of 0 in 2007 has various organizational implications. In 2008, the company performed well in terms of collecting its revenue; hence its credit policy was good. However, in 2007 the company performed poorly in terms of its credit policy registering a low ratio.

 Summary of the financial presence of the company

From the ratio analysis above, it has been established that the company performed well financially in 2008 than 2007.  The company’s liquidity, profitability, and efficiency were above bar in 2008. The performance could be attributed to effective management of the resources and leadership. Therefore, to improve in the future, the management should ensure effective resource allocation and minimize waste through planning (Collier, 2003). In summary, Lululemon is performing well financially, and its financial position is better considering that its 2008 financial ratios showed an improvement from those in 2007.

1. In formation appraisal technique for the company to assess the worthiness of the project being considered

The main purpose of appraisal technique is to establish a system enable the finance manager to make better spending decision   in expenditure, projects and programs (Ho & Liao, 2011).  The appraisal techniques can be used in both appraisal of the project before they start and evaluation of the projects. Some of the common appraisal techniques include discounting, Net present value that is useful in appraising projects.  The other tools that include Cost benefit analysis (CBA), Internal Rate of Return (IRR) and Cost effectiveness Analysis are important appraisal tools for making economic decisions.

• Net Present Method (NPV)

As a manager of Lululemon Company, this is one of the important analytical methods of appraisal since it provides time value of money (Gray, 1995). In the NPV, the revenues and cost of the project will need to be estimated before they are discounted and compared to the early investment amounts.  The investment values that provide the highest positive net values are the right project for the company.  The discount rate is a concept that is related to the NPV method since it involves converting the cost and benefits of a project to their present values (Kim, Ashuri & Han, 2013). The calculation of the discount rates can be based on either the rate of social time preference or the weighted average method.

Advantages of NPV

NPV is considered one of the most reliable techniques for making investment decisions.  Having a positive NPV from the calculation means that the project is profitable. It is especially important when considering the value of money over time.

Disadvantage of NPV

It is very difficult to use when dealing with several independent projects. This is because the method works best when ranking projects.

 

• Internal rate of Return (IRR)

Internal rate of return is the discount rate that is applied to the net revenues of the project to get the initial investment.    The Lululemon Company can use the IRR as the greatest in excess of the indicated rate of the return.     The IRR   will enable the manager to calculate and find the rate at which the net present value of a project will be zero this tool enables the project manager to establish how well a project will proceed under different circumstances. (Carmichael, 2011)   Undertaking the internal rate of return enables a project manager to know the amount of pressure that a project can withstand. This would enable the project to select a financing mechanism that would be able to minimize the rates of interest, according to the level of the projects to withstand the pressure.  Internal rate of return is the annual percentage of the returns can be achieved by a project (Bajkowski, 2013).

Advantages of IRR

This appraisal tool provides a business to calculate and make decisions on investment based on the level of a project to withstand changes of interest rates.   This strategy is therefore important in convincing the investors that have competing businesses competing for their attention.  It helps an investor to make the most resilient project.

Disadvantages of IRR

The investment analysis technique is based on the assumption that the project will be completed the return made based on the rate of return established (Carmichael, 2011).  This will only happen in a few projects.  The IRR most of the time, therefore provide a reasonable image of assessing project, but more analysis need to be done before making the  investment decision.

• Economic appraisal techniques

The economic appraisals approached are important since they provide information on whether the project to be implemented   the societal requirements. This is different from the financial appraisals that are done from the perspective of the investors that is sponsoring the project.

Cost Benefit Analysis CBA is based on assessing if the social and economic benefits of a project are higher than the costs involved (Arnold, 2013). The project to be implemented by Lululemon Company will only be desirable if the benefit of all the stakeholders is more than the costs that will be paid. But is important to note that the even if the project benefits exceed the costs, the project will still need to be analysed using the Net Present Value to determine the viability (Carey, & Essayyad, 2001).  Cost benefit analysis is calculated by including all the indirect cost and benefits that the project will provide.

• Payback period

This is based on the time that a project will take before the investors recoup the   initial investment. The finance manager of Lululemon Company can evaluate project by this technique when considering projects that have a short term payment period (Carmichael, 2011). The payback strategy is not only simple to  understand and use, but also  literally based on the time  that  the project invested  takes from  the cash inflows to the  time it equals cash outflows.   When the manager has to decide between two equally competing projects, the payback tool will assist in selecting the project with the shorted payback period.  This is because the short investments periods provide a better value for money when the payback tool is used.

Advantages of payback method

This is a popular method among investors because   it is a very simple process. It does not require the company to hire a specialist to help in making investment decisions.   The second advantage is that it is an effective tool for making quick short term investments that does not have a lot of time. For example, a company requiring replacing it machinery that has broken down will need to it as soon as possible (Ho & Liao, 2011).   The third advantage of payback is that the current dynamic business environment requires business leaders to make first decisions and make returns before the environment changes.

Disadvantage of payback

This tool is very simplistic and therefore will not provide the Lululemon Company finance manager with real facts about the investment to be done.   In addition, since most of the payback decisions are made by selecting one investment opportunity with the other, it does not provide the nature and amount of the profits in the business venture (Carey,  & Essayyad, 2001).

1. c) The cost- volume profit analysis of the production of jackets

Cost-volume-profit analysis estimates how changes in cost, including both variable and fixed, sales volume, and price affect the company’s profit (Carey, & Essayyad, 2001). Therefore, the CVP tool is essential in planning and strategic decision-making within an organization.  The majority of the managerial accountants use this tool to make effective decisions for their organizations. Organizations use the CVP to reach important benchmarks such as the break-even point, which is the point where total revenue equals total cost. At break-even, the profit will be zero. Organizational management becomes more concerned about the CVP during the economic downturn to help the managers pinpoint out problems and develop important solutions (Chandra, 2008). The CVP also analyses the number of units to be sold to reach the break-even, the effect of a given reduction in fixed cost on the break-even and the impact of an increase in price on profits. Thus, CVP indicates how profits, revenue and expenses change as the volume changes (Arnold, 2013). Thus, based on the following scenario, the break-even for Lululemon can be calculated.

Lululemon wants to produce 300,000 units of jackets in the current year and it has allocated the production department $7, 200, 000 as fixed cost of the above units. Their variable cost is $50 per unit and the price per unit is $98. Therefore, the break-even number of jackets will be given by:

Break-even number of jackets= total fixed cost÷ (price-variable cost)

Break-even = [7, 200,000 / (98-50)] = 15000. This implies that for the company to break-even, it has to sell 15000 units of jackets.

Alternatively the break-even point for the company can be expressed in sales dollars. In this case, the managers use the sales revenue as a measure of sales activity instead of units sold (Arnold, 2013).  It is easier to convert the units should measure to sales revenue measure by the units selling price by the number of units sold. For example, the break-even point for Lululemon is 15000 jackets. Since the selling price per jacket is $98 the break-even-volume in sales is (15000×98) = $1,470,000.

Contribution margin per unit = price – variable expense per unit

Thus, $98-$50 = $48

Contribution margin ratio = contribution margin per unit ÷ price

Thus, $48÷$98= 0.489795

The break-even sales dollars are given by:

Total fixed expenses÷ contribution margin ratio

$ 7200000÷ 0.489795= $14700027. 56255

Contribution margin income statement based on sales of:  $14700027. 56255

 

Sales	$14700027. 56255
Total variable expense = (1- 0.489795) = (0.510205) × 14700027. 56255	7500027.56255
Total contribution margin (14700027. 56255-7500027.56255)	7200000
Total fixed expense	7200000
Operating income	$0

From the contribution income statement, it is clear that sales equal to $14700027. 56255 yields zero profit. Thus, Lululemon will break-even when it makes sales equal to $14700027. 56255.

 Conclusion

This paper provides various strategic management and strategic financial management for the Lululemon organization. Various issues affecting the company have identified, analysed and recommendations provided. Therefore, management of Lululemon may use this report to formulate strategic business plan for the next three years. The report provides important information that can help the organization regain its reputation and recovers its competitive advantage quickly.

 

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