Last week’s softer-than-anticipated Q1 2024 earnings report from Lululemon, plus our prior stories on the brand and category, roused us to take another look at data for the athleisure category. Following terrific traffic growth in 2022 (visits up +16% year-over-year) and 2023 (+24%), visit trends have essentially flatlined since the start of the year, as shown below. Wow!
![](https://cdn.prod.website-files.com/62543a0ce693bb812fd46c4e/6670ac34a26bf797047c7a4a_Athleisure_061424_v3.jpg)
Looking closer at the different athleisure brands, we see that Lululemon has eased modestly from its high, whereas Vuori and Alo Yoga have increased double-digits. Alo Yoga and Vuori’s higher growth reflects more locations. Athleta, (which we wrote about last week) has also eased. Its better sales results likely reflect improved conversion, which is the result of better execution on product and merchandising (which was the key takeaway from last week’s story).
![](https://cdn.prod.website-files.com/62543a0ce693bb812fd46c4e/6670ac7672ecde9dca09c076_Athleisure_Chains_061424.jpg)
Last year, we wrote the story “Why Lululemon Is a Barbenheimer-Sized Phenomenon in Hollywood” which teased out why the market was Lululemon’s largest in the U.S. Los Angeles is a highly-coveted market that all brands want to win given its large size and the significant presence of influencers. As such, it’s a market where Lululemon is the incumbent and Alo Yoga, Vuori, and others are the encroachers. Shown in the chart below are the visits to each brands’ stores in LA that were operating at the end of 2021, indexed to the start of 2023. As is clear as day, these comparable stores were growing great until the end of 2023; since then, it’s been flat to down. Said differently, it's a category thing and the category has stalled out.
![](https://cdn.prod.website-files.com/62543a0ce693bb812fd46c4e/6670ac92af92c9a6e3d9fcb3_Athleisure_LA_061424.jpg)
For context, Lululemon just reported flat U.S. comparable sales for Q1 2024 and indicated that Q2 would be similar. Looking at two other brands that are early in their gestation, Free People Movement’s comparable sales slowed to +25% for Q1 2024 from a 40%+ rate in 2023 and Beyond Yoga slowed to 12% from the high-teens. Per Lululemon’s comments on their earnings call, the women’s athleisure/yoga apparel category was down, and Lululemon performed in-line with the category. Lululemon’s women’s business is far more developed than its men’s (and roughly three times the size), meaning that if the overall category were to slow, it would most likely first be visible in women’s.
Why is the athleisure/yoga apparel category stalling? We suspect two reasons: (1) breakout innovation is becoming more difficult because so much great work has already been achieved (i.e., it’s harder to go from a 4:30 marathon time to 4:00 than it was from 5:00 to 4:30); and (2) pandemic normalization. For this latter reason, we’ve seen multiple consumer categories that have had “pandemic hangovers” well after 2021, including athletic footwear, home furnishings, home improvement, electronics, spirits, pet food, and more.
In addition, as athleisure has become more mainstream, many notable retailers have increased their proportion of clothing that could fit into this category. For instance, Aritzia has a line named Golden that is a competitor to the athleisure retailers. Victoria’s Secret’s PINK line is a mix of underwear, swimwear, and athleisure. While some of these brands may not show as direct athleisure competitors, they are surely eating into share of wallet.
Focusing on the spirits industry, growth was dynamic in 2020, 2021, and 2022. The table below breaks the industry’s growth into its component drivers. Two-thirds of the growth came from mix, i.e. drinking higher price point liquids. For 2024, that is now unwinding. The athleisure/yoga apparel category, as well as sporting goods in general, experienced a similar dynamic as spirits, consumers trading up to lots of higher price points, a little like-on-like pricing, and a little volume. (Lululemon’s business had more volume and less pricing).
![](https://cdn.prod.website-files.com/62543a0ce693bb812fd46c4e/6670acba3d9a2913ed2ad679_Spirits_061424.jpg)
We now see consumers across most income cohorts and goods categories seeking out absolute lower price points. Those brands that offer them--be it Aldi, Walmart, T.J. Maxx, Tito’s, e.l.f. Cosmetics, the non-Tesla brands in auto--are capturing market share. Costco has crushed it this year, with a substantial acceleration in comparable-store sales. Costco is all about “getting more and a lower price point” for its members, who are generally more affluent households. As such, we suspect that in 2024 consumer trade down is broadening into the previously unimpacted.
Why now? Potentially it’s the compounding effects of inflation in general, which has moved across categories, with this year’s pain being essential services--insurance for auto, homes, and healthcare--categories that higher income households would surely feel. This year, we also see higher-income consumers now expecting worsening inflation rates as shown in the chart below (from the New York Fed), whereas the other two income cohorts are relatively steady.
![](https://cdn.prod.website-files.com/62543a0ce693bb812fd46c4e/6670acd03586cb400f7066ea_inflation_061424.jpg)
While households with incomes exceeding $100K may have enough money, economists will point to how inflation creates anxiety as it suggests vulnerability to one’s status and “living comfortably standards.” Money not going as far than it did last year is a downgrade in status and lifestyle, a typical agent for causing a sense of loss, unhappiness, bitterness, and malaise. We’ve all read and heard about there being also high level of frustration with price points across all income cohorts, most starkly in consumer confidence surveys and views of how the economy is performing, especially given the high level of media attention on the topic.
These athleisure/yoga apparel brands have had a lot of appeal and success with the aspirational luxury consumers (Capri, Tapestry, etc.) and we've previously discussed that the aspirational luxury consumer has cut back significantly. Lululemon’s CEO Calvin McDonald noted, “We do know that the guest is being more selective but will spend where they choose.” Aspirational customer spent on purses and clutches last year, and this year it’s leggings and rompers. Another factor could be dupes and influencers pushing lower price point brands because “ways to save money” wins clicks; influencers are all about driving more clicks and generating more revenue for themselves, a dynamic that we’ve seen elsewhere. That takes us to product newness.
As to break-out innovation, on its earnings call, McDonald said, “We've seen a slower start to the year due to several internal factors including missed opportunity in women's and bags, which we are actively addressing, and some ongoing choppiness in the consumer environment...When looking at women's, we did not maximize the business in the U.S., which was the result of several missed opportunities including a color palette and our core assortment, particularly in leggings that was too narrow. Where we had color, guests responded well. We just needed more as they are looking for additional choices...We did not provide her in terms of the assortment she was looking for in certain area.” (Lululemon replaced its head of product at the start of June.) Relatedly, Nike’s CEO John Donahoe has bemoaned the company’s ability to quickly put out bold and disruptive innovation, with one reason being Nike’s pandemic work-from-home practice that inhibited collaboration, speed, and big innovation. We wonder if this may also be a factor at other companies like Lululemon. Nike’s work-from-home practices were hardly unique to Nike.
Lululemon last reported a sharp slowdown in sales from product at the end of 2013--the “sheer” or see-through pants debacle--which eventually resulted in a change of CEO. Specific product, like that precedent, isn’t the issue here. The issue seems more of the kind that McDonald and Donahoe described, it’s just getting harder to move the revenue higher, and off-the-mark product launches are quickly recognized by the consumer and treated with brutal response. Additionally, given current social media dynamics the product may just be priced at too high of level for the current consumer mood.
To conclude, these tile pieces create a mosaic of a category that grew abnormally fast for three years, growth that attracted new brands and investment (stores, inventory, advertising, etc.), and during a time when the consumer was less value/price conscious (excess savings, pandemic stimulus, etc.), all of which allowed the category to expand to an overstimulated/overstretched size. Growing even more from already “overstretched” demands truly disruptive and bold innovation, that is difficult on its own merits, but further challenged by the less collaboration at the brand companies when their product teams and storytellers (the marketers) are working from home compared to in the office together. These overall dynamics also mean that structurally the category is less likely the outperformer from a percentage growth relative to prior years. Structurally comes because numerator growth is more difficult to produce and denominator effects (Lululemon’s U.S. business is 2.2x larger than it was in 2019). Moreover, numerator growth is now more volatile with consumer confidence and economic trends (+/-), as well as the whims/winds of social media influences, other indicators of maturity. Thus, it’s hangover time and settling into maturity after that.