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Dec 11, 2018

Lululemon bundles yoga pants and perks in paid membership test

Slowing sales outlook drags down Lululemon shares

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Call it yoga Prime.

Lululemon Athletica Inc.(LULU.O), the apparel retailer with a cult-like following, is betting its most loyal customers will jump into a new paid membership program that comes with clothing, classes and free express shipping.

The Vancouver-based company has been testing out the $128 annual plan more than 700 hundred miles away, in Edmonton, and will extend it to a few other markets at it fine-tunes the perks, including a pair of yoga pants or shorts. Chief Executive Officer Calvin McDonald told analysts last week that the fee may go up based on the initial strong response.

Venturing into a fee-based loyalty program—like Amazon.com Inc.’s Prime and its estimated 97 million U.S. members—is a rare move for apparel retailers, says Bloomberg Intelligence senior analyst Poonam Goyal. Paid membership is more common among warehouse companies like Costco Wholesale Corp. and Walmart Inc.’s Sam’s Club, and there’s also been a surge in online beauty and grooming subscription-based boxes.

“The people who love and breath Lululemon will likely join the membership program if they find that it’s beneficial, if they think that they’re getting value beyond the pants,” Goyal says.

The value was obvious to Jennifer Dalmer, a 27-year-old nurse who signed up two months ago. For one, the pair of pants alone is worth C$98. The box she received also contained personal development cards with focus themes for body and mind.

Community Connection

Most enticing, she says, was getting a pass for a class for both her and a friend at a different yoga or fitness studio every month. The pants carry an emblem that’s unique to the program and helps members spot one another in class, making it easier to spark a conversation and meet new people, says Dalmer, who is based outside Edmonton.

She said she was attracted to the program because it fosters a community connection. “I have membership cards at a lot of different stores for points and discounts but nothing as personal as this.”

The company has long fostered that sense of community with free yoga classes, running clubs and other sweat-inducing events. It also supports “ambassadors”—athletes and yogis featured on its website—and organizes races and festivals. CEO McDonald vowed to take the connection with customers to a new level with the loyalty program, which has been dubbed “Lululemon practice” for now.

In Edmonton, additional perks include an exclusive workout event as well as early access to some product launches, according to photos of the boxes that members posted on Instagram.

Lululemon's most loyal customers visit regularly, are used to paying full price and don’t need incentives to shop, according to Adheer Bahulkar, a partner in the retail practice of consultant A.T. Kearney. Still, a loyalty program helps gather more consumer data and could even simplify merchandising if shoppers sign up en masse, he says.

“Once you have a loyal subscriber base, you can also safely try to sell them a lot of new products or at least get product trials and valuable feedback data which can be tremendously useful,” he says.

It could boost sales, too. Amazon Prime members tend to spent almost double the amount of a non-member, according to Bahulkar. Customer Dalmer is on such a track after trying out her new yoga gear.

“They were the most comfortable pants I’ve ever had from Lululemon and I fell in love with them,” she says. “So I went to the store and I bought three more pairs.”