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Lululemon (LULU) , which is famous for its high-end athletic wear, ended 2024 on a concerning note as it started to face a startling shift in customer behavior, and its CEO is sounding the alarm on the source of the problem.
In Lululemon's fourth-quarter earnings report for 2024, it revealed that while its net revenue increased by 13% year-over-year during the holiday season, its comparable sales in the Americas were flat, compared to the same time period in 2023.
According to recent data from Placer.ai, Lululemon’s store traffic during the fourth quarter of 2024 only increased by 2.4% year-over-year. This is weaker than the roughly 8.2% increase in foot traffic it faced in the prior quarter.
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Lululemon CEO flags a major problem
During an earnings call on March 27, Lululemon CEO Calvin McDonald warned that the company is continuing to see a weakening in consumer demand, despite recent efforts to attract more customers into stores.
“We started this year with several compelling new product launches, but we also believe the dynamic macro environment has contributed to a more cautious consumer,” said McDonald.
He said that many of its customers are tightening their spending due “economic and political uncertainty,” which is contributing to decreased foot traffic in stores.
“Based on a survey we conducted earlier this month in conjunction with Ipsos, consumers are spending less due to increased concerns about inflation and the economy,” said McDonald. “This is manifesting itself into slower traffic across the industry in the U.S. in Quarter 1, which we are experiencing in our business as well.”
Lululemon’s apparel is often sold at premium prices, with many items, such as hoodies, leggings, and bodysuits, selling for over $100. So, it is no surprise that U.S. consumers may be cutting high-end activewear out of their budgets.
Lululemon faces a major threat
Many consumers nationwide have increasingly been purchasing secondhand clothing as they battle inflation and higher costs of living.
In 2024, the U.S. secondhand apparel market grew by 14%, its strongest annual growth since 2021.
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More consumers are becoming more interested in second-hand clothing, especially after President Donald Trump enforced 20% tariffs on all goods imported from China and 25% on all goods imported from Mexico and Canada earlier this month.