Filed under: Competitive strategy, Marketing and advertising
Berkshire Hathaway (NYSE: BRK.A) vice chairman Charlie Munger once said that “It’s a finite and very competitive world. All large aggregations of capital eventually find it hell on earth to grow and thus find a lower rate of return … The one thing we’ve always guaranteed is that the future will be a lot worse than the past.”
An apparel company with a red hot product line and booming growth would appear to be a prime target for Munger’s wisdom, and the wolves appear to be circling around Lululemon’s (NASDAQ: LULU) high-margin business.
According to the Globe & Mail, companies including Roots, La Senza, Nike and, most recently, Calvin Klein, are all trying their hand at high-performance yoga clothing. The piece quotes Robert Gibson, head of research at Octagon Capital Corp.: “Look out, Lululemon. Everyone is getting into the act.” Lululemon’s success “has made everyone realize there is money to be made in ‘performance’ clothing. Anyone who can will get into the act. … More competition is not a good thing.”
Whether Lululemon has the chops to stay ahead of very savvy, well-funded competitors remains to be seen. But this is probably the biggest risk factor that the company’s shareholders need to be on the lookout for.
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