Lululemon makes a rare move – discounting its clothing as the pandemic squeezes its business

• Lululemon quietly launched a five-day online warehouse sale – a rare move for a company that almost never discounts.
• While analysts have praised its lack of discounting in the past, a group of Barclays analysts said on Thursday that in light of COVID-19 the sale makes good business sense.
• "We believe it gives customers access to this brand "perk," rather than being seen as damaging the brand through discounting," they said.

Lululemon has historically kept discounting to an absolute minimum. But in a rare move, the company has surprised shoppers with its first warehouse sale, either online or in-store, for the past three years.

The sale is strictly online and will last for five days. It features new discounts each day across most of its clothing and accessories categories (men's, women's, and girl's) including its iconic women's leggings that typically cost $90 plus. As of Thursday morning, a pair of $128 leggings were being sold for $79, for example.

In the past, the company has been applauded by analysts for resisting discounting while its competitors in the apparel world have leaned into this heavily.

The issue is that customers become hooked on discounts and are unwilling to pay full price, analysts say. And in turn, heavy discounting eats into profit margins.

This has been one of the biggest issues to plague the retail sector in recent years as brands such as Gap and Victoria's Secret use promotions to bring customers in the door. As a result, sales signs have become a mainstay in their stores in recent years.

This month's sale indicates that Lululemon is, like many of its competitors, reeling from the impact of having its stores closed for several months during the pandemic. While its online business has been strong in the past few months, sales were down 17% overall in the most quarter thanks to a lack of business at its brick and mortar locations.

"Given the Covid-19 pandemic, this [warehouse sale] is not surprising and makes sense as an avenue to reduce inventory as management said it would take various measures to ensure that inventory moved throughout the rest of the year without damaging the brand through persistent and widespread discounting," a group of Barclays analysts wrote in a note to clients on Thursday.

These analysts went on to say that they would "prefer" a one-time warehouse sale than Lululemon holding on to "stale inventory."

"Warehouse sales have historically been an expeditious, margin-efficient, and lower-risk format to exit any excess inventory without permanently damaging brand equity. In fact, the Warehouse sales are so infrequent and short that we believe it gives customers access to this brand 'perk,' rather than being seen as damaging the brand through discounting," they said.