Lululemon does not need its shiny new toy, but having it would not hurt, either.
By guest author Jinjoo Lee from Wall Street Journal
Lululemon does not want to just sell you the yoga pants, it wants to be there while you work out.
The company said late Monday, June 29, 2020, that it has agreed to buy at-home fitness company Mirror, and investors seemed impressed: Lululemon’s richly valued shares rose around 6% on Tuesday morning. Mirror is a USD 1495 piece of equipment that comprises a camera, speakers and a reflective screen, allowing users to see both a remote trainer and their own form. Like Peloton, whose exercise bikes go for a heftier USD 2245, Mirror charges a USD 39 monthly fee for a library of classes and live workouts, and an additional fee for one-on-one training.
Lululemon is paying USD 500 million, which is five times Mirror’s expected 2020 revenue. That seems reasonable compared with Peloton, its older and more proven at-home competitor, which goes for nine times its own full-year sales guidance. Lululemon can afford it too; it has USD 1.5 billion of cash and available credit lines at its disposal.
Lululemon said on a Monday conference call that the acquisition will start becoming profitable in 2021, excluding deal-related costs.
The arrangement certainly makes sense for Mirror, which only 10% of the U.S. population knows about, according to equity analyst Camilo Lyon with BTIG. Lululemon would offer a vast and loyal army of yoga and fitness enthusiasts who are potential clients. It is clear that the two have an overlapping market: Roughly half of Mirror’s subscribers are also Lululemon customers, according to Lululemon.
Judging by Peloton’s performance, it is logical to suspect that there is still some room for growth in the at-home equipment market, even when the products are pricey. Mirror targets a different workout niche than Peloton, but both may benefit from a long-term, work-from-home trend following the coronavirus crisis. There might even be some home-workout enthusiasts who could use both products. Packed gyms in city centres near offices may be a declining business for some time.
Lululemon also is well placed to begin marketing Mirror internationally, as it has a growing legion of fans abroad.
Lululemon already has identified a couple of ways it could grow in its core apparel business—including in men’s apparel, digital sales and international markets. Expanding into subscription-based services would be a plus. Mirror isn’t a must-have for Lululemon, but it is definitely a nice-to-have.