Let's add a third kind of retailer to the list of successes: the experiential retailer. After listening to Lululemon's (LULU) execs talk about a truly blow-out quarter, I have to take back what I said about only WATCH and the price-breakers -- you know the dollar stores and Burlington Stores (BURL) -- being successful.
If you are ingenious, or you "engineer growth" as they said on the call, you can get the job done.
My initial thesis, that you are either online or off-price still holds. The power of Walmart (WMT) , Amazon (AMZN) , Target (TGT) , Costco (COST) and Home Depot (HD) is insane. They have been able to hold the line on price and cram the suppliers, many of whom are still sourcing from China. Target's note to suppliers about how they have to eat the tariffs tells you the power of WATCH.
We saw astounding numbers from the dollar stores and knock offs. Dollar Tree (DLTR) talked about how it has mitigated the tariffs through sourcing and clever tricks like learning how to pack a container with more merchandise. I think that companies that source from China have been way too lazy about switching. Burlington's crushing it because the mall isn't. That quarter last week was stupendous because the department stores were awful.
But Lululemon is a horse of a different color. It is integrating itself into the fabric of society, no pun intended, with innovation like their new store in Lincoln Park, Illinois where CEO Calvin McDonald talks about "connectivity with our community both inside and outside the four walls of our store." I think that's the key to building traffic these days and only RH (RH) , the old Restoration Hardware, which reports next week, rivals this company.
Lincoln Park has dedicated space to " sweat, grow and connect all under one roof," the company says, and the template is so good they are already taking it to the Mall of America, the largest mall in the country. Meditation rooms, locker rooms, showers, health food -- it's got it all and that's a very strong category to tie yourself to. Their new deal with Barry's Boot Camp solidifies their ownership of the real deal workouts.
It's global: They have powerful "Annual Sweat Life Festivals" in London and Berlin that bring people into the stores. They back marathons, which McDonald says are "fantastic examples of how we are bringing innovation to guest engagement." Their relentless focus on what they call the "science of feel" and their desire to solve "sweaty problems for athletes" reminds me of the old innovative ways of Under Armour (UA) .
They know online -- always have. They are now offering buy online and pick up.
Finally, they are a China winner, calling out "particular strength," with 70% e-commerce growth and a plan to add 15 stores this year. But, unlike many other apparel-related entities, they were quick to diversify away from China, with just 6% exposure now for the U.S. stores, which is down a lot because of adept sourcing.
Look, I know there are some attractive brick and mortar retailers. Macy's (M) with a near-10% dividend that's safe, looks compelling. I like Kohl's (KSS) because of its tie-in with Amazon -- you can return goods bought on Amazon right to their stores.
But if you want growth, you need experiential, I mean real experiential, not faux, all-talk experiential. Lulu's got it. It's got the best there is and that's how you put up high-teen same-store sales, that's how you get a stock that's up 61% this year, and yet it remains a buy.
