A couple of days ago Lululemon acquired Mirror - the in-home fitness company that you can subscribe to for online fitness classes that are delivered through the mirror.
I have said this before - As capital, technology, logistics, access to audience and packaging get commoditized, the community is how brands build their moats. Nobody knows this better than Lululemon. They call their customers 'guests' and 'ambassadors'. Brynn Putnam, the founder of Mirror, was an ambassador of Lululemon
“In 2019, we detailed our vision to be the experiential brand that ignites a community of people living the sweatlife through sweat, grow and connect. The acquisition of MIRROR is an exciting opportunity to build upon that vision, enhance our digital and interactive capabilities, and deepen our roots in the sweatlife.” said McDonald in the announcement.
That godawful sounding statement does not do justice to how smart Lululemon has really been about this acquisition. Let's unpack that today.
Fashion is a badly bruised category today. In our own analysis of D2C brands across categories, both men's and women's fashion fell over 40% from their peak 'top of the funnel' performance from 2019.
Lululemon though is lucky because people still buy yoga pants. Athleisure gained through the pandemic lockdown. But even for a brand like Lululemon growth does not come easy. Physical stores are going to be hard to unlock as portals of growth. Malls are facing the second-order effect of tenants not being able to survive or pay rents. REITs are going to have depressed revenue for years to come. Stores are going to earn less per square feet due to social distancing needs and general fear of the lack of hygiene in closed indoor spaces.
The acquisition of Mirror unlocks new opportunities. Lululemon already has a community of ambassadors with an active lifestyle. Mirror promotes fitness from home through content - driven by experts training individuals. A Mirror expert could easily be a Lululemon ambassador. They can sell yoga pants. There is more to it though.
A physical store is a way to get closer to where the customers. But there are constraints to a physical store. It is largely a static and rigid space. It doesn't lend itself well to 'community on demand' the same way a 'Mirror' at home will allow me to do. A Peleton bike or a Mirror are buttons I push to bring my community alive. Connectedness is a craving that needs to be satisfied right then. It cannot be 'appointment scheduled' through an app to happen at a later date in a physical store.
Community-first D2C brands are good at removing the frictions involved in building these communities. The act of collaboration between passionate individuals is baked into the core product experience. Lulelemon is buying into 'one on one' access, 'face to face', without the customer having to step into a physical store. For those that actually do visit a Lululemon store, Mirror converts them to lifetime subscribers.
'Switch-on' communities are not just a smart way to improve LTV or reduce dependence on asset-heavy channels like stores. They open up another revenue channel. Digital communities breed a highly selective and homogenous audience. Homogeneity is the holy grail of advertising returns. A brand that aggregates a homogenous audience and cultivates loyalty and connectedness does not just have a moat to preserve its product revenue but a strong, controlled marketplace that complimentary brands would want access to.
As the backlash against social networks grow and as advertisers seek to reduce dependence on cookie-based targeting, platforms with their own audiences become coveted 'publishers' for advertisers to gravitate towards. I don't expect Coca-cola to advertise to Lululemon via Mirror but these are dark days and you never know :).
The other, under-appreciated aspect of communities like Peleton or Mirror is that they are graded even as they are homogenous. They all love fitness but some are more fit than the others. There are experts and then there are the rest of us, the patrons. The experts are the promise. The rest of the fraternity is for peer-encouragement. This dynamic can be exploited well to create vertical-specific Patreon-like marketplaces. Creators, Artists, and Experts with tools and access from an umbrella brand like Lululemon/Mirror will draw more of these experts to become financially independent. At times when gyms are closing, platforms like these could be viable alternatives for experts to take their craft to where the customers are.
The brilliance of Lululemon's acquisition is in the number of doors it opens for the company. They get to be a content powerhouse, a marketplace for curated brands and experiences, and an expert/artist network like Patreon all at once.
PipeCandy is a market intelligence platform that tracks the global eCommerce & 'direct to consumer' landscape.
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