Lululemon athletica, a high-end retail chain dedicated to yoga and fitness apparel, recently experienced several years of record growth.
Founded and headquartered in Vancouver, British Columbia, lululemon manufactures and sells technical athletic wear aimed primarily at active men and women who are willing to pay premium prices for workout gear. These high prices have allowed the retailer to maintain a gross margin annually above 50% since 2003.
Although the initial goal was to have only one store, consumer demand has resulted in multiple locations. Most stores are located in major cities in Canada, the United States, Australia, New Zealand, the United Kingdom, and Singapore. lululemon's huge sales growth can be largely attributed to the company's extensive store expansion.
To reach even more customers, lululemon launched a successful e-commerce operation on its company website in 2009. After posting its best-ever first quarter, lululemon said that its priorities were to grow existing stores and to invest more in its thriving online division.
The company offers regular-priced in-store products online. It also offers discounted men's and women's athletic wear under its "we made too much" clearance link.
The following items were recently discounted on the lululemon website:
Women's Wunder Under Pant: $69.00 CAD (was $88.00)
Women's Get Started Jacket: $49 CAD (was $118.00)
Men's Cardio SS Tech Top: $24.00 CAD (was $58.00)
Men's Performance Jacket: $44.00 CAD (was $88.00)
Questions
1. lululemon athletica inc. reported that its net revenue for the fourth quarter of 2014 increased 15.6% from US$521.0 million in the fourth quarter of fiscal 2013. Calculate the net revenue for the fourth quarter of 2014 (rounded to the nearest hundred thousand dollars).
2. Revenue from the direct-to-consumer channel, including e-commerce and phone sales, reached US$114.5 million for the fourth quarter of 2014. Calculate direct-to-consumer revenue as a percentage of total revenue for the period.
3. Calculate the rate of discount for each of the four clearance items listed under the "we made too much" link (rounded to 2 decimal places).
4. Assuming lululemon's overhead is 30% of the regular selling price, and that the cost of the Women's Wonder Under Pant is $36, determine
(a) The markup, the overhead, and the profit for this item sold at the regular selling price;
(b) The markup, the overhead, and the profit for this item sold at the clearance price.