What changed in this filing

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Item 1. Business

2021-03-30 compared with 2020-03-26 · 136 added, 68 removed, 75 unchanged (73% of the section changed)

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We have a vision to be the experiential brand that ignites a community of people through sweat, grow, and connect, which we call "living the sweatlife." Since our inception, we have fostered a distinctive corporate culture;

we promote a set of core values in our business which include taking personal responsibility, nurturing entrepreneurial spirit, acting with honesty and courage, valuing connection, and choosing to have fun.

These core values attract passionate and motivated employees who are driven to achieve personal and professional goals, and share our purpose "to elevate the world by unleashing the full potential within every one of us."

In this Annual Report on Form 10-K ("10-K" or "Report") for the fiscal year ended February 2, 2020 ("fiscal 2019 "), lululemon athletica inc.

(together with its subsidiaries) is referred to as "lululemon," "the Company," "we," "us" or "our."

In this Annual Report on Form 10-K for the fiscal year ended January 31, 2021, lululemon athletica inc.

(together with its subsidiaries) is referred to as "lululemon," "the Company," "we," "us," or "our." We refer to the fiscal year ended January 31, 2021 as "2020" and the fiscal year ended February 2, 2020 as "2019."

Components of this discussion of our business include:

• Our Pro ducts

• Our Segments

• Community-Based Marketing

• P roduct Design and Development

• Sourcing and Manufacturing

• Distri bution Facilities

• Competition

• Seasona lity

• Human Capital

• Intellec tual Property

• Securities and Exchange Commission Filings

Our healthy lifestyle inspired athletic apparel and accessories are marketed under the lululemon brand.

We offer a comprehensive line of apparel and accessories for women and men.

We offer a comprehensive line of apparel and accessories.

Our apparel assortment includes items such as pants, shorts, tops, and jackets designed for a healthy lifestyle including athletic activities such as yoga, running, training, and most other sweaty pursuits.

We also offer fitness-related accessories.

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also offer a range of products designed for being On the Move and fitness-related accessories.

We expect to continue to broaden our merchandise offerings through expansion across these product areas.

Our design and development team continues to source technically advanced fabrics, with new feel and fit, and craft innovative functional features for our products.

Through our vertical retail strategy and direct connection with our guests, we are able to collect feedback and incorporate unique performance and fashion needs into our design process.

In this way, we believe we solve problems for our guests, helping us advance our product lines and differentiate us from the competition.

Although we benefit from the growing number of people that participate in yoga, we believe the percentage of our products sold for other activities will continue to increase as we broaden our product range.

Through our vertical retail strategy and direct connection with our customers, who we refer to as guests, we are able to collect feedback and incorporate unique performance and fashion needs into our design process.

In this way, we believe we are better positioned to address the needs of our guests, helping us advance our product lines and differentiate us from the competition.

During the second quarter of 2020, we acquired Curiouser Products Inc., dba MIRROR.

MIRROR is an in-home fitness company with an interactive workout platform that features live and on-demand classes.

The acquisition of MIRROR bolsters our digital sweatlife offerings and brings immersive and personalized in-home sweat and mindfulness content to new and existing lululemon guests.

Our guests seek a combination of performance, style, and sensation in their athletic apparel, choosing products that allow them to feel great however they exercise.

Since consumer purchase decisions are driven by both an actual need for functional products and a desire to live a particular lifestyle, we believe the credibility of our brand and the authentic community experiences we offer expand our potential market beyond just athletes to those who pursue an active, mindful, and balanced life.

Although our primary and largest customer group is made up of women, we also design a comprehensive men's line and have a targeted strategy in place to serve our male guests.

Our business is growing as more men discover the technical rigor and premium quality of our products, and are attracted by our distinctive brand.

North America is our largest market by geographical split, offering a mature health and wellness industry and sophisticated consumer.

Additionally, we are expanding internationally across Europe, the People's Republic of China ("PRC"), and the rest of Asia Pacific.

Although our largest customer group is made up of guests who shop our women's range, representing 69% of our 2020 net revenue, we also design a comprehensive men's line and have a targeted strategy in place.

Our business is growing as more guests discover the technical rigor and premium quality of our men's products, and are attracted by our distinctive brand.

North America is our largest market by geographical split, representing 86% of our 2020 net revenue.

We are expanding internationally across Europe, the People's Republic of China ("PRC"), and the rest of Asia Pacific.

We are expanding in these regions via a decentralized model, allowing for local community insight and consumer preference to inform our strategic expansion.

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company-operated stores and direct to consumer.

We also generate net revenue from outlets, sales from temporary locations, sales to wholesale accounts, through license and supply arrangements, and warehouse sales.

The net revenue we generate from these sources is combined in our other segment.

We operate in both the physical and digital space to better cater to the shopping desires of our guest.

At the end of fiscal 2019 , we had 491 stores in 17 countries across the globe.

In addition to being a venue to sell product, our stores give us a direct connection to our guest, which we view as a valuable tool in helping us build our brand and product line.

Our direct to consumer segment includes the net revenue which we generate from our e-commerce website www.lululemon.com, other country and region specific websites, and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via our distribution centers or other retail locations.

We also conduct business through MIRROR, operate outlets and temporary locations, serve certain wholesale accounts, have license and supply arrangements, and hold warehouse sales from time to time.

The financial results of these operations are disclosed in Other.

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Company-Operated Stores

As of February 2, 2020 , our retail footprint included 491 company-operated stores.

While most of our company-operated stores are branded lululemon, five of our company-operated stores are branded ivivva and specialize in athletic wear for female youth.

At the end of 2020, we operated 521 stores in 17 countries across the globe.

In addition to being a venue to sell our products, our stores give us a direct connection to our guest, which we view as a valuable tool in helping us build our brand and product line.

Our retail stores are located primarily on street locations, in lifestyle centers, and in malls.

Our company-operated stores by country as of February 2, 2020 and February 3, 2019 are summarized in the table below:

Number of company-operated stores by country January 31, 2021 February 02, 2020

United States 315 305

People's Republic of China (1)

Australia 31 31

United Kingdom 16 14

New Zealand 7 7

South Korea 7 5

Singapore 4 4

Netherlands 1 1

Switzerland 1 1

Total company-operated stores 521 491

PRC included six company-operated stores in Hong Kong, Special Administrative Region, two company-operated stores in Macao, Special Administration Region, and one company-operated store in Taiwan, PRC as of February 2, 2020 .

As of February 3, 2019 , there were five company-operated stores in Hong Kong, Special Administrative Region, one company-operated store in Macao, Special Administration Region, and one company-operated store in Taiwan, PRC.

We opened 51 net new company-operated stores in fiscal 2019 , including 32 net new stores outside of North America.

(1) PRC included seven stores in Hong Kong, Special Administrative Region, two stores in Macao, Special Administration Region, and two stores in Taiwan, as of January 31, 2021.

As of February 2, 2020, there were six stores in Hong Kong, Special Administrative Region, two stores in Macao, Special Administration Region, and one store in Taiwan.

We opened 30 net new company-operated stores in 2020, including 21 net new stores outside of North America.

We perform ongoing evaluations of our portfolio of company-operated store locations.

During fiscal 2019 , we closed four of our lululemon branded company-operated stores and two of our ivivva branded company-operated stores.

As we continue our evaluations we may, in future periods, close or relocate additional company-operated stores.

During 2020, we closed 10 of our lululemon branded company-operated stores.

As we continue our evaluations we may, in the future, close or relocate additional company-operated stores.

In fiscal 2021, our new store growth will come primarily from company-operated store openings in Asia and in the United States.

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We believe that our innovative retail concept and guest experience contribute to the success of our stores.

We use sales per square foot to assess the performance of our company-operated stores relative to their square footage.

We believe that sales per square foot is useful in evaluating the performance of our company-operated stores.

During fiscal 2019 , our sales per square foot was $1,657.

Sales per square foot is calculated using total net revenue from company-operated stores that opened, or opened in their significantly expanded space, prior to the current fiscal year.

The total net revenue of these stores for the fiscal year is divided by the total square footage of these stores at the end of the year.

The fiscal 2019 sales per square foot metric is based on an average square footage of 3,127 per store as of February 2, 2020 .

In fiscal years with 53 weeks, the 53rd week of net revenue is excluded from the calculation of sales per square foot.

The square footage of our company-operated stores includes all retail related space, storage areas, and administrative space used by the store employees.

It excludes any space used for non-retail related activities.

The sales per square foot metric we report may not be equivalent to similarly titled metrics reported by other companies.

We typically use sales per square foot to assess the performance of our company-operated stores.

As a significant number of our stores were temporarily closed due to COVID-19 during the first two quarters of 2020, we do not believe sales per square foot is currently useful to investors in understanding performance, therefore we have not included this metric.

Direct to Consumer

Direct to consumer is a substantial part of our business, representing 28.6% of our net revenue in fiscal 2019 .

We believe that e-commerce is convenient for our core customer and enhances the image of our brand.

Our direct to consumer channel

makes our product accessible to more markets than our company-operated store channel alone.

We believe that e-commerce is convenient for our core guest and enhances the image of our brand.

Our direct to consumer channel also allows us to reach and serve guests in markets beyond where our physical retail locations are based.

We believe this channel is effective in building brand awareness, especially in new markets.

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We serve our guests via our e-commerce website www.lululemon.com, other country and region specific websites, and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via our distribution centers or other retail locations.

We continue to evolve and integrate our digital and physical channels in order to enrich our interactions with our guests, and to provide an enhanced omni-channel experience.

Other Channels

Other net revenue accounted for 8.6% of total net revenue in fiscal 2019 , compared to 9.2% in fiscal 2018 , and 8.9% of total net revenue in fiscal 2017 .

Other net revenue includes sales made through the following channels:

Outlets and warehouse sales - We utilize outlets as well as physical warehouse sales, which are held from time to time, to sell slow moving inventory and inventory from prior seasons to retail customers at discounted prices.

Temporary locations - Our temporary locations, including seasonal stores, are typically opened for a short period of time in markets in which we may not already have a presence.

Our other operations include:

• MIRROR - we offer in-home fitness through an interactive workout platform that allows our guests to subscribe for live and on-demand classes

• Outlets and warehouse sales - We utilize outlets as well as physical warehouse sales, which are held from time to time, to sell slow moving inventory and inventory from prior seasons at discounted prices.

As of January 31, 2020, we operated 38 outlets, with the majority in North America.

• Temporary locations - Our temporary locations, including seasonal stores, are typically opened for a short period of time.

We believe these retail locations enable us to serve guests during peak shopping periods in markets where we do not ordinarily have a physical location, or enable us to better serve our guest in markets where we see high demand at our existing locations.

• Wholesale - Our wholesale accounts include premium yoga studios, health clubs, and fitness centers.

We believe these premium wholesale locations offer an alternative distribution channel that is convenient for our core consumer and enhances the image of our brand.

We believe these premium wholesale locations offer an alternative distribution channel that is convenient for our core guest and enhances the image of our brand.

We do not intend wholesale to be a significant contributor to overall sales.

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• License and supply arrangements - We enter into license and supply arrangements from time to time when we believe that it will be to our advantage to partner with companies and individuals with significant experience and proven success in certain target markets.

We have entered into license and supply arrangements with partners in the Middle East and Mexico which grant them the right to operate lululemon branded retail locations in the United Arab Emirates, Kuwait, Qatar, Oman, Bahrain, and Mexico.

We have license and supply arrangements with partners in the Middle East and Mexico which grant them the right to operate lululemon branded retail locations in the United Arab Emirates, Kuwait, Qatar, Oman, Bahrain, and Mexico.

We retain the rights to sell lululemon products through our e-commerce websites in these countries.

Under these arrangements we supply the partners with lululemon products, training and other support.

The initial term of the agreement for the Middle East expired in January 2020 and we currently intend to stay in the market.

An extension to the initial term of the agreement for the Middle East was signed in 2020 and it extends the arrangement to December 2024.

The initial term of the agreement for Mexico expires in November 2026.

As of February 2, 2020 , there were four licensed retail locations in Mexico , three in the United Arab Emirates , and one in Qatar , which are not included in the above company-operated stores table.

As of January 31, 2021, there were four licensed retail locations in Mexico, three in the United Arab Emirates, and one in Qatar, which are not included in the above company-operated stores table.

Community-Based Marketing

We utilize a community-based approach to build brand awareness and customer loyalty.

We utilize a community-based approach to build brand awareness and guest loyalty.

We pursue a multi-faceted strategy which leverages our local teams and ambassadors, digital marketing and social media, in-store community boards, and a variety of grassroots initiatives.

We also plan to continue to explore how we can complement and amplify our community-based initiatives with global brand-building activity.

We also plan to complement and amplify our community-based initiatives with global brand-building activity.

Product Design and Development

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We develop proprietary fabrics and collaborate with leading fabric and trims suppliers to manufacture fabrics and trims that we ultimately protect through agreements, trademarks, and trade-secrets.

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Sourcing and Manufacturing

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The following statistics are based on cost.

We work with a group of approximately 39 vendors that manufacture our products, five of which produced approximately 56% of our products in fiscal 2019 .

During fiscal 2019 , the largest single manufacturer produced approximately 17% of our

During fiscal 2019 , approximately 33% of our products were manufactured in Vietnam, 16% in Cambodia, 15% in Sri Lanka, and 11% in the PRC, including 2% in Taiwan, PRC.

We work with a group of approximately 40 vendors that manufacture our products, five of which produced 59% of our products in 2020, with the largest manufacturer producing 17%.

During 2020, 33% of our products were manufactured in Vietnam, 20% in Cambodia, 12% in Sri Lanka, and 9% in the PRC, including 2% in Taiwan.

We work with a group of approximately 65 suppliers to provide the fabrics for our products.

In fiscal 2019 , approximately 59% of our fabrics were produced by our top five fabric suppliers, and the largest single manufacturer produced approximately 32% of fabric used.

During fiscal 2019, approximately 46% of our fabrics originated from Taiwan, PRC, 14% from the rest of the PRC, 19% from Sri Lanka, and the remainder from other regions.

In 2020, 65% of our fabrics were produced by our top five fabric suppliers, with the largest manufacturer producing 29%.

During 2020, 45% of our fabrics originated from Taiwan, 18% from Mainland China, 16% from Sri Lanka, and the remainder from other regions.

We also source other raw materials which are used in our products, including items such as content labels, elastics, buttons, clasps, and drawcords from suppliers located predominantly in the Asia Pacific region.

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We own our distribution center in Columbus, Ohio, and lease our other distribution facilities.

We also utilize third-party logistics providers to warehouse and distribute finished products from their warehouse locations in the PRC and the Netherlands.

We also utilize third-party logistics providers to warehouse and distribute finished products from their warehouse locations in the United Sates, the PRC, and the Netherlands.

We regularly evaluate our distribution infrastructure and consolidate or expand our distribution capacity as we believe appropriate for our operations and to meet anticipated needs.

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We believe that we successfully compete on the basis of our premium brand image and our technical product innovation.

We also believe our ability to introduce new product innovations, combine function and fashion, and connect through in-store and community experiences sets us apart from our competition.

We also believe our ability to introduce new product innovations, combine function and fashion, and connect through in-store, online, and community experiences sets us apart from our competition.

In addition, we believe our vertical retail distribution strategy and community-based marketing differentiates us further, allowing us to more effectively control our brand image and connect with our guest.

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It includes increasing competition from established companies that are expanding their production and marketing of performance products, as well as from frequent new entrants to the market.

We are in direct competition with wholesalers and direct sellers of athletic apparel, such as Nike, Inc., adidas AG, and Under Armour, Inc.

We are in direct competition with wholesalers and direct sellers of athletic apparel, such as Nike, Inc., adidas AG, Under Armour, Inc, and Columbia Sportswear Company.

We also compete with retailers who have expanded to include women's athletic apparel including The Gap, Inc.

(including the Athleta brand) and Victoria's Secret with its Sport collection.

(including the Athleta brand), Victoria's Secret with its sport and lounge offering, and Urban Outfitters, Inc.

Our business is affected by the general seasonal trends common to the retail apparel industry.

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As a result, a substantial portion of our operating profits are generated in the fourth quarter of our fiscal year.

For example, we generated approximately 47% of our full year operating profit during each of the fourth quarters of fiscal 2019 and fiscal 2018 .

Our Employees

We believe that our people are key to the success of our business, and we strive to foster a distinctive corporate culture rooted in our core business values which attract passionate and motivated employees who are driven to achieve personal and professional goals.

As of February 2, 2020 , we had approximately 19,000 employees, of which approximately 11,000 were employed in the United States, approximately 5,200 were employed in Canada, and approximately 2,800 were employed outside of North America.

None of our employees are currently covered by a collective bargaining agreement.

We have had no labor-related work stoppages by our employees and we believe our relations with our employees are excellent.

For example, we generated approximately 56% and 47% of our full year operating profit during the fourth quarters of 2020 and 2019, respectively.

Due to a significant number of our company-operated stores being temporarily closed due to COVID-19 during the first two quarters of 2020, we earned a higher proportion of our operating profit during the last two quarters of 2020 compared to prior years.

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Human Capital

Our Impact Agenda sets out our social and environmental commitments and strategy — across three interconnected pillars, Be Human, Be Well, and Be Planet.

The Be Human pillar of our Impact Agenda sets out our focus areas with respect to our employees and broader community:

• advancing a culture of Inclusion, Diversity, Equity, and Action (“IDEA”);

• supporting our employees through whole-person opportunities;

• supporting the well-being of the people who make our products in our supply chain.

In 2020, as a response to the COVID-19 pandemic, we also implemented a range of measures to provide financial support to our employees and community and to ensure the safety for our people and guests.

Advancing a culture of Inclusion, Diversity, Equity and Action

We continually endeavor to create an environment that is equitable, inclusive, and fosters personal growth.

Diversity and inclusion are key components of our culture and are fundamental to achieving our strategic priorities and future vision.

The diversity of our teams and working in an inclusive culture enables increased employee engagement, better decision making, greater adaptability, creativity, and a deeper understanding of the communities we serve.

We are proud that as of January 31, 2021, approximately 55% of our board of directors, 65% of our senior executive leadership team, and 50% of all vice presidents and above are women, while approximately 75% of our overall workforce are women.

We maintain 100% gender pay equity within our entire global employee population, meaning equal pay for equal work across genders.

We have achieved pay equity across all areas of diversity in the United States and are seeking, to the extent permitted under local law and regulation, to collect the data necessary to confirm complete pay equity globally.

We are investing $5 million to fund to our global IDEA activities.

These funds can further support the career progress of our diverse talent and increase access to internal opportunities and professional development.

We offer all employees IDEA education, training, and guided conversations on a variety of topics, including anti-racism, anti-discrimination, and inclusive leadership behaviors.

We aim to foster a culture of inclusion by making IDEA part of our everyday conversation, and frequently review our policies, programs, and practices to identify ways to be more inclusive and equitable.

Supporting our employees through whole-person opportunities

We believe that each of our approximately 25,000 people are key to the success of our business.

We strive to foster a distinctive culture rooted in our core values that attracts and retains passionate and motivated employees who are driven to achieve personal and professional goals.

We believe our people succeed because we create an environment that fosters growth and is diverse and equitable.

We assess our performance and identify opportunities for improvement through an annual employee engagement survey.

In 2020, the participation rate was in excess of 90% and our employee engagement score was in the top 10% of retailers.

(2) Our engagement score tells us whether our employees believe lululemon is a great place to work, whether they believe they are able to use their strengths at work, if they are motivated, and whether they would recommend lululemon as a great place to work.

(1) While we track male and female genders, we acknowledge this is not fully encompassing of all gender identities.

(2) Based on an industry benchmark provided by the third party that administers this survey to our employees.

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We understand that health and wealth programs need to offer choice at all stages of life.

Our current offerings to support whole-person opportunities include, among other things:

• Competitive compensation which rewards exceptional performance;

• A parenthood program which is a gender-neutral benefit that provides all eligible employees up to six months of paid leave;

• An employee assistance program which provides free, confidential, support to all our employees and their families in a variety of areas from mental well-being to financial services to advice for new parents;

• Personal resilience tools to employees, ambassadors, and suppliers;

• Reimbursement programs which reward physical activity;

• A Fund your Future program for eligible employees which offers partial contribution matches to a pension plan and employee share purchase plan.

Supporting the wellbeing of the people who make our products in our supply chain

We partner with our suppliers to work towards creating safe, healthy, and equitable environments that support the wellbeing of all the people who make our products.

Our Vendor Code of Ethics is the foundation of our supplier partnerships.

It adheres to international standards for working conditions, workers’ rights, and environmental protection, and its implementation focuses on prevention, monitoring, and improvement.

Beyond labor compliance, we are committed to supporting worker wellbeing, building on years of partnerships with our suppliers around workplace practices and community support initiatives.

We recently developed and implemented our Foreign Migrant Worker Standard, which outlines our expectations with respect to foreign migrant workers.

This program, which has been successfully executed in Taiwan, has benefited approximately 2,700 migrant workers by virtually eliminating worker-paid fees.

Based on lessons learned from this program, we are now expanding beyond Taiwan so that we can further support foreign migrant workers globally.

Our COVID-19 response

We closely monitor the changing landscape of COVID-19 so that we can make appropriate decisions to support and keep our people safe.

We acted swiftly during the year in response to the crisis by temporarily closing our stores, committing to pay protection for employees, launching our We Stand Together Fund, and launching our Ambassador Relief Fund.

When our stores temporarily closed, we guaranteed pay to our North American employees through the entire closure period.

As stores re-opened, we kept a pay guarantee in place, should a store need to close again for any reason, including if weather-related or related to civil unrest.

We now have a minimum pay guarantee policy by role.

We created a wide range of resiliency and connection sessions and tools to support our people during the pandemic and we made these resources available to our guests and the broader community.

Our We Stand Together Fund was established to support employees facing significant financial hardship with relief grants for basic and critical needs.

To establish this fund, for three months the senior leadership team contributed 20% of their salary and our board of directors contributed 100% of their cash retainer, and employees donated as well.

We plan to fund this program on an ongoing basis to aid affected employees.

Separately, we contributed $4.5 million to our Ambassador Relief Fund to assist ambassador-run fitness studios with basic operating costs.

As we continue to navigate the COVID-19 pandemic, we continue to prioritize the safety of our people and our guests.

We are closely monitoring the situation in every market and community which we serve.

We will temporarily close stores and restrict operations as necessary, based upon information from government and health officials.

Intellectual Property

We have trademark rights on most of our products and believe having distinctive marks that are readily identifiable is an important factor in building our brand image and in distinguishing our products from the products of others.

We have trademark rights on many of our products and believe having distinctive marks that are readily identifiable is an important factor in building our brand image and in distinguishing our products from the products of others.

We consider our lululemon and wave design trademarks to be among our most valuable assets.

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and foreign utility and design patents, industrial designs in Canada, and registered community designs in Europe that protect our product innovations, distinctive apparel, and accessory designs.

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Securities and Exchange Commission Filings

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Our SEC reports can also be accessed through the SEC's website at www.sec.gov.

Also available on our website are printable versions of our Code of Business Conduct and Ethics and charters of the Audit, Compensation, and Nominating and Governance Committees of our board of directors.

Also available on our website are printable versions of our Code of Business Conduct and Ethics and charters of the standing committees of our board of directors.

Information on our website does not constitute part of this annual report on Form 10-K or any other report we file or furnish with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business