Lululemon Athleta Inc. and Nike Inc. Are Stealing From Each Other's Playbook

By Markets Fool.com

It isn't exactly a battle of the sexes forlululemon athletica andNike. Call it a role reversal, perhaps.

Continue Reading Below

Lululemon, the company that made a multibillion-dollar business out of $100 yoga pants, opened a men's-only store for the first time, while Nike, the biggest name in sports gear, opened its first all-women store just a weeks earlier. The new ventures could unlock significant profits for both companies, especially Lululemon, which is still struggling to get back on track after two years of underperformance. Let's take a look at what the new stores mean for two rivals:

A step away from Namaste
Lulu's men's store is just the company's latest step to branch away from its core yoga apparel, take a page from Nike's playbook, whose sports empire was borne out of a simple running shoe business in the 70's. Located in Manhattan's trendy SoHo neighborhood, the new 1,600-foot store opened on Black Friday and is set up to appeal to not just yogis, but marathoners and Crossfit enthusiasts, and a whole range of other athletes.

Lululemon announced plans for the stand-alone men's stores in 2013, and described their target customer as in his 30's, confident, accomplished, goal-oriented, and self-assured. The company refers to him as an "athletic opportunist." Among new clothing options available will be a variable short liner called a "joiner," which allow shorts to have customized liners.

With the store still in its first week of operation, it's far too early to tell if it will be success, but Lululemon is going big on the men's store concept with openings planned for Los Angeles and Miami before the end of the year, savvy timing for the holiday shopping season.

The strategy makes sense for Lulu. Men make up half of the population, and the success of companies like Nike and Under Armour attests to the size of the market opportunity in men's athletic apparel. Known for its attention to detail, Lululemon was smart to open a men's only store, where touches like the interior design and the music playlist can be altered to appeal to the male audience. The company could face challenges as its brand and the aspirational nature of it may appeal more toward women, but its success with men has been evident as the company has had success with men's so far as comps have been higher than in the rest of the product mix, and these new stores should drive them further.

Continue Reading Below

Nike is taking different kind of Flight
Like Lululemon, Nike has been making inroads into the women's market for a long time, but only in November did it open its first all-women's store. The 6,000- foot Newport Beach, CA location following its Women's Showcase last month where it promised several new initiatives in women's apparel, includes a new line based on a collaboration with Brazilian designer Pedro Lourenco, improved sports bras, and new sneaker styles incorporating its Flyknit technology.

Nike's new women's store. Source: Nike press release

Nike's push into women's apparel comes as Lululemon has demonstrated a sizable market for the gear, and as Nike has seen more growth in women's than in men's, just as Lulu has seen better growth in men's.Like Lululemon, Nike will also be offering workout classes in the new store, a further of the merging of brand identities.

On the heels of the Newport Beach opening, Nike opened its second women's store in Shanghai last week. And the Newport Beach location has received an endorsement from at least one important source. Self magazine said it "looks amazing" and also called it "genius."

A win-win
Tapping underserved markets should be a win for both companies, and their previous success at serving the opposite sex should bode well for their future stores. For Lululemon, however, this gambit carries more weight. Nike is at the top of its game. Shares are at an all-time high, despite challenges from Under Armour and Lululemon, and it's firing on all cylinders, thanks to growing demand for sports apparel and innovation in areas such as the Fuelband and Flyknit.

Lululemon is two years into an unexpected tailspin that has sent shares down nearly 50% from their peak and flattened same-store sales. A telling sign of the difference between the two companies -- Nike now has a higher P/E ratio despite being more than 10 times Lululemon's size. So while Nike doesn't need the new stores to outperform to maintain its success, Lululemon does. A strong performance in men's would demonstrate that the company has a huge market opportunity, that it has put its product recall days behind it, and that it can become a high-growth stock once again. Lululemon will report third-quarter earnings next Thursday. Look for some more detail on the men's stores because this is one story the company needs to sell.

The article Lululemon Athleta Inc. and Nike Inc. Are Stealing From Each Other's Playbook originally appeared on Fool.com.

Jeremy Bowman owns shares of Nike. The Motley Fool recommends Lululemon Athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.