In The Spotlight: Lululemon

The Fashion Investor's own Cameron Newland had a great post on his blog recently about Lululemon Athletica's (NASDAQ:LULU) stock. This is a great read for anyone interested in this recent IPO explosion with nearly a 100% gain in 3 months! Anyone interested on the company's brand momentum and business strategy should strongly consider reading it.

Today, I was reminded by a friend that a stock that my fund happens to own, Lululemon Athletica, was up 13% today, and is up over 34% since I bought it. Not to sound pompous, but this comes as no surprise to me.

ScarletStorm invests primarily in firms that show outstanding traction with consumers. We do all the necessary due diligence, research, and valuation on each possible investment candidate, but the firms that we end up buying stock of all share one trait: consumers are fanatical about them.

I was tipped off about Lululemon months ago by some friends of mine. What they told me was that Lululemon has built superstrong brand momentum with its core market (adult women), that their yoga clothes fit better than anything else (and more importantly, make the wearers look sexier), and that Lululemon clothing demands premium prices that customers are more than willing to pay. $80 for a pair of stretch pants. That’s their core product.

Formation of my Philosophy

My investment in Lululemon is a reflection of how I’ve been brought up to recognize prudent investments. Early in my life, I was lucky enough to learn a great lesson from my wise grandmother: we were walking out of QFC (a Pacific Northwest-based grocer now owned by Kroger) when she told me that she owned stock in QFC, and that she’d bought it because she likes to shop there herself. I was amazed. Right there in front of me stood a part-owner of the business! That made a strong impression on me, and from then on I would always remember her maxim: if you like spending your money somewhere, buy stock in the company. Building upon her teaching, I adapted a second rule that’s just as applicable: if people you know spend their money somewhere, buy stock in the company. It was this rule that lead to my purchase of some 25,000 shares of LULU late last month.

I’m so confident in the business. It’s differentiated from its competition (does it even have competition?). It’s in a growing market. It’s got premium product and commands premium prices. People are really excited when a new Lululemon store opens up, and that buzz increases the visibility of the brand even more. The company hasn’t oversaturated the marketplace like McDonalds and Starbucks have in their respective markets, there is plenty of room to grow. That’s what makes it such a desirable investment. The fact that it generates buzz and gets consumers talking (and gets them spending!) makes LULU worthy of an investment from ScarletStorm.

The moral of the story: listen to your grandmother.

-Via. Cameron Newland.com