How Lululemon and Under Armour are saving the fashion industry

Athleisure is not a fad. It is not a trend. Athleisure is here to stay. How do we know? The growth of this segment of the retail sector far outpaces apparel as a whole, and it's being led by two relative upstarts: Lululemon and Under Armour. Athleisure has replaced jeans and t-shirts as the new casual. So how did this happen?

Fitness is now fashion

For the past couple decades, fitness and nutrition awareness have been on the rise in American culture. This has made athleisure –a strange hybrid of athletic wear and business casual –the biggest growing segment of the apparel industry. In 2015, retail sales overall were flat, but sales of athletic apparel was up 12% according to Fortune. Even more impressive, a report published by Global Industry Analysts, Inc. states that the global market for athletic apparel is projected to reach $231.7 billion by 2024.

Gone are the days when dress codes prevailed. Today, brands like Nike, Adidas, Lululemon, and Under Armour thrive not only because of fitness trends, but because Americans have embraced dressing down and being comfortable. Athleisure is a broad category that is made of athletic apparel that can be worn outside of the gym—like yoga pants or sneakers with suits.

Shopping behavior has changed

It’s big business. Nike, Adidas, Lululemon, Athleta, Under Armour and others are all seeing healthy profits while traditional clothing retailers like Abercrombie & Fitch, Gap, and J.Crew are struggling. Fewer people are shopping at malls as mall landlords look to re-invent them as lifestyle destinations (instead of simply shopping retreats). People are spending less on clothing overall. When they are shopping for clothing, they are looking for discounts. Fast fashion, discount stores, and Amazon are stealing customers from traditional retailers. In the period from 2008-2015, sales of athletic apparel boosted the entire apparel industry by 4.1% on average. Take the athleisure out of the equation and that number shrinks to 0.2%. Basically, the public’s love of yoga pants, leggings, running skirts, and other athletic wear is fantastic for sales — especially in women’s apparel—unless you’re a business selling regular clothing.

Traditional retailers are struggling to understand the disparity in sales numbers. A few years ago, J.Crew blamed its slumping sales on not having the right cardigan in its collection. Banana Republic blamed its slump on a blazer with armholes too small for the average American woman to fit into. But the truth is more basic. It’s all about the denim. Skinny jeans have been the go-to silhouette for denim for more than a decade. Why go out and buy new jeans if you already have several pairs in your closet? Retailers think that a lack of newness is what is keeping women from refreshing their wardrobes. But, once again, retailers miss the mark.

Meanwhile, shoppers are not out shopping for denim. They want something more comfortable. Something stretchier. Something they don’t want to change out of the moment they get home. This easily explains the rise of yoga pants, leggings, and the entire athleisure category.

Enter Lululemon & Under Armour

Lululemon ($NASDAQ:LULU), the Vancouver-based cult favorite, is one of the smaller players in the game with just over 700 stores worldwide. In early June, its shares surged to a record high after first-quarter results topped expectations. The company reported a 25% jump in quarterly sales with $649.7 million. Lululemon’s gross margin widened as the brand rarely has sales on their merchandise. The Lululemon faithful happily shell out $98 or more for a pair of leggings.

Lululemon’s recent growth is driven by two things.

First, Lululemon his attracting men more than ever. Last quarter, roughly 30% of its new customers were men. In fact, Lululemon is currently attracting male customers at a faster pace than women.

Second, the company has placed its focus on activities other than yoga. The brand has made big headway into running apparel and hosts an annual half marathon in Vancouver each year. This growth potential takes what has been a niche player until now and puts it in line with the industry behemoths Nike, Adidas, and Under Armour. Only Under Armour ($NYSE:UA) has fewer dedicated retail stores—168, but it has a wealth of deals to sell its merchandise in other retailers. Nike has 2.26K stores in some form, and Adidas dominates with 4.9K stores.

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Jade Holland Cooper on building a £10 million fashion brand

When Jade Holland Cooper was seven years old, she started her first business. "It was selling eggs," she remembers. "I had 30 hens, and the other day I found my old notebook where I was listing variable costs and profit – I've always been quite commercially minded."

Today, the 31 year old has swapped eggs for clothes. But one suspects that there is still a notebook somewhere in which she scrutinises the accounts. Indeed, she reveals the best piece of advice she was given when she said she wanted to start a fashion company was from her father: "He said I had to make sure I combined creativity with knowing the numbers; so I learnt about the financials and now run the business strictly according to regular management accounts."

Holland Cooper's father is a farmer and her mother worked as a couturier in London and Paris. It is perhaps unsurprising that, with these dual influences, as a teenager she was torn between pursuing a place at fashion college and one at agricultural college. The Royal Agricultural College in Cirencester won out, but it didn’t take long for her to rethink.

"I was going to all these social events in the country," Holland Cooper explains. "I'm a country girl at heart – I grew up on an arable farm in Suffolk, after all. So, I'd travel around to the polo and horse trials, and everywhere I went I noticed there was a lack of stylish, fashionable clothing for women to wear at these sorts of places: clothes that had the flair of urban pieces, but with a countryside influence." She decided there was a gap she could fill and determined to have a go; she reasoned that if she ended up wanting to learn farming, she could do that at home with her father without the college time. She was 21.

"I was really young, I suppose, but I had this idea and I was convinced I could make it work," she explains. "And I am tenacious – like a dog with a bone once I make up my mind to do something. The hardest thing was persuading people to take me seriously and then having to hire and manage people who were often twice my age. But I soon showed that I knew what I was talking about and things quickly took off."

The principle behind the business is simple, she says. The town/country fashion divide is being broken down by widely available imagery on social media and online and the fact that now many people have places in both. "In Cheltenham, where I'm based now, this is so apparent," she explains. "We have great arts festivals and horseracing here, and there are good restaurants and shops. Many people live between here and London now, and they want sophisticated, elegant and stylish clothes that can work in both settings."

A look at the website (through which the label does 60% of its sales) shows how this philosophy has developed a modern take on classic country-influenced clothing for men and women. Scottish-tweed jackets stylishly cut to give a fashionable fit, waxed cotton capes that are as well suited to festivals as to the polo, skirts in houndstooth and brown Prince of Wales check that can do boardroom as well as outdoors, stylish short coats in camel and country check that are equally at home in the Cotswolds and Chelsea, as well as a wide range of accessories, including on-trend tweed baker boy caps.

Holland Cooper's hunch about the desire for this hybrid look was correct. In ten years, the firm has gone from being a 21-year-old's dream to a £10 million business, with two stores in the UK (and five new ones in development) and many others stocking its wares around the country and abroad, including Harrods, where it is the best-performing label on the 5th floor. Along the way, the founder has managed to build a successful relationship with a network of factories in the UK, and has championed British wool and tweed. This year alone she bought 800,000 metres of British tweed. The homegrown element of the business is something she is very proud of, as is the in-house apprentice scheme she has started for young people to get them into the fashion industry.

What advice, then, would this young entrepreneur give to others thinking about striking out on their own? "Do not be swayed from your vision," she says emphatically. "If you believe in yourself, be clear, understand your journey, your customer, and make sure the DNA of the brand is always there. Don't create products that your customer doesn't understand and doesn't want. Create for real people; don't just create product for the sake of it."