Lululemon to Buy Startup for $500 Million – Lee Chandler

The athleisure company’s first acquisition could potentially bolster the future of fitness and the future of Lululemon.

by Jenna Rubenchik on July 3, 2020

Ever since the coronavirus outbreak, the rate of exercise has grown immensely. Run Repeat, the world’s largest athletic footwear review site, conducted a study which looked at close to 13,000 people from 139 countries. They found that exercise rates have skyrocketed during the worldwide health crisis. Particularly, exercise rates have grown 88% during COVID-19.

Therefore, due to this rise in at-home fitness, Lululemon Athletica Inc announced late Monday that it agreed to buy at-home fitness company Mirror, a startup that sells a $1,500 tech-enabled mirror with a camera and speakers so customers can participate in live fitness classes at home. Mirror also charges a $39 monthly fee for a myriad of classes and live workouts, and a fee for one-on-one training. So far, investors seem impressed since Lululemon’s stock rose 6% on Tuesday, and continues to grow. The fitness clothing company bought Mirror for $500 million, which is five times Mirror’s expected 2020 revenue. Lululemon has over $1.5 billion in cash and available credit lines at its disposal and this acquisition shows promise.

Analysts at Bank of America estimate that the acquisition could generate $700 million in revenue and reach 600,000 subscribers by 2023. Additionally, if Mirror would reach that figure, it would account for 10% of Lululemon’s annual total. Calvin McDonald, Lululemon’s chief executive said on a Monday conference call that the acquisition will start becoming profitable in 2021, excluding deal-related costs.

So why is Lululemon, a company known for their expensive leggings, betting on the future of personalized remote exercise? They believe that acquiring Mirror will better reach customers and will bolster revenue while also providing another avenue to market its products, CEO McDonald said in a call with investors. Mirror instructors, for instance, will wear Lululemon products. Also, it is clear that the two have an overlapping market: roughly half of Mirror’s subscribers are also Lululemon customers, according to Lululemon.

“This isn’t just about getting guests to buy apparel,” Calvin McDonald said in an interview. “This is about strengthening our community and our loyalty and our relationship with our guests and memberships, and it’s going to be its own revenue stream model, which we’re excited about.”

McDonald said the prospect of owning Mirror became more attractive as consumers stopped going to stores and gyms amid the pandemic, while shopping online and shifting to virtual workouts at home. “The opportunity of [COVID-19] is that it’s brought the future closer to the present,” he said.

Mirror’s top competitor in the at-home fitness equipment league is Peloton, a company that sells a $2,000 stationary bike along with a similar subscription service, whose shares have gained more than 100% this year. However, Mirror targets a different workout niche than Peloton, but both will benefit from a long-term, work-from-home trend following the coronavirus crisis.

The acquisition came eight months after Lululemon took a minority ownership stake in Mirror. The startup, officially called Curiouser Products Inc., has raised nearly $75 million from Steve Cohen’s Point72 venture capital fund, Spark Capital, Lerer Hippeau as well as supermodel Karlie Kloss.

Lululemon also is well placed to begin marketing Mirror internationally, as it has a growing legion of fans abroad. After the deal closes, Mirror will continue to operate as a stand-alone company within Lululemon. Brynn Putnam, professional New York City ballerina and Mirror’s founder and chief executive, will retain her role and report to Mr. McDonald.

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