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Lululemon Ducks the Radar and Lands in London

Lululemon Athletica ventured out of its core North America comfort zone this weekend and officially landed in London.

shot from interior of LULU's London showroom.
Photo by Stacey Widlitz
shot from interior of LULU's London showroom.

With the Olympics right around the corner, what better time to dip your toe into the market?

You didn’t hear the news? That is probably because it was not in the news and that is the way the company prefers it. Unless you follow LULU on Facebook or Twitter, sorry to report you missed the first free yoga class at the showroom this weekend.

I attended and can report yoga is still much harder than it looks and I am pretty positive a headstand is not in my future.

Not to worry, you will get your chance to balance upside down in the unassuming London showroom. Not only has LULU brought its technical fabrics across the pond — which, in my opinion, will fill a market void — but it also brought its weekly free classes. Sweaty Betty is LULU's major rival in town and it is not nearly as technical as LULU.

How is it possible that a retailer with the fourth-highest sales per square foot in retail (at $2004 per square foot, it ranks only behind Apple ,Tiffany and Coach ), not to mention same-stores sales growth of 20 percent last year, does not precede an international launch with a splashy marketing campaign? The answer is because they don’t have to.

Despite the ability to spend, the company puts limited emphasis on traditional advertising. Instead, LULU continues to brand build through grassroots efforts. And based on how this strategy has worked so far, why mess with a good thing?

Sweaty Betty, the closest comp to LULU in London. Across the Street from LULU showroom on Kings Road, Chelsea.
Photo by Stacey Widlitz for CNBC.com
Sweaty Betty, the closest comp to LULU in London. Across the Street from LULU showroom on Kings Road, Chelsea.

Here is how it works. LULU introduces its brand in a market by scouring the local area for the best potential brand ambassadors. Think the top yoga teachers in town or well-known local athletes that are not only passionate about their sport, but also involved in their community. The program is very much a two-way street. The ambassador teaches free classes, promotes the brand/lifestyle and gives the company feedback on product. In return, they may get a free kit and the ability to build their own business by being a part of the LULU local team.

In addition, the company will seek out strategic partners such as yoga or pilates studios. It is probably not a coincidence the LULU showroom is located next to one of the top pilates studios in London: Heartcore.

The process of getting to know the market and pinpointing the best ambassadors/partners may take as long as 18 months before a showroom/store is opened (as was the case with the London location).

In recent years, we have seen examples of retailers entering the U.K. market in search of square-footage growth after exhausting U.S. opportunities only to falter (think, Abercrombie & Fitch).

LULU brand messages seen on shopping bags. Framed and signed by well wishers for London launch.
Photo by Stacy Widlitz for CNBC.com
LULU brand messages seen on shopping bags. Framed and signed by well wishers for London launch.

LULU is a different story. The company does not need to chase square-footage growth abroad just for the sake of growth. Rather LULU has ample growth left in the U.S. market with an opportunity to triple its store base. In addition, innovation and new categories (surf, swim, spin) are expected to help drive mid-teen same-store sales growth this year. Finally, playing catch-up to Canadian store productivity as well as the growth in the higher-margin ecommerce category should keep investors occupied.

International may just be the icing on the cake.

Stacey Widlitz is the President of SW Retail Advisors Inc. She has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for 5 years. Follow Stacey on Twitter @StaceyRetail.