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Quantifying Athleta impact on Lululemon

1/27/2014
Companies mentioned: Lululemon Athletica (LULU) - $47.47 Gap Inc. (GPS) - $37.21

Why Read?
Over the last year, there has been a growing concern surrounding the effects of increased competition in the Yoga/Active Wear market. Lululemon (LULU), once alone in the space, has experienced new competition from Athleta, a yoga/active wear company purchased by Gap Inc. (GPS) in 2008 for $150mn in cash. Instead of purely speculating on the impact of increased competition from Athleta, we have quantitatively studied the impact by mapping the distances between Lululemon and Athleta stores while also analyzing the market penetration rates of each concept. """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""! ! ! Store counts increasing: From 4Q12 to Jan. 20th, 2014, Lululemon added an additional 41 stores in the United States. Over the same time period, Athleta added 31 new stores. Although, Lululemon added more new stores, new Athleta stores tended to be at the same locations as existing Lululemon stores while Lululemon new stores tended to be in untouched markets. ! Market overlaps increasing: At the end of 4Q12, 21% of Lululemon stores had an Athleta within 1 mile of their location. By Jan. 20th, 2014, 26% of Lululemons had an Athleta within 1 mile. At the same time, 36% of Lululemon stores had an Athleta within 5 miles at the end of 4Q12, increasing to 45% of Lululemons by Jan. 20th, 2014. Average distances between stores relatively flat: We calculated the average distance between Lululemon stores and Athleta stores within 10 miles of each other and found that the distance has remained relatively flat over the last year, increasing from 2.41 miles at the end of 2012 to 2.66 miles by Jan. 20th, 2014.

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January 20th, 2014

February 2nd, 2013

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Major Market Analysis

% of Lululemon stores with Athleta within 1 mile 17% 21% +4% % of Lululemon stores with Athleta within 5 miles 42% 41% -1%

CA
2012 2013

Lululemon Stores 24 29 +5

Athleta Stores 8 9 +1

Average distance if within 10 miles 3.2 3.0 -0.2

California, Lululemons largest U.S. Market saw an increase in penetration from Athleta with the % of Lululemon stores with an Athleta within 1 mile increasing from 17% to 21%. Conversely, the % of Lululemon stores with Athleta within 5 miles slightly decreased from 42% to 41%. Lululemon opened 5 net new stores in the state while Athleta chose to focus new store openings in new markets and only opened 1 new store in Santa Monica.
% of Lululemon stores with Athleta within 1 mile 44% 50% +6% % of Lululemon stores with Athleta within 5 miles 67% 69% +2%

NY
2012 2013

Lululemon Stores 9 16 +7

Athleta Stores 4 6 +2

Average distance if within 10 miles 1.9 2.1 +0.2

Lululemon grew its New York store base by 7 stores to 16 stores during 2013. The new openings were mainly focused in Long Island and Manhattan. The 2 new Athleta stores were opened in Union Square and Rochester, increasing the % of Lululemons with an Athleta within 1 mile from 44% to 50%.
% of Lululemon stores with Athleta within 1 mile 10% 13% +3% % of Lululemon stores with Athleta within 5 miles 20% 27% +7%

TX
2012 2013

Lululemon Stores 10 15 +5

Athleta Stores 1 3 +2

Average distance if within 10 miles 3.6 3.0 -0.6

Lululemon

increased the number of stores in Texas 50% to 15 stores during 2013. Many of these stores were opened in markets such as San Antonio and Southlake where Athleta has no presence. Despite this, the 2 new Athleta stores were placed close to existing Lululemons, causing the % of Lululemon stores with an Athleta within 1 mile to increase to 13% from 10%. (Continued on next page)

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IL
2012 2013

Lululemon Stores 9 10 +1

Athleta Stores 1 2 +1

% of Lululemon stores with Athleta within 1 mile 22% 20% -2%

% of Lululemon stores with Athleta within 5 miles 67% 60% -7%

Average distance if within 10 miles 2.7 2.7 0

Lululemon made few changes in its Illinois store base, adding one new store and shifting from the Evanston market to Skokie. Athleta opened an additional location in the state in the Northbrook mall. Lululemon actually gained ground on Athleta due to relocation, causing the % of Lululemon stores with an Athleta within 1 mile to drop from 22% to 20%.
% of Lululemon stores with Athleta within 1 mile 0% 11% +11% % of Lululemon stores with Athleta within 5 miles 0% 22% +22%

FL
2012 2013

Lululemon Stores 8 9 +1

Athleta Stores 0 2 +2

Average distance if within 10 miles N/A 1.3

Florida at the end of FY12 had 0 Athleta locations and Lululemon dominated the market. During 2013, Athleta opened 2 locations in the state, both near Lululemons, compared to Lululemons 1 new store opening. Lululemon now has 11% of its locations in Florida within 1 mile of an Athleta and 55% within 5 miles of an Athleta.
% of Lululemon stores with Athleta within 1 mile 67% 88% +21% % of Lululemon stores with Athleta within 5 miles 67% 88% +21%

MA
2012 2013

Lululemon Stores 6 8 +2

Athleta Stores 3 6 +3

Average distance if within 10 miles 2.2 0.3 -1.9

Massachustets has long been a battle ground between Lululemon and Athleta with the state being the #1 state in the U.S. at the end of FY12 by Athleta penetration. During FY13, Athleta doubled the number of locations and increased the percentage of Lululemons with an Athleta within 1 mile and 5 miles from 67% to 88%. At the sametime, the average distance between Lululemon and Athleta stores decreased from 2.2 to 0.3 miles, show casing Athletas head to head strategy.

(Tables on next page)

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Jan. 20, 2014

State IN MA MO NY PA CO DC OR WA GA TN VA MN CA IL NC OH NJ TX FL AZ MD CT MI UT WI KY OK RI AL AR HI KS LA NE NV NH NM SC VT AK DE ID IA ME MS MT ND SD WY Lululemon Stores 1 8 3 16 6 4 2 2 6 3 3 4 4 29 10 5 5 7 15 9 5 4 3 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 176 Athleta Stores 1 6 2 6 5 3 1 1 2 1 1 3 2 9 2 2 2 3 3 2 1 1 1 2 1 2 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 66 % of Lululemon stores with Athleta within 1 mile 100% 88% 67% 50% 50% 50% 50% 50% 33% 33% 33% 25% 25% 21% 20% 20% 20% 14% 13% 11% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 26% % of Lululemon stores with Athleta within 5 miles 100% 88% 67% 69% 67% 75% 100% 50% 50% 67% 33% 75% 50% 41% 60% 40% 40% 29% 27% 22% 0% 0% 33% 100% 100% 50% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 45% Average distance if within 10 miles 0.1 0.3 2.7 2.1 3.1 0.6 0.9 4.8 2.4 4.9 0.3 1.7 4.5 3.0 2.7 1.2 2.8 3.7 3.0 1.3 8.3 6.9 6.3 2.3 1.3 4.6 N/A N/A 5.0 N/A N/A N/A 9.3 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2.66

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

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Feb. 2, 2013
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

State MA CO DC OR NY PA MN VA WA GA IL OH CA TX FL NJ NC MD AZ CT TN MI MO WI UT AL HI IN KS LA NE NV NM SC VT AR KY AK DE ID IA ME MS MT NH ND OK RI SD WY

Lululemon Stores 6 3 2 2 9 6 3 3 3 3 9 5 24 10 8 6 4 3 3 3 3 2 2 2 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 135

Athleta Stores 3 3 1 1 4 2 2 2 1 1 1 1 8 1 0 1 1 1 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 35

% of Lululemon stores with Athleta within 1 mile 67% 67% 50% 50% 44% 33% 33% 33% 33% 33% 22% 20% 17% 10% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 21%

% of Lululemon stores with Athleta within 5 miles 67% 100% 100% 50% 67% 33% 67% 67% 33% 67% 67% 20% 42% 20% 0% 0% 0% 50% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 36%

Average distance if within 10 miles 2.2 0.6 0.9 4.8 1.9 2.7 4.5 1.0 2.9 4.9 2.7 2.8 3.2 3.6 N/A 8.6 N/A 6.9 N/A N/A N/A N/A N/A N/A 1.2 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2.41

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