Mirror, Mirror… Lululemon Says At-Home Fitness Remains Challenged, Shifts its Connected Fitness Mirror to Lower Cost to Entry Model
Lululemon is pivoting away from the hardware-centric business it acquired in 2020 during the at-home fitness boom to instead focus on an upcoming app-based model
Lululemon joined the connected fitness space in 2020 during the height of the at-home fitness boom, hoping to strengthen its omni-guest experiences with “digital sweat” — and rival Peloton.
The acquisition of the interactive workout platform that features live and on-demand classes ran Lululemon $500 million – and now executives say the purchase didn’t reflect the results it had hoped.
During Lululemon’s recent earnings release, which was positive, demand for Mirror is unclear, albeit with smudges of attempt.
A brief history of Lululemon & Mirror
By the end of 2021, Lululemon announced it lowered its sales expectations for the Mirror, leading shares of the athletic apparel brand to dip. There were reasons, of course – at the time, Lululemon pointed to a complex environment for digital fitness that impacted Mirror, including chronic supply chain challenges and the increasing pressures of customer acquisition costs.
“We are still early in creating our vision of a loyalty community that captures the best of Lululemon. This is not a sprint for us, and we will maintain a steady pace forward that realizes our vision,” CEO Calvin McDonald said at the time.
Rumors swirled when Brynn Putnam, who founded Mirror in 2016, stepped down as CEO that fall, with reports emerging from Mirror and Lululemon staff that the two companies were struggling to blend, leading to tension.
The start of 2022 brought some encouragement for Mirror. Lululemon announced it had appointed Michael Aragon as CEO of Mirror and Lululemon Digital Fitness, overseeing the development and expansion of the Mirror. Aragon arrived to the athleisure company after spending several years at live-streaming service Twitch, having a successful track record of digital growth.
By spring of 2022, boutique fitness franchisor Xponential Fitness announced a partnership with Lululemon, sharing that it would develop original fitness programs for Mirror and would feature AKT, Pure Barre, Rumble, and YogaSix on the newest edition of the Mirror platform.
Positive Q4 earnings & the future of Mirror
While Lululemon reported positive Q4 earnings, boosting stocks by as much as 16%, the athleisure company is now looking to pivot away from its original plan for Mirror. The company noted it’s taking an “impairment charge” related to assets and goodwill associated with the connected fitness device.
Explaining that Lululemon conducted a paid city-based membership program in North America before the acquisition of Mirror, CEO McDonald said the brand saw how guests were eager to engage, leading to an increased member engagement, new guest acquisition, and an increase in member spend, all of which were the basis for the acquisition of Mirror in 2020.
“However, as you know, since our acquisition, the at-home fitness space has been challenging,” he added. “While members love our content, hardware sales did not match our expectations. And even though our CAC has continued to improve, it has not improved enough to maintain the current level of investment.”
McDonald said Lululmeon is now shifting from being focused on hardware to exclusively offering content via a digital and app-based solution, which will launch this summer at a lower monthly subscription rate.
“We view Lululemon Studio in the same way we view any innovation. We test, we learn and we evolve as necessary. Although the acquisition has not fully materialized as originally intended, we’re in a much better position in our understanding of the community and our new membership program as a result,” McDonald continued.
Mirror hardware sales also slumped during the holiday season, delivering below Lululemon’s expectations.
The athleisure brand said it ran an impairment test at the end of Q4. “Based upon this test, we took charges related to the impairment of goodwill and certain long-lived assets and a provision for MIRROR hardware. These charges totaled approximately $443 million, net of tax, or $3.46 per share. The valuations used in the impairment calculation are based on an evaluation of Mirror on a standalone basis,” said Meghan Frank, Lululemon CFO.
She added that with 9 million members in the Essentials program, the athleisure company sees an opportunity to build its community, increase engagement, and drive incremental spend.
One important point: McDonald clarified to investors that Lululemon isn’t eliminating hardware but that the company plans to add an app feature to allow a guest to sign up, pay a lower monthly fee, and access the content without purchasing hardware.
“We think with the lower cost to entry, not being hardware-restricted and the 9 million Essential members that we’ve built and will continue to build, it will allow us to more easily migrate and attract guests into it,” McDonald said. “We did see an improvement in our performance with the launch of Lululemon Studio in October. But as we shared, it just didn’t meet our expectations.”
