Calvin McDonald, the CEO of lululemon, at the WWD Apparel and Retail CEO Summit in New York on Oct. 29, 2019.
Jeff Fried—WWD/Penske Media via Getty Images
Lululemon, the fashion brand that helped define “athleisure” to shoppers around the world, was one of the newest entries on this year’s Fortune 500, which ranks U.S. companies by revenue. The apparel maker, led by CEO Calvin McDonald, debuted in 461st place on the back of $8.1 billion in revenue for 2022, a nearly 30% increase from the year before. Lululemon now makes almost three times as much revenue as it did in 2018, when McDonald became CEO.
But how was Lululemon able to convince shoppers to pay a premium for its clothing, such as a pair of leggings that can sell for upwards of $100?
For McDonald, Lululemon’s success boils down to innovation. “When I look at a lot of the successes that we have today, they’re rooted in the differentiation of the brand…[with] a margin structure that allows us to put innovation into a product that our competitors just simply cannot [match],” he said in a recorded interview for Fortune China’s China 500 Summit in Shanghai on Nov. 9.
The Lululemon CEO pointed out that the brand does not follow the season model used by most retailers, where many collections are designed around spring/summer or fall/winter collections. A more stable product lineup helped Lululemon manage the disruptions of the COVID pandemic.
“We’re not season to season, we don’t build our business through collections,” McDonald explained. “So we were able to take on arguably greater inventory with less risk that allowed us to satisfy the demand, acquire the new guests and work our inventory down without having to promote and discount and maintain a premium status of the brand,” he said. (Lululemon calls its customers “guests”)
The brand’s success now allows it to make bigger and bolder investments, including taking “a leadership position in a lot of the innovation in and around materials,” McDonald said. He cited a few examples in his interview, including making apparel using materials from partly plant-based sources, and recycling textiles to turn old apparel into new products.
Prior to joining Lululemon as its CEO in August 2018, McDonald spent two years as the president of Sears Canada, followed by five years as CEO for the Americas for makeup brand Sephora.
McDonald and Lululemon have big ambitions. The CEO told investors last year that he wanted the company to generate $12.5 billion in revenue by 2026. At the China 500 Summit, McDonald says the brand is now expanding to “creating solutions for unmet needs,” including new offerings in menswear, office attire, golfing and hiking.
A big part of Lululemon’s story is China, now the company’s third biggest market behind the U.S. and Canada. The fashion brand is growing more popular in the Chinese market as consumers focus more on general health and wellness. Lululemon’s strategy of building communities has also build the brand in China, such as hosting yoga events or its “Summer Sweat Games” sporting competition.
And according to McDonald, there is still huge global growth potential for the athleisure brand. “We’re in 25 markets today, and [in] every market we’re growing double digits,” he said.
Fortune’s Brainstorm Design conference is returning on Dec. 6 at the MGM Cotai in Macau, China. Panelists and attendees will debate and discuss “Empathy in the Age of AI” or how new technologies are revolutionizing the creative industry.
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