Who knew that selling yoga pants could be so lucrative? Chip Wilson, the founder of Canadian athleticwear retailer Lululemon Athleta (LULU) certainly did when he started the company out of his Vancouver apartment in 1998. In part, LULU arrived at just the right time. In the early 2000s, yoga was on an upswing, and between 2012 and 2016 the number of Americans doing yoga grew by 50%. Today, 1/3 of all Americans has tried it at least one, and the population of over-50 practitioners has tripled since 2015.

Lululemon designs and sells a wide variety of athletic wear, having expanded beyond its core product of yoga pants. Today the inventory in its 460 stores includes tops, casual pants, shorts, sweaters, jackets, undergarments, accessories, yoga mats, water bottles, shoes and more.

In 2018, Lululemon reported revenue of $3.29 billion, up from just $358 million a decade earlier.

Rationale 

A direct way to gain exposure to Lululemon is to buy the listed shares. But that can be a risky approach, given LULU’s focus on the consumer market. It’s fair to believe that Chip Wilson caught lightning in a bottle with the explosive growth of the yoga market shortly after he launched the company, but Lululemon’s breakneck growth since then has largely been predicated on new store openings and reaching out to new potential customers. However, fashion trends can change rapidly, and the population of customers who have not yet tried yoga or purchased from Lululemon is shrinking, reducing its future growth potential.

A solution that can dampen some of that volatility is to buy funds that provide exposure to Lululemon and other similar firms, rather than LULU shares themselves. After all, the return drivers that will benefit Lululemon might also benefit other similar firms in sporting goods, athleticwear, and footwear. As investment management is gradually moving to the construction of portfolios using ETFs and mutual funds in addition to single stocks, investors would do well to consider gain exposure to firms like LULU through these types of funds.

Investing in LULU

A search on Magnifi suggests that investors can gain access to LULU via a number of different funds and ETFs, including those shown below. 

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