Why Some Analysts Say Lululemon’s New Deal With Peloton Might Not Be a Game Changer for the Apparel Maker
Analysts were overall upbeat about the new strategic partnership Lululemon and Peloton inked on Wednesday, though some were more reserved on the deal’s potential for game changing wins for the apparel maker.
Under the new five-year deal, the athleisure brand becomes the primary athletic apparel provider for the connected fitness company. Lululemon will also discontinue sales of its Mirror device by the end of the year as it turns to Peloton to become its exclusive provider of digital fitness content.
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On a broad level, analysts said the new deal represents wins for both parties and offers certain strategic advantages.
“Perhaps most importantly, it gets Lululemon out of the challenged at-home fitness business and digital fitness content creation,” said William Blair analyst Sharon Zackfia in a recent note. “The essential outsourcing of all fitness content to Peloton will end the distraction and likely modestly bolster profitability given ongoing expenses associated with the business.”
Lululemon acquired Mirror, the home fitness startup that sells a wall-mounted machine for streaming workout classes, for $500 million in 2020. In 2022, Lululemon launched its Lululemon Studio platform, which offers more than 10,000 on-demand and live-streamed classes that had been available with a Mirror subscription. Now, Peloton will become the official digital fitness content provider for Lululemon Studio All-Access Members.
Even with this benefit, Zackfia said she expects this deal to be “modestly beneficial to Lululemon in the near term” and sees the potential for brand awareness as a “longer-term wildcard.”
On the Peloton side, UBS analyst Arpine Kocharyan also noted that it still remains to be seen if the new digital strategy will help convert more subscribers to the fitness platform.
“Would co-branding and exposure to Peloton digital content drive meaningful conversion to connected fitness subs?” Kocharyan wrote.
When it comes the apparel part of the deal, Peloton will benefit from its ability to “essentially outsource the apparel business,” Kocharyan wrote. But some analysts noted the potential for redundancies in both brands’ consumer bases.
According to Wedbush analyst Tom Nikic, it is likely that many Peloton users already wear Lululemon attire. Jefferies analyst Randal Konik also called out this overlap as the basis for his view of the partnership as a “non-event.”
“We view this partnership as immaterial to the company’s overall business performance, particularly due to our view that the typical Peloton customer likely already shops at Lululemon,” Konik said. “Therefore, we reiterate our view that Lululemon’s broader business performance and fundamentals could slow from here, primarily driven by the broader macro environment alongside more difficult YoY comparisons.”
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