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Lululemon bought Mirror around the peak of the pandemic. Mirror is an in-home workout platform that isn’t unlike Peloton (socially connected fitness platform, etc.).

Late last year, Lululemon decided to discontinue Mirror, and shift to an app-based fitness strategy instead. It signed a deal with Peloton to offer classes through whatever is left of Mirror and its own Lululemon Studio app.

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Why Mirror failed Lululemon

We’re going to talk about the two main reasons why this acquisition was a failure:

1. A miscalculation of the market at the time

2. Failure to understand the business

Pandemic Paranoia

Lululemon acquired Mirror in the summer of 2020. It made a lot of sense at the time. A crisis is a terrible thing to waste, and Lululemon exemplified that when they added an in-home fitness platform during a time when the gym had basically been banned as a place for good health.

But even then, there was a small note of things to come

From Retail Dive:

This was in 2020(!). To be fair, Peloton was profitable around the pandemic, but the company has not been profitable for the last 8 or so quarters. This means, that under normal market conditions, connected fitness apps are hard to solve for. User churn, high customer acquisition cost, and the costs associated with hosting classes are sometimes too difficult to overcome.

4 years later, and it’s obvious that Lululemon miscalculated the market’s regression to the mean, and overpaid for a HARDWARE BASED FITNESS PLAY. We caps lock this because hardware means inventory. Inventory means you need space to store all this stuff. Extra space means more rent, associated costs, warranties, etc.

Failure to understand the business

Lululemon is a retails company. It sells clothes online or at physical locations. It’s very very good at that.

Mirror was a hardware and a content company that derived revenues from people spending around a 1000 bucks and then around 400 bucks a year to consume the content.

Special note about the content: it’s narrowed to a single company (you) making the content and delivering it to the machines that you make.

Good content requires a lot of effort. It’s expensive, time consuming, and you have to figure out what works.

And while Lululemon didn’t lose this fight solely on there not being training videos, it does bring to light that it was never a core competency of the company.

Fantastic marketing? yes.

Fantastic in-store experience? sure.

Fantastic content being churned out on a daily basis?..you get the idea.

At the end of the day, the market trumps individual performance

One of the most important questions that the board of Lululemon should have thoroughly discussed in 2020:

In 3-4 years, when people start returning to the gym, are we going to be able to sustain this business at the level it’s at right now?

And while we definitely think they asked this question, maybe no one tried to think about what would happen if the world wasn’t going to end.

 None of this is investment advice, btw.

Have a great week!

Ahmed and Peter