Lululemon Athletica has acquired a stake in a Canada-based cycling apparel startup, a collaboration that could stretch how the yoga-gear maker approaches technical fabric innovation.
Vancouver-based Lululemon (LULU) said it has made a minority investment in 7mesh Industries, a startup based in nearby Squamish, British Columbia, that is a purveyor of $250 cycling jackets and $140 shorts. Lululemon—well regarded for a technical approach to performance gear in sports like yoga and running—said 7mesh would collaborate on new ventures with Lululemon’s research and development arm called Whitespace.
“It is an interesting collaboration, a relatively small effort if you will, but what we like about it is it is an example of how we are looking to stretch our model of innovation outside our four walls,” said Lululemon CFO and COO Stuart Haselden in an interview with Fortune. “Cycling is a category that is small but if we could leverage a partnership with them, it could make sense for us to enter it effectively.”
In the U.S., cycling as an apparel category that is easily dwarfed by gear that’s meant for sports like running, basketball and even yoga. And the pieces designed for those latter three categories are more frequently worn casually, a trend that’s highlighted by the “athleisure” craze that’s led to strong sales growth for yoga pants, basketball shoes, and moisture-wicking shirts that aren’t worn for athletic endeavors. “We aren’t pursuing [cycling] as a big growth driver for our business,” said Haselden. But, he adds, “it is a category that a number of our guests participate in.”
Haselden said Lululemon is aiming to have an initial line of product from the collaboration with 7mesh in stores by the middle of 2018, aiming to take advantage of the key cycling season. When asked if a full takeover for 7mesh could occur down the road, the financial chief said simply “that door is always open.”
The collaboration points to the work that Lululemon’s executive team has done to try to sell shoppers and Wall Street experts on the idea that the apparel retailer does more than sell just yoga gear. When Lululemon went public in 2007, the sales pitch to investors was that it was a “yoga-inspired apparel” maker. But in recent years, it has sought to sell more clothes meant for running, swimming, and even outwear. A big international ad campaign Lululemon debuted this year with Vice Media points to that evolution.
“The continuous cadence of innovation we are envisioning will include categories we are currently in and new categories that make sense within a broader assortment within our formats,” said Haselden. New ventures like 7mesh are part of Lululemon’s 10-year plan to generate 50% of net new profitability from businesses and product categories where it doesn’t currently compete.
7mesh will work closely with the R&D team at Whitespace, which was assembled about five years ago with the mandate to pursue long-term innovations. One example of the work Whitespace did that became a reality: a new sportsbra called Enlite, which was introduced in May.
Lululemon argues that innovation is essential to keep the retailer ahead of the pack. Athletic apparel has become a very crowded market and sales and traffic trends have put pressure on the yoga maker, as well as Nike (NKE) and Under Armour (UAA). Because athletic apparel has become increasingly trendy, a number of non-traditional players—including H&M and Urban Outfitters—jumped into the category and started competing with the legacy players. While sales at Lululemon have remained sturdy, with revenue increasing by 5% to $520.3 million in the most recent quarter, competition within the industry has never been higher.
“We believe deeply that if we don’t move forward with innovation that matters to our guests, the competition will catch us,” said Haselden. “We have to continue to innovate.”