Quiver Quantitative - Lululemon (LULU) and Peloton (PTON) have announced a strategic partnership, signaling a resolution to their previous business disagreements. In a surprising turn, Lululemon will cease sales of its Studio Mirror home fitness device by year's end, redirecting customers towards Peloton's digital fitness offerings. In return, Peloton, which once attempted to venture into apparel, will begin retailing co-branded Lululemon merchandise both in-store and online. This news propelled Peloton's shares by 15%, as the fitness company has been trying to navigate a decline in equipment demand and shifting its focus to digital subscriptions. In contrast, Lululemon's shares remained relatively stable.
Lululemon's decision to discontinue Mirror resulted in the layoff of approximately 120 employees associated with the product. Back in 2020, Lululemon had purchased Mirror for $500 million, aiming to compete with Peloton during the pandemic-driven boom in home fitness. However, a recent $408 million charge linked to the fitness streaming service and a $63 million provision against hardware inventory indicated challenges. Meanwhile, Peloton's 2021 apparel venture led to a legal tussle with Lululemon over alleged patent design infringements, particularly concerning bras and leggings.
Interestingly, this isn't the first collaboration between the two brands. They previously had an arrangement where Lululemon items were available on Peloton's platform. However, this agreement dissolved when Peloton debuted its own apparel line. Their renewed five-year collaboration, commencing on October 11th, will feature co-branded apparel. Lululemon Studio subscribers will be granted access to Peloton classes from November 1st, with the company also deciding to phase out its app-only membership option. The financial intricacies of this renewed partnership remain undisclosed.
In essence, this collaboration signifies a mutual recognition of each company's strengths, allowing each to focus on core competencies while benefiting from synergies in their respective markets.
This article was originally published on Quiver Quantitative