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What if You Could Own the E-Commerce Side of Lululemon?
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What if You Could Own the E-Commerce Side of Lululemon?

Hylete Has Many of Lululemon’s Web Attributes Plus More

Investors are thrilled over the growth of Lululemon’s new-and-improved Web business. They may not know there’s a way to invest directly in a similar business that’s an e-commerce pure play.

Shares of Lululemon soared 10% Wednesday after the company topped estimates thanks in part to its e-commerce business, where sales rose a whopping 42% in the fourth quarter. The digital success comes after the company revamped its site last year, investing in more Web-layout versatility, big data analysis, and marketing.

But while Lululemon investors have plenty of reason to cheer, the Web business remains just over a fifth of total sales. That means most of the investment hinges on brick-and-mortar sales, which, while also strong, can’t match the pace of e-commerce sales.

Nor can brick-and-mortar hope to match the operating margins of Lululemon’s Web business. As the company pointed out on the earnings call, gross margins are comparable between store and web sales but the lack of rent and other store expenses make operating margins some 1,700 basis points higher.  

The good news is that there’s another athleisure company called Hylete we discussed in this report last week that’s 100% focused on e-commerce. Hylete is currently raising up to $6.25 million in new shares and $5 million in 12%-coupon bonds, both under Regulation A+. Like Lululemon, Hylete sells high-end athletic apparel to men and women, putting a serious emphasis on customer input into designs.

In fact, Hylete appears to be ahead of Lulu in its efforts to use big data. On the Lululemon conference call, the company’s CFO discussed plans to use more data analysis to improve guest engagement, merchandising, and channel operations.

Hylete, meanwhile, has already spent years making product decisions not just on consumer feedback – but consumer dollar commitments.  The company chooses many designs based on crowdfunding, meaning they aren’t produced until they hit a threshold of customer orders.

No doubt, Lululemon’s Web business is on course to serve investors well. But for those keen on a pure-play Web bet, Hylete is worth trying on for size.

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