Lululemon Athletica Inc. (NASDAQ:LULU) has moved to diversify and strengthen its revenue streams with the acquisition of hardware company Mirror. The purchase comes hot on the heels of the trendy fitness apparel company feeling the full force of COVID-19, in the first quarter that saw its net sales shrink by 17%.
Immediate reports indicate that Lululemon is open to spending $500 million to acquire the hardware business company. With the acquisition, the company will get hold of the $1,495 reflective displays that have taken the fitness world by storm.
Mirror will expand Lululemon’s footprint into the development and sales of reflective displays that people use while working out. People also use the displays to stream workouts, one of the reasons they continue to elicit strong demand in the market.
The reflective display should diversify the Lululemon product line into the hardware business at a time when the company is facing stiff competition from fast-emerging companies. Peloton is one of the companies that have taken the fitness space by storm, given its array of products.
According to Lululemon Chief Executive Officer, Calvin McDonald, Mirror will expand and strengthen the company’s community and loyalty. For starter, Mirror comes with its own revenue model that should strengthen the Lululemon revenue base.
Strengthening Revenue Base
Last year, Mirror generated over $100 million from the business of selling reflective displays for workouts. The company is on course to breakeven or generates some profits in 2020 amid the challenging business environment triggered by COVID-19.
The pandemic has disrupted the fitness segment, with most companies being forced to shut down retail outlets. Sales in brick and mortar stores have shrunk significantly. However, online sales have turned to be a soft spot helping offset some of the losses incurred in the retail outlets.
Lululemon has already recorded a 70% increase in sales. Peloton Interactive Inc. (NASDAQ:PTON), on the other hand, saw its revenue increase by 66% in the last quarter, benefiting from a free 90-day trial offer for its solutions. Conversely, by acquiring Mirror, Lululemon will now have revenues coming from different streams, sure to offset losses from elsewhere.