lululemon Explores Possible Sale of The Mirror to Hydrow
Could the Studio Mirror Gym become Hydrow Studio?
Investors are all over a Bloomberg News report earlier this week that lululemon Athletica is exploring selling its Studio Mirror, the company’s fitness equipment.
The apparel brand acquired the Mirror business in 2020 for $500 million and later rebranded it as lululemon Studio Mirror. Follow this link to read an in-depth review of the Mirror.
If the speculation is accurate, Hydrow, a Boston-based maker of rowing machines, is thought to be interested in acquiring Mirror, although the firm has denied any discussions are underway.
Why lululemon is selling Mirror
When lululemon reported excellent Q4 2022 results in late March, the only blemish in the end-of-year report was the post-tax $443 million impairment charge it took for Mirror. The fitness equipment brand has never really gelled with the rest of its business organization.
As a result of Mirror’s lower-than-expected sales over the past two years, the company has repivoted the lululemon Studio business with more of a focus on its app rather than the reflective Mirror hardware.
Calvin McDonald, lululemon CEO said, “As previously announced, we are shifting the focus of lululemon Studio from a hardware-centric offering to one that is also focused on digital app-based services going forward. This work is underway, and our strategy will enable us to create long-term value and build a larger community of guests with a deeper connection to lululemon,” Bloomberg News reported on April 17, 2023.
“While members love our content, hardware sales did not match our expectations,” he said. On the positive side, lululemon Studio Essentials' free tier of its loyalty program enrolled more than nine million members since its launch, better than expected. Perks under the free program, also available to Studio Mirror members, include early access to product drops, no-receipt exchanges, and select Studio content accessible through the app. “This demonstrates the significant potential behind this program,” said Mr. McDonald.
lululemon’s McDonald is confident the “more efficient” paid app-based model can build on the Essentials tier’s success in meeting the company’s broader membership goals of building community, increasing engagement, and driving incremental sales.
It’s difficult for soft lines businesses such as lululemon to expand into hardline businesses like Mirror. The margins are much lower, and it’s a far more difficult sales proposition because fitness equipment has a much higher retail selling price.
If lululemon can get $250 million for its Studio Mirror business, it will be a significant victory for the company.
Why Hydrow might agree to Buy Mirror
With careful planning and execution, the acquisition could be a smart move for Hydrow, enabling it to expand its product offerings, increase its customer base, and stay at the front of the connected fitness industry. Acquiring Mirror would allow Hydrow to diversify its product offerings beyond rowing machines, providing customers with a more comprehensive suite of connected fitness solutions.
The acquisition would give Hydrow access to Mirror's loyal customer base, potentially increasing sales and revenue.
Mirror has solid and innovative technology and user experience, which could help Hydrow grow ahead of its competitors and continue to evolve its own products.
Why Hydrow might not agree to Buy Mirror
Acquiring Mirror would likely come at a significant cost, which could impact Hydrow's financial performance and require it to raise additional capital.
Merging two companies can be a complicated process, and integrating Mirror into Hydrow's operations could be challenging, requiring significant resources and management attention.
There is some overlap between Mirror's and Hydrow's target customer demographics, which could lead to the cannibalization of sales and revenue. lululemon and Hydrow have different company cultures and ways of doing business, which could lead to clashes and challenges in integrating the two organizations.
In the End – Final Thoughts
Hydrow is in a tough position with its single focus on live rowing classes as its market differentiator. Hydrow has a smaller customer base in a niche (and small) fitness category with expensive overhead. While the Mirror acquisition would expand its product range, it is hard to see if this would be enough to stabilize the financials at Hydrow.
We do not see the cross-over from Mirror owners to Hydrow in any large numbers and the subscription cost to the members would have to be the same but have more costs. We see this as a lose-lose scenario. However, the investors in Hydrow may step up and provide the capital needed to buy Mirror in a last-ditch effort to grow the company. Bruce Smith, CEO of Hydrow may have to be replaced as his expertise is in rowing, not general fitness.
