Lululemon ($LULU) announced Monday it will acquire home workout startup Mirror ($PRIVATE:MIRROR) for $500 million. By seizing on a moment during which home fitness brands are doing better than ever, LuluLemon may be able to leverage its powerful brand recognition to grow Mirror into a product that can trade blows with Peloton ($PTON).

The setup is simple: Retail and gyms are walking the death march, while online shopping and at-home fitness are thriving. COVID-19 has accelerated the retail apocalypse, and these changes are here to stay. 

Enter Lululemon, which slashed job postings by 41% since January and suffered a staggering 47% decrease in share price between February and mid-March. To make matters worse, its recent earnings report listed significant decreases in profits and revenues. So why, then, is their stock now up 111% and rising?

The answer is direct-to-consumer business. DTC has been a key part of Lululemon’s success for a while, accounting for 26.8% of the company’s revenue in the first quarter of last year. However, that number increased a whopping 101% year over year with DTC accounting for 54% of Lululemon’s revenue last quarter. 

That jump is reflected in their App Store ratings, which saw no slowdown due to COVID. It might seem unremarkable that ratings held a steady diagonal, but it shows that even the closure of every store didn’t stop customers from buying Lululemon. With such a large install base on the app and users on its website, Lululemon has more of a cushion to pivot away from their hundreds of stores which might have met their end sooner than expected.

At the same time all this was happening, Mirror had a similar revelation: that home fitness brands were beginning to take over.

Mirror, which sells a large “smart mirror” that doubles as a screen with access to fitness classes, saw massive jumps in social media followers alongside its major competitors in the early days of quarantine. And the numbers have continued to soar as gyms remain locked down, go bankrupt, or become the source of new outbreaks. The biggest share went to behemoth Peloton, which enjoyed a 55% increase in Twitter following since January. Mirror also got a 55% bump - but it sits at just 6,530 followers, compared to Peloton’s 86,500.

While it isn’t surging in the same way, Bowflex sits comfortably at some 12,000 followers off the back of its endearingly corny 90s infomercials. For Mirror, it represents a clear threshold to overcome before even thinking about taking on Peloton’s throne.

By acquiring Mirror, Lululemon kills two birds with one stone. First, it takes an already-growing brand and gives it the scale - both in size and brand recognition - to grow even further and one day throw its weight around with Peloton.

Second, it moves its business further away from the dependency on retail that is spelling doom for so many legacy operations. Besides, as another luxury fitness brand, Mirror fits neatly into the portfolio. It’s the perfect workout option for the consumer whose living room has the same flooring as a Lululemon showroom or the house from Parasite.

Mirror marks Lululemon’s first major venture into tech and there will be a learning curve. But if it plays its hand right, Mirror may become the next big thing in home fitness.

About the Data:

Thinknum tracks companies using the information they post online - jobs, social and web traffic, product sales, and app ratings - and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.

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