Lululemon's Record International Expansion: A Strategic Catalyst for Long-Term Growth

Lululemon's international expansion has emerged as a defining pillar of its long-term growth strategy, with the brand leveraging a mix of company-owned stores and a nascent franchise model to accelerate its global footprint. As the athleisure market matures in its core North American markets, the company is pivoting toward international markets-particularly in Europe and the Asia-Pacific region-to sustain its revenue momentum. This strategic shift, while still in its early stages, has the potential to redefine Lululemon's scalability and profitability, provided it navigates operational and margin-related challenges effectively.

A Strategic Shift Toward Franchising in International Markets

Lululemon's traditional model has been to operate all stores as company-owned, a strategy that has allowed it to maintain tight control over brand standards and customer experience. However, in 2025, the company began experimenting with franchising in select international markets, including Denmark, Belgium, Turkey, and the Czech Republic according to reports. This move marks a departure from its historical approach, driven by the need to reduce capital intensity and operational risk while accelerating entry into new geographies. By partnering with local franchisees, Lululemon can tap into regional market expertise, mitigate costs of direct expansion and scale more rapidly in markets where cultural and regulatory barriers might otherwise slow growth.

The franchise model also aligns with Lululemon's broader goal of diversifying its revenue streams. In 2025, the company plans to open 40–45 new stores globally, with 10–15 in the Americas and the remainder in China and new international markets according to reports. While the majority of these openings will still be company-owned, the inclusion of franchise locations signals a calculated effort to balance growth with financial prudence.

This hybrid approach could prove particularly valuable in markets like Europe, where consumer preferences for premium athleisure are rising but require localized marketing and distribution strategies according to analysis.

Financial Performance and the Scalability Imperative

Lululemon's financials underscore the urgency of its international push. In 2024, the company reported $10.6 billion in revenue and a diluted EPS of $14.64, with gross and operating margins of 59.2% and 23.7%, respectively according to corporate reports. These figures highlight its strong profitability in company-owned stores, where average sales per square foot reached $1,609-translating to roughly $4.4 million in annual gross sales per store according to corporate reports. However, such metrics are not directly applicable to a franchise model, as the company does not currently disclose franchise-specific financial data.

Industry benchmarks suggest that a franchise model could enhance scalability without compromising margins. For instance, high-end retail franchises typically charge royalty fees between 5% and 7% according to corporate reports, a range that could generate recurring revenue for Lululemon while allowing franchisees to bear the upfront costs of store development. This structure would also reduce the company's capital expenditure burden, enabling it to reinvest savings into innovation, marketing, or further international expansion.

Yet, the transition to franchising is not without risks. Lululemon's Q3 2025 results revealed a 290-basis-point decline in gross margin to 55.6%, attributed to increased markdowns, tariffs, and currency headwinds according to financial data. While these pressures are partly external, they underscore the vulnerability of a model reliant on premium pricing. A franchise model could exacerbate such challenges if local partners lack the brand's operational discipline or fail to maintain pricing consistency.

International Markets as a Growth Engine

Despite these risks, Lululemon's international segment has been a bright spot in recent quarters. In Q3 2025, international revenue surged 33% year-over-year, according to financial reports. The company's "Power of Three x2" strategy-aimed at quadrupling international revenue by 2026- according to market analysis further emphasizes its confidence in overseas markets. This ambition is supported by planned store expansions in Italy, Denmark, and other European markets, where Lululemon aims to replicate its North American success by fostering community engagement and leveraging its sustainability ethos according to reports.

The scalability of this strategy hinges on Lululemon's ability to balance growth with margin preservation. For example, while the company plans to expand store footprints by 10% in 2025 according to market analysis, it must also address rising tariffs and currency fluctuations that could erode profitability. A franchise model could mitigate some of these pressures by shifting fixed costs to local partners, but it would require robust training and oversight to ensure brand consistency.

Long-Term Outlook and Strategic Considerations

Lululemon's international expansion is poised to become a critical driver of long-term value creation. By 2025, the company projects $10.85 billion to $11.00 billion in revenue, with international markets expected to contribute disproportionately to this growth according to financial modeling. However, achieving these targets will require navigating a complex landscape of macroeconomic headwinds and competitive pressures. For instance, the athleisure market in Europe is increasingly crowded, with rivals like Lululemon's own parent company, Nike, and emerging local brands vying for market share.

A well-structured franchise model could provide a competitive edge in this environment. By reducing the capital required for direct expansion, Lululemon can accelerate its entry into high-potential markets while maintaining a buffer against operational risks. Moreover, the company's strong brand equity and customer loyalty-key differentiators in the premium athleisure space-position it well to command favorable royalty rates and ensure franchisee alignment with its brand values according to market analysis.

Conclusion

Lululemon's international expansion represents a strategic masterstroke, blending cautious optimism with aggressive execution. While the company's foray into franchising is still in its infancy, the potential benefits-enhanced scalability, reduced capital intensity, and diversified revenue streams-make it a compelling catalyst for long-term growth. However, the success of this strategy will depend on Lululemon's ability to balance rapid expansion with margin discipline and brand integrity. As the company navigates the challenges of a volatile global market, its international ambitions will likely determine whether it can sustain its premium positioning and outpace rivals in the years ahead.