Episode summary
How Lululemon Went from $500 to $100 and What Killed the Advantage
Summary
Dylan Grice argues that Michael Burry may be making the same mistake he once made with Gap by buying Lululemon too early in a collapsing business. He says the stock has fallen from about $500 a share to around $100, but the deeper problem is that Lululemon’s competitive advantage was never durable. Once Target, Walmart, Gap, and others copied the product, the company’s edge shrank and the business began to bleed out quarter after quarter.
He compares that pattern to Gap in the 2000s: a retailer can look exceptional for years, then lose its moat as competitors imitate the product, improve it, and undercut the original. In his view, management teams often respond with debt, CEO changes, and turnaround promises, while boards fail to identify the real issue. That, he says, is how equity value gets transferred to creditors and investors end up holding dead money.
Dylan Grice then lays out the moat framework he prefers: network effects, switching costs, and cost advantages from scale or unique assets. He says investors should ask how easily competitors could copy a business before putting serious money into it.
Key takeaways
- Dylan Grice says Lululemon’s drop from about $500 to roughly $100 reflects a business losing a non-durable advantage, not just a bad quarter.
- He argues Michael Burry may be “catching a falling knife” if he buys Lululemon too early.
- Grice says Gap’s collapse showed how fast retailers can be copied by Target, Walmart, and others once the product is understood.
- He says debt, CEO shuffles, and turnaround plans often mask the real problem when a moat is breaking down.
- His preferred moats are network effects, switching costs, and cost advantages from scale or unique assets.
Notable quotes
“Today I'd like to talk about Michael Bur making the same mistake with Lululemon that I made many years ago”
“Lululemon crashed, you know, big time this week and it's been down from about $500 a share a few years ago”
“Target and Walmart, Gap or whomever, everybody starts to copy Lululemon and that competitive advantage they have measured in years just starts to get chipped away”
“durable competitive advantages are basically one of three things”
How the episode opens
Good morning. This is Dylan Jven with Behind the Markets. Happy Tuesday.
Today is Tuesday, September 8th. Today I'd like to talk about Michael Bur making the same mistake with Lululemon that I made many years ago, gosh, 25 years ago with GAAP and really the lessons that it teaches us about what a durable competitive advantage is when you're buying a stock in a company, the business's advantage. And let me give you some backdrop here.
Lululemon crashed, you know, big time this week and it's been down from about $500 a share a few years ago. Now it's trading at a hundred bucks a share. The stock price has collapsed basically as the business itself has been under tremendous pressure.
And you see management trying to turn around the business all the time. And you'll remember a few years back Lululemon was all the rage in clothing specifically with females that I know. They wore these leggings seem like yoga pants to me, but I don't really know much about this.
Very stylish, you know, kind of uh, you know, casual wear for women, but, you know, fitted, etc., etc. And a friend of mine actually was the head of marketing for North America. She had a pretty big position there.
I don't know if she still is. We We haven't talked recently, and I haven't looked that closely. My point is this.
We're watching Lululemon collapse and they keep trying to fix their business and nothing they're doing to fix it is working. Why is that happening? And what can this teach us about investing?
Well, Lululemon comes out with great clothes, right? And it's just taken off. And then guess what happens?
Other firms start to copy them, right? So Lululemon has a competitive advantage for five, six, seven, eight, nine years, right?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- durable moats
- competitive advantage erosion
- retail stock decline
- turnaround efforts
- investing lessons
Companies and tickers mentioned
- LULU
- TGT
- WMT
- V
- MA
- MSFT
- WM
- Lululemon
- Gap
- Target
- Walmart
- Visa
- MasterCard
- Microsoft
- Waste Management
Watch the episode
Watch “How Lululemon Went from $500 to $100 and What Killed the Advantage” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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