The athleisure company Lululemon is planning to acquire at-home fitness company Mirror for $500 million. Mirror makes, well, mirrors, but ones with built-in screens so you can see yourself working out as you follow along to live or pre-recorded exercise classes. At-home exercise options are in high demand with gyms around the world shuttered due to the coronavirus pandemic.
Mirror costs a steep $1,500, though the company offers installment plans that start at $42 per month. There's also a $39 per month subscription fee for the classes. The product's biggest competitor in the at-home space is Peloton, which offers a $2,000 stationary exercise bike with a built-in tablet for following live classes and leaderboards and also has a mobile app with guided workouts both on and off the bike.
Gyms suck right now – Even as gyms have reopened in some cities, they've done so with strict new limitations on capacity in order to maintain social distancing. One gym in Southern California built enclosed pods that guests must exercise in, severely limiting the types of exercise and the number of patrons who can exercise at once. Guests typically have to schedule exercise time in advance due to the limited space. Peloton was already wildly popular before the pandemic, and it stands to reason that more people are considering at-home options like Mirror now if it means they can avoid these clumsy solutions.
Besides its loyal fanbase, Peloton has said that its business is defensible thanks to its portfolio of patents that it can use to sue competing exercise bike companies. A spinning bike with a tablet on it isn't exactly hard to replicate, after all. Last year Peloton filed a lawsuit against Flywheel and Echelon for basically making identical bikes at a lower price. Flywheel responded by shuttering its at-home bike business, while Echelon continues to fight the case.
The Lululemon brand could sell Mirror's – Echelon is asking courts to decide whether Peloton's patents are even valid, mainly because the idea of an interactive bike is so obvious. That could be a problem for Mirror too, which only holds one patent for its business that can effectively be simplified as a mirror that plays YouTube videos. Lululemon is a beloved brand though, with $3.8 billion in 2019 sales, and has a retail footprint through which it can promote Mirror. It's unclear how profitable Mirror is, but Peloton's profit margin on its bikes alone is over 40 percent, and it also generates monthly, recurring revenue from subscription fees.
The prospect of recurring revenue is no doubt appealing to Lululemon, as is the opportunity to have all the Mirror instructors wear the brand's clothing in order to drive more sales of its breathable tights and other sweat-friendly garments. Lululemon has seen strong growth in online sales of its clothing this year, though revenue still declined 17 percent at the start of 2020 due to the closure of its stores and consumer spending declining over high unemployment and the fact that fewer people these days are worrying if the gym-wear they're spending their days wearing is looking a little worse for wear.