Lululemon-Costco Lawsuit Illuminates Brand and Growth Challenges

Lululemon Files Lawsuit Against Costco Over Alleged Design Infringement

Lululemon Athletica Inc. (LULU) has filed a lawsuit against Costco Wholesale Corporation (COST), alleging that Costco's private-label activewear products infringe on Lululemon's proprietary designs and trademarks. Filed in June 2025 in the U.S. District Court for the Central District of California, the legal action centers on claims that Kirkland Signature items, such as the "5 Pocket Performance Pant," resemble Lululemon's popular Align Pant series.

The complaint also highlights the alleged use of the "Tidewater Teal" color, a shade exclusively licensed to Lululemon since 2019, suggesting potential consumer confusion. Lululemon seeks an injunction to halt the sale of these allegedly infringing items and damages for "substantial, irreparable injury" to its brand. This legal escalation follows prior contact between the companies, which saw Costco temporarily remove certain products from its stores.

Market Reaction Amidst Shifting Consumer Priorities

The lawsuit emerges at a critical juncture for Lululemon, coinciding with a noticeable deceleration in its growth trajectory. In Q2 of fiscal 2025, Lululemon reported revenue growth of only 6.5%, a marked contrast to previous years where growth rates often exceeded 20%. Comparable store sales increased by a mere 1% in the same quarter, a significant drop from 23% recorded three years prior. This slowdown raises questions among investors regarding the enduring strength of Lululemon's premium brand advantage.

Analysts suggest that the very existence of the lawsuit indicates that Lululemon's products are perceived as easily duplicable, and consumers are increasingly accepting of cheaper alternatives. This dynamic poses a "red flag for the longevity of Lululemon's brand advantage," as noted by market observers. Should revenue growth continue to soften, investors may progressively move away from the stock, irrespective of the lawsuit's outcome.

Broader Context and Implications in the Athleisure Sector

The dispute underscores a fundamental tension within the rapidly expanding athleisure market, projected to grow from $430.3 billion in 2025 to $786.6 billion by 2034. Costco's entry into premium activewear with its Kirkland Signature brand represents a novel threat to established players like Lululemon. Costco, leveraging its vast membership base of over 70 million and efficient supply chain, offers eco-conscious activewear at prices up to 41% lower than premium brands.

This strategy aligns with a significant shift in consumer behavior, where 41% of shoppers now prioritize value, affordability, and sustainability over brand prestige. Costco's robust financial performance, marked by 9.2% year-over-year retail sales growth and $19.51 billion in January sales, stands in stark contrast to Lululemon's current single-digit growth. This competitive landscape introduces heightened margin risks for Lululemon, as it strives to justify its premium pricing against value-driven alternatives.

Expert Perspectives and Forward Outlook

Expert commentary emphasizes that while the lawsuit's specific ruling will generate market movement, the underlying conditions that led to its filing—namely the perceived ease of duplication and consumer acceptance of lower-cost options—are of greater long-term significance for investors. The situation points to a "rising risk of further gross margin compression from heavy promotional activity" for Lululemon.

Looking ahead, the outcome of this case could establish important legal precedents concerning design mimicry and consumer confusion within the retail sector, potentially increasing risks for private-label retailers. Lululemon's updated guidance, which lowers full-year revenue and earnings projections, now forecasts $12.8 billion in revenue and $1.9 billion in earnings by 2028, assuming an annual revenue growth rate of 5.4%. Key factors for investors to monitor include Lululemon's ability to drive U.S. product innovation, stimulate demand for casual and lifestyle products, and sustain its margins in an increasingly competitive and value-conscious market.