Lululemon sues Costco for copying signature leggings, risking brand dilution and millions in potential lost profits.
Sectors & Industries
July 2, 2025
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In a high-profile legal showdown, Lululemon Athletica Inc., $LULU, the Canadian-American athletic apparel giant, has filed a lawsuit against Costco Wholesale, $COST, accusing the retail behemoth of selling unauthorized imitations of its popular leggings and other clothing items.
The dispute, now unfolding in the U.S. District Court for the Central District of California, centers on trademark infringement and could reshape the competitive boundaries in the booming athleisure market.
Lululemon claims that Costco has been selling "confusingly similar" versions of its signature items, including jackets, sweatshirts, and leggings from lines like ABC and Define. The key issue lies in the use of non-functional stitching patterns that Lululemon asserts are trademarked design elements unique to its brand identity.
According to the complaint, Costco’s products—often sold under the Kirkland Signature label—are priced significantly lower. A Lululemon Scuba hoodie retails for $118, while a visually similar item at Costco might sell for just $8. That extreme price gap raises concerns that shoppers could be misled into believing they're purchasing authentic Lululemon apparel, damaging the brand’s reputation and diluting its market position.
Some sources even suggest Costco might be sourcing from the same manufacturers as Lululemon, though that remains unverified.
Since its founding in 1998 in Vancouver, Lululemon has become synonymous with the athleisure movement. It pioneered yoga pants as streetwear and built a premium brand experience anchored in quality, innovation, and lifestyle marketing.
By 2024, Lululemon operated 711 global stores and recorded $9.6 billion in revenue for fiscal year 2023—up 19% year-over-year. Net income surged to $1.55 billion, and gross margins rose to 58.3%. EPS nearly doubled to $12.20, showing how the company has turned cultural relevance into serious profit.
Much of its success stems from loyal customers who value the fit, fabric, and style of Lululemon products—traits the company now argues are being unfairly imitated.
Costco is well known for offering low-cost alternatives to name brands, with its Kirkland label mimicking everything from wine to protein bars. Lululemon's lawsuit contends that this model may have gone too far, arguing that the retailer is crossing legal boundaries by producing copycat designs.
Legal experts note that if Lululemon can prove Costco’s stitching patterns infringe on its trademarked aesthetic, Costco may face a costly settlement or be forced to pull products from shelves. That said, Costco could defend its case by claiming the designs are generic or functional, not proprietary. Public court filings will likely reveal more as the case proceeds.
The case has sparked fierce online debate. Supporters of Lululemon say the lawsuit protects intellectual property and preserves the value customers expect. Critics argue that affordable alternatives should be celebrated—not penalized—in a retail landscape where inflation pressures consumer spending.
This isn’t Lululemon’s first brush with controversy. The company weathered backlash in 2013 for selling overly sheer yoga pants and has faced criticism for cultural insensitivity in the past. This context colors public interpretation of the current lawsuit—some view it as brand protection, others as corporate overreach.
While the legal battle is still in its early stages, the financial implications for Lululemon could be significant—especially if Costco is allowed to continue producing low-cost “dupes” of its core product lines.
Lululemon generated $9.6 billion in net revenue in 2023, with a large portion of that coming from high-margin athleisure staples like leggings and Scuba hoodies. If Costco’s lookalike products—priced as low as $8 compared to Lululemon’s $118—manage to capture even 1% to 5% of Lululemon’s customer base, the annual revenue impact could range from $96 million to $480 million.
With a gross margin of 58.3%, that could equate to a profit loss of $56 million to $280 million per year. And this doesn’t even factor in potential increased spending on marketing or legal costs to counter the competition.
There’s also the longer-term risk of brand dilution. If consumers begin to view Lululemon’s products as easily replicable, its premium positioning—and pricing power—could suffer. That could mean slower growth over time, or worse, a shift in customer loyalty toward more budget-friendly alternatives.
From a market cap perspective, the potential hit is real. With Lululemon’s valuation hovering around $40–50 billion and trading at a forward P/E of 40–50x, a 2–18% drop in earnings could result in a $900 million to $8.1 billion reduction in value. That would translate to a stock price decline of $6.92 to as much as $62.31 per share.
Of course, much of this is speculative. The impact depends on how well Costco’s products sell, whether the court rules in its favor, and how Lululemon responds. But if history is any guide, brand erosion—even in small doses—can ripple through a company’s financials in unexpected ways.
The lawsuit arrives at a critical moment. Lululemon recently reported strong holiday quarter sales and outlined its Q1 2025 strategy in a May earnings call. Despite impressive results, BofA Securities lowered its price target to $370, citing valuation concerns.
Meanwhile, the company has pushed forward on international expansion and sustainability goals, opening 49 stores outside North America and releasing a Global Wellbeing Report. The legal case with Costco may also serve to reinforce Lululemon’s stance on innovation ownership and brand protection as it scales globally.
The legal process will determine whether Costco’s leggings and other items truly violate Lululemon’s design rights. This includes analyzing stitching layouts, customer confusion, and product origin. A verdict could take months—or longer.
A win for Lululemon could set a legal precedent that makes it harder for budget retailers to imitate premium athleisure brands. A loss could embolden competitors to follow Costco’s strategy more aggressively.
This case is about more than just leggings. It touches on the value of design, the line between inspiration and imitation, and the legal tools available to brands trying to protect their edge. For Lululemon, it’s a battle to preserve the essence of what makes its products premium. For Costco, it’s a test of where affordability meets legality.
As the court deliberates, the market—and consumers—will be watching closely.
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