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Lululemon's Canadian Loophole Boosts Margins, but Faces Closure
10 Sep
Summary
- 66% of Lululemon's U.S. e-commerce orders fulfilled from Canada
- This provided a 250 basis point "unsustainable" boost to gross margins
- Trump administration recently closed the de minimis loophole exploited
As of September 10, 2025, athletic apparel retailer Lululemon Athletica has been facing a significant challenge to its financial performance. According to a recent report by TD Cowen, the company has been heavily relying on a Canadian fulfillment loophole to boost its margins in the United States.
Specifically, the analysis found that a staggering 66% of Lululemon's e-commerce orders in the U.S. were being completed via Canada, taking advantage of the de minimis loophole. This regulatory provision had previously allowed goods valued under a certain threshold to be imported into the U.S. duty-free. However, the Trump administration has since closed this loophole, posing a threat to Lululemon's unsustainable margin gains.
The firm estimates that this Canadian fulfillment strategy provided Lululemon with an approximately 250 basis point boost to its annual gross margin, a level that is now considered unsustainable. Despite the company retaining ample distribution and shipping capacity within the U.S., the incentives to leverage the de minimis loophole had been significant.
As Lululemon navigates this regulatory change, the company's long-term financial outlook remains uncertain. While the brand continues to be a popular choice among consumers, the loss of this margin-boosting tactic could put pressure on its profitability going forward.
