It has been a tumultuous few months for Lululemon Athletica.
First, the athletic apparel and accessories brand was forced to remove its signature black luon yoga pants from stores and the e-Commerce site because customers complained that the fabric was too sheer. Shortly following the recall in March, Lululemon reduced projected earnings for Q1 2013 from $350 million-$355 million, to $333 million-$343 million, according to The Wall Street Journal.
Now, not quite two months following the controversy, Lululemon Athletica CEO Christine Day has announced her resignation from the company. During a 2013 first quarter results call on June 10, Day announced that she would step down once a replacement is found.
As a result, retail analysts, consultants and experts are wondering how the series of obstacle Lululemon recently has faced will impact brand perception, loyalty and overall sales results.
Can Controversy Destroy Brand Loyalty?
On Tuesday, March 19 — the day after Lululemon recalled black luon pants from more than 200 stores worldwide and online — stock shares tumbled approximately 8% before the opening bell, according to The Huffington Post.
In addition, consumer buzz and word-of-mouth regarding the controversy was spreading at a rapid pace, leaving many retail experts wondering whether the Lululemon brand would be tarnished for good.
Exclusive research conducted by NetBase, a social listening and analytics company, honed in on consumer feedback and sentiments regarding the Lululemon brand before and after the luon pants recall. Overall, social feedback generated by consumers was 78% positive and only 22% negative from June 18, 2012 to March 18, 2013. The retailer also garnered approximately 4.7 million social impressions, and more than 395,000 mentions.
Between March 18 and June 18, 2013, Lululemon experienced a surge in social media mentions (298,418) and impressions (2.0 million), largely due to the plethora of social conversations taking place regarding the recall, according to NetBase research. With this boost in feedback, there also was a profound shift in the types of comments and conversations: 58% of conversations were positive, while 42% were negative.
To that end, many industry analysts and experts believe overall perception and loyalty to the Lululemon brand will remain unscathed. This largely is because the company has such a dedicated core group of consumers, according to Rob Passikoff, Found and President of Brand Keys.
“When it comes to engagement and loyalty, there is a standard rule of six,” Passikoff explained during an interview with Retail TouchPoints. “Customers who are engaged with and are loyal to a brand are six times more likely to buy a range of products and to recommend the brand to friends and family. More importantly, these customers are six times more likely to give the brand the benefit of the doubt if something goes wrong. So while Lululemon had to cut revenue and profit forecasts because there was an issue with one of its products, the brand is less likely, overall, to see a lot of damage.”
The pants recall also may have helped Lululemon refine operational issues that had to be addressed in the past, according to Jim Dion, President and Owner of Dionco.
“All in all, it was much ado about nothing,” Dion stated. “The recall did point out some issues with their quality assurance controls, but ultimately, it was just part of growing pains of any company, and it is a mistake that Lululemon will not likely make again.”
In fact, the Lululemon team took to the company blog to update consumers on the recall at the end of May, indicating that the new and improved luon pants had the same “recipe,” but were created using more efficient testing and checking processes.
With a series of new standards and specifications to product testing and development, the retailer now completes approximately 15 tests to ensure optimal coverage, the blog explained. The retailer also has implemented a “sheer-o-meter,” which was designed to help measure fabric sheerness more effectively.
Making Moves Into Menswear
To drive future growth, Lululemon has announced plans to venture deeper into menswear. The retailer plans to open a series of menswear stores in 2016, Day said during a presentation at the William Blair & Co. conference in Chicago, as reported by Bloomberg.
As part of this plan, Lululemon will expand the current assortment of men’s running and yoga gear, and also will offer golf and tennis apparel.
While the standalone men’s stores present an opportunity to expand the brand to new audiences, Lululemon must stay focused on appealing to its core audience, according to Kristin Bentz, Executive Director of PMG Venture Group.
“Lululemon needs to maintain its core business, as well as that intensely loyal consumer group that consists of moms that gravitate to all things Apple, Starbucks and yoga,” Bentz said in an interview with Retail TouchPoints. “But at the same time, the company needs to diversify its product line into a lifestyle brand. Initially, I scoffed at the men’s line, until I was walking down Fifth Avenue in New York City and saw a very fit stylish man sporting one of their warm-ups. Lululemon has an opportunity to lure the body-conscious metrosexual by offering a stylish line of athletic apparel.”
As Lululemon ventures onto the next stage as a growing organization, it will be doing so arguably without one of its most valuable assets: Christine Day.
Spotlighting Day’s Legacy
During her five-and-a-half-year tenure as CEO, Day played a pivotal role in helping Lululemon evolve from an athletic apparel retailer into a coveted lifestyle brand. Her innovation in the space and sheer dedication to moving the Lululemon brand forward will make it difficult to find a competent replacement, according to Bentz.
“Christine Day was a port in the storm for Lululemon,” Bentz explained. “Before her arrival, Lululemon was just an athletic wear company with a great product and an intense cult following. All of that is great, but unless you have a visionary to lead the company where it should go, you’re just stuck with a great fad. She is a great loss for the company.”
To that end, Lululemon’s overall value in the stock market took an extreme hit following news of Day’s departure. ABC News reported that the stock dropped 17% the morning after the announcement was made.
However, Dion noted that Wall Street “always overreacts to CEO arrivals and departures. Lululemon’s stock took a very similar dip over the pant transparency issue and then recovered. The reality is that customers rarely listen to Wall Street and the street has a pretty terrible record of predicting retail success.”
When her departure was announced, Day explained that detailed plans for the next five years — and a vision for the next decade — have been established for Lululemon. As a result, the new CEO will have an extensive go-forward plan that is aligned with Day’s corporate vision and overall goals for the Lululemon brand.
“Being a part of Lululemon for the past five and a half years has been an incredible journey,” Day said in a press announcement. “I am proud of building a world class team that has produced one of the best growth, brand and profit stories in retail. Now is the right time to bring in a CEO who will drive the next phase of Lululemon’s development and growth.”
Despite preparations made by Lululemon to ensure a smooth transition, Day may be a tough act to follow, according to some industry experts. This is because the retailer is seeking a replacement from outside of the organization, rather than turning to current employees that have qualifications and skills suited for the position.
“Quite frankly, the fact that Lululemon has not been grooming a replacement speaks volumes,” Dion said. “Great companies build a ‘bench’ of great people who can step in. Companies that have been built in the ‘cult’ model do not do this and then pay the price when a new ‘kool-aid’ mixer has to be found.”
Regarding desired credentials and personality traits, the new CEO of Lululemon will need to be a “brilliant merchant who can hit the ground running, but also is capable of navigating the cult-like corporate culture,” Bentz advised. “Lululemon will need a charismatic leader that is shrewd, can take the brand to the next level, but navigate strong personalities.”
Determining Next Steps
Since Day announced her eventual departure, the retail world has been buzzing with predictions regarding where her next position may be.
Dion said that it is imperative Day finds an ideal fit based on her skills and overall expertise. “There are few true retail superstars who have talents that can transfer across retail companies,” he said. “What made Day successful at Lululemon is not necessarily transferable to another retailer.”
However, Bentz suggested a variety of retailers that would be good fits for Day, due to her ability to innovate and succeed in a competitive marketplace.