Catey Hill / Wall Street Journal/Marketwatch – Product missteps and increased competition helped hobble the yoga-gear seller.
It wasn’t too long ago that ladies of a certain, er, social status wouldn’t be caught dead in their yoga class without cloaking their thighs in a pair of form-fitting Lululemons (with the coordinating Lululemon top, of course). But these days, many of those same women are shunning the pricey brand — and you can’t fully blame that on their fear of inadvertently revealing a bit too much while doing a downward dog.
Indeed, the once-lauded brand has hit a rough patch. On Thursday, Chip Wilson, the outspoken founder of Lululemon Athletica Inc. (NASDAQ:LULU) , agreed to sell half of his 27% stake in the company to help resolve a dispute with the board. This arrangement may help prevent a hostile buyout or a battle for board control, and it will mute the voice of Wilson, who famously blamed the fact that Lululemon’s pants were see-through on the fact that some women’s thighs stretched the fabric too thin.
And back in June, CEO Laurent Potdevin said the company expected sales in established stores and online to decline in the low-to-middle single digits in the second quarter. The company has not reported earnings since Potdevin’s prediction, but is due to in September. All told, Lululemon’s shares have fallen more than one-third in 2014, resulting in a roughly $3 billion decline in market value.
There are, of course, the obvious culprits in Lululemon’s fall. There was the March 2013 revelation of the transparent yoga pants (the company was forced to recall roughly 17% of its yoga pants because of this). “This really cut into the brand’s credibility,” says Sarah Turk, an industry research analyst with IBISWorld.
And there was the spate of bad PR that company faced thanks, in large (no pun intended) part, to Wilson’s fat-shaming of women. What woman wants to be told that the reason her pants are see-through is because her body is too big to be contained, rather than the company wasn’t using the right material?
Two major issues hobbled this once-untouchable brand: So-so product offerings and increased competition. Indeed, after releasing its first-quarter earnings earlier this year, the company blamed its lackluster results on a less-than-stellar product lineup.
“We have a core product assortment that has not been evolved as quickly as it should have been,” Tara Poseley, Lululemon’s chief product officer, said on a call at the time. Posely added that the company did not offer consumers as many seasonal products (like winter and summer gear as opposed to “any season” clothing) as it could have. “Lululemon doesn’t have as many options [as it should],” says retail analyst Jeff Green.
Meanwhile, myriad competitors have swooped in, some offering lower prices and better selection than Lululemon does, says Green. And while the company was once the premier workout clothing maker for women (and some men) who wanted to be fashionable at the gym, now it’s getting a run for its money.
This is something that even Lululemon’s CEO admitted to , saying that the company was “not the only game in town anymore”. Gap (NYSE:GPS) , Nike (NYSE:NKE) , VF Corp. (NYSE:VFC) , Under Armour (NYSE:UA) and department stores, among others, now make workout gear that appeals to the fashion-forward.
One notable example: While still far smaller than Lululemon, Gap’s Athleta brand is growing. Gap plans to have opened 35 new Athleta stores by the end of 2014 for a total of 100 stores. “They’re rolling out stores very quickly,” says Green. He adds that Australian brand Lorna Jane is making some headway in the market as well. “The retail landscape has changed,” says Turk. “Companies are catering more towards women with stylish and high-quality clothing using lightweight materials — which has cut into Lululemon’s dominance.” Furthermore, adds Turk, some of these competitors offer more consumer-friendly policies, including longer periods in which to return merchandise and appealing loyalty programs.
So the brand may be bruised, but Lululemon isn’t going anywhere anytime soon — it’s still the top-selling manufacturer of fashionable activewear, Green points out. And, says Turk, it is exhibiting some growth thanks in part to online sales and the opening of new stores. “Lululemon is not going to disappear,” he says. “But our expectation of them increasing market share quickly and having strong comp store increases will.”