Late last year, Lululemon picked Laurent Potdevin as its new CEO. Formerly Potdevin was CEO at TOMS and Burton Snowboards, and was a manager at Louis Vuitton.
He has the right sort of marketing and operational experience that Lululemon needs particularly since it has not been a good 12 months for the athletic-wear company. The company appeared to be on its way down. Is Potdevin bringing it back?
A Rough Twelve Months at Lululemon
The company suffered a series of setbacks beginning March, 2013:
- Last spring customers discovered the brand’s most popular item—the black Luon yoga pants—were transparent, which resulted in a recall. The Luon yoga pants make up 17% of company sales. They were removed from the shelves for a couple of months and the quality issues were addressed. But, the company lost at least $60 million in sales during that period.
- The Chief Product Strategist’s resignation, in the wake of the recall, was followed later that year by the resignation of Christine Day, the company’s CEO.
- In the fall, customers were complaining yet again: yoga pants were “pilling”. Pilling occurs when fabric decompensates into little balls. As a result of this pilling issue, Lululemon suffered a public relations debacle on a grand scale when co-founder and chairman, Chip Wilson, hinted at customers for quality problems by saying the pants “don’t work for certain women’s bodies… It’s more about the rubbing through the thighs, and how much you’re using it.” Wilson apologized for the comments and shortly thereafter resigned from his chairmanship of the company.
- Shareholders sued claiming statements made about quality problems with the company’s products were false and misleading. This suit was summarily dismissed with the judge stating there was no securities fraud and there was “at most, corporate mismanagement.” That is not the way you want your company management referred to by a U.S. federal judge!
- Most recently, Lululemon’s stock suffered a precipitous drop of 5.1% when an analyst stated the company had not provided a “detailed, constructive strategy” for improving sales during a presentation to analysts and investors in March.
What had Potdevin walked into?
Present Reality: Things are Looking up at Lululemon
In reality, and despite all of the setbacks of the past year, Lululemon has an incredible foundation and things are looking up:
- Lululemon is a luxury brand with incredible customer loyalty. Its products are 30% more expensive than its competitors, and it has the third best sales per square foot of all retailers, surpassed only by Apple and Tiffany.
- It’s addressed the quality issues.
- It has new, proven leadership.
- It has room to grow in global markets and in the male market.
A Great Start: the Company Immediately Addressed Quality Issues
In an interview on Bloomberg News, I suggested that product quality issues should have been a “no-brainer” and have been caught in their production line. Why hadn’t someone tried them on and tested them out? I wanted to answer my own question. I wanted to know what happened.
I discovered Christine Day and the company immediately began addressing quality issues.
Improving Manufacturing Quality:
- The Problem: It appears Lululemon’s quality faltered due to the growing length of its commodity chain from production to the sales floor.
- The strategic difficulty is that Lululemon is dependent on a single supplier in Taiwan for its stretchy Luon material. A single supplier was used to ensure high quality and protection from copycat manufacturers, which is a great idea. For a long period of time the product quality was excellent.
- As the company grew, product demand required additional production sites in other countries, increasing the length of the transnational commodity chain and the amount of work required to monitor quality. In the process Lululemon’s signature material failed.
- The Result: Now Lululemon has placed direct employees in all of the factories to continuously monitor and test products and educate manufacturing partners on the company’s enhanced testing standards and methodologies.
Improving Luon Fabric Quality:
- Lululemon raised its standards and put its Luon fabric through 15 tests for sheerness, colorfastness, stretch, and strength.
- The Luon yoga pants, which sell for almost $100 apiece, were returned to shelves in June 2013 and regained their status as the brand’s best-selling item.