lululemon Chokes on Seaweed

• Email
• Share
• Print

Companies with lofty social missions and ideals are nothing to underestimate these days -- look at Whole Foods Market (Nasdaq: WFMI) and Starbucks (Nasdaq: SBUX). However, trying to capitalize on lofty ideals and then appearing inauthentic is suicide. Yoga apparel company lululemon athletica (Nasdaq: LULU) may be running into that kind of problem.

lululemon's stock was down about 8% earlier today after independent testing of its VitaSea apparel revealed rather inflammatory findings. VitaSea clothes are supposed to consist of 24% seaweed fiber -- which supposedly includes anti-stress, anti-bacterial, anti-inflammatory, and detoxifying properties along with vitamins and minerals that can be absorbed into wearers' skin. However, The New York Times reported tests showing VitaSea has no significant differences in mineral levels compared to run-of-the-mill cotton. Ouch.

Lululemon has focused on health, wellness, and a positive attitude. However, the company could lose crucial credibility because of this seaweed fiasco. The people lululemon targets often distrust traditional marketing, so the perception that this company is simply trying to capitalize on hot trends without living up to them could be a serious misstep.

Despite the enthusiasm for lululemon since its IPO, I didn't see how many Wall Street types seemed not to perceive much, if any, competition in this area. I have yoga pants from Urban Outfitters' (Nasdaq: URBN) Anthropologie unit, and you've been able to get yoga apparel from Target (NYSE: TGT) for ages. And there are other retailers and consumer goods companies that focus solely on yoga -- VF (NYSE: VFC) recently bought Lucy, and Liz Claiborne has prAna. That's all off the top of my head, so you know there's more out there. There should be concern about a lack of a moat around this business, and this blow to the brand integrity doesn't help.    

Some trendy companies have experienced long-standing stock price momentum -- ponder Crocs' (Nasdaq: CROX) astronomical rise before its recent fall from grace -- but lululemon's price has waned as people seemed to realize this IPO probably won't be as hot as originally thought. Meanwhile, even if this misstep only reflects how inexperienced lululemon is, that's a huge risk for investors. It may sound silly to see seaweed (or a lack thereof) as a serious problem, but it's another sign that lululemon's supposed high-growth story might be a little bit ragged.