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Lululemon's Next Challenge

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It's been a month since lululemon atheltica (NASDAQ: LULU  ) CEO Christine Day announced that she will leave the company, and stakeholders are still waiting with bated breath to hear who her replacement will be. During her five years at the helm, Day has been nothing short of a corporate rock star by any conventional metric. Shares of the apparel chain increased 600% from the start of her tenure to her departure announcement, while sales and profits have grown exponentially as well. The retailer has become one of the most admired and imitated on the planet, ranking No. 3 in U.S. sales per square foot last year, behind only Apple and Tiffany, which sell much pricier wares.

But despite those successes, a backlash has formed in recent months among Lululemon's most devoted customers. Carolyn Beauchesne, who writes the blog Lululemon Addict, has been calling for Day's resignation for some time now, a demand that reached a fever pitch during Lululemon's pants recall earlier this year. Among Beauchesne's complaints have been a deterioration in the fabric quality, and changes in popular designs and unique fits, which she blames on Day's leadership and the company's going public.

Though it may be tempting to dismiss the quips of a blogger, Beauchesne, who's spent an estimated $15,000 on Lululemon gear, has become quite an authority on the company. Her site is well read among Lululemon shoppers, and some of the company's own employees have even used it as a resource. Her posts receive as many as 100 comments from readers who also think Day's strategy has alienated its customer base.

Beauchesne ended her earlier broadside against Day by calling for "a new CEO, with a commitment to quality, who has experience in the apparel industry and an eye for style." Notably, Day was plucked from Starbucks, while the company's founder, Chip Wilson, had started several clothing companies beforehand.

Numbers don't lie of course, and Luluemon's sales continue to grow at a fast pace, as the company adds stores in the U.S. and slowly expands abroad. But Beauchesne's complaints serve as a reminder that the retailer is facing growing pains, and even an identity crisis as it seems to have come to a crossroads in more ways than one. With competition from well-heeled rivals including Gap and Nike, Lululemon can't afford to slip up, or it may lose its most valuable customer set. Its next chief executive will need to have the gifts to satisfy its core customers and drive the returns that have delighted Wall Street.

Look for someone with an apparel industry pedigree and the ability to manage international growth. If not, this highflier may be getting taken to the mat.

Lululemon is just beginning to dip its toe in overseas markets, but there are a number of companies poised to reap monumental profits in China and India. Find out who's among them in The Motley Fool's free report "3 American Companies Set to Dominate the World." Click here to get your free copy before it's gone.

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  • Report this Comment On July 11, 2013, at 12:32 AM, LQM2 wrote:

    Um, is there a point to this article? Buy, sell, wait, what?

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