What Does the Future Hold for Lululemon?

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Social media and the 24-hour news cycle have changed the way companies communicate with customers forever. A few poorly chosen words can severely tarnish a company's reputation as those sentiments spread like wildfire over the Web. Lululemon athletica's (NASDAQ: LULU  ) Chip Wilson learned that the hard way when he got into hot water for comments he made about his clientele. But did his gaffe open the door a little wider for The Gap's (NYSE: GPS  ) Athleta brand, which is already taking aim at the company's customer base? Lululemon may have some serious ground to make up with their loyal customers if they do not wish to emulate the tailspin of formerly popular brand Abercrombie & Fitch (NYSE: ANF  ) .

One need to look no further than last year's Chick-Fil-A-gate, starring Chick-Fil-A president Dan Cathy, to understand that leadership comments can have a tremendous impact on a company's business. Cathy made numerous anti-gay statements to the press and on social media that spurred both boycotts and support rallies for the company.

Chick-Fil-A is a privately held company, so that makes it tough to track the short- and long-term effects of these comments, but one thing is certain: These comments matter.

Recently, when questioned about Lululemon's Spring recall debacle (more on that later), founder Chip Wilson made the blunder of shifting the blame from poorly constructed merchandise to poorly constructed women, implying that women's thighs rubbing together was the culprit for pilling in their nearly $100 yoga pants. Many women interpreted these comments as the corporate equivalent of issuing a missive that states, "No fat chicks."

To add insult to injury, Wilson then issued a seemingly heartfelt apology to his Lululemon colleagues and employees via YouTube for having to bear the repercussions of his comments. An apology to the current and potential customers he offended is conspicuously absent.

While these statements may get under clients' skin, there are two questions that will define lululemon's performance after this scandal. Short-term: Is the brand popular enough to overcome such a gaffe? Long-term: Is the product high-quality enough and will they have enough customers to continue growing?

Will Lululemon go the way of Abercrombie & Fitch?
Consumers often have a short memory when it comes to mouthy corporate leaders. The real question is whether the brand has a loyal enough following to overcome alienating some of its customers. A devoted clientele will help keep sales robust during a potential backlash.

When Abercrombie & Fitch was in its heyday, CEO Mike Jeffries seemingly took pleasure in touting the brand's exclusivity, even citing exclusivity as part of the brand's appeal. Exclusion was part of the brand's strategy in attracting customers. When a hot brand cools off, however, they are left trying to court the same customers they previously alienated. This year, according to their third-quarter earnings report, the brand is down about 12% in sales from this time last year. Abercrombie has been forced to rethink their strategy, and recently announced they would begin offering plus sizes on their e-commerce site.

If Lululemon's customers are rabid enough, devotion to the brand will trump Chip Wilson's misstep in the short-term. It is possible that Wilson's comments could even enhance the exclusive image of the brand.

The law of gravity, however, tells us that what goes up must come down. While many brands experience short-term popularity, it is the quality of the product that defines long-term success.

Can The Gap Athleta do it better?
One of the main long-term problems that Lululemon faces has nothing to do with Chip Wilson, but everything to do with the quality of their product.

In March this year, Lululemon was forced to issue a massive recall — to the tune of 17%  — of its yoga pants. While the brand is known for high-quality yoga wear, the recall erodes customer confidence in the product, which is essential when you sell workout wear at sky-high prices.

The Gap's Athleta brand poses another significant threat to the brand, which boasts a lower price point, clearance sales, a more generous return policy, and more diverse sizes. The Gap has sought to emulate many of Lululemon's selling points, including staff training and teaming with local yogis to lead classes. This begs the question: Can Gap beat Lululemon at their own game?

The future of Lululemon may well be determined by who the company selects as their new CEO. Long-time CEO Christine Day announced that she would be stepping down earlier this year. The company has not yet announced Day's successor, but whoever Lululemon chooses to lead the company into the future will have his or her work cut out for them.

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