Lululemon, the women's athleticwear company, provides an interesting case study in how not to manage a crisis. As a recent Stanford paper points out, the company was well-aware of the risks it faced and their potential effects on the business -- and yet when those risks actually arose, Lululemon only seemed to make its situation worse.
What can we learn? I present to you three lessons in how to make a crisis truly unmanageable, as brought to you by the story of Lululemon.
Lululemon lesson 1: Don't listen to your customers
As the paper's authors explain, Lululemon's problems first started with a decline in quality. Customers complained about the excessive sheerness of yoga pants on Facebook and other social media platforms, but to no avail.
Eventually, in March 2013, the company was finally forced to pull 17% of its pants from stores because of the issue. Lululemon experienced prompt 3.8% drop in share price to go along with it -- after all, there are a lot of competitors for high-end athleticwear.
Had Lululemon been paying attention to its customers' concerns, it could have probably avoided the recall altogether. Unfortunately, it chose to ignore its fan base, and things only grew worse from there.
Lululemon lesson 2: Add to the problem as much as possible
Aside from a few hiccups (like blaming the supplier before backtracking and attributing the error to a lack of testing), CEO Christine Day seemed to quickly take matters in hand. Within 90 days shelves were restocked, a new testing procedure implemented, and a new chief product officer appointed.
Problem solved, right?
Unfortunately not. For unexplained reasons, Day resigned around the same time with no clear successor. The company's stock immediately dropped 17.5%. After all, despite the sheerness crisis, "Day had grown sales by a factor of five and profits by a factor of nine," in her time as CEO.
This threw Lululemon into another round of confusion. One problem was apparently solved, only to be replaced by another. Why was this happening, and why -- in a fit of what can only be described as perfect timing -- did founder and company chairman Chip Wilson sell $50 million worth of shares around the same time? (page 3)
As you can imagine, two lawsuits swiftly followed. What started as a problem with yoga pants became a problem of company management in general, not to mention possible impropriety.
Lululemon lesson 3: Solve the first problem incompletely, then blame your customer for it
Adding to the tension brought on by management, it turned out that the initial problem still hadn't been resolved. "Despite Lululemon's assurance that 'quality testing has never been better,' complaints about product quality did not go away."
The fabric was still too sheer, and now it was also pilling. As you might imagine, this is not a good sign for yoga pants with a sticker price upwards of $100.
Instead of sucking it up and taking responsibility, Wilson decided to blame the customer. He asserted that women's seatbelts and purses weren't working with the fabric, or that, "quite frankly some women's bodies just actually don't work for it... it's really about rubbing through the thighs, how much pressure is there over a period of time, how much they use it."
Customers were not impressed. Wilson's eventual apology only served to make matters worse, as he appeared to be apologizing to store employees for the fallout, rather than to the customers attempting to pay them.
Better luck next time?
Lululemon has been languishing ever since, and with no shortage of competitors for its high-end customers, it's difficult to see how the company can recover.
What is perhaps the most instructive aspect of this crisis is precisely that stubborn lack of awareness for customers. The opinion and trust of customers really matters: Not only are many other companies vying for high-end shopping dollars, but repeat business is great business. The fact that those customers tried to be part of the solution by expressing complaints (instead of just shopping elsewhere) makes it even worse. Lululemon missed a huge opportunity to make its customers part of the solution and enhance loyalty as a result.
So, in the end, it comes down to listening. Listen to the people who pay you -- they just might know what it is that they want.
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