Saying it's been a difficult year for lululemon athletica (NASDAQ:LULU) is somewhat of an understatement. The yoga apparel chain suffered from sheer fabric and pilling problems earlier in the year, followed by the sudden resignation of its CEO, Christine Day, in June. More recently, the company's founder and chairman Chip Wilson ignited a firestorm of controversy when he said some women's bodies simply "don't work" in yoga pants. Ouch. Talk about kicking the company when it's down.
Unfortunately, new challenges and competitors could threaten Lululemon's position going into the all-important holiday shopping season. With six fewer shopping days between Thanksgiving and Christmas this year, there's added pressure on retailers to boost promotions -- something Lululemon seldom does. Here are two reasons Lululemon may fall short during the most important time of year for retailers.
Inventory problems continue to haunt Lululemon following its luon pants recall in March. The company lost as much as $67 million in revenue this year after being forced to pull more than 17% of its signature luon pants from store shelves due to the fabric being too sheer. That fumble continues to burn Lululemon today.
Because of these setbacks, Lululemon is now struggling with the late arrival of its fall products to stores. The timing of product deliveries is crucial for retailers during the holiday shopping rush. If Lulu isn't able to stock shelves with a healthy mix of new products, its business could suffer immensely. Not to mention, product delays give competitors another chance to steal market share from the company.
No clear leadership heading into the holidays
Leadership is another headwind for the retailer these days. It's been nearly six months since Christine Day announced she was leaving the company. But Lululemon still hasn't found someone to replace her, which some analysts worry could cause internal problems for the retailer. The company had previously hoped to have a new CEO in place by late fall.
Under Day's leadership, Lululemon's stock grew in value from around $30 to a high of $82 a share. Additionally, Lululemon's annual revenue of $1.37 billion is five times what it was before she took the helm. Today the shares of Lululemon trade around $67 apiece, a reflection of the retailer's recent setbacks.
Day vowed to stay with the company until a replacement was found, which means she will oversee this year's holiday shopping season. While this isn't terrible, it would've been helpful to get new leadership on board in time for the holidays. With no clear leadership in place, competitors are finding new ways to encroach on Lululemon's turf. Gap (NYSE:GPS), for example, has been opening more Athleta stores ahead of the holidays. In fact, the company opened its third Athleta location in New York this week and plans to have 65 Athleta stores in the United States by year-end. Nevertheless, Lululemon still beats Gap in terms of store count, with 199 stores up and running today in North America.
The sooner Lululemon's board is able to appoint a new chief executive officer, the better -- particularly as competitors continue to expand and entice shoppers with more affordable workout apparel.