Lululemon Athletica (LULU 0.54%) founder and chairman Chip Wilson recently appeared on Bloomberg's "Street Smart" program and blamed complaints about yoga-pant quality issues on the customers. The ensuing backlash prompted Wilson to issue an apology, but the incident drew more attention to Lululemon's rough year and earned comparisons to the faltering retail brand Abercrombie & Fitch (ANF 1.17%).
Wilson's comments weren't the first to get him in hot water, but the timing is particularly poor. Lululemon is on the hunt for a new CEO and has a suffering sales metric. The company also faces continued quality complaints while competition grows from the likes of Gap (GPS 0.85%) .
Has the hot star of the yoga world become overstretched?
Yoga pant recall
Lululemon posted a blog in March announcing a recall of black luon women's yoga pants due to material sheerness. The company expects the recall to take $40 to $45 million off this year's revenue.
The tone of the blog message was contrite. And that apology would've served the company well had the story ended with the recall. But then came customer complaints about two other styles of pants -- this time about the piling of the fabric.
But then Lululemon's Wilson went live with a message with an entirely different tone, blaming the piling problems on the women wearing them.
"Quite frankly, some women's bodies just actually don't work," Wilson said. "It's about the rubbing through the thighs, [and] how much pressure is there."
It's typically not a good idea to insult current customers. And Wilson's words that implied exclusivity evokes Abercrombie & Fitch CEO Mike Jeffries, who said he wanted his company to target the "cool and popular kids" and that "[a] lot of people don't belong, and they can't belong."
Both men were hinting at excluding plus-size customers. And that tactic can work while the store is hot and trendy but not as much on the downswing. That's why Abercrombie's planning to add plus sizes as comparable-store sales face double-digit quarterly drops.
Lululemon's reporting sales that are much better than Abercrombie's. But a concerning performance metric suggests the company's growth potential is slowing.
Comp slowdown
Comparable-store sales, or comps, compare the year-over-year performance of stores that have been open for at least a year. And Lululemon appears to have a comps problem.
|
2010 |
2011 |
2012 |
2013 | |
|
Q1 |
35% |
16% |
25% |
7% |
|
Q2 |
31% |
20% |
15% |
8% |
|
Q3 |
29% |
16% |
18% |
N/A |
|
Q4 |
28% |
26% |
10% |
N/A |
Source: Company filings
Lululemon's current comps would make a store like Abercrombie & Fitch crack out the bubbly in celebration. But the rapidly slowing comps could spell trouble for Lululemon if performance continues down at the same pace.
Conversations about Lululemon frequently refer to its growth potential. But the company might've grown too far, too soon and paid the prices of quality and comps. And the market competition continues to grow as retailers such as Gap move further into the athletic space.
Gap's second-quarter report mentioned that the company opened six new Athleta stores for a total of 46. And Gap plans to have 65 Athleta stores by year's end.
Could a new CEO steer the company in a better direction?
CEO hunt
Lululemon announced in June that that Christine Day will step down once a new CEO is found.Shares dropped 18% on the news. The hunt is still under way for her replacement.
Lululemon's fiercely loyal customers could lure in a talented new CEO. Or Wilson's habit of eating his foot and his chairman position could scare off valuable candidates who don't consider Lululemon worth the trouble.
Foolish final thoughts
Lululemon still has a loyal customer base and yoga apparel isn't subject to the same trend changes that have hit Abercrombie & Fitch.
And Wilson's comments alone won't sink Lululemon. He's said plenty of questionable things in the past without the company suffering. But Wilson's behavior could make it harder to attract a talented CEO replacement. And if the company doesn't get ahead of its quality issues, more customers will drop those $100 pants for a more affordable alternative.
