Lululemon Athletica (NASDAQ:LULU) had a busy week. On the same day a new CEO was announced, Founder Chip Wilson stepped down as Chairman of the board after drawing backlash for blaming product defects on the bodies of customers.
Wilson founded the athletic wear company in 1998 and has a long history of questionable comments. But it was Wilson's claim that the rubbing thighs of female customers caused a fabric piling problem that was finally a step too far. Will Lululemon win back the customers alienated by Wilson's comments? Or will the company follow the path of Abercrombie & Fitch (NYSE:ANF), another company with a controversial head who tried and failed to maintain a culture of exclusivity?
Mixing aspirational fashion and exclusivity
Aspirational brands offer a sense of culture or an implied meaning to products that carry a high price tag. Think of an Armani suit. Sure, the suit will likely have quality fabric and tailoring. But it's that Armani name that's the real sell because the name immediately evokes a certain image or lifestyle in the mind of customers. And Lululemon wants to serve as the aspirational brand for yoga pants.
Chip Wilson built up an aspirational culture at Lululemon that includes staff training sessions at the self-help-slanted Landmark Forum workshops and in-store yoga sessions for customers. The company produces athletic apparel -- including $100 yoga pants -- and limits the number of items produced to create demand. And this strategy has worked in the past because the products were high in quality and offered women flattering and comfortable workout apparel that wouldn't fall apart after a few wash cycles.
But then came this spring's sheer pant controversy. Lululemon announced a recall of the black luon women's yoga pants because the material turned sheer when women bent over -- and bending over happens a lot in yoga. The company posted a contrite blog post and expected that the recall would take about $45 million off this year's revenues.
Lululemon next faced a smaller number of complaints about fabric piling in two other styles of yoga pants. And that's when Chip Wilson went on Bloomberg and made his comment:
"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."
The backlash was quick and fierce. It's never a great idea to blame the customer for product quality. But Wilson's specific comments had multiple layers of controversy. Lululemon doesn't offer plus sizes so Wilson's implication was that women were wearing too small of pants. But a woman's weight or size has little to do with whether her thighs rub together -- that's usually a matter of how her body frame is built. And the myth that a "thigh gap" equals an ideal thinness has recently made headlines for its popularity in eating disorder communities.
Wilson needed to go. There's a difference in creating an aspirational brand with an aura of exclusivity and acting as a high school bully who body-shames girls in the hallway. But can Lululemon return to the former now that Wilson's out? Lululemon's future depends on the CEO that comes in to replace outgoing Christine Day.
And Day's replacement was announced this week. Laurent Potdevin comes aboard after heading eco-shoe company Toms and Burton Snowboards -- both companies that make sense in conjunction with Lululemon.
But if Lululemon continues to make PR missteps without Wilson and the product quality issues remain, the company could head down the same downhill path of Abercrombie & Fitch.
The fall of Abercrombie
Abercrombie & Fitch CEO Mike Jeffries wanted his youth-oriented apparel chain to serve as the aspirational brand for the preppy mall set. And to make sure that others would know when customers wore the clothing, Abercrombie's brand logo featured prominently on many style designs.
And creating an aspirational brand at a lower price point depends more heavily on the culture of exclusivity. Mike Jeffries infamously chomped on his foot by saying that Abercrombie fashions were for "cool and popular kids" and that "[a] lot of people don't belong, and they can't belong."
Jeffries' comments were from 2006 when Abercrombie was maintaining comparable store sales growth of 2% and net sales growth of 19%. But Jeffries' comments gained new traction earlier this year, resurfacing and inspiring a quasi-apology. The resurfacing was well-timed as it was quickly followed with the announcement that Abercrombie would start offering plus sizes.
Why the change of heart? Abercrombie & Fitch's recently reported third quarter included a 14% comps drop and a 12% drop in net sales. And that was indicative of Abercrombie's general performance in the past year. Youth trends have floated away from Abercrombie's styles and that culture of exclusivity is on the wane.
Foolish final thoughts
Has Lululemon learned its lesson? A store in Maryland recently hung a sign in the window that said "Cups of Chai, Apple Pies, Rubbing Thighs?" that didn't inspire confidence.
Lululemon needs to push foward with plans to make customers certain that the product quality will return while Wilson's type of exclusivity stays banished. As Abercrombie & Fitch proved, customer trends can change on a whim and a mere aura of exclusivity isn't enough to sustain a company for the long term.
Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Lululemon Athletica. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.