Lululemon Case Study

Lululemon AthleticaInc –Moving
Forward with
Humility
Case Study
• 4-5 pages, double spaced, and Arial 11
font
• Title page including students’ names
• An overview of the case
• Apply concepts from the course
Case Study Structure
• Title Page
• Introduction
• Identify the key problems and issues in the case
study
• Include a thesis statement and summarize the
outcome of your analysis in couple sentences
• Background
• Include background information, facts and the
most important issues
• Demonstrate you have done research
Case Study Structure
• Problem Statement if any
• Identify the issue(s)that exist in the case and need to be
addressed
• Include relevant theory and course concepts.
• Identification of pros and cons
• What are some of the advantages and disadvantages of
the case study?
• Your view of points
• What is your perspective?
• Provide solutions or changes needed
• Explain why these solutions and provide evidence
Case Study Structure
• Recommendations
• Discuss strategies to the solution(s)
• Recommend further action to resolve some
of the issues
• What should be done and who should do it?
• Theory and coursework can be applied.
• Conclusions
• Summary the case
• References, Appendix and or Tables
Written Paper
• Structure (clarity and logic flow)
• Appropriate business language and
tone
• Relevance to course content
• Grammar / spelling
• Analysis of the problem and
justification for solution
Oral Presentation
• Appearance (appropriate business attire)
• Professionalism (tone and interaction
with students)
• Clarity (presentation is clear and easy to
follow)
• Visual Aids (powerpoints and handouts
easy to read)
• Delivery (eye contact, body language and
oral speaking)
PowerPoint Slides
• Appearance (slide layout / Format)
• Text Elements (easy to read,
headings and size)
• Transitions / Effects (clips, graphics,
etc)
• Relevance to course content
• Grammar / spelling
Immediate Issue
• What actions can Potdevic take to regain
the trust of investors and consumers?
• What strategies can he use to rebuild the
once positive reputation of Lululemon?
This Photo by Unknown Author is licensed under
Case Analysis
1. Describe the Lululemon brand. How did the
company establish a positive reputation? Critique
Lululemon’s handling of its luon pant recall. What
was done well? What could have been done better?
2. Compare and contrast Potdevin and Wilson. How are
their communication styles differently? Think
specifically about the type of language they use.
3. Was Potdevin a good choice for CEO? Is his personal
brand a good match for the Lululemon brand?
4. As Petdevin, what steps would you take to repair
Lululemon’s reputation? Consider the different
stakeholders you will need to address.
This Photo by Unknown Author is licensed
Video and Picture Resources
• Jimmy Kimmel live,
www.youtube.com/watch?v=hZkSFhfL-hM
• CEO, December , 2013
www.youtube.com/watch?v=E6DIGKqE9JI
• Chip Wilson, November 2013
www.youtube.com/watch?v=jeFMeBtNRp8
• www.businessinsider.com/lululemons-secondchance-pants-are-genius-marketing-2013-11
• http://shop.lululemon.com/products/category/
spray-on?pagesize=All
This Photo by Unknown Author is licensed under CC BY
LULULEMON ATHLETICA INC. — MOVING FORWARD WITH
HUMILITY1
Julia Cutt wrote this case under the supervision of Professor Mary Weil solely to provide material for class discussion. The authors
do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain
names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2014, Richard Ivey School of Business Foundation
Version: 2016-09-13
Laurent Potdevin, chief executive officer (CEO) of Lululemon Athletica Inc. (Lululemon), closed his
office door and sighed. He was grateful for a moment alone before his back-to-back afternoon meetings. It
was March 27, 2014 and Potdevin had just finished his 9 a.m. conference call with investors, announcing
the fourth quarter results from 2013. Last year had been tough for Lululemon. Before Potdevin had taken
the reigns as CEO in December 2013, the athletic apparel company faced a massive recall due to defective
products, the departure of founder Chip Wilson after a controversial interview and botched apology and the
resignation of both the firm’s CEO and CPO (chief product officer). All of these events had tarnished the
Lululemon brand. Flat fourth quarter profits in 2013 had only added a sense of urgency to the need to
address these reputational woes. Potdevin knew he must create a strategy to repair Lululemon’s reputation
in order to gain back the trust of once loyal customers.
LULULEMON ATHLETICA
Lululemon was founded in 1998 by Canadian entrepreneur Dennis “Chip” Wilson. With experience in the
surf, skate and snowboard industries, Wilson developed the concept for Lululemon after an exhilarating
experience at Vancouver’s first commercial yoga class.2 Lululemon began as a design studio, sharing space
with a yoga studio to cover the rent. Yoga instructors were asked to wear new products and provide their
insights. This valuable feedback was instrumental to the success of the brand’s clothing.
The first Lululemon retail store opened in Kitsilano, a beach community in Vancouver, British Columbia
in November 2000. Originally, the store was meant to be a community hub where people could meet and
discuss different healthy living topics from yoga to diet, running and meditation.3 But as business
continued to grow, the retail focus shifted to the brand’s products. Lululemon maintained its reputation as a
source for health and lifestyle advice by creating a unique hiring process. Store employees were
“educators,” hired for their superior commitment to healthy living and trained to be Lululemon product
experts.4
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Expansion While Staying Local
Lululemon incorporated in 2005 and became a public company two years later. The brand steadily
expanded its operations, growing to 200 retail locations across North America, Australia and New
Zealand.5 In 2013, analysts predicted that Lululemon would look to emerging markets for future expansion
opportunities. All of the brand’s apparel manufacturing activities shifted to third-party vendors in
Bangladesh, Vietnam and China.6
Lululemon’s retail expansion occurred mainly in busy commercial areas, with the majority of stores
located in downtown shopping areas, lifestyle centres and malls. Select yoga studios, health clubs and
fitness centres were also extended retail rights.7 However, even in the midst of massive expansion,
Lululemon worked hard to retain its local focus. All new employees were required to put in hours working
at a retail location in an effort to stay connected with consumers.8
All retail locations offered their own regular fitness classes, free of charge. Store managers maintained
responsibility for their locations’ layout, colour coordination and community involvement. All employees
were also encouraged to offer suggestions for the brand based on consumer insights from the market in
which they worked. Over the years, such suggestions inspired brand spinoffs such as Lululemon’s “Ivivva”
line for young girls.9
Marketing at Lululemon
From the beginning, Lululemon relied on a unique marketing strategy, preferring grassroots promotional
campaigns over traditional marketing efforts. In 2002, for the opening of a new retail location, Lululemon
offered “naked passes” to customers on opening day. Customers who were brave enough to bare it all were
rewarded with their pick of free merchandise. An example of a less controversial promotion was the
retailer’s SeaWheeze half-marathon in Vancouver. Launched in the summer of 2013, the run featured
cheer stations, a gospel choir, drag queens, a manicure station and a finale concert by the band Fun. Both
of these campaigns highlighted Lululemon’s goal to maintain strong local connections in the communities
in which its stores operate.
One of the key pillars of Lululemon’s hyper-local marketing was its ambassador program. Store employees
were encouraged to invite local fitness instructors to be Lululemon ambassadors. As ambassadors, these
individuals were rewarded merchandise to wear while they taught in exchange for their feedback and
word-of-mouth promotion.
Lululemon was also active across a variety of social media platforms. The brand’s main Facebook page
had more than 920,000 likes in March 2014, with additional store-specific pages being maintained as well.
Content for Lululemon’s Tumblr, Instagram and Pinterest platforms was always continuously updated.
Frequent blog posts about staying healthy and active were regularly featured on the brand’s main
website.10
2013 SETBACKS
Luon Pant Recall
After numerous complaints from disgruntled customers, Lululemon announced on March 17, 2013 that it
was pulling its popular black luon yoga pants from store shelves.11 “The ingredients, weight and longevity
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9B14A036
qualities of the pants remain the same, but the coverage does not, resulting in a level of sheerness in some
of our women’s black luon bottoms that falls short of our very high standards,” the company said in a
statement.12 Lululemon attempted to show empathy to all customers affected by the product defect by
inviting them to return or exchange their too sheer pants. The day after announcing the luon pant recall,
Lululemon posted an apologetic message on its blog (see Exhibit 1).
The recall affected approximately 17 per cent of women’s pants sold in Lululemon stores, leading to a
temporary shortage of supplementary styles.13 News outlets across North America picked up the story, and
even late night comedian Jimmy Kimmel added to the dialogue when he aired a spoof video likening
Lululemon’s sheer pants to spray paint.14 The brand took the negative attention in stride, responding to
Kimmel’s video with a spoof ad for spray-on yoga pants on its website.15
Along with complaints from consumers, Lululemon faced multiple class-action lawsuits on behalf of
investors alleging that the brand artificially inflated its stock price by failing to disclose information about
defective products.
In an attempt to make use of the recalled yoga pants, Lululemon released the “Second Chance Pant” in
November 2013. The brand added an extra layer of fabric on the back of the sheer pants, as well as seethrough mesh along the legs. The label for the recycled pants read: “These pants were inspired by a need to
find functional and beautiful design solutions for our sheer pants . . . this is what celebrating failure looks
like!”16
Chip Wilson’s Controversial Interview
On November 5, 2013, Lululemon founder Chip Wilson appeared in an interview with Bloomberg TV’s
Trisha Regan.17 The interview was supposed to be about Wilson’s new meditation method, Whil, but he
quickly found himself fielding questions about the March luon pant recall and allegations of new pilling
problems with Lululemon products.
Wilson stumbled through the interview, making a variety of outrageous statements. When asked about
pilling issues, he responded saying: “Some women’s bodies just actually don’t work” for Lululemon
apparel. He then continued to blame consumers: “It’s really about the rubbing through the thighs, how
much pressure there is over a period of time, how much they use it.”18 Media outlets were quick to pick up
the story, and Twitter erupted with responses to Wilson’s “fat-shaming.”
A few days later, Wilson posted an apology video on Lululemon’s Facebook page. But instead of
apologizing to angry consumers, the founder offered his sympathy to Lululemon employees. Appearing
teary-eyed, Wilson said he was “sad for the repercussions of my actions . . . sad for the people of
Lululemon who I care so much about.”19 The apology video was almost as poorly received as the original
interview. Of the more than 700 comments posted in response to the video, the majority were negative.20
Executive Departure
In 2013, amid the product recall and fallout from Wilson’s controversial interview, Lululemon faced the
departure of several key executive employees. CPO Sheree Watson stepped down in April after five years
with the company. There was speculation that she was pressured to leave.21 A few months later,
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Lululemon CEO Christine Day also announced she would be leaving the company as soon as a
replacement was found. Wilson also resigned from his position as chairman in December.
Laurent Potdevin replaced Day as CEO of Lululemon at the end of 2013, after a year of setbacks and
negative public relations at Lululemon (see Exhibit 2). Potdevin had previously served as president of
TOMS shoes and president and CEO of Burton Snowboards. In a press release, he commented about his
goals for Lululemon: “As we move into 2014, we are reflecting on our earnings with humility and entirely
focused on our future . . . the emotional connection that Lululemon creates is at the heart of what we stand
for.”22
A New Leader23
Potdevin’s retail career began at LVMH.24 He started in the mergers and acquisitions (M&A) division,
later assuming the role of director of North American operations. In 1995, Potdevin joined snowboarding
brand Burton, where he went on to hold a variety of leadership positions, including director of operations,
chief operating officer (COO) and CEO. Under his direction, Burton segued into surfing and skateboarding segments, introducing the brand to a broader range of consumers. While at Burton, Potdevin
made sure all functions within the firm were focused on sourcing high quality materials, global supply
chain excellence, strong distributor relationships and a detailed understanding of the end-consumer
experience.
In his role as president of TOMS Shoes, Potdevin prepared the company for global expansion. He hired a
well-rounded management team that understood the cultural and community focus of the firm and
established a unique supply chain dedicated solely to the firm’s giving program.25 Under his guidance,
TOMS expanded into 10 new countries in a period of only 12 months. Between 2006 and 2013, the
company gave away 10 million pairs of shoes through its One-for-One giving program.
2014 OUTLOOK
Lululemon released its fourth quarter results for 2013 on March 27, 2014 (see Exhibit 3). While the
company put a positive spin on its financials, the retailer’s growth showed signs of a slowdown.
Comparable store sales had decreased 2 per cent from the previous quarter, while gross profit decreased 3
per cent.26 Analyst predictions for Lululemon were split. Some predicted a recovery, with the prospect of
continued growth in emerging markets. Others forecast a continued slowdown, citing their concerns about
the brand’s damaged reputation. One analyst said that “recent management and executive missteps have
alienated the company’s most loyal customers.”27 The athletic apparel industry was growing increasingly
competitive, with major players Nike, Adidas, Reebok and Under Armour all fighting with Lululemon for
similar market share.
CONCLUSION
Potdevin had years of experience leading successful apparel companies. However, 2013 had been a
communications nightmare for Lululemon, testing the loyalty of the firm’s best customers. Potdevin knew
that repairing the company’s reputation was a priority, and he wondered how he could use his past
experiences to help gain back the trust of once loyal Lululemon consumers.
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EXHIBIT 1: EXCERPT FROM LULULEMON BLOG POST REPONSE TO LUON PANT RECALL
A Letter to Our Guests
Posted March 18, 2013
At Lululemon, our most important relationship is with our communities and our guests . . .
At the beginning of March, our stores and ecommerce site received some black luon women’s
bottoms that didn’t meet our high standards . . .
We keenly listen to your feedback and it is paramount to us that you know we’re listening. We are
100% committed to doing the right thing for our guests and living our standards. It is with these
intentions in mind that we’ve pulled the affected product from our floors and website . . .
We are working with our supplier to replace this fabric and other manufacturers to replenish the
affected core items as fast as we can . . .
Source: http://blog.lululemon.com/a-letter-to-our-guests/?sli=1, accessed July 17, 2014.
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Page 5
A
B
C
A) March 17, 2013: Luon pant recall announced.
B) November 5, 2013: Chip Wilson interviewed by Bloomberg Television. Three days later Wilson posted an apology video.
C) December 10, 2013: Laurent Potdevin appointed new CEO.
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
EXHIBIT 2: LULULEMON’S STOCK REACTION TO THE MAJOR EVENTS OF 2013
9B14A036
Authorized for use only in the course Business Communication (COMM 200) at University of Northern British Columbia taught by Maria Trujillo from 1/4/2023 to 4/22/2023.
Use outside these parameters is a copyright violation.
Source: graph created by case writers with data from Yahoo Finance https://ca.finance.yahoo.com/q/hp?s=LULU&a=02&b=1&c=2013&d=02&e=26&f=2014&g=d&z=66&y
=198, accessed April 4, 2015.
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520,993
242,203
278,790
Costs of goods sold
Gross Profit
(unaudited)
Net Revenue
Provision for income taxes
146,043
144,913
1.91 $
1.93 $
145,806
144,000
1.85
1.88
271,431
109,965
381,396
4,957
376,439
386,387
762,826
607,532
1,370,358
(unaudited)
Authorized for use only in the course Business Communication (COMM 200) at University of Northern British Columbia taught by Maria Trujillo from 1/4/2023 to 4/22/2023.
Use outside these parameters is a copyright violation.
Source: Created by case writers with data from: http://investor.lululemon.com/releasedetail.cfm?ReleaseID=835961, accessed June 25, 2014.
145,846
146,035
Diluted weighted-average shares outstanding
0.75 $
144,285
0.75 $
145,235
$
Diluted earnings per share
0.76 $
Basic weighted-average shares outstanding
0.75 $
$
117,579
279,547
44,657
109,375
45,974
109,692
Basic earnings per share
Net income attributable to lululemon athletica inc.
5,768
391,358
448,718
840,076
751,112
1,591,188
(unaudited)
397,126
1,457
152,575
121,932
274,507
210,982
485,489
(unaudited)
154,032
1,519
Other income (expense)
155,666
154,147
Income from operations
Income before provision for income taxes
124,643
Selling, general and administrative expenses
Costs and expenses
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13 Weeks Ended 14 Weeks Ended 52 Weeks Ended 53 Weeks Ended
February 2, 2014 February 3, 2013 February 2, 2014 February 3, 2013
EXHIBIT 3: LULULEMON CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands of Cdn$, except for per share amounts)
Sales and revenues
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ENDNOTES
1
This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of Lululemon Athletica Inc. or any or its employees.
2
“Lululemon Athletica: Our Company History,” www.lululemon.com/about/history, accessed July 17, 2014.
3
Ibid.
4
Emily Wexler, “Brands of the Year: Lululemon Takes Local to the Next Level,” September 2012,

Brands of the Year: Lululemon takes local to the next level

accessed
July 17, 2014.
5
“Lululemon
Athletica
Inc.
Company
Profile,”
www.hoovers.com/company-information/cs/companyprofile.lululemon_athletica_inc.5690d122783aa62c.html, accessed July 17, 2014
6
“Profile: Lululemon Athletica Inc,” April 2014, www.reuters.com/finance/stocks/companyProfile?symbol=LULU.O, accessed
July 17, 2014.
7
“Lululemon Athletica Inc. Company Profile,” op.cit.
8
“Brands of the Year,” op.cit.
9
A dance-wear line designed for girls aged six to 15.
10
“Brands of the Year,” op.cit.
11
“The Blog,” http://blog.lululemon.com/?mnid=mn;blog, accessed July 17, 2014.
12
“Lululemon Recalls Pants For Being See-through,” March 2013, www.cbc.ca/news/business/lululemon-recalls-pants-forbeing-see-through-1.1347288, accessed July 17, 2014.
13
“Lululemon Founder and Chairman Chip Wilson Resigns,” December 2013, www.marketingmag.ca/news/marketernews/lululemon-athletica-founder-and-chairman-chip-wilson-resigns-96169, accessed July 17, 2014.
14
“Lululemon Pledge — Spray on Pants,” March 2014, www.youtube.com/watch?v=hZkSFhfL-hM, accessed July 17, 2014.
15
“Spray-On Yoga Pants,” http://shop.lululemon.com/products/category/spray-on?pagesize=All, accessed July 17, 2014.
16
Hayley Peterson, “”ululemon’s ‘Second Chance’ Pants are Actually a Genius Marketing Move,” November 2013,
www.businessinsider.com/lululemons-second-chance-pants-are-genius-marketing-2013-11, accessed July 17, 2014.
17
“Lululemon Pants Don’t Work for Some Women: Founder,” November 2013, www.bloomberg.com/video/lululemon-pantsdon-t-work-for-some-women-founder-ATKjgs7jQduIr_ou1z8XYg.html, accessed July 17, 2014.
18
Rebecca Harris, “Lululemon Founder Chip Wilson Plunges Company into PR Crisis,” November 2013,
www.marketingmag.ca/news/pr-news/lululemon-founder-chip-wilson-plunges-company-into-pr-crisis-93637, accessed July
17, 2014.
19
Ibid.
20
“A Message from Chip Wilson,” November 2013, www.youtube.com/watch?v=jeFMeBtNRp8, accessed July 17, 2014.
21
“Judge Looks to Dismiss Lululemon Yoga Pants Lawsuits.” April 2014, www.ctvnews.ca/business/judge-looks-to-dismisslululemon-yoga-pants-lawsuits-1.1761325#ixzz2yynBNWf9, accessed July 17, 2014.
22
“Press Releases,” http://investor.lululemon.com/releases.cfm, accessed July 17, 2014.
23
“CEO
Announcement
—
Laurent
Potdevin
Bio,”
December
2013,
http://files.shareholder.com/downloads/LULU/0x0x712591/616342be-734c-42bf-a58c03753d7630be/LP%20Bio%20for%20Investor%20Site%20FINAL.pdf, accessed July 17, 2014.
24
Moët Hennesey Louis Vuitton is a French multinational luxury goods conglomerate, headquartered in Paris.
25
TOMS provides one new pair of shoes to a child in need for every pair of its shoes purchased.
26
“Press Releases,” op.cit.
27
Jonathan
Ratner,
“Lululemon
Results
Get
Mixed
Reaction,”
March
2014,
http://business.financialpost.com/2014/03/28/lululemon-results-get-mixed-reaction/, accessed July 17, 2014.
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Use outside these parameters is a copyright violation.
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