Lululemon in Trouble

Case Code: BSTR538 Case Length: 15 Pages Period: 2016-2017 Pub Date: 2018 Teaching Note: Available

Price: Rs.400 Organization: Lululemon Athletica Inc. (LULU) Industry: Clothing Retail Countries: US, Canada, Global Themes: Corporate Strategy, New Product Development, Brand Strategy, Market Assessment

Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

This case is about Canada-based athleisure company, Lululemon Athletica Inc. (LULU), and the problems it faced in 2017. In early 2017, the company’s shares tumbled by 21 percent, marking LULU’s biggest one-day percentage loss in more than eight years. Despite registering stronger sales in comparison to many other retailers in early 2017, the company anticipated that it would face a sales decline in the first quarter. The probable decline was attributed to a falling preference for athleisure wear, the company’s slow start on the e-commerce platform, and the lack of bright and bold colors in its assortment. The CEO of LULU, Laurent Potdevin (Potdevin), claimed to have identified the issues and stated that the company was taking adequate measures to resolve them. Analysts, however, felt that LULU’s problems were not just internal; it was also facing intense competition from biggies like Nike, Under Armour, etc.

LULU, which had always projected itself as a sustainable company, had been in the headlines for all the wrong reasons on several occasions. Over the years, it had become controversy's favorite child for various issues, the alleged use of lead in its shopping bags, founder Chip Wilson’s weird comments on users of LULU products and his views on child labor, and above all, the company’s sheer yoga pants. In 2013, the company’s reputation and stock prices nosedived after LULU was criticized for selling yoga pants that many customers complained were uncomfortably sheer.

However, between 2014 and 2016, the company managed to stabilize its business and increase its revenues with higher sales from its direct-to-customer segment. The growth in the athleisure market attracted more players and thus the competition intensified. Under Armour, Nike, and Gap’s Athleta started investing heavily in the women’s athleisure segment, which was LULU’s strong point. Moreover, there were speculations that denim was regaining popularity and would overshadow the yoga pants trend. All these had an impact on the company, which found itself in trouble in 2017. LULU, however, was aiming to bounce back into the business with several recovery strategies like expanding into potential markets and focusing on men’s athleisure.

Issues

The case is structured to achieve the following teaching objectives:

• Discuss the concept of brand and brand building
• Analyze how to create and sustain a brand for long term
• Analyze the reasons that lead to the decline of a brand

Contents

Introduction
Background
Toward Healthy and Fun Lives
Building the Brand
Sheer Pants Fiasco
The Downs and Ups
Other Challenges
The Slump Returns
Preparing for a Recovery
Exhibits

Keywords

Lululemon Athletica Inc. (LULU), Growth, Building of Brand, Controversies, The downs and Ups, Decline, Challenges, Recovery Strategy, Sustaining a brand, Brand Management, Business Strategy, Brand creation, Brand Building, Yoga wear, Athleisure

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