Lululemon Has ‘Lost Its Way’ Says Founder, Despite Positive Financials

June 8, 2016 11:14 am Last Updated: August 15, 2016 6:45 pm

If you mentioned the word “athleisure” 10 years ago, the odds were in favor of a blank stare in return. Then again, the same would have happened for words like “iPhone” or “Facebook.”

Lululemon Athletica created a new market for active wear. It was able to imbue its leggings and crop tops with so much quality, practicality, and chic, that women were ready to hand over hundreds of dollars for a workout outfit.

Over the past decade the brand has grown 24-fold and last year revenue jumped almost 15 percent, to over $2 billion.

At first sight, “lulu” seems just as fit as the lifestyle it promotes.

So why did its founder, Dennis “Chip” Wilson, sound the alarm last week, saying the company “has lost its way?”

Lululemon has suffered its share of setbacks in recent years.

After making one controversial statement after another, Wilson stepped down as the chief innovation and branding officer in 2012 and left for sabbatical to Australia.

In March 2013, the company stumbled on one of the core promises of its brand—quality—when it initiated a massive recall of its signature yoga pants. The leggings were too transparent when wearers bent forward.

In the spring that year Wilson “was asked by the lululemon board to return to help handle a crisis that occurred while he was away,” the company stated.

Yet in just a few months Wilson stepped on a another landmine when he suggested it was some customers’ fault the pants became see-through.

“Some women’s bodies just actually don’t work for it,” he told Bloomberg TV.

Chip Wilson and Shannon Wilson at The London West Hollywood on October 29, 2015 in West Hollywood, California. (Rachel Murray/Getty Images for imagine1day)
Chip Wilson and Shannon Wilson at The London West Hollywood on Oct. 29, 2015, in West Hollywood, Calif. (Rachel Murray/Getty Images for imagine1day)

The company stock kept falling, bottoming out in mid-2014 at less than half the peak price of the year before.

In August 2014, Wilson sold half of his stake in the company, and at the end of 2015 he stepped down from the board.

Today, while lululemon’s revenue is growing, its profits have essentially frozen at the 2012 level.

Clothing made by Lululemon Athletica Inc. is on display for sale on March 19, 2013 in Pasadena, California. (Kevork Djansezian/Getty Images)
Clothing made by Lululemon Athletica Inc. is on display on March 19, 2013, in Pasadena, Calif. (Kevork Djansezian/Getty Images)

In a June 1 letter to investors, Wilson disparaged the company’s leadership for both the stock price and the financials.

“Sadly, the market is correct in not rewarding lululemon’s performance,” he wrote. “The most frustrating thing to me as a shareholder is the current management team’s dismal financial performance.”

Yet the market may have judged lululemon unjustly, according to Steve Symington, The Motley Fool technology and consumer goods specialist.

The stuttering stock price may reflect fears that the company is cutting its margins by discounting products.

But the current CEO Laurent Potdevin said in September 2015, that this was not the case.

Amy Steiner (C) leads a yoga class while dressed in Lululemon Athletica yoga clothes at a yoga studio on Dec. 10, 2013, in Miami Beach, Fla. (Joe Raedle/Getty Images)
Amy Steiner (C) leads a yoga class while dressed in Lululemon Athletica yoga clothes at a yoga studio on Dec. 10, 2013, in Miami Beach, Fla. (Joe Raedle/Getty Images)

He explained the lagging profits as mere growing pains stemming from “building a very scalable, complex platform at a time when we are growing internationally.”

On the other hand, Wilson also criticized a “dramatic erosion of the Company’s unique culture and capability that empowered and embraced innovation, technology, and product development.”

That criticism may hit closer to home for customers.

Lululemon has been known for its dedicated fan base, yet in recent years many fans seem to be losing enthusiasm.

“LLL still does a lot of things well, but the quality of the fabric and the construction is no where near what it used to be,” commented user Allie, a former “passionate” lulu fan, on the Agent Athletica blog.

The blog is written by fitness enthusiast, Suzanne Nobles, from Arizona. A major part of her activewear reviews focus on lululemon products.

“[T]he big problem is that they have continued to fail to address their core product quality issues ever since their big fall from grace a couple years ago,” she wrote. “Sheerness is still totally hit or miss, sizing is inconsistent (I’m lookin’ at you, speed shorts), plus common complaints of thin fabric, premature pilling, etc.”

A pedestrian walks by a Lululemon retail store on Sept. 12, 2014, in San Francisco, Calif. (Justin Sullivan/Getty Images)
A pedestrian walks by a Lululemon retail store on Sept. 12, 2014, in San Francisco, Calif. (Justin Sullivan/Getty Images)

Comments suggested lulu stood out with high quality and functionality combined with femininity and style, and recently at least some of these ingredients are missing.

“What turned me into a loyal customer was the quality, durable fabrics in functional yet feminine silhouettes with the added bonus of beautiful bright colors, ruffles, and other girly details. These were items you truly couldn’t find anywhere else, which incidentally is also how I justified the price,” commented user Mel. “The continued quality issues, blah colors for months on end, lack of feminine details, etc have been troubling.”

“I agree that they are losing some of what makes them unique,” Nobles replied. “Especially considering how many brands are trying to emulate lulu’s success, similar styles are available even at discount stores. It’s much harder to justify their premium price tag if the styling AND the quality isn’t there.”