Will Lululemon's Missteps Create an Opening for Sweaty Betty?

By Stephanie Taylor Christensen  DEC 11, 2013 3:45 PM

In light of Chairman Chip Wilson's resignation, other athletic apparel companies like Nike, Under Armour and Gap are poised to steal the limelight.

 


Once upon a time, Lululemon Athletica, Inc (NASDAQ:LULU) was one of those brands that seemed to have the magic touch other companies would envy and spend millions (often unsuccessfully) attempting to replicate it. When the stock went public in June of 2007, “Lulu” was a relatively unknown Canadian-based athletic apparel and lifestyle brand -- aside from the sensational cult following it had within “insiders” in the fitness and wellness industry. Thanks to a grassroots brand strategy, Lulu established its reputation for unparalleled product uniqueness and quality, so much so that spending upwards of $100 on yoga pants and athletic apparel became completely normal to its devotees.
 
When founder Chip Wilson rang the bell kicking off the initial public offering, shares sold for $18. By 2011, the stock’s price had more than tripled; there were more than 150 retail stores spread across the United States, Canada, and Australia. Its loyal fans began to expand far beyond athletic enthusiasts and reached the masses -- including middle to upper class teens and moms who wore the apparel as much for the status the horseshoe-shaped symbol represented as for the purposes of working up a sweat. Aside from occasional appearances in trade publications like Yoga Journal, the brand successfully sold its lifestyle message and apparel for men and women without much paid advertising. In fact, the bulk of its buzz was generated by inexpensive marketing efforts like community outreach in the form of free fitness classes, and the formation of brand ambassadorships, with local fitness instructors willing to help support the brand for little more than a slight discount on apparel and gift cards.
 
But as with many “falls from grace,” one “miss” led to many more. In March of 2013, the company acknowledged a “sheer pants” issue, and pulled nearly 20% of its yoga pants stock off the market. Though Lulu offered customers who had bought the pants a full refund, the issue gained notoriety in the mainstream press as late-night talk show hosts mocked the absurdity of a “yoga pants shortage.”  Though Lulu attributed the problem (and blame) to manufacturing issues with Eclat Textile, the supplier of its proprietary fabric LUON, Eclat refuted the statement, claiming it followed the standards set in the manufacturing contract.
 
Though the press eventually quieted, the problems weren’t as quickly forgotten by the customers, competitors, or investors. As Lululemon forecasted the cost of the issue at about $60 million in lost sales, some analysts downgraded their confidence in the stock. On the heels of the bad press, mainstream brands seeking a piece of the athletic apparel market, including Nike (NYSE:NKE), Under Armour, Inc (NYSE:UA), and even Gap (NYSE:GPS) and Victoria’s Secret (NYSE:LB) attempted to lure customers to their own lines. News of other product quality issues around pilling and color-fastness in Lulu’s products surfaced throughout the summer. Indulgence Tunic Dress
 
Despite those challenges, the biggest issue Lulu has faced of late appears to be lack of public relations savvy. In early November, founder Wilson caused another round of customer outrage when he dismissed the idea that fabric pilling issues in some Lululemon yoga pants was a result of poor quality, explaining that “rubbing of the thighs and how much pressure is there” was to blame, in a Bloomberg TV interview.
 
Yesterday the company announced that Wilson will resign as chairman, effective next year, and that Laurent Potdevin, president of TOMS shoe company and former CEO of Burton Snowboards, will take the post of CEO, replacing Christine Day, who announced her intent to leave in June but stayed in the role until a replacement was found. Though the shift in executive leadership (Tara Poseley, formerly of Kmart (NASDAQ:SHLD), was also recently brought in as chief product officer) may signal a fresh start at Lulu, the stream of missteps will undoubtedly take time to correct. In the meantime, it may mean golden opportunity for Sweaty Betty, another high-end British-based retailer founded in 1998 by Simon Norton and Tamara Hill-Norton.
 
Like Lulu was back in its infancy, Sweaty Betty’s strength to date has been built largely in part due to its following and cache among the fitness- and fashion-conscious. Like Lulu, it sells apparel geared towards yogis, dancers, runners, and cyclists -- in addition to footwear, ski, and swim apparel. Sweaty Betty (a sample outfit is pictured here) also has its own proprietary fabric (called “Sensitive”), partners with local and “celebrity” fitness brand ambassadors, and offer free fitness classes in its retail stores. In 2013, the brand expanded its footprint to include more than 30 boutiques, including two in the United States (one is located in Greenwich, Connecticut, the other in Soho, New York). Though the company is privately owned, it does offer franchise opportunities in the United Kingdom.

Twitter: @WellnessOnLess
No positions in stocks mentioned.

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