The company that effectively created the athleisure market is currently fighting to save its reputation. Lululemon Athletica (LULU) is seeing its shares tumble as it deals with a massive quality control failure involving its latest high-end yoga pants. The stock hit a new low yesterday, tumbling by 3.24% to close at $180.35. The crisis reached a boiling point last week during a global meeting where Chief Brand and Product Activation Officer Nikki Neuburger addressed hundreds of employees. Instead of a celebration of new designs, the meeting focused on why the $108 “Get Low” tights were revealing far too much when customers moved.
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Executives Speed Up the Design Process
The recent failure of the “Get Low” line suggests that Lululemon is prioritizing speed over testing. Under the leadership of Calvin McDonald, the company worked on “reducing its product development process” to get items to stores faster. However, this has led to a string of “self-inflicted wounds.” Retail analyst Neil Saunders noted that when a company sells a premium product, it shouldn’t have to issue instructions to women on how to wear it because the product is defective. Saunders stated, “honestly, that’s a joke,” regarding the company’s suggestion that customers just need to wear different underwear to make the leggings work.
Board Searches for a New Leader
As the company tries to fix its image, it is also dealing with a leadership vacuum. McDonald is stepping down, and the company is being led by an interim team while they interview for a new chief. Elliott Investment Management is reportedly pushing for a retail veteran like Jane Nielsen to take the helm. Founder Chip Wilson has also stepped up his public criticism, nominating three directors to the board. He believes the company has drifted away from its core fitness enthusiasts.
Loyal customers are feeling the shift too; social worker Amore Prince tried the new leggings in a store but found they didn’t work. Even after staff encouraged her to try a different size, Prince said, “this is just one of those items that just doesn’t work.”
Brand Identity Suffers from “Random” Collaborations
In an effort to find new growth, Lululemon has moved into categories that have confused its long-time fans. The company spent $500 million on the Mirror fitness device, only to discontinue it three years later. It also launched a line of personal care products that failed to gain traction.
Recent partnerships have also missed the mark; a collaboration with Disney was “trashed” by social media users who called it “a random collab” and “basic AF.” Simeon Siegel of Guggenheim Securities noted that early adopters likely feel “disenfranchised” as the company moves away from the high-quality basics they originally came to love.
Is Lululemon a Good Stock to Buy?
On TipRanks, Lululemon stock has a Hold consensus rating based on one Buy and 20 Hold ratings. The average 12-month LULU price target of $211.71 implies 17.4% upside potential from current levels. Over the past year, LULU shares have fallen 56%.
