Lululemon and the Double-Edged Sword of Creating a Lifestyle Brand

Lululemon and the Double-Edged Sword of Creating a Lifestyle Brand
VICTORIA, B.C.: JUNE 7, 2012 - Dennis "Chip" Wilson founder of lululemon athletica in Victoria, B.C. June 7, 2012. (LYLE STAFFORD, TIMES COLONIST). For Business story by Carla Wilson

When executed successfully, attaching cultural or lifestyle benefits can be like adding rocket-fuel when launching your emerging product into the marketplace. If consumers believe they are getting not only a quality product but also are helping to support a social cause or achieve some extra personal benefit, they will quickly develop a deep attachment to the brand.

For a shining example of this principle at work, one need look no further than the Canadian sports apparel company Lululemon Athletica. Launched in Vancouver in 1998, Lululemon produces ‘technical athletic apparel for yoga, running, and dancing.’ Of course, their signature product from day one has been their well-fitting black workout pants, often referred to simply as ‘Lulumemons.’ They also sell workout bras and tanks, shorts, capri pants, t-shirts, sweatshirts, and jackets as well as a line of accessories including water bottles, headgear, yoga mats and accessories, and yoga and gym bags.

Beyond just promising superior quality workout apparel and gear, Lululemon made social issues such as sustainability and corporate ethics part of their brand. On their website, Lululemon wrote:

“It is who we are and what we do and we will continue to further our mission of ‘creating components for people to live longer, healthier and more fun lives’…. both for our guests, our employees, and our manufacturing partners.”

The results were beyond reproach. Less than 10 years after launching, Lululemon went public. The IPO price was higher than what was expected and at one point, the stock was selling at 450% of its IPO listing.

And then came the stumbles.

Within a span of six years, Lululemon suffered a series of PR disasters that resulted in a drop in stock prices and executives resigning. Lululemon discovered that when people flock to your brand because of what you stand for, they will also flee from it if they believe you betrayed those ideals. This is the double-edged sword of creating a lifestyle brand.

Launch to IPO

Lululemon was founded by Dennis “Chip” Wilson who previously launched the outdoor sports gear company Westbeach Sports in the early 1990’s. Wilson sold that company in 1997 and during his ensuing downtime, decided to take up Yoga. This gave him the idea to create a business targeted at Yoga devotees which he saw as a growing market. The first Lululemon store was opened in the trendy neighborhood of Kitsilano Beach.

The company pushed its culture of sustainability as it expanded across North America. People were really responding to the quality of the products as well as it’s green-friendly message. Central to this sustainability strategy were three key planks:

  1. Sourcing and manufacturing were to be done only with partners who complied with their Workplace Code of Conduct.
  2. Working towards efficiency and waste reduction by eliminating pollutants in the garment manufacturing and retail process.
  3. A push towards making all Lululemon properties green buildings and spaces with zero waste and emissions.

The company’s manifesto was a series of can-do, positive thinking sayings targeted towards empowering women. Included are:

Breathe deeply and appreciate the moment. Living the moment could be the meaning of life.

This is not your practice life, this is all there is.

That which matters the most should never give way to that which matters the least.

There can be no question, people were flocking to the message and happy to buy into the whole Lululemon experience. They happily paid top tier prices (yoga pants – $99, bra – $48, tank top – $52) and stores were popping up seemingly everywhere. By 2007, the company owned or operated 81 stores around the world.

That same year saw the company rise to even more unexpected heights. In going public, the stock was expected to reach between $15-$17 a share. It opened at $18 and quickly climbed. On July 27, 2007, The Toronto Globe and Mail described it this way.

“Lululemon Athletica Inc. shares soared about 53 percent in debut trading in New York and Toronto, suggesting robust investor demand for the trendy yoga-wear retailer.

The shares jumped to $27.61 in Nasdaq trading after the stock was priced at $18 a share, with almost 10 million shares changing hands. The $327.6 million it raised through its initial public offering was much higher than anticipated.”

Within weeks the stock had risen to over $56 per share.

The Tumble Down The Mountain

The first incident occurred when the New York Times received a tip that Lululemon was guilty of false advertising with their Vitasea line of sweatpants partially made from seaweed.

The Vitasea line was said to ‘release amino acids, minerals, and vitamins directly into the skin’ upon contact with moisture. This would have the following direct benefits:

  • keep skin firm and smooth
  • prevent the skin from drying out
  • enhance blood supply to skin
  • activate cell metabolism
  • promote skin cell regeneration
  • contain anti-viral or anti-bacterial properties
  • sooth skin rashes
  • reduce stress
  • detoxify the skin

After doing their own independent testing, the New York Times published an article by Louise Story on November 14, 2007 under the headline, ‘Seaweed’ Clothing Has None, Tests Show.

The article detailed how lab testing failed to show a meaningful presence of the minerals Lululemon claimed were there. Perhaps just as damning as the article was Chip Wilson’s response. In the article, he says, “If you actually put it on and wear it, it is different from cotton. That’s my only test of it.”

A story like this would damage any business but it is worse when it undermines one of the key tenants of the lifestyle brand. In this case, people were buying this line for its organic, natural benefits. A 2009 report from the Competition Bureau of Canada suggested that the brand took a serious hit as some saw Lululemon’s Yoga image as an “annoying phony-baloney symbol.”

After the news broke, the stock price fell 8% and continued to tumble for the next several weeks. The combination of the false advertising scandal, as well as the ensuing global economic crisis, saw the stock price plummet as low as $3.00 in 2009.

Lululemon and its Unlucky ‘13

Lululemon experienced a boom period between 2009-12. In stock price alone, the stocked opened up at $3.01 per share on March 17, 2009. On March 16, 2012, it opened at $74.36. Though a rebound in sales and continued expansion, Lululemon had righted the ship and emerged from the Vitasea scandal bloodied but unbowed.

And then came 2013.

In March of that year, Lululemon was hit with the Pantsgate scandal where they had to issue an emergency recall of their signature black Luon yoga pants because of the ‘sheerness and lack of quality of the pants’. The material was found to be either too see-through when stretched or would tear.

According to a company statement, that product alone accounted for 17% of the company’s sales. Lululemon responded by replacing the product with a newer version with “more fabric across the bum so it’s not stretched from the get-go.”

The scandal cost Chief Product Officer Sheree Waterson her job in April of that year and just two months later, Lululemon CEO Christine Day followed right behind her.

Still reeling from this incident, the company took another PR blow when Founder Chip Wilson defended Lululemon’s products on Bloomberg TV. In an attempt to exonerate the company from the Pantsgate scandal Wilson said:

“There has always been pilling. The thing is that women will wear seatbelts that don’t work or they’ll wear a purse that doesn’t work or, quite frankly, some women’s bodies just don’t work for it. Even our small sizes would fit an extra large, [but] It’s really about the rubbing through the thighs, how much pressure is there … over a period of time, and how much they use it.”

The statement was widely denounced as fat-shaming and Lululemon became the target of anger from blogs and op-eds around the world. Almost immediately, Time Magazine published an op-ed titled, What Lululemon Could Learn From Abercrombie About Fat Shaming. In it, they write, “Even if Lululemon isn’t worrying about whether its marketing meshes with its sales policies, it would have to admit that this has been a public relations year from hell, and that affects the bottom line. Lululemon should be taking any business it can get, and that means bringing out those size 10s and 12s to the front of the store and maybe even throwing some 14s and 16s into the mix.”

Another Recovery

In the ensuing years since ‘Black ‘13’ Lululemon has rebound financially. Their stock price opened at $81.55 on March 13 of this year. However, recovering from the damage caused to the brand and overall public image may be a longer process. Lululemon was built on the notion of female empowerment and a product you can feel good about. That makes it harder to come back from when the very people who are supposed be your best customers and biggest brand ambassadors react as Susan Levy did. Shortly after the Chip Wilson comments, she wrote a blog post titled, When Life Hands You Lululemon [Write a Rant on Your Feminist Blog] She begins the piece with a simple two-word sentence, “I’m angry.” She then says later in the blog, “I will no longer be buying workout apparel from Lululemon or supporting the company in any way. I’m embarrassed to still have Lululemon pants and tops in my closet.”

Perhaps the lesson of Lululemon is that culture and purpose have to be organic. The moment it feels like a marketing ploy, you may struggle to regain any sense of credibility. The line between people being proud to wear your product and vowing to never wear them again can be as thin as… well, yoga pants.