We tracked social and market reactions to Lululemon's rocky history

4 months ago by Jeremy Bloom in Trends

Some controversial CEOs can keep a company riding high, despite their abrasiveness (think Mark Zuckerbeg or Steve Jobs or Bill Gates). Some get jettisoned when they go too far and become a liability (think Papa John’s founder John Schnatter). And some can continue to be a liability for years and years, keeping the PR department and the CEO of their former firm putting out fires long after they were shown the door. Lululemon’s ($LULU) Chip Wilson falls into that category.

The Vancouver-based company had built an amazing reputation as a holistic, healthy, and alll-around chill avatar of West-Coast yoga chic. People gladly paid $98 for its yoga pants, and it promoted itself organically through social media and local brand ambassadors.

And founder Chip Wilson nearly squandered it all by repeatedly and unashamedly shooting his mouth off.

Running the numbers

Take a look at our data chart - Lululemon on Facebook. How many people were talking about the company on any given day is an excellent measure of customer engagement (or controversy). Which of those peaks and valleys are from good talk - positive buzz - and which are from bad talk - Chip Wilson's badmouthing? Let's take a look.

When you’re running a multi-billion-dollar enterprise whose largest customer base is its larger customers, just about the worst thing you can possibly do is go on TV and start fat-shaming women.

Yeah, Wilson did that. On Bloomberg TV, in November of 2013.

“Frankly, some women’s bodies just actually don’t work,” he blurted, trying to explain to reporter Trisha Regan why his Lululemon pants were wearing badly and pilling. “It’s really about the rubbing through the thighs, how much pressure there is over a period of time and how much they use it.”

This came in his attempt to do damage control over the company's biggest setback: the new batch of their most popular pant/legging turned see-through when women bent over to roll up their yoga mats. Awkward.

Desperate to mend fences, Lululemon issued a recall of the black Lycra-nylon blend Luon yoga pant, and offered full refunds. But Wilson's mouth kept the company in the headlines, and he was politely shoved out as Board Chair in  December, 2013. Wilson followed up with a lukewarm apology that was dissected even further by the media. By the time the dust had cleared, Lululemon's stock price had melted down like an overheated newbie doing Bikram.

lululemon 5 year stock price(Red circles: First, Lululemon announces its yoga pants recall. Then, Chip Wilson fat-shames his customers.)

Chip Wilson's greatest hits

  • He told Canada’s National Post that he named the company Lululemon just because he found the way Japanese people can’t pronounce the letter L hillarious. He had sold a previous company with an L in its name, Homeless Skateboards, to a Japanese buyer, and he decided to “make a name with three L’s and see if [he] could make three times the money… It’s funny to watch [the Japanese] try to say it”
  • He also had company bags printed with “Who is John Galt?”, promoting his Ayn Randian objectivist/libertarian philosophy, outraging his company’s touchy-feely yoga customer base.
  • And he actually gave a Scrooge-like (or possibly Gollum-like) talk on the benefits of of child labor“Third-world children should be allowed to work in factories because it provides them with much-needed wages.”  This at a sustainable business conference, no less.

"Chip was a public relations nightmare," Barclays analyst Matt McClintock commented to Forbes.

Silence is golden

In 2014, Wilson sold half his shares to private equity firm Advent. As part of the deal, Wilson took what amounted to a vow of silence, agreeing to shut the hell up for two years. “You either have to be really in, and in the job as a CEO or another functioning member of management, or ‘peace out’," he explained.

For two years, new CEO Laurent Potdevin rebuilt the company, slowly regaining the customers' trust, while going head to head with arch-rivals Nike and Under Armour in the athetic liesurewear space. 

In April of 2016, the company was getting some good buzz over the opening of their lab concept stores, with prominent articles in the New York Times and Fortune (as well as a minor flame war with Beyonce fans over whether the superstar's own athleisure line was too Lulu-derivative). 

On June 1, 2016, the cone of silence evaporated, and Wilson immediately went back to his bad ol’ ways.

"Lululemon has lost its way", he posted on his new website, ElevateLululemon.com. Wilson complained that the company's stock was in the doldrums because the board and management weren't being creative and agressive enough in taking on challenges from athleisure competitors Under Armour and Nike:

I love Lululemon and its employees and remain its biggest believer and supporter. No one is more aligned and focused on shareholder value creation. I am confident that with the right management, Board stewardship and capable execution, Lululemon can return to greatness and all shareholders will see exponential returns.

...In closing, as a long-term investor in Lululemon, I am uncomfortable with the lack of urgency, stewardship and performance of our great company. I have not heard a strategy nor seen actions that lead me to believe we will regain our competitive position and secure long-term returns. This is unacceptable...

That went over well.

Downward, dog?

As a prophet, Wilson isn't turning out so great, either. Here's what he has to say about the Lululemon's prospects in head-to-head market competition against its rivals:

Sadly, the market is correct in not rewarding lululemon’s performance. The most frustrating thing to me as a shareholder is the current management team’s dismal financial performance…. Management competence is uninspiring at best. I am not convinced we have the right leadership in place to catalyze the change necessary to win in the current global, multi-channel and dynamic environment. We have witnessed a dramatic erosion of the Company’s unique culture and capability that empowered and embraced innovation, technology, and product development.

And here's how the company actually performed over the next 18 months, compared to their chief rivals (red for Nike, Yellow for the now-floundering Under Armour):

Lululemon stock price vs nike and underarmour

More talk, more headlines

"Despite a Comeback, Lululemon Can't Shake its Gadfly Founder" was the headline in the December 30, 2016 issue of Forbes:

"There's no innovation," [Wilson] says with a sigh, ripping apart a croissant. "Innovation is something that changes the way people are dressing. People get the word 'innovation' mixed up with incremental change. The two are entirely different things."

But to be fair, Wilson is a whole lot more than just a gadfly, which is how he built the business in the first place, and how he still engenders invaluablely buzzworthy Forbes articles like "Lululemon Founder Chip Wilson's Unorthodox Secret For Vetting New Business Partners, And Why It Works".

He's worth at least $2 billion. 

A little less talk, a little more action

Lululemon plugged along, returning to its old ways of generating good news and good buzz, including over March 17-19, when it got some great vibes by holding a World Happiness Summit in Miami.

But on the financial side, panic selling erupted over mixed earning reports, and word that customers had found the spring clothing line "dull and lacking in color".

So of course, on March 30, 2017, Wilson again posted a grandiloquent screed on ElevateLululemon.com

The lulu board made a decision in 2013 that it no longer needed its visionary founder. The non-visionary board members decided it was more important to safeguard shareholder money rather than re-invest and take advantage of the biggest change in the way people dress in the history of the world. A market created by lululemon which was left for the competitors to take..

I’ve chosen to drop off the board and publicly voice my concerns about the management and the performance of lululemon because there were 9 non-visionary folks on the board and only one visionary founder. The latest earnings for Q4 clearly demonstrate that those leftovers have blown it.

In the past, such a diatribe might have further spooked the stock market, but not any more. Judging from the Facebook mentions, the world at large pretty much ignored him.

"Chip's the founder, a large shareholder, so he's certainly entitled to his opinion," Potdevin told Forbes. "It's not a distraction - just noise."

What do you do when your founder won't shut up? In May there was healthy chatter as Lululemon launched a new, sciency sports bra that was praised as a "game changer". And then they got even more good buzz by pairing with Vice Media for a series of positivie-vibe-generating mini-documentary films about unexpected corners of athleticism, "This is Yoga". 

In true Lululemon style, the company is drowning him out with positivity.

Jeremy Bloom

When Jeremy Bloom isn't writing about energy, the environment, or the amazing strangeness of modern life, you can find him drinking really good single malt whisky...

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