Lululemon CEO sounds the alarm on a quiet but dangerous issue

The athletic apparel brand is growing wary of one growing problem.

Jun 10, 2024 - 06:30

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Lululemon CEO sounds the alarm on a quiet but dangerous issue

If you're someone who doesn't live in khakis and a button down every day of your life (and no judgement if you do), chances are, you've worn some type of athletic apparel at some point.

Whether it's for doing yard work around the house, taking the dog for a walk through the neighborhood, or hitting the gym, athletic leisure wear – or athleisure, as it's commonly referred to – is immensely popular these days.

And thanks to an increasingly casual work environment, where many folks still work from home for at least some part of the week, the the athletic apparel leisure industry has ballooned to historically high levels.

Never before have shoppers been so spoiled for choice when it comes to picking a brand for their desired activity.

Whether you're lounging around the house, running errands, or training for a marathon, chances are, there's a brand or line out there for you.

Some consumers prize price over all else, and for them, retailers like Old Navy, Gap or Walmart might offer the perfect selection of activewear. Others value specificity, so brands like Peter Millar or Columbia's Performance Fishing Gear (PFG) line win out. Some value brand recognition, so hot brands like Lululemon (LULU) or Nike (NKE) might be their favorites.

A Lululemon Athletica store exterior is seen in Atlanta.
John Greim/Getty Images

Lululemon has enjoyed supremacy for years

Lululemon is a favorite among a growing cohort of people; it's long been favored by the yoga crowd. Lulu's popular Align leggings, known for their "buttery soft" texture which are made to move with you through difficult poses, are just as much a status symbol as they are a work horse.

Aligns typically retail for around $100 and are available in a myriad of colors (some of which are limited edition) and are routinely sold out in popular sizes online and in stores.

And its financial performance backs that up. The stock is up around 89% since pre-pandemic levels, and it reported better than expected earnings in early June.

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Lulu saw comparable store sales rise 7% year over year (better than the 6.3% analysts expected) and brought in $2.21 billion in revenue, about $1 billion more than expectations.

Lululemon is consistently ranked one of the top brands among young consumers; several of its most coveted products have gone viral in recent years and sold out entirely (like its Everywhere Belt Bag, which was nearly impossible to get ahold of for most of 2022 and 2023).

Lululemon CEO warns of a problem

But a look under the hood indicates Lululemon's track record of success doesn't guarantee success on the horizon. The stock, a darling of Wall Street analysts and a bright spot during the pandemic, is actually down 35% year to date.

The once high-flying workout giant is facing increasingly stiff competition from newcomers who offer similar trendiness, plus a bit more. Perhaps it's better variety, more competitive pricing, or similarly popular brand recognition.

And CEO Calvin McDonald warned analysts that he's aware how precarious the competition makes his company's position.

"We've seen a slower start to the year due to several internal factors including missed opportunity in women's and bags, which we are actively addressing, and some ongoing choppiness in the consumer environment," he explained on the June 5 Q1 earnings call.

"When looking at women's, we did not maximize the business in the U.S., which was the result of several missed opportunities including a color palette and our core assortment, particularly in leggings that was too narrow."

McDonald suggested that some shoppers seem to have gotten bored with Lululemon's more muted color palettes, which had been a trademark of the brand in recent years.

"Where we had color, guests responded well. We just needed more as they are looking for additional choices. And we are also out of stock in some of our smaller sizes."

The need for more color, innovation, and product offerings to recapture women may need to happen sooner rather than later, though. Lululemon recently lost its chief product officer, Sun Choe, who left to take over as Vans global brand president. Choe was largely known as the brains and creativity behind many of Lulu's most successful products, and her departure demands more from the company, which has been focusing more on expansion into menswear.