Lululemon Solution: Vision and Innovation vs. Product Expansion and Marketing

The current public dispute between Lululemon founder and majority shareholder Chip Wilson and the Lululemon Board of Directors raises an interesting question that board members in all industries may want to consider: Can mission, vision, and innovation create more value for a company than replicating marketing, cost-cutting, and financial strategies that have proven effective in the past?

Mr. Wilson, who owns about 9 percent of Lululemon's stock, has launched a public campaign proposing to add three independent directors to Lululemon's board of directors to improve the company's long-term profitability and “challenge the status quo.” He also criticized the board's recent hiring of former Nike executive Heidi O'Neill as CEO, who took over in September, after financial markets reacted poorly to the news.

In a scathing letter criticizing Lululemon's board of directors, Wilson highlighted his views on why he believes Lululemon has lost 69.5 percent of its estimated shareholder value over the past 18 months. He accused the board of failing to understand what makes the brand popular and failing to connect with the core customers that give Lululemon a premium position in the market. The main contents of his letter are as follows:

• The core values ​​of the Lululemon brand have always been a premium positioning and a commitment to muses, women who not only follow culture but also inspire it. This has driven consumer passion, leading to sales growth, profit margins, competitiveness, and ultimately premium stock prices. A few years ago, the company began making seemingly deliberate decisions to eliminate this premium position through “brand harvesting.” These types of decisions can cause a kind of “sugar high” in financial reporting, but in the long run they can damage a brand's reputation as a luxury product.
• Shareholders can also see the decline in the position of Lululemon's premium brand amid the company's many failed new product ventures. Unveiling of shoes. Self-care beauty line. Small Disney-themed accessories and accessories. All of these were trending long after their life cycles had ended. They were poorly executed due to flawed decisions and poor product planning. The company also relies on promotional credit card discounts, effectively making customers pay for their products and further eroding the brand's premium position. Each of these strategic decisions by the board of directors moved the brand away from what originally attracted its core customers to Lululemon.
• The expansion of mass production lines clutters the product presentation and leaves customers confused about what Lululemon is, resulting in them buying competitors' apparel with a clearer vision. Expanding the product to more countries or making further brand-disrupting collaborations are, at best, attempts to gain short-term profits to mask the underlying problem.

Wilson claims that his three proposed director candidates, Mark Maurer, Laura Gentile and Eric Hirshberg, can “restore a focus on creative and branded products that has been missing for a long time” from Lululemon's board.

To be fair, Lululemon's board recently changed its composition, but nearly two years of poor company performance can shake shareholder confidence in any company. With the level of scrutiny over board performance greater than ever before, corporate board members should not be surprised to see an increase in calls for board innovation.

The Lululemon situation raises questions for corporate boards to consider:

Have your boards and management teams strategized about how emphasizing and amplifying the company's mission, purpose, and values ​​can create opportunities to increase customer loyalty and grow future revenue? If you can create a culture that your customers can't live without, they'll become lifelong customers, leading to increased revenue over time.

Does your board have members who are champions of innovation and have experience developing innovative solutions to complex problems? Does the board and company have a process that emphasizes “outside the box” thinking that leads to the development of the industry's “next big thing”? All companies must prioritize developing ways to incorporate innovation into improving industry leadership.

Are boards paying sufficient attention to understand that there is now a requirement to make decisive and rapid adjustments based on new needs due to changing market conditions, potentially shortening the terms of individual board members? As new technology becomes available, companies find ways to adapt and use it. When new ways of thinking are required, boards must find ways to bring people with those skills on board.