Earlier this year, yoga-wear company Lululemon had to initiate a massive recall of its popular luon yoga pants, which failed to fulfill one of the main duties of pants: opacity. The see-through-pants debacle cost the Vancouver-based firm an estimated $67 million in sales, and gave the press enough material for headline puns to last a lifetime.
So when it was announced Monday that Lululemon CEO Christine Day would be stepping down from the top job, many assumed that it was a result of the costly recall. Despite protestations from the company, news outlets from CNN to the Consumerist linked the departure to the see-through-pants fiasco.
But investors were telling a different story, as Lululemon shares fell 12% in after-hours trading following the news. In fact, for many observers, the recall episode just reinforced Day’s competence. After the news of the malfunction spread, Day moved quickly to recall product and fired the companies Chief Product Officer Sheree Waterson. As retail analyst Patty Edwards of Trutina Financial told Forbes, “They handled the whole situation incredibly well.”
So if Day wasn’t forced out because of the recall, why is she leaving? Few companies in the world have succeeded as well as Lululemon has during Day’s five-and-a-half-year tenure. The company’s stock has risen in value from under $4 per share in March of 2009 to a high of more than $80 before Day’s resignation. At the same time, Lululemon was able to aggressively grow its total number of stores, which according to Morningstar sat at 186 by the end of 2012, up from a single outlet ten years before. And while much of Lululemon’s revenue growth has come from this rapid expansion of stores, its not been a slouch when it comes same-stores sales, which have grown at a double-digit pace for much of Day’s tenure.
With this kind of track record it would seem very odd if Day is leaving under anything but her own accord. (It should be noted that a CEO jumping ship when things are going so well is a little weird too.) Regardless of the reason behind Day’s departure, it’s critical to the firm’s fortunes going forward that whoever replaces Day will be able to continue her winning formula.
And what exactly is this formula? In an era in which traditional retail has been squeezed by the continued growth of online commerce, Lululemon has succeeded by not just selling yoga pants, but an image, a lifestyle, and a unique shopping experience. Yoga enthusiasts are drawn to the discipline for its spiritual and physical benefits, but also for the sense of community it provides. Lululemon pounced on this idea, created a store environment that acts as an extension of that community.
Lululemon sales associates are called “educators.” And the firm invests heavily in their training so that when a customer enters the store, she feels that she is interacting with a knowledgeable member of her own community, rather than someone who’s hawking them goods. This is exactly the same strategy that the Apple store has deployed with such success. In a world where one can buy nearly any product cheaply and easily online, companies must justify the high cost of physical stores, and companies like Apple and Lululemon have done just that by selling an experience and an image along with their goods.
And while this culture which has brought Lululemon such success wasn’t Christine Day’s creation — founder Chip Wilson should get the lion’s share of the credit here — Day is the one who successfully scaled it up from a regional sporting goods store to a national powerhouse. Surely Day’s 20 years as an executive at Starbucks taught her something about how to expand a retail chain while maintaining a unique culture. Whomever is brought in to replace Day is not only going to need the yoga-specific expertise to lead a “lifestyle company” such as Lululemon, she’ll also need an understanding of international markets as the firm begins to expand overseas, and the operational expertise to run a global supply chain.
So while the exact reason for Day’s departure may be a bit of mystery, the reason Wall Street was upset about it is pretty clear. Few CEOs have had the kind of five year run that Day has just experienced during boom times, and she did it in the midst of the worst recession in generations. So while recalling a bunch of see-through pants may make great fodder for a joke, Day’s performance as CEO was certainly not. And the board of Lululemon will have its work cut out for it finding her replacement.