Is this a sign of things to come for Canada's retail darling? Lululemon, the Vancouver-based lifestyle brand and highly successful global retailer, over the weekend pulled its Luon black yoga pants from store shelves after discovering the sheer material was just too sheer, a result, some say, of poor quality control on the company's part. On Monday, the retailer announced it would be pulling various—but unnamed—styles of its popular (and pricey) yoga pants, explaining, “Some of our bottoms were made with a batch of black luon that doesn’t meet our standards so we’ve pulled them from our floors and our website.”
“At lululemon, our most important relationship is with our communities and our guests. We recently learned some information about some product that arrived in our stores and we wanted you to know right away,” according to the retailer's blog post. “We are working with our supplier to replace this fabric and other manufacturers to replenish the affected core items as fast as we can. What that means is there will be a shortage of these styles in our stores and online until our new stock arrives. We are also in conversation with our manufacturing partner to understand what happened during the period this fabric was made.”
The brand said it will offer refunds or exchanges to customers who bought the affected item in March, either online or in stores. Lululemon—which was just named Canada's top retail brand by Interbrand's 2013 Best Retail Brands report—is known for turning around products on short order. "Our guest knows that there's a limited supply, and it creates these fanatical shoppers," CEO Christine Day, a former Starbucks executive, told the Wall Street Journal. But the reported pants issue isn't a calculated sales strategy to boost demand and drive sales.
Anticipating lower sales of its iconic yoga pants as a result of the fabric issue, the company late Monday announced it was lowering its "expected first-quarter sales to $333 million to $343 million, down from the $350 million to $355 million it had previously expected," WSJ reports. The manufacturing glitch, which reportedly affects 17 percent of the yoga pants in its inventory at the time the issue was identified in a weekly call with store managers, could hit the top-tier company hard, with shares falling 4.8% in afterhours trading following the disclosure.
For customers, what's at issue is the company's responsiveness and outreach stategy. While Lulu addressed the "shortage" of black yoga pants after pulled them from stores and the website (they're not calling it a "recall") in a blog post to customers and an FAQ and press release intended for investors, there have been no posts on the company's social media touchpoints—an odd move for a brand that touts its "community" and calls its fans "guests."
Instead, irate consumers are speaking out on the brand's Facebook and Twitter pages, complaining about the lack of information and the vague instructions that the company has provided so far. One Facebook user wrote, "I called my store because things usually vary and they said they would take a look at them to evaluate sheerness. I don't care for ones opinion, a recall is a recall." Another commented, "It's ironic that you refuse to be transparent about telling us which styles are TRANSPARENT?! Why not redeem yourselves for selling us transparent pants by being transparent about which specific styles are affected?"
Update: A PR spokesperson for the brand emphasized that "it's not a recall, we pulled product that didn't meet our standards" and provided the following statement from Laura Klauberg, SVP, Community and Brand, for Lululemon:
"We value the authentic relationships we have built with our guests. Their passion is amazing and we will always put them first. We’re doing everything we can to fix the problem and replace these key items as quickly as possible. We apologize to our guests that may have been affected by the temporary removal of black luon pants and crops. We will continue to update you as we learn more. Guests who have questions about their products are welcome to come to our stores or contact our Guest Education Center."
The Guest Education Center (GEC) is Lululemon-speak for Customer Service and can be found under its Contact Us tab on its homepage at lululemon.com. And while still not directly addressing the issue on Facebook or Twitter, it has started to respond to individual comments, such as this thread:
...and this Twitter exchange:
The situation, while serious for Lulu, its reputation and its stock price, is comedy gold for wags:
While some are able to see the lighter side of the situation, analysts warn that the manufacturing hiccup may be a sign of bigger problems. In USA Today's report, Sam Poser of Sterne, Agee & Leach, who stripped the stock of its "buy" rating, commented that there seems to be a "major quality control problem" in Asia where the "Luon" pants are made to Lululemon's specs by Eclat in Taiwan.
"While Lululemon has used the same factories to make its fabrics since 2004," Poser said, "it doesn't seem as though the company has the proper oversight in place." Another analyst, Edward Yruma, told Bloomberg that "the error follows dye issues and supply-chain problems.” Quality control issues pose "black eyes for a brand that is supposed to stand for quality in the marketplace," commented Brian Sozzi, chief equities analyst at NBG Productions, to Reuters. "It's a window of opportunity for Lululemon competitors."
"We have not yet determined the cause of the sheerness," Lululemon's FAQ (which seems more directed at investors than customers) notes. "We have been producing luon with Eclat since 2004. We have been in conversation with our primary contact at Eclat since we first discovered this issue and our sourcing manager for raw materials is currently at Eclat’s facilities in Taiwan."
Eclat, meanwhile, told the Wall Street Journal on Tuesday that it's not to blame. "All shipments to Lululemon went through a certification process which Lululemon had approved," Eclat's Taipei-based CFO Roger Lo told WSJ, which noted that this is the brand's fourth quality control issue in the past year. "All the pants were manufactured according to the requirements set out in the contract with Lululemon."
The Wall Street Journal also commented in that article—titled "Yoga-Pants Supplier Says Lululemon Stretches the Truth"—that the brand "relies heavily on a limited number of suppliers, a risk it called out in its annual report in March 2012. The Luon fabric at issue in the see-through pants comes from that one supplier. (CEO Christine) Day has intentionally kept supplies of hot sellers low in order to create scarcity and buzz—and to ensure customers pay full price as often as possible."
Linda Goldstein, Lululemon's VP of sourcing, quality and production, also confirmed to WSJ that the company's sourcing manager for raw materials is currently at Eclat's facilities in Taiwan trying to identify the manufacturing cause of the sheerness.
What makes Luon, or "luon," so special? Taking its first two letters from the brand's name and the "on" from nylon, the trademarked fabric is 86 percent nylon and 14 percent Lycra, wicking away moisture and designed to retain their shape. The fabric is manufactured exclusively for the brand by Eclat in Taiwan, according to the following statement (that we noted in a story on competitor Ellie's Eclon-based yoga apparel) provided by Lululemon's PR agency:
"LUON is a proprietary fabric manufactured exclusively for lululemon... (An) official statement from Eclat Textile Co., LTD for the clarification between Eclon and Luon:
1. Eclon is not Luon.
2. Eclon is using Nylon 6 as its raw material; Luon is using nylon 6,6 as its raw material. The two fabrics are different.
3. Nylon 6,6 is a premium material which has better performance in hand feel, color fastness, yarn strength, and durability comparing to nylon 6.
4. Luon is a state-of-the-art fabric which is exclusive to lululemon and lululemon only."
Regardless of who or what is at fault, the bottom line is how the brand handles this. If Lululemon is going to make good on its promise of being customer-first and community-minded, it should be more transparent as WSJ sees it, calling its handling of this situation "a rare stumble" for a global retail brand that hit $1 billion in sales in 2012 and relies on its brand loyalists.
Uber-fans such as Lululemon Addict blogger Carolyn Beauchesne are certainly bent out of shape. Beauchesne wrote a blog post calling for the CEO to call it a Day, accusing the brand of post-IPO changes such as:
Designs have been genericized and most new products have all the charm and appeal of a big-box store product. The special omega logo has been removed or minimized to the point that you can't tell you've bought a lululemon product. Inferior, thin luon is being used in more and more designs (looking at you Forme and Daily Yoga jackets).
While it has overcome other brand challenges in the past, its must now regain its balance and return to a path of growth. As Canada's Globe and Mail points out, "Lululemon is facing a bigger challenge than the staying power of its brand. Its shares command a valuation of more than 42 times trailing earnings. That implies that investors harbour big expectations for the company’s ability to continue to grow its earnings at a blistering pace."
With other retailers including Gap, Old Navy, Under Armour, Nike, Adidas, prAna (see above) and startups such as Ellie eyeing a piece of its business, now it has to regain the trust of loyalty of its "guests" in a highly competitive category it created, The Atlantic says:
Before Lululemon, nobody was really marketing high-end yoga wear. Now that the company has proven the concept, others want a cut. It's the curse faced by many lifestyle brands — think of Apple's recent trouble fending off Samsung — and Lululemon's ability to thrive in the coming years will depend on somehow convincing customers that its products really are worth the premium. And the first step is to make sure people can actually wear your pants with peace of mind them while they're doing handstands in public.
Your advice for Lululemon? What to do when bad things—or just bad luck—happen to good brands?
Update: Click here for Lululemon's response