Lululemon Founder Chip Wilson Makes His Case for Change at the Ailing Active Giant

Updated 3:03 p.m. ET April 29

Chip Wilson — founder, largest shareholder and chief agitator for change at Lululemon Athletica Inc. — continues to be unswayed by the company’s efforts to reset management and turn operations around. 

Wilson, who’s trying to appoint a slate of three independent directors to the company’s board, made his case again in a letter to shareholders on Wednesday. 

“Your investment in Lululemon Athletica Inc. is in trouble,” he said. “The current board of directors of Lululemon simply does not understand this business and, as a result, shareholders have suffered.”

Investors have certainly been feeling the pain, with Lululemon’s market capitalization down to $16 billion from over $60 billion just over two years ago.

Wilson said Lululemon got its start focusing on a premium positioning and a commitment to “the woman who inspires culture, not just follows it.”

“Several years ago, the company began making decisions that would, seemingly intentionally, unwind this premium position through ‘brand harvesting,’” he said. “These types of decisions can create a ‘sugar high’ of sorts in financial reporting, but, in the long run, they erode the brand’s high-end reputation. 

“It appeared, and continues to appear, that the board was dead-set on Lululemon becoming another of the countless examples of fashion brands that have failed to manage their quality and market position with consumers and destroyed a once-thriving business.” 

He pointed to the company’s pushes in footwear, beauty, smaller accessories and Disney-themed goods as examples of the brand “chasing the coattails of trends well after their lifecycles ended.”

These ills have a common source for Wilson.

“All the roads of Lululemon’s value destruction lead back to one place: the boardroom,” he said. 

A company spokesperson said: “Lululemon has a highly experienced Board that is well-equipped to provide effective guidance on the company’s direction, Lululemon’s leadership and the right composition of directors through our ongoing, disciplined refreshment practice.”

Among the recent changes, Calvin McDonald left as chief executive officer in January. And former Levi Strauss & Co. CEO Chip Bergh and former Unilever executive Esi Eggleston Bracey joined the board. 

And Nike veteran Heidi O’Neill is due to step in as CEO in September. 

“I genuinely hope that Heidi is the right person for Lululemon, but a near 30-year veteran of Nike Inc. is not the symbol of transformative, creative-first leadership that can instill shareholder confidence in today’s world,” he said. 

Wilson described it as “an unfortunate fact” that his effort to rejigger the board “will call into question if the CEO search process should be re-examined with a refreshed board.”   

Lululemon’s stock fell when O’Neill — a key player in Nike’s failed direct-to-consumer push — was named as the next CEO.  

But Simeon Siegel, a retail stock analyst at Guggenheim, said investors are grappling with some fundamental issues at the brand. 

“Lulu right now has a very difficult problem and I don’t know who would have been able to step in and have the fix be seamless,” Siegel said. “The market’s reaction to Heidi’s hire is probably more a reflection of a coming to terms with the understanding that Lulu needs to be fixed before it can be grown. Growth needs to happen after the fix.”

Siegel doesn’t see Lululemon’s board as the source of all its trouble the way that Wilson does. 

“The board’s a very easy scapegoat because it’s very easy to look at the board and say, ‘Why haven’t you done anything?’” the analyst said. “On the other hand, no one gives the board credit when a company is doing well.”

That leaves Lululemon fending off its founder, soothing investors and waiting for O’Neill to move into the corner office and, hopefully, prove the naysayers wrong.

And as CEO, she’ll have some real work ahead of her. 

“Lulu’s an excellent brand,” Siegel said. “I just think it’s an overstretched one.  It’s close to $6.5 billion in U.S. revenues. 

“People are making the argument that Alo and Vuori are telling exciting visual product stories that Lulu is not, and therefore Alo and Vuori are stealing Lulu’s share,” he said. “Lulu has not seen its U.S. sales decline until this year. That means that Lulu watched quality sales walk out the door to their emerging competition, but they were still able to plug their hole with less quality sales.

“Do I think that Lulu has missed out on product and merchandising and storytelling and everything that makes special retailers special? Absolutely,” Siegel said. “Has it hurt their revenues? Absolutely not. Has it hurt their brand equity? Definitely.”