Wilson ramped up that pressure in late December by launching a proxy battle to force the departure of three directors who are up for re-election at its next annual shareholder meeting, taking place in the spring, even as it looks for a new CEO. Last month, he went further, saying that in fact more than three directors needed to go. (Wilson himself is not running, saying, “This campaign for change cannot be about me. It is about recommitting Lululemon to genuine creative leadership.”)
Wilson’s recent moves have gotten a lot of attention, but it’s hardly the first time he has lobbed this kind of criticism at the company he founded in 1998. A firebrand whose comments have often been seen as exclusionary and even racist, Wilson left the board after tangling with the company’s C-suite over strategy and culture, but he still owns an 8.4% stake in the company. A decade ago, he wrote an open letter in which he made essentially the same complaints he’s making today—only for the company to triple revenue in the following nine years.
But this time, Wilson may well be onto something. He certainly is not alone in feeling the company is adrift and has been for a while. The narrative from Wall Street analysts and investors to customers and former executives, is that Lulu has lost the mojo that made it a pioneer in high-end yoga wear for a certain kind of aspirational customer. The innovative spirit and focus on knowing customers intimately seems to have weakened.
“Newness in stores was just not where it had been,” one former senior executive speaking on condition of anonymity told Fortune. “You could feel it, going into a store and it wasn’t like, ‘I gotta have this’ anymore.”
Jefferies analyst Randal Konik noted last year that Lululemon’s black leggings were much too plentiful at discount outlets, and that markdowns at Lululemon had reached “alarming” levels and created the risk of harming Lululemon’s “premium” image.
In a full-page ad he took out in the Wall Street Journal in October, Wilson lamented that Lululemon had “systematically dismantled the business model” that had made it one of retail’s biggest success stories of the century.
Wilson and Lululemon representatives declined to comment about the proxy battle, but the company has taken pains to point out that Wilson played no role in Lululemon’s boom of the last decade. “Mr. Wilson has not been involved with the company for a decade, and since his departure, Lululemon has continued to adapt to the marketplace and lead the industry, building one of the most compelling growth stories in retail,” the company wrote in response to Wilson’s announcement he was nominating a slate of directors. Lululemon has said it is engaging in good faith with Wilson, though he has disputed that.
Next week could give Wilson new ammunition for his claims that “Lululemon has lost its soul”: The company will publish its next set of financial results and is expected to report ongoing weakness in its crucial North American business. Later this month, design critics and retail analysts will be scrutinizing the introduction of a slew of new products in the first collection by global creative director Jonathan Cheung for signs of stagnation or renaissance. (Lululemon has launched a few items already and Wall Street firm Telsey Advisory Group says it sees “green shoots” in those efforts.)
A few months ago, activist investor Elliott Management took a $1 billion stake to push for changes in how the company is run and to suggest a new CEO to replace Calvin McDonald, who stepped down in January.
Since hitting a peak in late 2023, the company’s shares have fallen by about 68%, leaving Lululemon with a market capitalization of $20 billion. For Wilson’s 8.4% stake, that translates to a $3.3 billion paper loss—so it’s understandable that Wilson is frustrated. He may, however, have engaged in some magical thinking about the company’s trajectory: Wilson has said that he believes Lululemon should have had a $100 billion market cap by 2023—a value that would have been greater than Nike’s. That has clearly not happened.
Certainly, there is malaise around the company. Yet for all the talk of a struggling company, Lululemon remains the top athleisure brand in the U.S. by a wide margin, and its business is booming in Asia.
At the root of the recent stock plunge is a growing feeling that Lululemon, a brand that essentially invented the “athleisure” craze, has lost its innovative leadership. Though its top line will likely exceed a record $11 billion for the recently ended fiscal year, thanks to a successful China business, its core North American business, which generates some 75% of revenues, is still in a worrisome slump. It saw comparable sales fall 5% last quarter—and decline has a way of accelerating in the consumer goods world.
“We think Lululemon will have to invest at least a year’s worth of time and effort in order to return its U.S. business to sustainably positive sales growth,” UBS analyst Jay Sole wrote in a recent research note.
In his Wall Street Journal ad last autumn, Wilson delivered a rather self-aggrandizing disquisition on why Lululemon had drifted: “A company bereft of a visionary loses its singular voice for product and long-term strategy,” he intoned.
But it’s hard to deny that Wilson did build a powerhouse. He founded an activewear company that evolved into a product category almost by accident. In 1998, the U.S.-born, Vancouver-based entrepreneur and surfing enthusiast took a yoga class and noticed that many women wore cumbersome cotton leggings that didn’t dry well. Using a technical fabric similar to that used in surf wear, he created performance sweat-wicking pants that also were flattering enough to wear in everyday life—the essence of what become known as “athleisure” (a term Wilson reportedly hates). Women at the yoga studio that became his first store couldn’t get enough of it, and soon enough it became normal to pay $100 for a pair of leggings, and wear them to the office and around town.
Lululemon rode that wave to glory, owning a booming category that it invented for years—even as other companies, scrambling to catch up, seemed to be adding stretch to every clothing category. In 2013, when Wilson stepped down as chairman, revenue was already $1.6 billion. The momentum continued and went into overdrive during and after COVID, when Americans worked at home more and activewear became the uniform for all occasions. Since 2013, Lululemon’s annual revenue has risen six-fold.
In the time since his departure, there has been no love lost between Wilson, whose penchant for spicy takes has often created PR problems, and the company he founded. Wilson’s move in 2013 to step down as chairman of the board came weeks after his comments in an interview suggesting that Lululemon products didn’t need to cater to larger women.
“At the merchandise level, there was this basic vibe of not everybody being in sync and maybe a culture of candor that wasn’t there anymore,” says Kate De Ayora, who spent 10 years at Lululemon, managing a New York City store before overseeing store expansion in Australia and Japan.
For years, Lululemon practically had the high-end yoga piece of the athleisure category to itself, but more recently newer, hipper rivals have pounced. Alo Yoga, which now has about 1.3% of the market, is favored by tastemakers, while Vuori, practically a staple for upper middle class men, has 2.9%.
These companies are much smaller than Lululemon, which still owns 20% of the market, but the competition and pressure for growth led Lululemon to make some mistakes. Those included its $500 million acquisition in 2020 of Mirror, a home workout device maker whose value it ended up writing down entirely.
The company also expanded into categories like footwear, parkas, and skirts—logical extensions but ones that are hard to pull off and brought the brand into direct competition with incumbents who had deep relationships with suppliers, wholesalers and designers.
“It seems to be going into junkification territory with heavily branded hoodies and tops that simply do not speak to the traditional finesse and quality of the Lululemon brand,” said Neil Saunders, managing director at GlobalData, of new products in stores in January.
Lululemon seems to acknowledge that some customers are getting bored with the brand. McDonald admitted to Wall Street analysts in September that “We’re seeing fatigue with the consumer.” And in December, finance chief and interim co-CEO Meghan Frank said: “We’ve let product life cycles run too long within some of our key franchises.”
Frank has said Lululemon will ramp up new styles to 35% of its spring assortment. (Historically “newness” every season has been 23% or so of product selection.) And it will introduce the new pieces more quickly. But that is not enough for some: In a research note in January, UBS noted that many investors don’t see why that “newness” rate wouldn’t be at least 50% of product assortment.
And newness can backfire: Wilson pounced again in January after news reports that Lululemon had halted online sales after only four days of a new line of leggings, “Get Low,” that many customers said was too sheer when bending or squatting. It harkened back to an infamous “see-through leggings” crisis in 2013. (Lululemon told Fortune that “product quality is a nonnegotiable for us” and that it tests products and listens to customer feedback.)
No one can argue that Lululemon is in any mortal danger. It is still the activewear market leader and sales are growing overseas. Last week, it introduced its ShowZero, a yarn technology that it says conceals sweat. It also recently launching clothing for weightlifting and intense gym workouts with high filament-count yarn Lululemon says offers ideal stretch and unrestricted motion.
But as the old adage goes, it’s tougher to stay on top than to get there. Whatever one might think about the brand’s irascible founder, he seems to be right about one thing: Lululemon must focus on returning to form, not on forays into new categories or collaborations that don’t tap into the aesthetic and technical excellence that made Lululemon such a hit in the first place .
“The brand’s magic doesn’t lie in that,” says De Ayora. “It lies in technical credibility and beautifully constructed product.”
