Lululemon Team D Memo Final

Lululemon Case Study
Team D: Dekow Sagar, Kourtney Thomas, Shekhar Maraj, and Shannon Smith
West Texas A&M University

Management 6334
Dr. McCauley
March 27, 2015

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Executive Summary
Lululemon is a ‘yoga –inspired athletic apparel company’ which has recently undergone some major organizational changes. The case study Leadership, Culture, and Transition at lululemon discusses the challenges faced by the incoming CEO, Christina Day, as she takes over the reins of the company. In this memo, these challenges are identified and analyzed. Finally, short term, medium term and long term recommendations are made to assist the CEO in her impending decisions.
Background Information
The problem faced by lululemon’s newly appointed CEO, Christina Day, is handling the aftermath resulting from a mismatch between former CEO Bob Meers and the existing business model, culture, and vision of lululemon. This mismatch left lululemon with many unprofitable stores, reduction in stock prices, a disconnect between management levels, a shift in the workplace culture, and growing pains resulting from the high amount of growth the company was undergoing without the experience or infrastructure available to handle it properly. Upon entering her new position, Christina Day was presented with this host of issues that would require a vast amount of time, talent, and resources to mend.
When Bob Meers was appointed as CEO of lululemon in 2005, he was at the helm of a company that was worth $40 million with a goal set to open 35 stores. Meers’ focus was on expansion to increase profit, which worked for a short time period. A year before his retirement, in 2007, sales had risen 85 percent, sales per square foot in retail stores were up to $1,710, profits had risen 300 percent, and the company had raised $344 million in an initial public offering.

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However, this was short lived as stock prices plummeted from $60 to $31 and sales per square foot had dropped to $1,451 by 2008 as Day was appointed CEO.
The directive from the board was to continue the company’s growth by opening more stores, launching an eCommerce operation and increasing sales to $1 billion. The company’s troubling situation made it an unsurmountable task to transform lululemon into a billion dollar company. Problems Identified and Analyzed
The main issues that stood in the way of Day turning the company around and reaching the lofty goal set before her was the aftermath of Meers’ leadership and how the company changed as a result. One of the main issues left to her was the real estate strategy Meers used as opposed to the one that had been used by lululemon in years previous. Meers reached his goal of opening 35 stores, but the stores were not in good locations, leaving many unprofitable. In the past, lululemon had followed a specific sequence to launch stores in new markets by starting in urban areas and trickling into suburban markets after demand had trickled down from the urban market. This resulted in high profits once stores finally opened in the suburban areas that now had a high demand for their products that had not existed previously. Meers’ approach ignored the importance of this launch sequence as he mistakenly determined that the high-profits of existing mall stores meant that they should be the sole focus of new openings and immediately entered malls and other suburban markets, creating high-cost, low-profit locations.
In addition to real estate woes, a shift in culture and management styles also had a large impact on the company as a whole. Meers was a salesman who negotiated a lucrative agreement in securing his position. In addition, he brought in an experienced management team from outside the company. This fueled the tension with the existing management team since both

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teams were not strategically aligned with each other. This was a direct result of the new employees not being properly trained or on-boarded into the company’s culture. This left the company as a whole disjointed and no longer working as a team towards the same goals. Meers’ way of doing things contrasted greatly with the team environment that had existed beforehand.
This was primarily due to relationships with existing management not being built with a breakdown in communication resulting over time.
After reviewing all of the above information and the entirety of Leadership, Culture, and
Transition at lululemon, it was determined that a strength, weakness, opportunity, and threat
(SWOT) analysis would be beneficial to determine what the company was doing right, what opportunities lie ahead, and how they can combine the two to overcome their weaknesses and threats. Lululemon does have many strengths that still hold strong after the retirement of Meers.
The company focuses heavily on autonomy, opportunities for employees, accountability, knowledge of and interaction with customers, product quality, and a proven market expansion system. With these strengths come the weaknesses of inventory management and systems, communication, and real estate selection. If lululemon uses its strengths and addresses its weaknesses, there are opportunities to expand into more markets using the proven launch system for new stores, focus on offering more merchandise to men to gain more business, and increasing profits by learning from past mistakes. Threats that need to be taken into account are competitors that offer cheaper products (this can be overcome with focusing on customer education to justify higher prices) and unsuccessful stores that are not turning a profit and are draining valuable resources that could be better employed elsewhere.

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Solutions to Identified Problems
Lululemon has many steps to take in order to restore the company to its previous condition. Weaknesses need to be addressed and opportunities that are available need to be taken, but only with the proper approach. A balanced mix of new and old can be used to remedy many issues. The steps lululemon needs to take can be broken down into short, medium, and long term goals to become more manageable.
In the short term, lululemon needs to focus on its existing stores, employees, management team, and inventory. It is important that all underperforming stores are identified as soon as possible. Once these stores are identified, an in-depth analysis needs to determine whether these stores can be made profitable. If it is determined that the store cannot be improved to increase profits, then the store needs to be closed to avoid any further losses to the company. Opening of any new stores in the United States needs to be halted until issues concerning real estate selection are addressed to avoid selecting more bad locations. Any new stores opened in Canada should follow the system used prior to the appointment of Bob Meers that focused on urban markets first. All management and employees should be reviewed to ensure proper training has been received by all and to address any misunderstanding of the company’s culture and vision. If needed, lululemon should consider replacing individuals who have received proper training and introduction to the company’s culture and vision but continue to clash with lululemon’s culture and vision. Lastly, in the short term, inventory needs to be managed well and an adequate system for inventory tracking and management needs to be implemented. Lululemon should consider tracking specific styles, sizes, and colors of products to ensure customer demands in each unique market are being adequately met.

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Medium term goals that should be set include eCommerce launch, a diversified customer base, gaining interest in underperforming markets, and consider expanding into new markets.
Once control over inventory has been obtained, lululemon’s eCommerce operation should be launched. Inventory for eCommerce sales should be held separately from inventory for retail locations to avoid any confusion or competition between online and retail needs. To diversify its customer base, lululemon needs to place some of their focus in children’s and men’s markets.
The main focus has been on women’s products and some men’s products, but a children’s line could be launched and men’s offerings expanded to meet existing demands and create new demands for their products. Along with this, lululemon can begin expanding into new markets again with their old system of beginning in urban markets and trickling into suburban markets after demand has been created. To avoid choosing bad locations in unfamiliar markets, members of upper management should be used to scout out new locations and get a feel for an area before opening new stores. This will create opportunities to reach out to local members of the athletic community and establish relationships with individuals who could be used as brand ambassadors in the future. This will help individuals involved in opening new stores to tailor the stores to fit the location.
In the long term, the focus of lululemon needs to be on maintaining usage of used and proven strategies, continued growth in new markets, sustaining the culture and focus on education of both employees and customers, and periodic reviews of stores. Continued growth in new markets should continue to be monitored by sending out members of management to scout out new locations to familiarize themselves and others with the location, culture, and lifestyle of individuals within the market. Only markets that have been thoroughly researched and determined to have reasonable potential profitability should be tapped into. New hires should

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continue to be trained well and thoroughly educated about the goals and vision of lululemon and brought up in the culture of the company. Periodic review of employee and store performance should be part of the usual operations of the company to ensure the company’s resources are being used as beneficially as possible. Hanging on to individuals or stores that drain resources should not be tolerated as it could be potentially detrimental to the company as a whole.
With these interventions and the previous experience of Christina Day, the goal of one billion dollars in sales and continued growth beyond that is attainable. It is important that lululemon and its employees not waver in their commitment to education and the lifestyle and culture that goes along with their target audience. Using proven strategies to continue to increase profits and adjusting approaches to fit into new markets, the growth potential and opportunities for the company are huge.

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Resources
Tushman, M. (2010). Leadership, Culture, and Transition at lululemon. Boston, Massachusetts:
The President and Fellows of Harvard College.