Lululemon Drops to Eight-Year Low With New CEO Inheriting a Mess

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You're listening to Bloomberg Businessweek with Carol Massar and Tim Stenovec on Bloomberg Radio.

Tim Stenovec (0:16)

I will give the Gen Z's credit for freeing us from skinny jeans. I love that pants are white. We appreciate you for that. We do.

But you know who might not appreciate it so much is some of these athleisure brands who've made their mark on leggings, especially Lululemon. It was like the original fancy high-cost legging. They've really been struggling lately.

Carol Massar (0:33)

They have. And you look at their shares, they're down 17 percent. So basically, they lower their full year outlook. Second straight quarter. It has a new CEO starting next week.

Tim Stenovec (0:42)

I think we did this last time I was on this show, actually.

Carol Massar (0:44)

Yeah. The new CEO is starting in. What we want to do is bring in Poonam Goyal. She's going to tell us more about it. She's Bloomberg Intelligence Senior Analyst for E-commerce and Retail. Joining us from New Jersey. Poonam, thank you.

What went wrong? Or do people just not want the leggings anymore? Take us into it.

Poonam Goyal (1:02)

Well, there's a lot that's gone wrong here. First it's execution, second it's product, and third the styles are changing, as you just alluded to. So on execution, they don't have the right management team in place to lead Lululemon to growth as it once was years ago. The new management team that's coming in with Heidi O'Neill starting next week, we're not sure how it's going to go.

The issue here is product lead and product doesn't turn overnight. So it has at least in my view a nine to 12 month window before we see signs of any progress.

But that's not all that's happening here. As you said, we're wearing pants that are looser now to the gym. We're not wearing leggings as much. Leggings were down 20 percent in 2Q. So that's an issue. Lululemon is known for its leggings on the woman side.

Tim Stenovec (1:52)

The other issue for me is like they have these new competitors in the space. You have someone like Aloe who is doing still leggings and really wearable gym clothes but in a slightly different way. Then you have someone like Viori who does gym clothes but does a lot more things that skirt that line between what you can wear at the more formal end of athleisure, if that's even a place like I could cheat it and wear a lot of it to work. Those two brands seem to know who they are. For me, Lululemon kind of lost their identity somewhere in the middle.

Their staples are not durable enough to be bought just for the fact that they're staples and they're not fashion forward enough to be bought for the trend. Do they know who their consumer is and is that something they're going to try to narrow down and find out with this new leadership?

Poonam Goyal (2:36)

You're absolutely right. They're lost. They're lost in the crowd right now and I think that's what they have to figure out. Heidi's first task will be one of two. One, to set her new management team. There's been a few departures as of late. And second, to figure out who is Lululemon. How are you going to differentiate yourself like you had in the past? And in the past, the differentiation came from product, fit and performance and fashion. So what is the difference today? Because everything to me looks kind of the same now.

Carol Massar (3:06)

That is true. I do have to agree. There are a couple of differentiations, but I noticed while you were saying, my daughter is switching from the Lulu to the Allo. It's a big competition space. You had mentioned product innovation, Poonam, but doesn't something like that take time? So this is going to be a while for Lulu.

Poonam Goyal (3:24)

It absolutely is. So Lululemon's pipeline today, from inception to store, it's about six to nine months. That's a long time today to turn product around. With Heidi coming in in September, assume it'll take her at least some time to get the plans in place. You're talking maybe 12 months from now, or earliest late spring is when we start to see some of her work showing stories.

And I don't know if investors have the patience for that or how much patience they have, because the ideas she brings forward need to be very different to really make Lululemon stand apart from the competitors. As you mentioned, Biore and Aloe to be some, but we also have Nike and Adidas, the traditional athleisure giants that are also trying to compete in that space.