Lululemon yanked its popular black yoga pants from store shelves and online after it found that the sheer material used was revealing too much of its loyal customers.
The see-through yoga garb is the latest in a series of quality glitches that threaten to alienate the retailer's hardcore fan base, which has so far been more than willing to shell out $100 for pants and other athletic garments. These legions of followers have helped Lululemon, founded in 1998, become a billion dollar business.
Lululemon Athletica Inc. said on its website that it first began to understand the extent of the problem on March 11 as part of its weekly call with store managers, who voiced worries about sheerness. Lululemon declined to respond to Associated Press queries about whether the problem was discovered when customers started to return the Luon pants, the latest batch of which went on sale at the beginning of the month.
Lululemon insists that it hadn't changed the specifications for the clothing or switched suppliers but is warning that the recall could lead to short supplies and will hurt its first-quarter revenue. The Luon pants, made from a combination of nylon and Lycra fibers, are one of the retailer's product staples and account for about 17 percent of all women's pants in its stores. The company is offering customers' full refunds or exchanges.
The debacle marks the fourth quality problem in the last year for Lululemon, according to Credit Suisse analyst Christian Buss -- and not the first see-through issue.
First, the Vancouver-based company had sheerness problems with certain swimsuits for spring 2012. And some light-colored pants currently on sale carry this disclaimer: “You may experience sheerness with some of our bright coloured bottoms because of the lightweight nature of the fabric. We recommend you do a couple of Down Dogs in your brightly coloured bottoms to ensure you're happy with the fit and coverage.” “Down Dogs” refers to a yoga position. The company also has had problems with bright dyes bleeding.
Investors usually like transparency, but in this case they're the exception. Lululemon's stock price dropped nearly 3 percent in trading Tuesday to $64.08. The stock is down 16 percent in the year to date while the broader markets have been hitting multiyear highs.
Until now, Lululemon has been as much a star for investors as it has for yoga devotees. Its shares rocketed from less than $3 in 2009, to around $65 this year. Analysts expect to get more details when Lululemon posts earnings for the final quarter and full fiscal year on Thursday. But already some Wall Street analysts have downgraded the stock.
“We see some potential that (Lululemon) risks alienating its core customer bases should quality control issues persist,” Buss wrote in her note. Based on her own research, Buss said the Luon fabric is sourced from a Taiwanese manufacturer.
Lululemon confirmed through an outside publicist that its sourcing manager for raw materials is at the facilities of the supplier, Taiwan-based Eclat Textile Co.
Still, some marketing experts dismissed the debacle as a temporary glitch and said Lululemon's loyal customers won't switch to rivals like Nike Inc. or Champion anytime soon.
“It's a late-night TV joke, and it's going to pass,” said Robert Passikoff, president of Brand Keys Inc., a New York customer research firm. “The issue is closure, contrition and care. Clearly, they're doing everything they need to do.”
Lululemon cut its first-quarter revenue forecast as a result of its decision to withdraw the pants. The company now anticipates first-quarter revenue between $333 million and $343 million, down from an earlier estimate of $350 million to $355 million. Analysts polled by FactSet had previously forecast revenue of $352.1 million.
The company also slashed its outlook for first-quarter revenue growth at stores open at least a year to between 5 percent and 8 percent, from 11 percent previously.