Lululemon aims to move past gaffes with new CEO, chairman

Reuters

By Solarina Ho and Allison Martell

TORONTO, Dec 10 (Reuters) - Lululemon Athletica Inc named a new chief executive on Tuesday and said founder ChipWilson will step down as chairman, as the upscale yogawearretailer tries to expand globally and put a series ofembarrassing quality issues and other gaffes behind it.

The company said Laurent Potdevin, most recently presidentof trendy footwear brand TOMS Shoes, will replace Christine Dayas CEO in January and emphasized Potdevin's role leading TOMS'global expansion.

Lululemon, in the early stages of a push into Europe andAsia, was forced to recall some of its signature black stretchypants in March because they were see-through. The incoming CEOsaid quality will be a top priority when he takes the helm.

"Product and quality for any premium brand such as Lululemonis absolutely paramount," Potdevin told Reuters. "It will be avery clear area of focus for me."

Potdevin, who will move to Vancouver where Lululemon isheadquartered, will have to deal with supply chain problems thatcaused the multimillion-dollar recall, fend off toughcompetition and shore up Lululemon's reputation.

"This company has jeopardized its long-term relationshipwith its customers over the last year, via some product qualityissues, via some board communication by the founder," saidCredit Suisse analyst Christian Buss.

"What I'll be looking for are signs they can re-engage theircustomers in a positive way."

Lululemon's usually volatile shares, off nearly 15 percentsince June when Day announced her intention to quit, initiallyrose on news of the management and board changes, but were down1.5 percent at $69.25 on Nasdaq by late afternoon on Tuesday.

PHENOMENAL GROWTH

Lululemon grew from a single store in Vancouver in 2000 to apremium brand with more than 225 stores and over a billiondollars in annual revenue.

It is looking to expand overseas even as it faces growingcompetition from retailers including Gap Inc, whosechain of Athleta stores number 35 and is expected to be up to 65by year end.

Incoming chairman Michael Casey said Lululemon pickedPotdevin because of his experience building and handling complexsourcing supply chain systems, and two decades of experiencedriving global expansion and branding at premium lifestyle andapparel companies.

"If I had draw up a resume for someone taking this job thatI would be happy with, he checked a lot of the boxes," saidCharlie Wilson, a portfolio manager at Thornburg InvestmentManagement, one of the retailer's largest institutionalinvestors.

The fund manager note TOMS also has a strong onlinepresence, which could benefit Lululemon's own ecommerceambitions.

Closely held TOMS, which gives shoes to a needy child forevery pair it sells, has grown rapidly since it was founded in2006. The company has given away 10 million pairs of shoes overthe past seven years and expects to give away another 10 millionin the next year and a half, Casey noted on a conference call.

Potdevin, also the former CEO of Burton Snowboards, startedhis career with luxury group LVMH.

Buss at Credit Suisse said he was pleased to see anexecutive who had done a good job managing "cult brands." But hesaid Potdevin's lack of significant experience operating storeswarranted caution. Unlike Lululemon, TOMS and Burton productsare largely sold by other retailers.

"LOOSE CANNON"

Wilson, who founded Lululemon in 1998 and is the beneficialowner of about 28 percent of its common stock according to aSeptember filing, will step down as non-executive chairman priorto Lululemon's annual meeting in June. He will remain on theboard.

Casey, a former Starbucks Corp executive and leaddirector of Lululemon's board for the past six years, said thatthe move was a natural evolution for a founder, but told Reutershe was not aware of any plans for Wilson to significantly changehis equity stake in the company.

Wilson caused a furor last month when he said Lululemonproducts were wrong for certain body shapes. He later said hewas "really sad" about the repercussions of his comments, but hedid not retract his original statements.

He has previously said he chose the name "Lululemon" becausethe L sound is not in the Japanese language. "It's funny towatch them try to say it," he said in a 2004 profile in theNational Post Business magazine.

"They had to remove Chip. You can't bring in a CEO and havea loose cannon," said Howard Davidowitz, chairman of Davidowitz& Associates, a retail consulting and investment banking firmbased in New York City.

"When you've got a founder sitting there making all sorts ofpronouncements, you're making the new CEO's job 10 times moredifficult. There has to be absolute clarity that this is theboss."

Wilson could not immediately be reached for comment.

Day surprised investors when she said she would leave once areplacement was found. She led Lululemon as it became a majorretail player, growing at a blistering pace in the UnitedStates, a market few Canadian retailers have cracked.

Potdevin said he will continue Lululemon's expansion driveand more rapid growth will come with greater brand awareness.

"Once you've got the awareness, you can grow as quickly asyou want. You just have to make sure you have the right platformto build a business," he said.

Lululemon is due to announce third-quarter results onThursday. In September, it trimmed its forecast for full-yearsales and profit.

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