Lululemon Athletica Inc. (LULU) has a serious brand damage in the making. the question is whether it is permanent or whether or not it will pass over. The company's scandal has moved from see-through pants and material balling up, and now it includes the company's founder in a public relation blunder that he created. The Gap, Inc. (GPS) may be thanking the company for both issues.
This "Size" dilemma is nothing new. Abercrombie & Fitch (ANF) has been under fire previously for its stance against big clothing sizes. The company's stance was that its clothes are not made for larger people. A&F's shares have been in the gutter, but this sure seems like a series of product missteps and weaker sales which likely had nothing to do with turning larger-size buyers away.
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Lululemon founder Chip Wilson has recently apologized to his workers in a video after a Bloomberg interview where he said that some of the issues from the pant dilemma are simply that the pants might not work well on women of certain sizes with rubbing issues.
The reality is that some of these comments may simply be true, but how that message is conveyed or whether or not it should have been conveyed is another issue entirely. It is true that some people just do not look good in certain clothes. How people come to that realization, and how they are told about that, is a dilemma.
Why The Gap, Inc. (GPS) can win here is that Gap does cater to larger sizes in many cases. Its Banana Republic stores have often not really catered to larger sizes, but Old Navy and Gap have larger sizes. The real opportunity is its newer Athleta line that has grown in popularity. What the public needs to understand is that its models and its clothing are not exactly flattering in many of the larger sizes either, but the company could still possibly capitalize at Lululemon's expenses.
Athleta has a large mail catalog business, and it has had retail stores since 2011. There is an opportunity for it to attract even more of the Lululemon customers, but the store concept just might not be widespread enough to make much of a difference. We warned back on November 1 that the risk was more than meets the eye here for Lululemon investors, and shares were closer to $67.50 then. That was before this blunder turned into something worse.
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This is something that needs to be paid attention to. Lululemon shares closed down another 2.9% at $66.95 against a 52-week trading range of $59.60 to $82.50. It still has a whopping $9.7 billion market cap versus $19 billion for The Gap, but last year's annual sales were $15.65 billion for Gap versus $1.37 billion for Lululemon.
This public dilemma of Lululemon is an interesting one. There may not be a clear answer. Companies do deserve the right to have their designs made for certain customers. Perhaps the biggest issue is simply how they handle delivering that message. Slogans like "Fat people go elsewhere" are not going to give you the best reputation in the public. Simply stating "We have a target market that includes a range of sizes, and that is what we are sticking with" may be a better direction.