Companies & Industries

'Loose-cannon' Chip Wilson's waning influence is good for Lululemon's brand: analysts

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(Photo: Lululemon)

Analysts are reacting positively to Lululemon’s decision to shuffle the balance of power at its executive level. Shares are expected to rise following the company’s decision to minimize the influence of controversial founder Chip Wilson, and bring on new CEO Laurent Potdevin to aid in the retailer’s international expansion.

In a statement released early Tuesday morning, the yoga retailer announced that Wilson will be stepping down from his post as chairman of the board (although he will remain a board member). More welcome news came in the form of a successor for CEO Christine Day. Laurent Potdevin, a former executive with TOMS Shoes and Burton who began his career at LVMH Moët Hennessy Louis Vuitton S.A., will start at Lululemon in the new year.

Wilson’s diminished position on the Lululemon board is being viewed as a step in the right direction. Following a product issue in which a certain batch of Lulu’s classic black yoga pants were found to be see-through, Wilson appeared on Bloomberg TV and attributed the problem to the size of the person wearing the pants.

It turned a controversy “into a major PR fiasco,” says David E. Johnson, CEO of branding agency Strategic Vision, LLC.

“Wilson was very much considered the face of the company,” Johnson adds. “What they need to do from a PR standpoint is not only distance themselves from Wilson even further, [but] they really have to offer a heartfelt apology to those consumers who were so offended by his comments.”

In Johnson’s opinion, Wilson’s formal online video apology isn’t enough. Lululemon’s efforts to heal its relationship with some customers will have to be more blatant, he says, or the company risks losing clientele to other brands such as Under Armour and Nike.

A challenge for Potdevin will be directing a brand the size of Lululemon, which he hasn’t yet done in his career. His appointment, however, appears to be a positive step toward prepping the yoga company for international growth.

In a research note released Tuesday, Cowen and Company analyst Faye Landes wrote that investors will be “relieved” that Wilson, “who is considered something of a loose cannon” will no longer be acting as Lulu’s chairman. John Zolidis, an analyst with Buckingham Research, noted in his own report that Lululemon shares will likely react positively to the new CEO appointment, as it “removes a source of uncertainty” as to who would follow Christine Day.

Potdevin’s experience in athletic apparel (at Burton) and with a brand that has international retail locations (LVMH) are seen as assets, Zolidis wrote. As Lululemon continues to work toward an international expansion, Potdevin’s language skills and overseas experience will likely endear him to global business partners.

TOMS and Lululemon also have a key feature in common—both look to be “feel-good” retailers who sell not just a product but a lifestyle. Lululemon has been able to sell its yoga pants for $100 because customers see their purchase as the first step in a journey toward health and wellness. TOMS, meanwhile, is also associated with an active lifestyle, and donates a pair of shoes for every purchase made with its One for One program.

Baird Equity Research analyst Mark Altschwager stated in his own note that Potdevin will be a “good cultural fit” for Lululemon given his past experience with technical athletic apparel at Burton, and with the “strong cultural identity” that TOMS strives for.

Still, Johnson notes that the work of restoring Lululemon’s image as a retailer that fits every body remains, and it may be that only a blatant public apology from company executives (aside from Wilson) will do the trick.

“You want to get past this issue, especially going into the new year. You don’t want this to be something that keeps resurfacing,” he says.