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When Lululemon Athletica announced in April that former Nike senior executive Heidi O\u2019Neill was becoming its new CEO this month, the athleisure pioneer was already struggling. Its core North American business was slipping, and there was a sense the yogawear maker had lost much of the magic that had inspired intense devotion among its customers for years.<\/p>\n
But in the five months between her appointment and when she assumed the job on Tuesday, Lululemon\u2019s deterioration has only accelerated. The company, which had been run on an interim basis by two C-suite executives since late January, reported another terrible quarter last week, with a 12% drop in comparable sales in North America. It cut its full-year outlook for the second time in three months, intensifying worries that first-time CEO O\u2019Neill might not be able to stop the decline.<\/p>\n
\u201cIncoming CEO O\u2019Neill has a mountain to climb,\u201d Jefferies analyst Randal Konik wrote in a research note last week.\u00a0<\/p>\n
A steep hill from day one<\/p>\n
O\u2019Neill, for her part, says she sees Lululemon\u2019s problems clearly\u2014and is plotting a path to fixing them by tapping what made Lululemon so beloved in the first place.<\/p>\n
\u201cI truly believe that we have an incredible opportunity in front of us: to re-establish who we are at our core and, from that foundation, take Lululemon into its next chapter,\u201d O\u2019Neill told employees in a memo to staff published on her first day as CEO.\u00a0<\/p>\n
But she has many fires to put out at once. Among the most worrisome bit of bad news in second-quarter results full of them was the sharp drop in sales of leggings, Lululemon\u2019s bread-and-butter offering and the category that turned it into a cultural phenomenon. They suddenly plunged last quarter, stunning analysts. Also ominous: sales in China, which were rising by double-digit percentages as recently as in the spring, fell for the second quarter in a row.\u00a0<\/p>\n
\u201cWe did a double take when Lulu called out that leggings were down 20%,\u201d said BNP Paribas analyst Laurent Vasilescu. Leggings generate approximately one-third of Lululemon revenue by some estimates and are its highest-margin products. As leggings go, so goes Lululemon.<\/p>\n
In recent years, analysts have worried about Lululemon\u2019s hold on the athleisure market it created, and those fears have been borne out. Citing data from M Science, Reuters reported that the company\u2019s market share fell 10 percentage points to 43.9% in August, with upstarts Alo and Vuori winning 5.9 and 2.2 in additional percentage points of market share, respectively.<\/p>\n
Leggings, China, and a weak core<\/p>\n
The drop-off is especially stark compared to Lululemon\u2019s past trajectory. Its revenue rose sixfold between 2013 and 2025, when it hit $11 billion. But fast growth causes its own problems. In an effort to continue apace, it expanded into categories like footwear, parkas, and skirts\u2014logical extensions but ones that are hard to pull off. The moves brought Lululemon into direct competition with apparel and running-shoe makers that had deep relationships with suppliers, wholesalers, and designers. Entering new categories also took Lululemon\u2019s eye off the key value proposition it offered consumers: innovative, technical activewear that stood out from the crowd.\u00a0<\/p>\n
\u201cYou have these brands that stretch; they lose that brand equity. They\u2019re able to sell a lot, but not mean a lot. And so, what that means is you watch the profits go down,\u201d says Simeon Siegel, an analyst with Guggenheim Securities. And sure enough, in recent years, many Lululemon items ended up in discount bins, something unheard of during its rise as a premium brand.<\/p>\n
And O\u2019Neill herself acknowledged that Lululemon had to go back to its roots to win back its shoppers. \u201cThat starts with product. Product that is innovative and distinctive, and that gives our guests a reason to choose us, love us, and root for us\u2014again,\u201d she said in her note on Tuesday.<\/p>\n
Nike baggage, Lululemon reset<\/p>\n
O\u2019Neill will have to persuade skeptics that she is up to the task of reinvigorating the company\u2019s assortment given her years in top leadership roles at Nike, which faces problems akin to her new employer\u2019s. O\u2019Neill spent 27 years at the legacy shoemaker, which has also fallen behind on innovation and alienated its core athletically-minded consumer by expanding into lifestyle wear. Nike also shifted away from retail partners to selling more via its own website and stores, a move that Wall Street analysts say were led by O\u2019Neill, who most recently served as president of consumer, product, and brand. At the same time, O\u2019Neill is credited with transforming Nike\u2019s women\u2019s business from an afterthought category into a multibillion-dollar growth driver.<\/p>\n
At Lululemon, O\u2019Neill will need to prune its assortment, focus on its best-selling items, and emphasize innovation in fabrics, fits, and performance features.\u00a0<\/p>\n
\u201cA combination of an incredibly boring assortment, too much non-core product that misses on both fashionability and style, and an absence of good technical innovation have all contributed to a rapid loss of brand heat,\u201d GlobalData managing director Neil Saunders wrote in a note.<\/p>\n
That kind of sizzle is now helping Alo and Vuori grow by leaps and bounds.\u00a0<\/p>\n
O\u2019Neill may not have that much time to right the ship. Shares have already fallen 80% since their all-time high in 2023, and failure to show any quick progress could attract activist investors pushing for management changes quickly. One major investor, Lululemon founder and ex-CEO Chip Wilson, criticized her appointment last spring, saying she would likely just follow the \u201cfailed\u201d strategy of the board. A non-disparagement deal between Lululemon and Wilson, who has long pushed for Lululemon to refocus on the technical aspects of its products, ends in November 2027 at which point he is free to resume publicly attacking the board and may set his sights on O\u2019Neill once more.<\/p>\n
#Lululemon #CEO #Heidi #ONeill #inherits #mess #left #Nike<\/p>\n","protected":false},"excerpt":{"rendered":"
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